<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
/X/ Annual report pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-6511.
O. I. CORPORATION
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-0728053
(State of Incorporation) (IRS Employer Identification No.)
151 GRAHAM ROAD, BOX 9010
COLLEGE STATION, TEXAS 77842-9010
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (409) 690-1711
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate 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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10K. X
---
The aggregate market value of the voting stock (based upon the February 28, 1997
average of the high and low trade prices of these shares from the National
Association of Securities Dealers) of O.I. Corporation held by non-affiliates
was approximately $12,247,770.
Number of shares outstanding of each of the issuer's classes of common stock, as
of February 28, 1997: 4,005,164 shares.
Item 9 and Part III information are incorporated by reference to the proxy
statement for the annual meeting of shareholders to be held May 12, 1997.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
O.I. Corporation (the "Company") designs, manufactures, markets, and services
products primarily for specialized applications in the analytical instruments
markets, including sample preparation, detection, measurement, and monitoring
instruments used to analyze chemical compounds. The Company's principal business
strategy is to employ its product development capabilities, manufacturing
processes and marketing skills in market niches where the Company can achieve a
market leadership position. The Company's operations are conducted primarily
through subsidiaries and divisions that are relatively autonomous, while its
corporate headquarters staff oversees financial controls and assists in
developing strategic direction. Management continually emphasizes improvements
in quality, product performance and delivery time, cost reductions and other
value adding activities. Although many of the markets for the Company's products
are mature, the Company seeks growth opportunities through technological and
product improvement and by acquiring and developing new products that can be
sold through its distribution networks.
DEVELOPMENT OF THE COMPANY
The Company was organized as a corporation in 1963 as Clinical Development
Corporation, a builder of medical and research laboratories. In 1969, the
Company headquarters was moved from Oklahoma City, Oklahoma to College Station,
Texas, where the Company became involved in commercializing technology developed
in the School of Oceanography at Texas A&M University. In July 1969, the
Company's name was changed to Oceanography International Corporation. In July
1980, the Company's name was changed to O.I. Corporation, and in January 1989,
to better align the company name with the products offered and markets served,
the Company began doing business as O-I-Analytical.
The Company historically has expanded both through the acquisition of companies
and product lines and through internal development of new products and
technologies. During the past several years, the Company has completed four
complementary acquisitions that have provided additional technologies,
specialized manufacturing or product development expertise, and broader
capabilities in marketing and distribution. On January 4, 1994, the Company
acquired all the stock of CMS Research Corporation (CMS) of Birmingham, Alabama.
On June 24, 1994, the Company purchased substantially all of the assets and
assumed certain liabilities of Floyd Associates, Incorporated (Floyd) of Lake
Wylie, South Carolina and accounted for the transaction as an asset purchase. On
February 9, 1995, the Company acquired all the stock of Laboratory Automation,
Inc. (LAI) of Columbia, Missouri, and accounted for the transaction as a
purchase. On May 1, 1996, the Company acquired certain assets of the Alpkem
business located in Wilsonville, Oregon, from Perstorp Analytical, Inc., a
Delaware corporation, wholly owned by Perstorp AB of Sweden, and accounted for
the transaction as an asset purchase.
PRODUCTS The Company develops, manufactures, markets and services analytical,
monitoring, and sample preparation products, components, and systems used to
detect, measure, and analyze chemical compounds. The Company's analytical
instruments and systems are used primarily in testing and research laboratories
that are involved in the regulation or, analysis and testing of chemical
compounds.
GAS CHROMATOGRAPHY INSTRUMENTS The Company designs, manufactures, markets, and
services components for gas chromatography, including detectors and sample
introduction instruments. Gas chromatography, developed in 1952, is an
analytical technique that separates organic compounds based on their unique
physical and chemical
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properties. The use of gas chromatography in a number of diverse applications
has led to the continuous development of a broad range of sample introduction
and detector devices. Advances in the field are based on technology improvements
which provide sample introduction, faster analysis, lower level detection, and
ease of use. Set forth below are descriptions of certain gas chromatograph (GC)
instruments currently manufactured by the Company.
- The Electrolytic Conductivity Detector (ELCD) selectively detects
trace quantities of organic halogen, sulfur, and nitrogen. It is
primarily used for analyzing volatile organic compounds (VOCs),
pesticides, and poly-chlorinated biphenyls (PCBs) in drinking water,
wastewater, soil, and air as required in U.S. Environmental
Protection Agency (EPA) Methods 502.2 and 601.
- The Photoionization Detector (PID) selectively detects trace
quantities of aromatic and olefinic compounds, which are ionized by
an ultra-violet light source. It is primarily used in VOC analysis,
as required in U.S. EPA Methods 502.2 and 601, underground storage
tank monitoring, and pharmaceutical applications.
- The Flame Ionization Detector (FID) selectively detects materials
that ionize in an air/hydrogen flame.
- The Tandem PID/ELCD Detector combines the PID and ELCD for detection
of VOCs in soil, water, and air. The unique tandem design requires
only one GC detector port, increasing GC capability.
- The Tandem PID/FID Detector combines the PID and FID to detect
aromatic hydrocarbons. It is primarily used to analyze water, soil,
or waste samples for aromatics associated with fuels and underground
storage tank monitoring.
- The Halogen Specific Detector (XSD)(TM) selectively detects trace
amounts of halogen-containing compounds using GC. The XSD is simple
to operate and highly reliable. It is primarily used to detect
pesticides and PCBs, and in quality assurance and quality control
testing.
- The Flame Photometric Detector selectively detects sulfur and
phosphorus compounds and up to 28 specific elements using GC.
Applications include petrochemicals, organometallic, explosives, and
chemical warfare agents.
- The Purge-and-Trap Sample Concentrator (P&T) concentrates trace
amounts of a liquid, solid, or gaseous sample for introduction into
a GC. Autosamplers sequentially transfer samples to the P&T for
automated sampling and increased laboratory productivity.
- The P&T Autosamplers provided by the Company, automate the process
of purging and trapping of water samples, soil samples, or both in a
sequence.
- The Headspace Sampler concentrates trace amounts from a gaseous
sample for introduction into a GC.
GC ANALYZER SYSTEMS The Company integrates its gas chromatography instruments
with GCs and GC mass spectrometers (MS), obtained under a value added reseller
agreement, to form GC analyzer systems. The Company's VOC Analyzer System, BTEX
Analyzer System (Benzene, Toluene, Ethylbenzene, and Xylenes), Pesticide
Analyzer System, and HF (Hydrogen Fluoride) Analyzer System are available in
standard and custom configurations to meet market needs.
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ORGANIC CARBON ANALYZER SYSTEMS The Company designs, manufactures, markets, and
services Total Organic Carbon (TOC) Analyzers and related accessories that are
used to measure organic and inorganic carbon levels in ultrapure water, drinking
water, groundwater, wastewater, soils, and solids. The Company's TOC Analyzers
are used in testing required by the U.S. EPA and testing ultrapure water used in
U.S. pharmaceutical methods, the manufacture of semiconductors, power
generation, and oceanographic research. TOC products produced by the Company
include:
- The High Temperature Persulfate Total Organic Carbon Analyzer which
is primarily designed for ultra pure water analysis.
- The Combustion Total Organic Carbon Analyzer which is primarily
designed for wastewater and samples with pollutant materials.
- The TOC Solids Module which is designed to be used together with a
TOC analyzer to analyze solids or sludges.
FLOW ANALYSIS SYSTEM The Company designs, manufactures, and markets Segmented
Flow Analyzers (SFA), Flow Injection Analyzers (FIA), and field portable
instruments. These instruments perform a wide range of analyses, including the
measurement of nitrate, nitrite, phosphate, ammonia, chloride, alkalinity and
sulfate in liquids. The Company's Cyanide (CN) Analyzer can perform total
cyanide analysis in a number of industrial applications including cyanide
testing in gold and silver mining, electroplating, metal finishing, and
semiconductor operations. On-site water measurements can be performed with
Alpkem's portable Aqua-Chek Water Analyzer, which simultaneously measures the
pH, conductivity, and temperature of water and aqueous solutions. The SFA, FIA,
and CN Analyzer products may be equipped with autosamplers to enhance
productivity.
CONTINUOUS EMISSIONS MONITORING (CEM) SYSTEMS The Company designs, manufactures,
markets, and services a continuous air monitoring analyzer for monitoring VOCs.
The U.S. Government has been the largest buyer of the Company's CEM analyzer
with the primary application being monitoring of chemical warfare agents. The
Company believes the commercial market offers potential applications including
VOC monitoring of incineration of hazardous waste, landfill gases, Clean Air Act
compliance and industrial hygiene. The CEM analyzer design is based on gas
chromatography technology and includes a variety of configurations including a
GC mainframe, sample inlets, separation, detectors, and data handling and
reporting:
- Sample Inlets include injectors, sample loops, concentrators, and
autosamplers.
- Separation is accomplished using a gas chromatographic column. The
Company's modular design includes detector(s), electronics, sampling
system, and gas supplies. The quick disconnect design provides for
rapid column and detector replacement.
- Detection includes flame-ionization, photoionization, flame
photometric, and electrolytic conductivity.
- Data Handling and Reporting is accomplished with proprietary
software that provides for sequencing multiple sample inlet lines,
integration of detector signals, alarm parameters, data calculation,
and report conditions.
SAMPLE PREPARATION PRODUCTS AND SYSTEMS The Company designs, manufactures,
markets, and services sample preparation instrumentation used to prepare sample
matrices for analysis. The most time-consuming part
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of chemical analysis is sample preparation. Procedures, techniques, and
instruments that can reduce total sample preparation time are highly desirable
for analysis of chemical compounds. A description of the Company's sample
preparation products and systems follows:
- Microwave Digestion Systems serve multiple markets, including
environmental, biological, metallurgical, geological, and
industrial. Applications include acid digestion of aqueous inorganic
samples in accordance with proposed U.S. EPA and other defined
methods. The Company's microwave product features a modular design,
including mainframe oven, both integrated and separate temperature
and pressure control systems, and an external exhaust system.
Through the use of specially designed digestion vessels, the
Company's microwave system can process up to twelve samples
simultaneously. The Company's patented digestion vessels' safety
features include a disk for pressure relief and double-wall
construction.
- Automated Gel Permeation Chromatography (GPC) systems are used for
preparation of tissue, food, industrial and environmental samples
prior to analysis. Systems process up to 23 samples with unattended
operation. The GPC system is widely recognized in regulatory methods
for sample cleanup, including Federal Drug Administration (FDA),
U.S. Department of Agriculture (USDA) and U.S. EPA.
- ExCell Liquid/Liquid Extractor Systems provide electronically
assisted extractions for up to six, one-liter aqueous samples in
less than two hours. Programmable microprocessor controls automate
all steps of sample handling, extraction and system rinsing. These
ExCell extractors provide for the fastest possible sample
preparation with minimal labor and enhanced recoveries.
- Soxtherm Soxhlet Extractor Systems automate all traditional soxhlet
methods for preparing solid samples. They extract up to six samples
simultaneously five times faster than manual techniques. All
extraction functions are automated, including solvent evaporation
and recovery. The Soxtherm extractor conforms to current EPA
methods.
VALUE ADDED RESELLER The Company is a value-added reseller (VAR) for analytical
instruments manufactured by Hewlett-Packard Company (HP). Under the terms of the
agreement with HP, the Company purchases HP analytical instruments, including
GCs and gas chromatography/mass spectrometers (GCMSs), and integrates them with
Company-manufactured components and markets these analytical systems for
environmental analysis to comply with EPA 500, 600, and 8000 Series Methods, and
for other chemical analysis. The Company conducts its own marketing to generate
sales leads. The Company obtains orders, configures systems, ships, installs,
and provides support to products sold pursuant to the VAR agreement. The VAR
agreement is subject to renewal annually.
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SALES BY LOCATION All of the Company's assets are located in the United States
and all sales are conducted in U.S. dollars. There have been no sales or
transfers between industry segments or geographic areas during the last five
fiscal years. Estimated net revenue attributable to the United States, export
revenue as a group, and the number of countries in which export revenue was
generated are as follows:
<TABLE>
<CAPTION>
($ in thousands) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Revenue:
United States $15,568 $15,110 $16,794 $16,860 $19,239
Export 4,588 2,832 1,562 1,552 1,540
------- ------- ------- ------- -------
Total $20,156 $17,942 $18,356 $18,412 $20,779
======= ======= ======= ======= =======
% of Revenue:
United States 77% 84% 91% 92% 93%
Export 23% 16% 9% 8% 7%
------- ------- ------- ------- -------
Total 100% 100% 100% 100% 100%
======= ======= ======= ======= =======
Number of countries - export 35 31 26 28 28
</TABLE>
MANUFACTURING The Company manufactures products at four locations in the U.S.
The Company's manufacturing capabilities include electro-mechanical assembly,
testing, integration of components and systems and calibration and validation of
configured systems. The Company believes that its manufacturing processes are
documented in accordance with applicable domestic and international regulations
and standards.
The Company's policy is to have its products certified pursuant to safety
standards by one or more of the following agencies: Underwriters Laboratories
(UL), Canadian Standards Association (CSA) and/or the European Committee for
Electrotechnical Standardization (CE). These agencies and others also certify
that instruments meet certain performance standards and that advertised
specifications are accurate. The Company is in the process of obtaining ISO 9001
certification for its College Station, Texas manufacturing operation.
As of January 1, 1996, instruments sold in Europe are required to have a CE
mark. During 1995 and 1996, the Company incurred expenses relating to product
modification and certification testing to ensure that certain of its products
typically sold in Europe comply with CE requirements.
MARKETING The Company markets and sells analytical components and systems that
it produces and purchases for resale, provides on-site support services, and
distributes expendables and accessories required to support the operation of
products sold. The Company sells its products domestically through a direct
sales channel to end users, and internationally through independent
manufacturers' representatives and distributors. The Company's marketing program
includes advertising, direct mail, seminars, trade shows, and telemarketing. The
Company also benefits from marketing assistance received from HP in connection
with the VAR agreement.
TECHNICAL SUPPORT The Company's technical support staff provides after-sale
support to ensure customer satisfaction. The Company offers training courses,
publishes technical information, and provides application support for its
customers. Products sold by the Company generally include a 90-day to one-year
warranty. Customers may also purchase extended warranty contracts that provide
coverage after the expiration of the initial warranty. The Company installs and
services its products through its field service personnel in the United States
and Canada and through distributors and manufacturers' representatives
internationally.
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RESEARCH AND DEVELOPMENT The analytical instrumentation industry is subject to
rapid changes in technology. The Company's success is heavily dependent on its
ability to continually improve its existing products and to introduce new
products. Research and development costs, relating to both present and future
products, are expensed as incurred, and such expenses were $1,811,000 in 1996,
$1,937,000 in 1995, and $1,809,000 in 1994. The Company actively pursues
development of potential new products, including custom configured GC systems
and components, instrument control and data reporting software systems,
dedicated analyzers, microwave systems and other sample preparation products.
PATENTS The Company holds both United States and international patents and has
both U.S. and international patent applications pending. The Company currently
holds 26 patents, 1 of which expires before the year 2000, and 25 of which
expire between the years 2002 and 2013. As a matter of policy, the Company
vigorously pursues and protects its proprietary technology positions and seeks
patent coverage on technology developments that it regards as material and
patentable. While the Company believes that all of its patents and applications
have value, no single patent or application is in itself essential to the
Company's existence.
COMPETITION The Company encounters aggressive competition in all aspects of its
business activity. The Company competes with many firms in the design,
manufacture, and sale of analytical instruments, principally on the basis of
product technology and performance, quality and reliability, sales and marketing
ability, product support, delivery, and price. Most of the Company's competitors
have significantly greater financial resources, broader market coverage on a
global basis, and greater breadth of product line and other resources than the
Company.
EMPLOYEES As of December 31, 1996, the Company had a total of 156 full-time
employees. The Company employs scientists and engineers who perform research and
development on potential new products. To protect the Company's proprietary
information, the Company has employment and confidentiality agreements with its
employees who come in contact with such information. None of the Company's
employees are covered by a collective bargaining agreement. Management believes
that relations between the Company and its employees are excellent.
EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company,
their ages, positions, and offices, as of February 28, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION DATE ELECTED TO POSITION
- ------------------ --- -------------------------------------- ------------------------
<S> <C> <C> <C>
William W. Botts 54 President, Chief Executive Officer and 1985
Chairman of the Board 1986
Dr. Gary D. Sides 49 Vice President 1994
Jane A. Smith 48 Vice President/Corporate Secretary 1990
</TABLE>
Prior to joining the Company, William W. Botts was Executive Vice President and
Chief Operating Officer of The Brandt Company, a privately owned oil field
service company headquartered in Houston, Texas, which was sold to TRW, Inc. in
August 1982. He was named Vice President and General Manager of the Brandt
Division of TRW Inc, a position he held until he joined the Company as President
and Chief Operating Officer on February 1, 1985. Mr. Botts was named Chief
Executive Officer of the Company on July 19, 1985, and Chairman of the Board of
Directors of the Company on May 26, 1986.
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Gary D. Sides, Ph.D., was employed with Southern Research Institute, a
not-for-profit group in Birmingham, Alabama from 1977 to 1986. He founded CMS in
June 1986, and served as the President and Chairman of the Board from 1986 to
1994. On January 4, 1994, he was named Vice President of the Company and
continues his role as President of CMS.
Jane A. Smith has been employed with the Company since 1973. She was named
Assistant Corporate Secretary in 1976 and Corporate Secretary in 1986. On May
22, 1990, Mrs. Smith was named Vice President/Corporate Secretary.
ENVIRONMENTAL REGULATIONS The Company believes it is in compliance with federal,
state, and local laws and regulations involving the protection of the
environment. The Company routinely handles small amounts of materials that may
be deemed hazardous. Hazardous materials are primarily introduced into the
Company's products by end users rather than by the Company. The Company believes
there will be no material effect upon its capital expenditures, earnings, and
competitive position caused by its compliance with federal, state, or local
provisions regulating the discharge of materials into the environment or
relating to the protection of the environment.
SOURCES OF RAW MATERIALS The Company produces its products from raw materials,
component parts, and other supplies that are generally available from a number
of different sources. The Company has few long-term contracts with suppliers.
For certain of its purchased materials, the Company has developed preferred
sources on the basis of quality and service. There are several purchased
components that are supplied by single source suppliers. There can be no
assurance that these preferred or single sources will continue to make materials
available in sufficient quantities, at prices, and on other terms and conditions
that are adequate for the Company's needs. However, there is no indication that
any of these preferred or single sources will cease to do business with the
Company. The Company believes that in the event of any such cessation, adequate
alternate sources would be available, although perhaps at increased costs to the
Company. In addition, substitute components may require reconfiguration of
certain products and may cause delays in filling customer orders. Although the
Company occasionally uses subcontractors, such arrangements are not material to
its business.
BACKLOG - OPEN ORDERS The Company's backlog of orders on December 31, 1996 was
approximately $3,366,285, compared to $1,458,000 as of December 31, 1995, and
$1,693,000 as of December 31, 1994. The increase in the backlog at December 31,
1996 as compared to December 31, 1995 was due to a large government contract
received in October 1996 and not scheduled to ship until 1997. The Company's
policy is to include in its backlog only purchase orders or production releases
that have firm delivery dates within one year. Recorded backlog may not result
in sales because of purchase order changes, cancellations, or other factors. The
Company anticipates that substantially all of its present backlog of orders will
be shipped or completed during 1997.
MAJOR CUSTOMERS No single customer accounted for more than 10% of revenue in
1996, 1995 or 1994. Federal, state and municipal governments accounted for 27%
of revenue in 1996, 26% in 1995, and 33% in 1994. Export sales accounted for 23%
of revenue in 1996, an increase from 16% in 1995 and 9% in 1994.
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ITEM 2. PROPERTIES
The Company's headquarters, research, and manufacturing operations occupy
approximately 28,650 square feet of space located on 11.29 acres of land in
College Station, Texas. The Company rents and uses for storage a 4,500 square
foot facility on a separate tract of land within one quarter mile from the
Company's headquarters. CMS'
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headquarters, including research and development, customer service, and
manufacturing operations, occupy approximately 9,490 square feet, located in
Hoover, a subdivision of Birmingham, Alabama. This space is leased until October
1998. LAI's headquarters, research and development, customer service and
manufacturing operations occupy 11,700 square feet located in Columbia,
Missouri. This space is leased until July 1997. Alpkem's manufacturing
operations occupy 19,200 square feet located in Wilsonville, Oregon. This space
is leased through May 1997. The Company is contemplating the construction of
additional facilities in College Station to accommodate future growth and
consolidation of certain existing operations.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company has received, and in the future may receive,
notice of claims against it, which in some instances have developed, or may
develop, into lawsuits. In the opinion of the Company's management, based in
part on advice of counsel, none of the claims currently pending will have a
material adverse effect on the consolidated financial position and results of
operations of the Company.
On March 3, 1995, the Company filed a patent infringement complaint against a
competitor in the Galveston Division of the U.S. District Court. The Company
alleges that a product manufactured and sold by the competitor infringes on U.S.
Patent No. 5,358,557 and 5,470,380 issued to the Company. The suit seeks to
enjoin the manufacture and sale of the alleged infringing product and like
products sold under different name designations and seeks unspecified damages.
On June 17, 1996, a Motion by Defendant for Summary Judgment of Non-Infringement
was granted. The Company is appealing the decision to the U.S. Court of Appeals
for the Federal Circuit in Washington, DC.
On February 13, 1996, the Company settled its lawsuit against a vendor and
received approximately $290,000 in consideration thereof.
In October 1996, Astoria-Pacific, Inc. (API), an Oregon corporation, filed a
complaint against the Company and Perstorp Analytical, Inc. (Perstorp) in the
Circuit Court of the State of Oregon for the County of Multnomah. API claims
that the Alpkem product line purchased by the Company from Perstorp had been
previously purchased by API, and therefore, those rights could not be sold to
the Company. The Company believes it is an innocent third party in this matter.
In the event an unfavorable verdict is entered against the Company, the Company
will have a claim against Perstorp under the Purchase Agreement between the two
companies. At this time, the Company intends to contest the case vigorously.
- --------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company,
through solicitation of proxies or otherwise, during the fourth quarter of 1996.
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PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
COMMON STOCK MARKET INFORMATION The Company's common stock trades on the Nasdaq
Stock Market under the symbol: OICO. Information below is contained in a
statistical report provided to the Company by the National Association of
Securities Dealers, Inc. (NASD). The ranges of high and low trade prices for the
Company's common stock for 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 4 1/4 2 5/8 4 5/8 3 3/4
Second Quarter 5 1/4 3 4 1/2 3 1/4
Third Quarter 4 3 1/2 4 2 3/4
Fourth Quarter 4 1/4 3 1/4 3 3/4 2 1/2
</TABLE>
NOTE: The above quotations represent prices between dealers and do not include
retail markup, markdown, or commission and may not necessarily represent
actual transactions.
DIVIDENDS The Company has never paid dividends. Management does not anticipate
paying any dividends in the near future.
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK As of February 28, 1997, there
were approximately 1,184 holders of record of the Company's common stock.
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- --------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income statement data:
Net revenue $20,156 $17,942 $18,356 $18,412 $20,779
Income before income taxes 1,469 1,507 2,131 2,257 3,003
Net income 1,003 1,023 1,545 1,405 1,950
Earnings per share $ 0.24 $ 0.24 $ 0.37 $ 0.34 $ 0.47
Balance sheet data:
Total assets $19,186 $17,700 $15,979 $14,706 $12,470
Working capital 12,391 11,855 11,156 9,876 7,784
Shareholders' equity 14,961 14,212 12,882 11,150 9,485
Common size income statement data:
Net revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue 50.0 51.5 55.2 54.4 53.7
------- ------- ------- ------- -------
Gross profit 50.0 48.5 44.8 45.6 46.3
Selling, general and administrative 31.7 30.7 25.5 29.1 25.7
Research and development 9.0 10.8 9.9 5.7 7.3
Patent litigation expense 4.5 1.6 0.0 0.0 0.0
------- ------- ------- ------- -------
Operating income 4.8 5.4 9.4 10.8 13.3
Other income (expense), net 2.5 3.0 2.2 1.5 1.1
------- ------- ------- ------- -------
Income before income taxes 7.3 8.4 11.6 12.3 14.4
Provision for income taxes 2.3 2.7 3.2 4.7 5.0
------- ------- ------- ------- -------
Net income 5.0% 5.7% 8.4% 7.6% 9.4%
======= ======= ======= ======= =======
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On May 1, 1996, the Company acquired certain assets of Alpkem Corporation
(Alpkem), a division of Perstorp Analytical, Inc. The acquisition was made with
a combination of cash and the Company's common stock and was accounted for as an
asset purchase. Alpkem designs, manufactures and markets Segmented Flow
Analyzers, Flow Injection Analyzers, and field portable instruments. Alpkem's
principal customers are industrial businesses, semiconductor manufacturers,
engineering and consulting firms, municipalities, and environmental testing
labs.
SUMMARY Net revenue increased 12% in 1996, compared to 1995, while net income
was down 2% for the same period. The Company's financial position as of December
31, 1996 reflects an increase in working capital of 5% to $12,391,000, compared
to $11,855,00 at December 31, 1995. Earnings per share were $0.24 in 1996, $0.24
in 1995, and $0.37 in 1994.
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RESULTS OF OPERATIONS Net revenue was $20,156,000 in 1996, compared to
$17,942,000 in 1995, and $18,356,000 in 1994. Export revenue increased by 62% to
$4,588,000 in 1996, while domestic revenue increased 3% to $15,568,000.
The Company believes its results of operations during 1995 and 1996 were
impacted by adverse market conditions which affected all companies serving the
environmental instruments market. Market conditions of the environmental
instruments market have been significantly influenced by continued consolidation
among environmental testing laboratories. This consolidation has resulted in
fewer testing labs and, as a result thereof, excess equipment which has been
sold at discounted prices to end users, thus reducing demand for the Company's
products.
The Company introduced and began shipping in the fourth quarter of 1996 a new
Model 1020 Total Organic Carbon Analyzer for heavy particulated samples, an
Autosampler for such product, and a module to allow solid samples to be analyzed
using either one of the Company's TOC analyzers. The Company introduced and
began shipping in 1995 a new TOC Analyzer Model 1010 and autosampler accessory
Model 1051 both replacing prior generation products. Sales of TOC analyzers
increased due to the new product introductions and efforts to sell to
non-environmental industries, such as pharmaceuticals and semiconductors.
Microwave product sales were higher in 1996 due to increased sales of the
Company's Closed-Vessel Microwave Systems and sales of private label,
open-vessel microwave systems, which began shipping in early 1996.
Sales of GC components and systems declined in 1996 due to shrinking demand in
the environmental market. Sales of GC analyzer systems, including VOC systems
and BTEX systems, were lower in 1996 as compared to 1995. This decline, however,
was partially offset by the Company's initiative during the year to enter the
resale, lease and rental market for GC/MS systems configured with the Company's
sample inlet systems. This initiative allows the Company to directly participate
in the GC/MS market segment. Previously, the GC/MS system sold by others
displaced GC systems offered by the Company that included detectors manufactured
by the Company. By offering GC/MS systems, the Company joins the trend for
environmental testing to be performed using MS detectors, rather than selective
detectors. GC/MS systems sales have less value added by the Company than GC
systems configured with the Company's selective detector; therefore, gross
profit margins will be reduced to the extent that GC/MS systems sales increase.
The Company is also positioning its GC components and systems to serve non-
environmental markets, in order to offset shrinking demand in the environmental
market. The HF analyzer, consisting of the Company's detectors and GC, is used
in the petrochemical industry and is an example of the Company using its
existing products to perform new applications that serve non-environmental
markets.
Sales of CEM systems increased in 1996 compared to 1995 due primarily to U.S.
government purchases of chemical warfare agent monitoring systems. Management
remains optimistic about applying CEM technology to air monitoring applications
in the commercial market.
The Company began selling Flow Analyzer products with the acquisition of Alpkem
in May of 1996; therefore, there were no prior year sales of such products.
During 1996, leasing sales decreased compared to 1995. Leases are generally
three to five years and allow customers to manage their cash out flow against
the income generated by their instruments.
International revenues increased by 62% to $4,588,000, or 23% of total revenue
in 1996 compared to $2,832,000, or 16% of total revenue in 1995, and $1,562,000,
or 9% of total revenue in 1994. The Company has 77 distributors and
representatives in 37 countries at December 31, 1996, compared to 35
distributors and representatives in 38 countries at December 31, 1995.
Gross profit was 50% in 1996, compared to 48% in 1995, and 45% in 1994. During
1996, gross profit increased due to decreased depreciation expense related to
demonstration equipment, decreased costs related to service revenue
12
<PAGE> 13
and the receipt of $290,000 related to a legal settlement in February 1996.
Selling, general, and administrative (SG&A) expenses were $6,404,000 in 1996, or
32% of revenue, compared to $5,512,000, or 31% of revenue in 1995, and
$4,688,000, or 26% of revenue in 1994. The increase in SG&A expenses from 1995
to 1996 resulted from higher commissions due to the increase in sales, increased
advertising and the accrual of fees for ISO 9000 certification. Other expenses,
such as salaries, rent, utilities and telephone increased due to the acquisition
of Alpkem.
Research and development (R&D) expenditures amounted to $1,811,000, or 9% of
revenue in 1996, compared to $1,937,000, or 11% of revenue in 1995, and
$1,809,000, or 10% of revenue in 1994. R&D expenses decreased from 1995 to 1996
due to fewer people working on projects and a decrease in the purchase of
supplies, offset in part by an increase in consulting fees. Additionally, the
Company incurred expenses relating to product redesign and certification to
qualify certain of its products for the CE mark.
Patent litigation expenses were $901,000, or 5% of revenue, in 1996 compared to
$285,000, or 2% of revenue, in 1995 and $0 in 1994. Legal billings in 1996
relating to the Company's claim that a competitor infringed a patent of the
Company were approximately $1,031,000, offset in part by $130,000 from a reserve
established in 1995. Such expenditures were higher in 1996 as a result of the
Tekmar trial activity in 1996.
Interest income decreased 18% to $398,000 in 1996 from $483,000 in 1995, which
increased 32% from $366,000 in 1994. The decrease in interest income is due to a
decrease in cash and cash equivalents during 1996, offset by interest income
relating to sales type leases of $53,000 for 1996, compared to $31,000 in 1995.
Cash and cash equivalents decreased in 1996 due to the purchase of treasury
stock, the acquisition of Alpkem, and the purchase of investments.
Income before income taxes declined 3% to $1,469,000, or 7% of revenue in 1996
from $1,507,000 or 8% of revenue in 1995, which decreased 29% from $2,131,000,
or 12% of revenue in 1994. Income before tax declined in 1996 compared to 1995
due to the increase in patent litigation and SG&A expenses and the decrease
in interest income, offset in part by the increase in sales.
The Company's effective income tax rate was 32% in 1996, compared to 32% in
1995, and 28% in 1994.
Net income decreased 2% to $1,003,000, or 5% of revenue for 1996 compared to
$1,023,000, or 6% of revenue for 1995, which decreased 34% from $1,545,000, or
8% of revenue for 1994.
Earnings per share were $0.24 for 1996, compared to $0.24 for 1995 and $0.37 for
1994 computed based on 4,146,777 shares outstanding for 1996, 4,287,556 in 1995,
and 4,156,922 in 1994.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES The Company considers a number of liquidity
measures that aid in measuring the Company's ability to meet its financial
obligations. Such ratios, working capital, and changes in cash and cash
equivalents as of the end of the Company's last three years are as follows:
<TABLE>
<CAPTION>
($ in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIQUIDITY MEASURES
Ratio of current assets to current liabilities 4.2 4.8 4.9
Total liabilities to equity 28% 25% 24%
Days sales in accounts receivable 71 67 65
Average annual inventory turnover 3.2 4.0 4.7
Working capital $12,391 $11,855 $11,156
CHANGES IN CASH AND CASH EQUIVALENTS
Net cash provided by (used in):
Operating activities $ 511 $ 1,561 $ 146
Investing activities (3,447) 1,094 (5,870)
Financing activities (604) 0 130
Net increase (decrease) in:
Cash and cash equivalents $(3,540) $ 2,655 $(5,594)
Cash and cash equivalents:
Beginning of year 5,503 2,848 8,442
End of year 1,963 5,503 2,848
</TABLE>
Working capital increased 5%, or $536,000 to $12,391,000 in 1996, compared to
$11,855,000 in 1995. The current ratio of 4.2 for 1996 was down from 4.8 for
1995, primarily due to an increase in accounts payable, accrued compensation
expense and accrued acquisition expenses related to Alpkem. The Company's cash
position decreased to $1,963,000 in 1996 from $5,503,000 in 1995, primarily due
to the acquisition of Alpkem, the purchase of treasury stock and the purchase of
short-term investments. Average annual inventory turnover was lower at 3.2 in
1996, compared to 4.0 in 1995 due primarily to slower turns in inventories of
acquired assets and an increase in finished goods in order to provide quicker
delivery to customers. The number of days of sales in accounts receivable
increased to 71 days in 1996, from 67 days in 1995, due to an increase in
international sales, which typically have more extended term arrangements than
domestic sales. Current liabilities increased to $3,839,000 in 1996 from
$3,137,000 in 1995 due to an increase in unearned revenue and accrued
compensation. Total liabilities represented 28% of equity in 1996, compared to
25% in 1995.
Net cash flow provided by operating activities for 1996 was $511,000, compared
to $1,561,000 in 1995. The decrease in cash flow from operations in 1996 was
primarily due to an increase in accounts receivable and inventory and a decrease
in net income, offset in part by an increase in accrued liabilities. All working
capital account changes are net of the effect of the purchase of Alpkem. Net
cash flow provided by (used in) investing activities for 1996 was ($3,447,000),
compared to $1,094,000 in 1995. The decrease in cash flow from investing
activities was primarily due to the purchase of investments. Net cash flow
provided by financing activities was ($604,000) in 1996, compared to $-0- in
1995. The cash flow used in financing activities in 1996 was due to the purchase
of treasury stock.
The Company has historically been able to fund working capital and capital
expenditures from operations, and
14
<PAGE> 15
expects to be able to finance its 1997 working capital requirements from cash on
hand and funds generated from operations. The Company is in the initial planning
phase of a facilities expansion at its College Station location to accommodate
future growth and consolidation of certain existing operations. The preliminary
budget for the project is $1,500,000. The Company plans to complete the
expansion by the fourth quarter of 1997.
RISK FACTORS 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 1997 and beyond to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the Company.
CHANGING PRICES/EFFECT OF INFLATION Inflation has not had a material impact on
the Company's operations. The prices of some components purchased by the Company
have increased in the past several years due in part to decreased volume.
Certain other material and labor costs have increased, but the Company believes
that such increases are approximately consistent with overall inflation rates.
The Company believes that competition based on price is the significant factor
affecting its customers' buying decisions. There is no assurance that the
Company can pass along cost increases in the form of price increases or sustain
profit margins that have been achieved in prior years.
UNCERTAINTY OF GROWTH The environmental instrument markets in which the Company
competes have been flat or declining over the past several years. The Company
has identified a number of strategies it believes will allow it to grow its
business, including acquiring complementary businesses; developing new
applications for its technologies; and strengthening its presence in selected
geographic markets. No assurance can be given that the Company will be able to
successfully implement these strategies, or that these strategies will result in
growth of the Company's business.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY One of the Company's growth
strategies is to supplement its internal growth with the acquisition of
businesses and technologies that complement or augment the Company's existing
product lines. Certain businesses acquired by the Company within the past three
years, have produced net operating losses and low levels of profitability. In
addition, businesses that the Company may seek to acquire in the future may also
be marginally profitable or unprofitable. In order for any acquired businesses
to achieve the level of profitability desired by the Company, the Company must
successfully change operations of the acquired companies and improve their
market penetration. No assurance can be given that the Company will be
successful in this regard. In addition, promising acquisitions are difficult to
identify and complete for a number of reasons, including competition among
prospective buyers and the need for regulatory approvals, including antitrust
approvals. There can be no assurance that the Company will be able to complete
pending or future acquisitions. In order to finance any such acquisitions, it
may be necessary for the Company to raise additional funds either through public
or private financing. Any equity or debt financing, if available at all, may be
on terms which are not favorable to the Company and may result in dilution to
the Company's shareholders.
RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE, OBSOLESCENCE AND THE DEVELOPMENT AND
ACCEPTANCE OF NEW PRODUCTS The market for the Company's products and services is
characterized by rapid and significant technological change and evolving
industry standards. New product introductions responsive to these factors
require significant planning, design, development and testing at the
technological, product and manufacturing process levels, and may render existing
products and technologies uncompetitive or obsolete. There can be no assurance
that the Company's products will not become uncompetitive or obsolete. In
addition, industry acceptance of new technologies developed by the Company may
be slow to develop due to, among other things, existing regulations written
specifically for older technologies and general unfamiliarity of users with new
technologies.
15
<PAGE> 16
POSSIBLE ADVERSE EFFECT FROM CONSOLIDATION IN THE ENVIRONMENTAL MARKET AND
CHANGES IN ENVIRONMENTAL REGULATIONS One of the important markets for the
Company's products is environmental analysis. During the past three years, there
has been a contraction in the market for analytical instruments used for
environmental analysis. This contraction has caused consolidation in the
businesses serving this market. Such consolidation may have an adverse impact on
certain of the Company's businesses. In addition, most air, water, and soil
analysis is conducted to comply with Federal, state, local, and foreign
environmental regulations. These regulations are frequently specific as to the
type of technology required for a particular analysis and the level of detection
required for that analysis. The Company develops, configures, and markets its
products to meet customer needs created by existing and anticipated
environmental regulations. These regulations may be amended or eliminated in
response to new scientific evidence or political or economic considerations. Any
significant change in environmental regulations could result in a reduction in
demand for the Company's products.
RISKS ASSOCIATED WITH DEPENDENCE ON CAPITAL SPENDING POLICIES AND GOVERNMENT
FUNDING The Company's customers include pharmaceutical and chemical companies,
laboratories, government agencies, and public and private research institutions.
The capital spending of these entities can have a significant effect on the
demand for the Company's products. Any decrease in capital spending by any of
the customer groups that account for a significant portion of the Company's
sales could have a material adverse effect on the Company's business and results
of operations.
POSSIBLE ADVERSE IMPACT OF SIGNIFICANT INTERNATIONAL OPERATIONS Sales outside
the United States accounted for approximately 23% of the Company's revenues in
1996, and the Company expects that international sales will continue to account
for a significant portion of the Company's revenues in the future. Sales to
customers in foreign countries are subject to a number of risks, 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 could impose withholding taxes or
otherwise tax the Company's foreign income, impose tariffs, or adopt other
restrictions on foreign trade; fluctuations in exchange rates may affect product
demand; export licenses, if required, may be difficult to obtain and the
protection of intellectual property in foreign countries may be more difficult
to enforce. There can be no assurance that any of these factors will not have a
material adverse effect on the Company's business and results of operations.
COMPETITION The Company encounters and expects to continue to encounter intense
competition in the sale of its products. The Company believes that the principal
competitive factors affecting the market for its products include product
performance, price, reliability, and customer service. The Company's competitors
include large multinational corporations and their operating units. Some of the
Company's other competitors have substantially greater financial, marketing, and
other resources than those of the Company. As a result, they may be able to
adapt more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the promotion and sale of their
products than the Company. In addition, competition could increase if new
companies enter the market or if existing competitors expand their product lines
or intensify efforts within existing product lines. There can be no assurance
that the Company's current products, products under development or ability to
discover new technologies will be sufficient to enable it to compete effectively
with its competitors.
RISKS ASSOCIATED WITH PROTECTION, DEFENSE AND USE OF INTELLECTUAL PROPERTY The
Company holds patents relating to various aspects of its products, and believes
that proprietary technical know-how is critical to many of its products.
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.
There can be no assurance that patents will issue from any pending or future
patent applications owned by or licensed to the Company or that the claims
allowed under any issued patents will be sufficiently broad to protect the
Company's technology and, in the absence of patent protection, the Company may
be vulnerable to competitors who attempt to copy the Company's products or gain
access to its trade secrets and know-how. 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 will not
initiate litigation to challenge
16
<PAGE> 17
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. There
may also be pending or issued patents held by parties not affiliated with the
Company that relate to the Company's products or technologies. The Company may
need to acquire licenses to, or contest the validity of, any such patents. There
can be no assurance that any license required under any such patent would be
made available on acceptable terms or that the Company would prevail in any such
contest. The Company could incur substantial costs in defending itself in suits
brought against it or in suits in which the Company may assert its patent rights
against others. If the outcome of any such litigation is unfavorable to the
Company, the Company's business and results of operations could be materially
adversely affected. In addition, the Company relies on trade secrets and
proprietary know-how which it seeks to protect, in part, by confidentiality
agreements with its collaborators, employees, and consultants. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach or that the Company's trade secrets will
not otherwise become known or be independently developed by competitors.
- --------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT RESPONSIBILITY FOR FINANCIAL REPORTING Management is responsible for
the integrity and objectivity of the data included in this report. We believe we
have provided financial information (both audited and unaudited) that is
representative of the Company's operations, reliable on a consistent basis, and
relevant for a meaningful appraisal of the Company. The financial statements
have been prepared in accordance with generally accepted accounting principles.
Where necessary, they reflect estimates based on management's judgment.
Established accounting procedures and related systems of internal control
provide reasonable assurance that assets are safeguarded, that the books and
records properly reflect all transactions, and that policies and procedures are
implemented by qualified personnel. Management periodically reviews the
accounting and control systems.
The Company's Audit Committee, composed of at least two members of the Board of
Directors who are not employees of the Company, meets regularly with
representatives of management and the independent accountants to monitor the
functioning of the accounting and control systems and to review the results of
the audit performed by the independent accountants. The independent accountants
and Company employees have full and free access to the Audit Committee without
the presence of management.
The Audit Committee recommends independent accountants for appointment by the
Board.
The independent accountants conduct an objective, independent examination of the
financial statements. Their report appears as a part of the Company's Annual
Report on Form 10-K.
/s/ Julie A. Wright
---------------------------------
Julie A. Wright, Controller
/s/ William W. Botts
---------------------------------
William W. Botts, President/CEO
17
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of O.I. Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 33 present fairly, in all material
respects, the financial position of O.I. Corporation and its subsidiaries at
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Houston, Texas
January 30, 1997
18
<PAGE> 19
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,963,174 $ 5,503,322
Investments 5,137,471 2,621,160
Accounts receivable-trade, net of allowance for
doubtful accounts of $259,989 and $270,018, respectively 3,928,149 3,273,170
Investment in sales-type leases 312,359 245,632
Inventories 3,779,953 2,422,849
Deferred tax assets 809,938 735,000
Other current assets 298,832 191,174
----------- -----------
Total current assets 16,229,876 14,992,307
Property, plant and equipment, net 1,548,002 1,590,804
Investment in sales-type leases, net of current 300,551 363,072
Other assets 1,107,262 753,391
----------- -----------
Total assets $19,185,691 $17,699,574
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 1,308,475 $ 849,697
Accrued liabilities 2,530,112 2,287,263
----------- -----------
Total current liabilities 3,838,587 3,136,960
----------- -----------
Deferred income taxes 386,352 351,000
----------- -----------
Commitments and contingencies (Note 12)
----------- -----------
Stockholders' equity:
Preferred stock, $0.10 par value, 3,000,000 shares authorized,
no shares issued and outstanding
Common stock, $0.10 par value, 10,000,000 shares authorized,
4,143,046 and 4,116,129 shares issued, respectively 414,305 411,613
Additional paid-in capital 4,586,661 4,730,669
Treasury stock, 32,482 and 0 shares, respectively, at cost (112,968) 0
Retained earnings 10,072,754 9,069,332
----------- -----------
14,960,752 14,211,614
----------- -----------
Total liabilities and stockholders' equity $19,185,691 $17,699,574
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
19
<PAGE> 20
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenue $20,156,448 $17,942,343 $18,356,194
Cost of revenue 10,076,740 9,240,786 10,135,286
----------- ----------- -----------
Gross profit 10,079,708 8,701,557 8,220,908
Selling, general and administrative expenses 6,403,810 5,511,924 4,688,486
Research and development expenses 1,811,403 1,936,792 1,809,190
Patent litigation expense 900,951 284,959 0
----------- ----------- -----------
Operating income 963,544 967,882 1,723,232
Other income (expense):
Interest income 398,095 483,499 366,091
Other income 106,930 60,494 42,944
Interest expense 0 (4,649) (1,043)
----------- ----------- -----------
Income before income taxes 1,468,569 1,507,226 2,131,224
Provision for income taxes (465,147) (484,000) (586,536)
----------- ----------- -----------
Net income $ 1,003,422 $ 1,023,226 $ 1,544,688
=========== =========== ===========
Earnings per share $ 0.24 $ 0.24 $ 0.37
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
20
<PAGE> 21
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,003,422 $ 1,023,226 $ 1,544,688
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 576,589 447,527 399,700
Deferred income taxes (39,586) (242,000) (19,673)
Gain on disposition of property (6,639) (16,039) (2,743)
Amortization of unearned compensation and
other compensation 47,634
Changes in assets and liabilities,
net of the effect of the purchase of
Alpkem (1996) and LAI (1995):
Accounts receivable (654,979) 370,013 (1,110,122)
Inventories (757,104) 593,363 12,182
Other assets (111,863) (186,547) (243,901)
Accounts payable 458,778 (501,477) (103,346)
Accrued liabilities 42,850 72,541 (377,842)
----------- ----------- -----------
Net cash provided by operating activities 511,468 1,560,607 146,577
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (299,540) (251,781) (369,502)
Proceeds from sale of assets 18,900 36,150 10,206
Purchase of Alpkem (1996) and LAI (1995) (526,743) (1,173,706)
Purchase of investments (8,710,000) (3,425,359) (7,526,026)
Maturity of investments 6,124,000 5,917,000 2,300,000
Investment in patents and other intangibles (53,949) (7,621) (284,966)
----------- ----------- -----------
Net cash provided by (used in) investing activities (3,447,332) 1,094,683 (5,870,288)
----------- ----------- -----------
Cash flows from financing activities:
Purchase of treasury stock (640,182)
Proceeds from issuance of common stock 35,898 129,760
----------- ----------- -----------
Net cash provided by (used in) financing activities (604,284) 0 129,760
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (3,540,148) 2,655,290 (5,593,951)
Cash and cash equivalents:
Beginning of year 5,503,322 2,848,032 8,441,983
----------- ----------- -----------
End of year $ 1,963,174 $ 5,503,322 $ 2,848,032
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during year for:
Interest $ 594 $ 4,705 $ 301
Income taxes 567,039 621,135 646,561
</TABLE>
The accompanying notes are an integral part of this statement.
21
<PAGE> 22
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unearned
Compensation
Common Stock Additional and
-------------------- Paid-in Stockholder Treasury Retained
Shares Amount Capital Loans Stock Earnings
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993,
as restated 4,018,650 $401,865 $4,370,410 $(123,556) $ 0 $ 6,501,418
Amortization of unearned com-
pensation charged to opera-
tions and repayment of
stockholder loans 123,556
Exercise of stock options
and employee stock awards 21,000 2,100 51,738
Tax benefit associated with
exercised options 10,253
Net income 1,544,688
--------- -------- ---------- --------- --------- -----------
Balance, December 31, 1994 4,039,650 403,965 4,432,401 0 0 8,046,106
Issuance of shares in con-
junction with the acquisi-
tion of LAI 76,479 7,648 298,268
Net income 1,023,226
--------- -------- ---------- --------- --------- -----------
Balance, December 31, 1995 4,116,129 411,613 4,730,669 0 0 9,069,332
Purchase of treasury stock (640,182)
Issuance of common and treasury
shares in conjunction with the
acquisition of Alpkem 26,917 2,692 144,955 202,353
Issuance of shares from
treasury for exercise of
stock options (290,625) 309,375
Issuance of shares from
treasury to Employee Stock
Purchase Plan 1,662 15,486
Net income 1,003,422
--------- -------- ---------- --------- --------- -----------
Balance, December 31, 1996 4,143,046 $414,305 $4,586,661 $ 0 $(112,968) $10,072,754
========= ======== ========== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of this statement.
22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
O.I. Corporation (the Company) was organized in 1963. The Company develops,
manufactures, markets and services analytical, monitoring, and sample
preparation products, components, and systems used to prepare samples for
analysis and to detect, measure, and analyze chemical compounds.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
REVENUE RECOGNITION Revenue and the related cost of sales are generally
recognized upon shipment of goods with no substantial right of return.
CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments with an original maturity
of three months or less to be cash equivalents.
INVESTMENTS In January 1994, the Company adopted Statement of Financial
Accounting Standards (FAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." The adoption of FAS No. 115 did not have a material
effect on the Company's financial position or results of operations. The
Company's investments in debt securities are classified as held to maturity as
the Company has the positive intent and ability to hold the investments until
maturity. These investments are reported at amortized cost.
LEASES The Company's leasing operations consist of the leasing of analytical
instruments. The majority of the Company's leases are classified as sales-type
leases. These leases expire over the next five years.
INVENTORIES Inventories consist of electronic equipment and various components
and are stated at the lower of cost or market. Cost is determined on a first-in,
first-out basis.
PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment is recorded at
cost and depreciated over the estimated useful lives using the straight-line
method.
LONG-LIVED ASSETS In accordance with Statement of Financial Accounting Standards
No. 121 (FAS 121) "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", the Company reviews for the impairment of
long-lived assets and certain identifiable intangibles whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Under FAS 121, an impairment loss would be recognized when
estimated future cash flows expected to result from the use of the asset and its
eventual disposition is less than its carrying amount. No such impairment losses
have been identified by the Company.
PRODUCT WARRANTIES Products are sold with warranties ranging from 90 days to one
year. Estimated expenses associated with these warranties are accrued in the
accompanying financial statements. The Company also sells extended product
warranties typically covering a period of nine months. Revenue from extended
warranties is recorded ratably over the period and warranty charges are expensed
as incurred.
RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as
incurred.
INCOME TAXES The Company uses the asset and liability approach to account for
income taxes. This approach requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
23
<PAGE> 24
BUSINESS SEGMENT AND MAJOR CUSTOMERS The Company operates in a single segment.
No single customer accounted for more than 10% of revenue in 1996, 1995, or
1994. Federal, state and municipal governments accounted for 27% of revenue in
1996, 26% in 1995, and 33% in 1994. Export sales accounted for approximately 23%
of total revenue in 1996, 16% in 1995 and 9% in 1994.
OTHER ASSETS Other assets primarily include acquired patents, licenses, customer
lists, and trademarks that are amortized on a straight-line basis over 10-17
years.
EARNINGS PER SHARE Earnings per share is calculated using the weighted-average
number of shares outstanding assuming exercise of dilutive stock options. The
number of shares that would be issued from the exercise of stock options has
been reduced by the number of shares that could have been purchased from the
proceeds at the estimated fair market value of the Company's common stock. The
weighted-average number of shares used in the computation was 4,146,777 in 1996,
4,287,556 in 1995, and 4,156,922 in 1994.
CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the
Company to concentrations of credit risk consist principally of investments and
trade receivables. The Company places its available cash in money market funds
and short-term investment grade domestic corporate bonds. The Company's
short-term investments are subject to fluctuations based on interest rates
prevailing in the market place.
The Company sells its products to large corporations, environmental testing
laboratories, and governmental agencies. The majority of its customers are
located in the United States and all sales are denominated in the U.S. dollar.
Concentrations of credit risk with respect to trade receivables are limited due
to the financial stability of the customers comprising the Company's customer
base. The Company performs ongoing credit evaluations of its customers to
minimize credit risk. As of December 31, 1996 and 1995, the Company had no
significant concentrations of credit risk related to accounts receivable.
However, the U.S. government does constitute a significant percent of the
Company's sales. Any budget cuts affecting the chemical warfare programs or the
U.S. Environmental Protection Agency may have a negative impact on the Company's
future sales.
USE OF ESTIMATES The preparation of financial statements in accordance with
generally accepted accounting principles requires the use of management
estimates and judgments.
RECENT ACCOUNTING DEVELOPMENTS In January 1996, the Company adopted FAS No. 123,
"Accounting for Awards of Stock-based Compensation to Employees." The Statement
encourages but does not require the fair value based method of accounting for
stock compensation awards at the date the awards are granted. The Company
continues to measure compensation cost for plans using the intrinsic value
method and discloses the pro forma effect on net income had the company
recognized expense for options based on the fair market value method (See Note
8).
RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform
to current year presentation.
- --------------------------------------------------------------------------------
NOTE 2: ACQUISITIONS
On May 1, 1996, the Company purchased certain assets of Alpkem Corporation, a
division of Perstorp Analytical. Alpkem designs, manufactures and markets
Segmented Flow Analyzers, Flow Injection Analyzers and portable field
instruments. The acquisition was for cash and the Company's common stock. The
transaction was accounted for as a purchase, with results of the acquired
operations being included from the date of acquisition.
On February 9, 1995, the Company acquired Laboratory Automation, Inc. (LAI), an
environmental instruments company headquartered in Columbia, Missouri. Under the
terms of the agreement, the Company made a $1,000,000 capital investment in LAI,
which was used to retire outstanding long-term debt, and acquired all of the
24
<PAGE> 25
shares of LAI stock in exchange for 76,479 shares of the Company's common stock
and $117,000. In addition, $880,000 of liabilities of LAI were reflected on the
Company's consolidated balance sheet as of the closing date. The acquisition was
recorded using the purchase method of accounting and, accordingly, the acquired
operations of LAI have been included in the results of operations since the date
of acquisition. The purchase price has been allocated to the net assets acquired
based on estimated fair market values at the date of acquisition.
Pro forma results of operations for 1994 as if the acquisition had occurred at
the beginning of 1994 are as follows:
<TABLE>
<CAPTION>
(Unaudited)
(In 000's)
-----------
<S> <C>
Revenues $21,632
Net income $ 1,469
Earnings per Share $ 0.35
=======
</TABLE>
On January 4, 1994, the Company acquired CMS Research Corporation (CMS), a
Birmingham, Alabama based company which specializes in the design, manufacture,
and sale of air quality monitoring and analysis devices. In connection with the
acquisition, the Company issued 650,000 shares of its common stock in exchange
for all of the common stock of CMS. This acquisition was accounted for as a
pooling of interests. There were no intercompany transactions between the
Company and CMS prior to the acquisition.
On June 24, 1994, the Company purchased substantially all of the assets of Floyd
Associates, Inc. (Floyd), a North Carolina corporation headquartered in Lake
Wylie, South Carolina. Floyd manufactures and markets microwave products used to
prepare chemical compounds for analysis. The acquisition was for cash and
royalties on future sales.
- --------------------------------------------------------------------------------
NOTE 3: INVESTMENTS
Investments considered held to maturity at December 31, 1996, consist of the
following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Market Unrealized Unrealized
Cost Value Holding Gains Holding Losses
---------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
Corporate bonds $5,137,471 $5,133,178 $372 $(4,665)
</TABLE>
All of the investments at December 31, 1996 are scheduled to mature within one
year. Market value is based upon quoted market prices for the investments.
Short-term investments at December 31, 1995, consisted of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Market Unrealized Unrealized
Cost Value Holding Gains Holding Losses
---------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
Corporate bonds $2,621,160 $2,621,662 $1,330 $(828)
</TABLE>
25
<PAGE> 26
- --------------------------------------------------------------------------------
NOTE 4: NET INVESTMENT IN SALES-TYPE LEASES
The following sets forth the components of the net investment in sales-type
leases as of December 31, 1996:
Future minimum lease payments to be received are:
<TABLE>
<S> <C>
1997 $312,359
1998 169,365
1999 92,711
2000 38,147
2001 328
--------
612,910
Less: amount relating to interest 76,493
--------
Present value of minimum lease
payments to be received $536,417
========
</TABLE>
- --------------------------------------------------------------------------------
NOTE 5: INVENTORIES
Inventories, which include material, labor, and overhead, on December 31, 1996
and 1995, consist of the following:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------
<S> <C> <C>
Raw materials $2,365,496 $1,116,559
Work-in-process 457,721 531,388
Finished goods 956,736 774,902
---------- ----------
$3,779,953 $2,422,849
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
NOTE 6: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment on December 31, 1996 and 1995, consists of the
following:
<TABLE>
<CAPTION>
Estimated
Useful lives 1996 1995
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 41,221 $ 41,221
Buildings 33-40 years 1,474,391 1,474,391
Furniture and equipment 3-10 years 2,280,231 2,049,542
----------- -----------
3,795,843 3,565,154
Less accumulated depreciation
and amortization (2,247,841) (1,974,350)
----------- -----------
$ 1,548,002 $ 1,590,804
=========== ===========
</TABLE>
26
<PAGE> 27
- --------------------------------------------------------------------------------
NOTE 7: ACCRUED LIABILITIES
Accrued liabilities on December 31, 1996 and 1995, consist of the following:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------------------------------
<S> <C> <C>
Accrued compensation $ 636,872 $ 482,515
Accrued warranties 551,342 639,438
Accrued acquisition expenses 219,600 54,867
Accrued legal expenses 127,847 209,483
Unearned revenue 347,790 209,717
Other liabilities and accrued expenses 646,661 691,243
---------- ----------
$2,530,112 $2,287,263
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
NOTE 8: STOCK OPTION AND STOCK PURCHASE PLAN
In 1987, the Company established a stock option and stock appreciation rights
plan (1987 Plan) qualified under Section 422 of the Internal Revenue Code of
1986. The 1987 Plan provides for the granting of options for the purchase of up
to 500,000 shares of common stock of the Company with the options having an
exercise price of not less than the par value of such stock. Employees of the
Company are eligible for such grants. The options generally expire ten years
from the date of grant and generally vest over three years from the date of
grant. During 1991, the stockholders approved an amendment to the 1987 Plan
allowing restricted stock grants. As a result of such amendment, the 1987 Plan
allows for stock grants subject to vesting requirements that may be determined
at the time of such grant. During 1996, the Company granted 81,500 options under
the 1987 Plan, with a weighted average fair value of $3.46 at the date of grant.
During 1992, the Company's Board of Directors, and during 1993, the Company's
stockholders, approved the O.I. Corporation 1993 Incentive Compensation Plan
(1993 Plan). The 1993 Plan provides for the granting of options to purchase up
to 500,000 shares of the Company's common stock with the options having an
exercise price of not less than the par value of such stock. Employees and
non-employee directors of the Company are eligible for such grants. The options
generally expire ten years from the date of grant. During 1996, the Company
granted 4,000 options under the 1993 Plan, with a weighted average fair value of
$3.81 at the date of grant. The 1993 Plan also allows for the granting of stock
appreciation rights (SARs) and stock awards, although none have been granted.
Options outstanding under the 1987 Plan and the 1993 Plan have exercise prices
equal to the market value on the date of grant.
At December 31, 1996, the Company has two stock-based compensation plans, which
are described above. The Company applies APB Opinion 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed stock option plans. Had compensation cost for
the Company's two stock-based compensation plans been determined based on the
fair value at the grant dates for awards under those plans consistent with the
method of Statement of Financial Accounting Standards No. 123, Accounting for
Awards of Stock-Based Compensation (FAS 123), the Company's net income and
earnings per share would have
27
<PAGE> 28
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C> <C>
Net income As reported 1,003 1,023
Pro forma 981 1,020
Earnings per share As reported $ 0.24 $ 0.24
Pro forma $0.237 $0.238
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996, 1995, and 1994, respectively; dividend
yield of zero for each year; expected volatility of 33, 27, and 28 percent;
risk-free interest rates of 6.13, 5.63, and 7.79 percent; and expected lives of
seven years for each year. The weighted average fair values at the date of
grant for options granted during 1996, 1995, and 1994 were $1.73, $1.26, and
$2.27, respectively.
Activity under the 1987 Plan and the 1993 Plan for each of the three years in
the period ended December 31, 1996 was as follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Price per Share Price per Share
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, December 31, 1993 356,500 $ $3.93
Options granted 71,100 3.94 - 5.00 4.58
Options exercised (21,000) 0.56 0.56
Options forfeited or cancelled (5,499) 3.63 - 6.00 4.94
--------
Options outstanding, December 31, 1994 401,101 4.21
Options granted 84,500 3.50 - 2.50 2.54
Options exercised 0 4.21
Options forfeited or cancelled (26,701) 3.94 - 6.00 5.01
--------
Options outstanding December 31, 1995 458,900 3.86
Options granted 85,500 3.375 - 3.81 3.48
Options exercised (110,000) 0.10 - 0.875 0.17
Options forfeited or cancelled (86,400) 2.50 - 14.00 7.09
--------
Options outstanding, December 31, 1996 348,000 4.12
========
</TABLE>
There were 194,510, 268,304, and 250,175 shares options exercisable at December
31, 1996, 1995 and 1994, respectively.
The following table summarizes significant ranges of outstanding and exercisable
options at December 31, 1996.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ------------------------
Weighted Weighted Weighted
average average average
Ranges of remaining exercise exercise
Exercise prices Shares life in years price Shares price
- --------------- ------- ------------- --------- ------ --------
<S> <C> <C> <C> <C> <C>
0.8125 20,000 1.0 0.8125 20,000 0.8125
2.50 - 3.75 192,500 8.4 3.06 60,341 2.99
3.75 - 5.63 103,500 6.3 4.46 82,169 4.39
5.63 - 8.45 10,000 6.2 6.01 10,000 6.01
14.00 22,000 5.0 14.00 22,000 14.00
</TABLE>
28
<PAGE> 29
In 1989, the Company established an Employee Stock Purchase Plan. Under the plan
provisions, employees may purchase shares of the Company's common stock on a
regular basis through payroll deductions. Any person who is a full-time employee
of the Company is eligible to participate in the plan, with each participant's
purchases limited to 10% of annual gross compensation. The plan is administered
by the Compensation Committee of the Board of Directors. Shares of common stock
are purchased in the open market. The Company pays all commissions and
contributes an additional 15% for the purchase of shares that are distributed to
eligible participating employees. The Company's contribution to the plan was not
significant in any of the years reported. The aggregate number of shares of
common stock available for purchase under this plan is 200,000. As of December
31, 1996, 29,671 shares had been purchased under the plan.
- --------------------------------------------------------------------------------
NOTE 9. PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of up to
3,000,000 shares of preferred stock with $0.10 par value per share. The voting
rights, dividend rate, redemption price, rights of conversion, rights upon
liquidation, and other preferences are subject to determination by the Board of
Directors. As of December 31, 1996, no preferred stock had been issued.
- --------------------------------------------------------------------------------
NOTE 10. INCOME TAXES
The Company adopted FAS No. 109, Accounting for Income Taxes, in 1993. The
adoption had no material effect on the Company's consolidated financial
position. The Company's operations are only taxed under domestic jurisdictions.
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------------
1996 1995 1994
------------------------------------------------------------------
<S> <C> <C> <C>
Current provision:
Federal $384,583 $ 587,000 $541,503
State 120,150 139,000 64,706
Deferred provision (39,586) (242,000) (19,673)
-------- --------- --------
$465,147 $ 484,000 $586,536
======== ========= ========
</TABLE>
The provision for income taxes differs from the amount computed by applying the
federal statutory rates for the following reasons:
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 4.0 3.1 2.0
Research and development credit (5.9)
Permanent differences (6.3) 6.3
Changes in valuation allowance (13.8)
Other, net 2.5 (2.6)
---- ---- ----
31.7% 32.1% 27.5%
==== ==== ====
</TABLE>
29
<PAGE> 30
Deferred tax assets (liabilities) are comprised of the following at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
----------------------------
<S> <C> <C>
Noncurrent:
Depreciation $(243,938) $(255,369)
Deferred compensation 20,000 73,548
Intangibles (107,787) (113,224)
Other (3,110) (4,475)
--------- ---------
Total noncurrent $(334,835) $(299,520)
========= =========
Current:
Warranty reserve $ 220,537 $ 242,731
Accrued acquisition expenses 0 18,645
Bad debt allowance 102,224 100,812
Inventory reserve 199,700 203,508
Uniform capitalization 177,046 63,184
Accrued commissions 0 5,694
Accrued legal 51,139 56,700
Accrued vacation 59,292 43,763
--------- ---------
Total current $ 809,938 $ 735,037
--------- ---------
Net tax asset before valuation allowance 475,103 435,517
Valuation allowance (51,517) (51,517)
--------- ---------
Net deferred tax asset (liability) $ 423,586 $ 384,000
========= =========
</TABLE>
In connection with the acquisition of LAI in February 1995, the future tax
effects of the differences between the tax bases and the fair values of acquired
net assets were recorded, resulting in a net increase in deferred tax assets of
approximately $150,000.
- --------------------------------------------------------------------------------
NOTE 11: EMPLOYEE BENEFIT PLANS
The Company maintains a Retirement Savings Plan (the Plan) for its employees
that allows participants to make contributions by salary reduction pursuant to
Section 401(k) of the Internal Revenue Code. The Company's contributions to the
Plan are discretionary. Employees vest immediately in their contributions and
vest in the Company's contributions ratably over five years. The Company
contributed $100,000, $90,000 and $90,000 to the Plan for the years ended
December 31, 1996, 1995, and 1994, respectively.
- --------------------------------------------------------------------------------
NOTE 12: COMMITMENTS AND CONTINGENCIES
The Company has agreed to pay the former owner of Floyd a royalty equal to 5% of
the net revenue earned from microwave based products up to a maximum amount of
$1,182,500. No minimum payments are required in the agreement. The Company
recognized royalty expense of $51,683, $28,233 and $9,000 in 1996, 1995 and
1994, respectively.
The Company has entered into operating leases for certain of its facilities.
These operating leases expire in 1997 and in 1998. Rental expense recognized in
1996, 1995, and 1994 was $229,000, $184,000 and $133,000, respectively. Future
minimum rental payments under these leases for the years 1997 and 1998 are
$156,745, and $94,109, respectively.
30
<PAGE> 31
- --------------------------------------------------------------------------------
NOTE 13: RELATED PARTY TRANSACTION
In January 1996, the Company purchased from Gary D. Sides, Vice President of the
Company, 162,658 shares of the Company's common stock at a price of $2.75 per
share. The Company also purchased 10,721 shares from an employee of CMS at the
same price.
- --------------------------------------------------------------------------------
NOTE 14: QUARTERLY INFORMATION (UNAUDITED)
Quarterly financial information for 1996 and 1995, is summarized as follows:
<TABLE>
<CAPTION>
($ in thousands, except per share amounts) First Second Third Fourth
1996 Qtr. Qtr. Qtr. Qtr.
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $4,648 $5,094 $5,107 $5,307
Gross profit 2,477 2,405 2,445 2,753
Net income 214 224 185 380
Earnings per share $ 0.05 $ 0.05 $ 0.04 $ 0.10
</TABLE>
<TABLE>
<CAPTION>
($ in thousands, except per share amounts) First Second Third Fourth
1995 Qtr. Qtr. Qtr. Qtr.
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $4,702 $4,425 $4,450 $4,365
Gross profit 2,184 2,113 2,158 2,247
Net income 203 221 300 299
Earnings per share $ 0.05 $ 0.05 $ 0.07 $ 0.07
</TABLE>
- --------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE.
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to the identification, business experience, and
directorships of each director and nominee for director of the Company, required
by Item 401 of Regulation S-K and presented in the section entitled "Election of
Directors-Nominees for Board of Directors" of the Company's Proxy Statement for
the annual meeting of shareholders on May 12, 1997 (the "Proxy Statement"), is
hereby incorporated by reference. See Item 1 for information relating to the
identification and business experience of the Company's executive officers. The
information relating to persons subject to Section 16 of the Securities Exchange
Act of 1934 and the timeliness with which they have filed Forms 3, 4, and 5,
required by Item 405 of Regulation S-K and presented in the section titled
"Section 16(a) Beneficial Ownership Reporting Compliance" of the Proxy Statement
is hereby incorporated by reference.
31
<PAGE> 32
William R. Hart, Vice President/Director of Marketing, left the Company
effective September 30, 1996 and started an independent sales business. Dennis
D. Schupp, Vice President, resigned effective February 9, 1997. Mr. Schupp also
served as president of LAI.
- --------------------------------------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION
The information relating to the cash compensation of directors and officers,
required by Item 402 of Regulation S-K and presented in the section entitled
"Election of Directors-Compensation of Directors" and "Election of Directors-
Compensation of Executive Officers" of the Company's Proxy Statement for the
annual meeting of shareholders on May 12, 1997, is hereby incorporated by
reference.
- --------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to security ownership required by Item 403 of
Regulation S-K, which is presented in the section entitled "Security Ownership
of Certain Beneficial Owners and Management" of the Company's Proxy Statement
for the annual meeting of shareholders on May 12, 1997, is hereby incorporated
by reference.
- --------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to relationships and transactions required by Item 404
of Regulation S-K, which is presented in the section, "Election of Directors --
Executive Compensation -- Certain Transactions, Employment Contracts,
Termination of Employment and Change-in-Control Arrangements" of the Company's
Proxy Statement for the annual meeting of shareholders on May 12, 1997, is
hereby incorporated by reference.
32
<PAGE> 33
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements of O.I. Corporation and its
subsidiary that are included in Part II, Item 8:
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants 18
Consolidated Balance Sheet at December 31, 1996 and 1995 19
Consolidated Statement of Income for the years ended December 31, 1996, 1995, and 1994 20
Consolidated Statement of Cash Flows for the years ended December 31, 1996, 1995, and 1994 21
Consolidated Statement of Stockholders' Equity for the years ended December 31, 1996, 1995,
and 1994 22
Notes to Consolidated Financial Statements 23
</TABLE>
(a) 2. Financial Statement Schedules required to be filed by Item 8 of
this Form:
All schedules are omitted as they are not required, or are not
applicable, or the required information is included in the
financial statements or notes thereto.
(a) 3. Exhibits
3.1 Articles of Incorporation of the Company, as amended
(filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (No. 33-24505) and incorporated
herein by reference).
3.2 Bylaws of the Company (filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-8 (No.
33-24505) and incorporated herein by reference).
*10.1 Amended and Restated 1987 Stock Option and SAR Plan (filed
as Exhibit 4.3 to the Company's Registration Statement on
Form S-8 (No. 33-24505) and incorporated herein by
reference).
*10.2 Employee Stock Purchase Plan (filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8 (No.
33-62209) and incorporated herein by reference).
*10.3 Employment Agreement between the Company and William W.
Botts.
10.4 Value-Added Reseller Agreement between the Company and
Hewlett-Packard Company (filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1989 and incorporated herein by reference).
*10.5 1993 Incentive Compensation Plan (filed as Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 and incorporated herein by
reference).
33
<PAGE> 34
10.6 Registration Rights Agreement among O.I. Corporation and
the former shareholders of CMS Research Corporation dated
January 4, 1994 (filed as Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1994 and incorporated herein by reference).
23.1 Consent of Price Waterhouse LLP
99.1 The O.I. Corporation definitive Proxy Statement, dated
March 24, 1997 is incorporated by reference as an Exhibit
hereto for the information required by the Securities and
Exchange Commission, and, except for those portions of
such definitive proxy statement specifically incorporated
by reference elsewhere herein, such definitive proxy
statement is deemed not to be filed as a part of this
report.
(b) Reports on Form 8-K.
No Form 8-K was filed for the quarter ended December 31,
1996.
- ----------
* Management contract or compensatory plan or arrangement.
34
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
O. I. CORPORATION
/s/ William W. Botts
--------------------------
Date: February 17, 1997 By: William W. Botts
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 and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William W. Botts President, Chief Executive Officer, February 17, 1997
- ------------------------ Director and Principal Financial Officer
William W. Botts
/s/ Julie A. Wright Controller, Principal Accounting Officer February 17, 1997
- ------------------------
Julie A. Wright
/s/ Jack S. Anderson Director February 17, 1997
- ------------------------
Jack S. Anderson
/s/ J. Lester Heath, Jr. Director February 17, 1997
- ------------------------
J. Lester Heath, Jr.
/s/ Edwin B. King Director February 17, 1997
- ------------------------
Edwin B. King
/s/ Craig R. Whited Director February 17, 1997
- ------------------------
Craig R. Whited
</TABLE>
35
<PAGE> 36
INDEX TO EXHIBITS
Exhibit No. Description
3.1 Articles of Incorporation of the Company, as amended (filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-8
(No. 33-24505) and incorporated herein by reference).
3.2 Bylaws of the Company (filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-8 (No. 33-24505) and
incorporated herein by reference).
*10.1 Amended and Restated 1987 Stock Option and SAR Plan (filed as
Exhibit 4.3 to the Company's Registration Statement on Form S-8
(No. 33-24505) and incorporated herein by reference).
*10.2 Employee Stock Purchase Plan (filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8 (No. 33-62209) and
incorporated herein by reference).
*10.3 Employment Agreement between the Company and William W. Botts.
10.4 Value-Added Reseller Agreement between the Company and
Hewlett-Packard Company (filed as Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1989
and incorporated herein by reference).
*10.5 1993 Incentive Compensation Plan (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1993 and incorporated herein by reference).
10.6 Registration Rights Agreement among O.I. Corporation and the
former shareholders of CMS Research Corporation dated January 4,
1994 (filed as Exhibit 10.8 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994 and incorporated
herein by reference).
23.1 Consent of Price Waterhouse LLP
27.1 Financial Data Schedule
99.1 The O.I. Corporation definitive Proxy Statement, dated March 24,
1997 is incorporated by reference as an Exhibit hereto for the
information required by the Securities and Exchange Commission,
and, except for those portions of such definitive proxy statement
specifically incorporated by reference elsewhere herein, such
definitive proxy statement is deemed not to be filed as a part of
this report.
- ----------
* Management contract or compensatory plan or arrangement.
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into effective as of
May 1, 1996 by and between O. I. Corporation, an Oklahoma corporation
("Company"), and William W. Botts ("Employee").
WHEREAS, the Company employs Employee and desires to continue such
employment relationship and Employee desires to continue such employment;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties, and agreements contained herein, and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Employment. The Company hereby employs Employee, and Employee hereby
accepts employment by the Company, on the terms and conditions set forth in this
Agreement.
2. Term of Employment. Subject to the provisions for earlier
termination provided in the Agreement, the term of this Agreement ("Term") shall
commence on the effective date of this Agreement as stated above and shall
terminate on December 31, 1998; provided, however, commencing on January 1, 1997
and on each January 1 thereafter, the Term shall automatically be extended one
additional year unless, not later than September 30 of the preceding year, the
Board of Directors of the Company ("Board") shall give written notice to
Employee that the Term shall cease to be so extended. In no event, however,
shall the Term extend beyond the end of the calendar month in which Employee's
65th birthday occurs.
3. Employee's Duties. During the Term, Employee shall serve as the
President and Chief Executive Officer of the Company, with such customary duties
and
<PAGE> 2
responsibilities as may from time to time be assigned to him by the Board,
provided that such duties are at all times consistent with the duties of such
position.
Employee agrees to devote his full attention and time during normal
business hours to the business and affairs of the Company and, to the extent
necessary to discharge the duties and responsibilities assigned to Employee
hereunder, to use reasonable best efforts to perform faithfully and efficiently
such duties and responsibilities and shall not, either directly or indirectly,
enter into any business or employment with or for any person, firm, association
or corporation other than with the Company during the Term; provided however,
that Employee shall not be prohibited form making financial investments in any
other company or business or from serving on the board of directors of any other
company. Employee shall at all times observe and comply with all lawful
directions and instructions of the Board.
4. Base Compensation. For services rendered by Employee under this
Agreement, the Company shall pay to Employee a base salary ("Base Compensation")
of $123,250 per annum payable in accordance with the Company's customary payroll
practice for its executive officers. The amount of Base Compensation shall be
reviewed by the Board on an annual basis as of the close of each fiscal year of
the Company and may be increased as the Board may deem appropriate. Employee's
Base Compensation, as increased from time to time, may not thereafter be
decreased unless agreed to by Employee.
5. Additional Benefits. In addition to the Base Compensation provided
for in Section 4 herein, Employee shall be entitled to the following:
(a) Expenses. The Company shall, in accordance with any rules and
policies that it may establish from time to time for executive officers,
reimburse Employee for
-2-
<PAGE> 3
business expenses reasonably incurred in the performance of his duties. It
is understood that Employee is authorized to incur reasonable business
expenses for promoting the business of the Company, including reasonable
expenditures for travel, lodging, meals and client or business associate
entertainment. Requests for reimbursement for such expense must be
accompanied by appropriate documentation.
(b) Life Insurance.
(i) The Company has purchased and will maintain, for the
duration of this Agreement, an insurance policy in the amount of
$750,000 on the life of Employee. Employee will own and benefit from
such insurance, and the Company will have no interest whatsoever in
such policy (unless otherwise mutually determined by Employee and the
Board).
(ii) The Company may, in its discretion, apply for and procure
as owner and for its own benefit, insurance on the life of Employee, in
such amounts and in such form or forms as the Company may choose.
Employee shall have no interest whatsoever in any such policy or
policies (unless otherwise determined by the Board), but he shall, at
the request of the Company, submit to such medical examinations, supply
such information and execute such documents as may be required by the
insurance company or companies to whom the Company has applied for such
insurance.
(c) Automobile Allowance. Employee shall be entitled to the use of an
automobile provided by the Company, or alternatively, at Employee's
discretion, to receive monthly an automobile allowance payable on the first
of each month during the
-3-
<PAGE> 4
Term, which will fully reimburse Employee for the cost of leasing or
purchasing of an automobile for Employee's business use. The Company shall
apply for and procure for Employee's benefit, insurance on the automobile,
in such amounts and in such form or forms as the Company may choose. The
Company shall reimburse Employee for gasoline expenditures related to
business use, repairs and other maintenance expenses incurred, provided the
requests for reimbursement are accompanied by appropriate documentation.
(d) General Benefits. Employee shall be entitled to receive all fringe
benefits customarily offered by the Company to its executive officers,
including without limitation participation in any incentive plans offered to
key employees, the various employee benefit plans or programs provided to
the employees of the Company in general, subject to the eligibility
requirements with respect to each of such benefit plans or programs, and
such other benefits or perquisites as may be approved by the Board during
the Term of this Agreement. Nothing in this paragraph shall be deemed to
prohibit the Company from making any changes in any of the plans, programs
or benefits described in this Section 5, provided the change similarly
affects all executives of the Company similarly situated.
6. Confidential Information. During the Term, Employee will have access
to and become familiar with confidential information, secrets and proprietary
information concerning the business and affairs of the Company. As to such
confidential information, Employee agrees as follows:
-4-
<PAGE> 5
(a) During the term and thereafter, Employee will not, either directly
or indirectly, disclose to any third party without the written permission of
the Company, nor use in any way, except as required in the course of his
employment with the Company or as required by law, any confidential
information, secret or proprietary information of the Company.
(b) Upon termination of Employee's employment, for whatever reason,
Employee shall surrender to the Company any documents, manuals,
correspondence, reports, records and similar items then or thereafter coming
into the possession of Employee which contain any confidential, secret or
proprietary information of the Company.
7. Termination. This Agreement may be terminated prior to end of its
Term as set forth below:
(a) Resignation (other than for Good Reason). Employee may resign,
including by reason of retirement, his position at any time. In the event of
such resignation, except in the case of resignation for Good Reason (as
defined below), this Agreement shall terminate and Employee shall not be
entitled to further compensation pursuant to this Agreement other than the
payment of any unpaid Base Compensation accrued hereunder at the date of
Employee's resignation.
(b) Death. If Employee's employment is terminated due to his death,
this Agreement shall terminate and the Company shall have no obligations to
Employee or his legal representatives with respect to this Agreement other
than the payment of any unpaid Base Compensation accrued hereunder at the
date of Employee's death.
-5-
<PAGE> 6
(c) Discharge.
(i) The Company may terminate Employee's employment for any
reason deemed sufficient by the Company upon no less than 10 business
days advance notice given as provided in Section 9. However, in the
event that Employee's employment is terminated during the Term by the
Company for any reason other than his Misconduct or Disability (both as
defined below), then: (A) for the period of the Term then remaining
(the "Remaining Term") the Company shall (i) continue to pay Employee,
at the regular payroll periods, Employee's Base Compensation as in
effect immediately prior to the Notice of Termination, plus an amount
equal to the Company's maximum contribution it would have made on
behalf of Employee to the Company's qualified 401(k) plan assuming
Employee had continued his active participation in such plan at the
maximum participant contribution level permitted under such Plan, and
(ii) the Company, at its cost, shall provide or arrange to provide
Employee (and Employee's eligible dependents) with life, disability,
accident and group health insurance benefits substantially similar to
those which Employee (and Employee's dependents) were receiving
immediately prior to the Notice of Termination; however, the welfare
benefits otherwise receivable by Employee pursuant to this clause (ii)
shall be reduced to the extent comparable welfare benefits are actually
received by Employee (and/or Employee's dependents) during such period
under any other employer's welfare plan(s) or program(s), and any such
welfare benefits actually received shall be reported to the Company by
Employee; however, in no event
-6-
<PAGE> 7
shall Employee's COBRA continuation period begin prior to the end of
the Remaining Term, and (B) if Employee is being provided a Company
automobile at the date of termination, the Company shall transfer title
of such automobile to Employee, free of any liens thereon.
(ii) Notwithstanding the foregoing provisions of this Section
7, in the event Employee is terminated because of Misconduct, the
Company shall have no obligations pursuant to this Agreement after the
Date of Termination. As used herein, "Misconduct" means (a) the willful
and continued failure by Employee to substantially perform his duties
with the Company (other than any such failure resulting from Employee's
incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination by
Employee for Good Reason), after a written demand for substantial
performance is delivered to Employee by the Board, which demand
specifically identifies the manner in which the Board believes that
Employee has not substantially performed his duties, or (b) the willful
engaging by Employee in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise (other than such
conduct resulting from Employee's incapacity due to physical or mental
illness or any such actual or anticipated conduct after the issuance of
a Notice of Termination by Employee for Good Reason), after a written
demand for substantial change in conduct is delivered to Employee by
the Board which demand specifically identifies the manner in which the
Board believes that employee has engaged in injurious conduct. For
purposes hereof, no act, or
-7-
<PAGE> 8
failure to act, on Employee's part shall be deemed "willful" unless
done, or omitted to be done, by Employee not in good faith and without
reasonable belief that Employee's action or omission was in the best
interest of the Company. Notwithstanding the foregoing, Employee shall
not be deemed to have been terminated for Misconduct unless and until
there shall have been delivered to Employee a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and
held for such purpose (after reasonable advance written notice to
Employee of not less than 10 business days and an opportunity for
Employee, together with Employee's counsel, to be heard before the
Board before the Board votes on such matter), finding that in the good
faith opinion of the Board Employees were guilty of conduct set forth
above and specifying the particulars thereof in detail.
(d) Disability. If Employee shall have been absent from the full-time
performance of Employee's duties with the Company for six consecutive months
as a result of Employee's incapacity due to physical or mental illness, as
determined by Employee's physician, and within 30 days after written Notice
of Termination is given by the Company Employees shall not have returned to
the full-time performance of Employee's duties, Employee's employment may be
terminated by the Company for "Disability" and Employee shall not be
entitled to further compensation pursuant to this Agreement.
-8-
<PAGE> 9
(e) Resignation for Good Reason. Employee shall be entitled to
terminate his employment for Good Reason as defined herein. If Employee
terminates his employment for Good Reason he shall be entitled to the
compensation and benefits provided in Paragraph 7(c)(i) hereof. "Good
Reason" shall mean the occurrence of any of the following circumstances
without Employee's express written consent unless such breach or
circumstances are fully corrected prior to the Date of Termination specified
in the Notice of Termination given in respect thereof:
(i) the assignment to Employee of any duties inconsistent
with, or a material adverse change in the functions, duties or
responsibilities of the office of President and Chief Executive Officer
of the Company;
(ii) the failure by the Company to pay to Employee any
portion of Employee's compensation within seven days of the date such
compensation is due;
(iii) on or following a Corporate Change, the failure by the
Company to continue in effect any compensation or employee benefit plan
in which Employee participates that is material to Employee's total
compensation unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such
plan, or the failure by the Company to continue Employee's
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount of
benefits provided and the level of Employee's participation relative to
other participants, as existed at such time;
-9-
<PAGE> 10
(iv) the Company shall amend, modify or repeal any provision
of its Articles of Incorporation or Bylaws, if such amendment,
modification or repeal would materially adversely affect Employee's
rights to indemnification by the Company;
(v) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 11 hereof;
(vi) any purported termination of Employee's employment that
is not effected pursuant to a Notice of Termination satisfying the
requirements of this Agreement, which purported termination shall not
be effective for purposes of this Agreement;
(vii) the relocation of the Company's principle executive
offices from Bryan/College Station, Texas or requiring Employee to
office anywhere other than at such principal executive offices; or
(viii) the material breach of any of the Company's material
obligations under this Agreement.
Employee's right to terminate his employment pursuant to this
subsection shall not be affected by his incapacity due to physical or mental
illness. Employee's continued employment shall not constitute consent to, or
constitute a waiver of rights with respect to, any circumstance constituting
Good Reason hereunder.
A "Corporate Change" shall occur if (i) the Company shall not be the
surviving entity in any merger or consolidation (or survives only as a
subsidiary of another entity), (ii) the
-10-
<PAGE> 11
Company sells all or substantially all of its assets to any other person or
entity (other than a wholly-owned subsidiary), (iii) any person or entity
(including a "group" as contemplated by Section 13(d)(3) of the 1934 Act)
acquires or gains ownership or control of (including, without limitation, power
to vote) more than 30% of the outstanding shares of common stock of the Company,
(iv) the Company is to be dissolved and liquidated, or (v) as a result of or in
connection with a contested election the members of the Board as of the date of
this Agreement shall cease to constitute a majority of the Board.
(f) Notice of Termination. Any purported termination of Employee's
employment by the Company or by Employee shall be communicated by written Notice
of Termination to the other party hereto in accordance with Section 9 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which, if by the Company and is for Misconduct or Disability, shall set forth in
reasonable detail the reason for such termination of Employee's employment, or
in the case of resignation by Employee for Good Reason, said notice must specify
in reasonable detail the basis for such resignation. A Notice of Termination
given by Employee pursuant to Section 7(e)(3) shall be effective even if given
after the receipt by Employee of notice that the Board has set a meeting to
consider terminating Employee for Misconduct. No purported termination which is
not effected pursuant to this Section 7(f) shall be effective.
(g) Date of Termination, Etc. "Date of Termination" shall mean the date
specified in the Notice of Termination. Either party may, within 15 days after
any Notice of Termination is given, provide notice to the other party pursuant
to Section 9 hereof that a dispute exists concerning the termination.
Notwithstanding the pendency of any such dispute,
-11-
<PAGE> 12
the Company will continue to pay Employee his full compensation in effect when
the notice giving rise to the dispute was given (including, but not limited to,
Base Compensation) and continue Employee as a participant in all compensation,
benefit and insurance plans in which he was participating when the notice giving
rise to the dispute was given, until the dispute is finally resolved, but in no
event past the expiration date of this Agreement.
(h) No Mitigation. Employee shall not be required to mitigate the amount of any
payment provided for in this Section 7 by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this Agreement be reduced by
any compensation earned by Employee as a result of employment by another
employer, by offset against any amount claimed to be owing by Employee to the
Company, or otherwise, except that any severance amounts payable to Employee
pursuant to the Company's severance plan or policy for employees in general
shall reduce the amount otherwise payable pursuant to Section 7(c)(i).
7. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit
Employee's continuing or future participation in any benefit, bonus, incentive
or other plan or program provided by the Company or any of its affiliated
companies and for which Employee may qualify, nor shall anything herein limit or
otherwise adversely affect such rights as Employee may have under any stock
option or other agreements with the Company or any of its affiliated companies.
8. Assignability. The obligations of Employee hereunder are personal and may not
be assigned or delegated by him or transferred in any manner whatsoever, nor are
such obligations subject to involuntary alienation, assignment or transfer. The
Company shall have the right to assign this Agreement and to delegate all
rights, duties and obligations hereunder,
-12-
<PAGE> 13
either in whole or in part, to any parent, affiliate, successor or subsidiary
organization or company of the Company.
9. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
Company at its principal office address, directed to the attention of the Board
with a copy to the Secretary of the Company at Employee's residence address on
the records of the Company or to such other address as either party may have
furnished to the other in writing in accordance herewith except that notice of
change of address shall be effective only upon receipt.
10. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
11. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle Employee to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if he terminated
his
-13-
<PAGE> 14
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used herein, the term "Company" shall
include any successor to its business and/or assets as aforesaid which
executes and delivers the Agreement provided for in this Section 11 or which
otherwise becomes bound by all terms and provisions of this Agreement by
operation of law.
(b) This Agreement and all rights of Employee hereunder shall inure to
the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die while any amounts would be
payable to him hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to Employee's devisee, legatee, or other designee or, if
there be no such designee, to Employee's estate
12. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by Employee and such officer as may be specifically
authorized by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or in compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. This Agreement is an integration of the parties
agreement; no agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. THE
-14-
<PAGE> 15
VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL
BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Arbitration. Employee shall be permitted (but not required) to
elect that any dispute or controversy arising under or in connection with this
Agreement be settled by arbitration in Houston, Texas, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction.
15. Prior Agreement. This Agreement shall supersede and replace that
Employment Agreement between the Company and Employee dated as of May 17, 1988.
IN WITNESS WHEREOF, the parties have executed this Agreement on
_______________ 1996, effective for all purposes as provided above.
O. I. Corporation
By: /s/ J. Lester Heath
--------------------------------------
Name: J. Lester Heath
Title: Chairman of the Compensation Committee
EMPLOYEE
/s/ W. W. Botts
--------------------------------------
William W. Botts
-15-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (SEC File No. 33-24505 and No. 33-62209 and NO. 33-66822)
of O.I. Corporation of our report dated January 30, 1997 appearing on page 18 of
this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Houston, Texas
March 11, 1997
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<ARTICLE> 5
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,963,174
<SECURITIES> 5,137,471
<RECEIVABLES> 4,188,138
<ALLOWANCES> 259,989
<INVENTORY> 3,779,953
<CURRENT-ASSETS> 16,229,876
<PP&E> 3,795,843
<DEPRECIATION> 2,247,841
<TOTAL-ASSETS> 19,185,691
<CURRENT-LIABILITIES> 3,838,587
<BONDS> 0
0
0
<COMMON> 414,305
<OTHER-SE> 14,546,447
<TOTAL-LIABILITY-AND-EQUITY> 19,185,691
<SALES> 20,156,448
<TOTAL-REVENUES> 20,156,448
<CGS> 10,076,740
<TOTAL-COSTS> 4,512,321
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