<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1997
[ ] 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 10-K. X
---
The aggregate market value of the voting stock (based upon the February 27,
1998 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 $14,126,508.
Number of shares outstanding of each of the issuer's classes of common stock,
as of February 27, 1998: 3,808,638 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 11, 1998.
<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 successfully penetrate the market and then pursue a strategy to
become a leader in the market segment. Management continually emphasizes
product innovation, improvements in quality, product performance and delivery
time, cost reductions, and other value adding activities. Although some 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 in 1969 and was originally involved in
commercializing technology developed in the Department 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 OI
Analytical.
The Company historically has expanded both through internal development of new
products and technologies and through the acquisition of companies and product
lines. During the past several years, the Company has completed 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 CMS Research Corporation,
headquartered in Birmingham, Alabama. CMS, founded in 1986 by Gary D. Sides, is
engaged in research, development, manufacturing, and marketing of
instrumentation for continuous monitoring systems used for monitoring chemical
warfare agents and volatile organic compounds (VOCs). Various military agencies
of the U.S. government are the principal customers of CMS.
On June 24, 1994, the Company acquired the assets of Floyd Associates, Inc.
headquartered in Lake Wylie, South Carolina. Floyd Associates Inc., founded in
1986 by Terry S. Floyd, develops, manufactures, and markets microwave products
used to prepare chemical compounds for analyses. Markets for the microwave
digestion equipment include environmental, biological, metallurgical,
geological, and industrial. Applications include acid digestion of aqueous
inorganic samples in accordance with proposed U.S. Environmental Protection
Agency (EPA) and other defined methods. Organic sample matrices such as oil,
sludge, solvents, and hazardous wastes are also handled by these microwave
products.
On February 9, 1995, the Company acquired Laboratory Automation, Inc., (LAI)
d.b.a. ABC Instruments, headquartered in Columbia, Missouri. LAI was
incorporated on May 17, 1993 in the State of Missouri. LAI's products include
gel permeation chromatography (GPC) systems, ExCell (a liquid-liquid
extractor), Soxtherm (an automated Soxhlet extractor), Integrity 2000 (a
solvent purification system), and other solvent recovery systems. GPC is a
method of preparing a wide range of samples for analysis and is a common
procedure for sample preparation for various industrial and governmental
laboratories, including the U.S. Food and Drug
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Administration (USFDA), U.S. Department of Agriculture (USDA), and USEPA.
On May 1, 1996 the Company acquired certain assets of ALPKEM Corporation
headquartered in Wilsonville, Oregon, formerly a division of Perstorp
Analytical, Inc. ALPKEM designs, manufactures, and markets flow analyzers for
ion analysis using Segmented Flow Analyzers (SFA) and Flow Injection Analysis
(FIA), Cyanide analyzers, and field portable instruments. ALPKEM's principal
customers are industrial businesses, semi-conductor manufacturers, engineering
and consulting firms, municipalities, and environmental testing laboratories.
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.
GAS CHROMATOGRAPHY (GC) 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 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 that provide improved sample introduction, faster
analysis, lower level detection, and ease-of-use. Gas chromatography (GC)
instruments currently manufactured by the Company include the following:
Electrolytic Conductivity Detector (ELCD); Photoionization Detector (PID);
Flame-Ionization Detector (FID); Tandem PID/ELCD; Tandem PID/FID; Halogen
Specific Detector (XSD)TM; Pulsed Flame Photometric Detector (PFPD);
Purge-and-Trap Sample Concentrator (P&T); P&T Autosamplers; and Headspace
Sampler, and GC liquid autosamplers.
GC ANALYZER SYSTEMS The Company integrates its gas chromatography components
with GCs and GC mass spectrometers (MS) to form GC analyzer systems. The
Company's VOC Analyzer System, BTEX Analyzer System (Benzene, Toluene,
Ethylbenzene, and Xylenes), Pesticide Analyzer System, and FBA (Fluorinated
By-Products Analyzer) system are available in standard and custom
configurations to meet market needs. The Company does not manufacture gas
chromatographs nor mass spectrometers but purchases such components from
Hewlett-Packard Company. The Company procures gas chromatographs and mass
spectrometers pursuant to a number of different arrangements, including a Value
Added Reseller (VAR) Agreement and Original Equipment Manufacturer (OEM)
Agreement with Hewlett-Packard Company as well as pursuant to similar
arrangements with other manufacturers.
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 USEPA and testing ultrapure water
used in U.S. pharmaceutical methods; the manufacturing of semiconductors; power
generation; and oceanographic research. TOC products produced by the Company
include: High Temperature Persulfate TOC Analyzer; Combustion TOC Analyzer; and
TOC Solids Module.
WATER ANALYZERS On-site water measurements can be performed with the Company's
portable Aqua-Check Water Analyzer, which simultaneously measures the pH,
conductivity, dissolved oxygen, and temperature of water and aqueous solutions.
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FLOW ANALYSIS SYSTEM The Company designs, manufactures, markets, and services
Segmented Flow Analyzers (SFA), Flow Injection Analyzers (FIA), and field
portable instruments such as The Flow Solution(TM) IV; Flow Solution(TM) 3000;
and Cyanide Analyzer. These instruments perform a wide range of analyses,
including the measurement of nitrate, nitrite, phosphate, ammonia, chloride,
alkaline, 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. 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 continuous air monitoring analyzers 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 configured into systems for sensing,
monitoring, and providing alarms based on conditions predetermined by the user.
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 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. The Company's sample preparation products and systems include
Microwave Digestion Systems; Automated Gel Permeation Chromatography (GPC); and
Soxtherm Soxhlet Extraction Systems.
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 (GC/MSs), integrates them with
Company-manufactured components, and markets these analytical systems for
environmental analysis to comply with USEPA 500, 600, and 8000 Series Methods,
and for other chemical analyses. For such configured systems, the Company
conducts its own marketing to generate sales leads, obtains customer orders,
configures systems, ships, installs, and provides after-sale support. The VAR
agreement is subject to renewal annually. Should the VAR not be renewed, the
Company believes substitute arrangements for access to GC and GC/MS instruments
can be made with HP to purchase such components under an original equipment
manufacturer (OEM) agreement from HP. The Company also believes that it could
procure, at a similar cost, GC and GC/MS instruments from other manufacturers
of such products.
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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
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 1997 1996 1995 1994 1993
- -------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Revenue:
United States $16,941 $15,568 $15,110 $16,794 $16,860
Export 4,689 4,588 2,832 1,562 1,552
------- ------- ------- ------- -------
Total 21,630 20,156 17,942 18,356 18,412
======= ======= ======= ======= =======
% Revenue:
United States 78% 77% 84% 91% 92%
Export 22% 23% 16% 9% 8%
------- ------- ------- ------- -------
Total 100% 100% 100% 100% 100%
======= ======= ======= ======= =======
Number of countries-export 39 35 31 26 28
</TABLE>
Sales to any particular international geographic area did not exceed 10% of
revenue for any of the years 1993 to 1997.
MANUFACTURING
The Company manufactures products, using similar techniques and methods, 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 and Birmingham, Alabama
manufacturing operations.
As of January 1, 1996, instruments sold in Europe are required to have a CE
mark. During 1995, 1996, and 1997 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.
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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.
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 $1,697,000 in 1997, $1,811,000
in 1996, and $1,937,000 in 1995. 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
28 patents, one of which expires before the year 2000, and 27 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,
it is not significantly dependent on any single patent or application.
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, 1997, the Company had a total of 158 full-time employees.
The Company employs scientists and engineers who research and develop potential
new products. To protect the Company's proprietary information, the Company has
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.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages, positions, and offices, as
of February 28, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION DATE ELECTED TO POSITION
---- --- -------- ------------------------
<S> <C> <C> <C>
William W. Botts 55 President, Chief Executive Officer and 1985
Chairman of the Board 1986
Mark G. Whiteman 44 Vice President/General Manager 1997
Dr. Gary D. Sides 50 Vice President 1994
Jane A. Smith 49 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.
Mark G. Whiteman was employed by the Company in March 1997 as Vice
President/General Manager of OI Analytical. He was employed by Scott Specialty
Gases as Eastern Region Vice President/General Manager from 1994 to 1997. Prior
to that he was employed with E.I. DuPont for 19 years where he held a variety
of management positions.
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 purchased
materials, the Company has developed preferred sources on the basis of quality
and service.
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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, 1997 was approximately
$3,575,000, compared to $3,366,000 as of December 31, 1996, and $1,458,000 as
of December 31, 1995. The increase in the backlog at December 31, 1997 as
compared to December 31, 1996 was due to a general increase in sales. 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 1998.
MAJOR CUSTOMERS
No single customer accounted for more than 10% of revenue in 1997, 1996, or
1995. Federal, state, and municipal governments accounted for 35% of revenue in
1997, 27% in 1996, and 26% in 1995. Export sales accounted for 22% of revenue
in 1997, compared to 23% in 1996, and 16% in 1995.
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ITEM 2. PROPERTIES
The Company owns approximately 28,750 sq. ft. of office, engineering,
laboratory, and production space in College Station, Texas and leases
approximately 36,390 sq. ft. of office, engineering, laboratory, production,
and warehouse space in Alabama, Missouri, Oregon, and Texas. The Company
believes that its facilities are in good condition and are suitable and
adequate for its present operations and that suitable space is readily
available if any of such leases are not extended.
The Company's headquarters, research, and manufacturing operations occupy
approximately 28,750 sq. ft. of space located on 11.29 acres of land in College
Station, Texas. The Company rents and uses for storage a 4,500 sq. ft. facility
on a separate tract of land within eight miles of the Company's headquarters.
CMS' research and development, customer service, and manufacturing operations
occupy approximately 9,490 sq. ft., 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 3,200 sq. ft. located in Columbia, Missouri.
This space is leased until June 1998.
ALPKEM's manufacturing operations occupy 19,200 sq. ft. located in Wilsonville,
Oregon. This space is leased through May 1, 1998.
The Company plans to expand its facilities in College Station by 39,000 sq. ft.
for consolidation of certain operations. The cost of such expansion is expected
to approximate $2,100,000.
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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 in the
Galveston Division of the U.S. District Court against a competitor, Tekmar
Company, a subsidiary of Emerson Electric Co. The Company alleged that a
product manufactured and sold by the competitor infringed on U.S. Patent Nos.
5,358,557 and 5,470,380 issued to the Company. On June 17, 1996, a Motion by
Defendant for Summary Judgment of Non-Infringement was granted. The Company
appealed the decision to the U.S. Court of Appeals for the Federal Circuit in
Washington, DC. In May 1997, the U.S. Court of Appeals for the Federal Circuit
upheld the lower Court's ruling.
In October 1996, Astoria-Pacific, Inc. (API), filed a claim against the Company
regarding the ownership of the RFA(TM) 300 product line. In September 1997, such
claim was settled in the form of a Stipulated Judgment signed by the parties and
entered by the Honorable David Gernant, Circuit Judge for Multnomah County,
Oregon. Under the Stipulated Judgment, the Company was declared the owner of the
RFA(TM) and RFA(TM) 300 trademarks, as well as the tooling used to manufacture
the RFA(TM) 300 product line. The Company did not receive any payment and was
not required to make any payment in accordance with the terms of the Stipulated
Judgment.
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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
1997.
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 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------------------
High Low High Low
<S> <C> <C> <C> <C>
First Quarter 4-1/8 3-3/8 4-1/4 2-5/8
Second Quarter 4-3/4 3-5/8 5-1/4 3
Third Quarter 4-5/8 3-7/8 4 3-1/2
Fourth Quarter 5-3/16 4 4-1/4 3-1/4
</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.
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DIVIDENDS The Company has never paid dividends, and management does not
anticipate paying any dividends in the near future.
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK As of February 27, 1998, there
were approximately 1139 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) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income statement data:
- ----------------------
Net revenue $ 21,630 $ 20,156 $ 17,942 $ 18,356 $ 18,412
Income before income taxes 2,035 1,469 1,507 2,131 2,257
Net income 1,393 1,003 1,023 1,545 1,405
Diluted earnings per share $ 0.35 $ 0.24 $ 0.24 $ 0.37 $ 0.34
Balance sheet data:
- -------------------
Total assets $ 19,100 $ 19,186 $ 17,700 $ 15,979 $ 14,706
Working capital 12,300 12,391 11,855 11,156 9,876
Shareholders' equity 15,284 14,961 14,212 12,882 11,150
Common size income statement data:
- ----------------------------------
Net revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue 53.4 50.0 51.5 55.2 54.4
---------- ---------- ---------- ---------- ----------
Gross profit 46.6 50.0 48.5 44.8 45.6
Selling, general, and administrative 31.8 31.7 30.7 25.5 29.1
Research and development 7.9 9.0 10.8 9.9 5.7
Patent litigation expense 0.2 4.5 1.6 0.0 0.0
---------- ---------- ---------- ---------- ----------
Operating income 6.7 4.8 5.4 9.4 10.8
Other income (expense), net 2.7 2.5 3.0 2.2 1.5
---------- ---------- ---------- ---------- ----------
Income before income taxes 9.4 7.3 8.4 11.6 12.3
Provision for income taxes 3.0 2.3 2.7 3.2 4.7
---------- ---------- ---------- ---------- ----------
Net income 6.4% 5.0% 5.7% 8.4% 7.6%
========== ========== ========== ========== ==========
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-K includes certain statements that are deemed to be
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. All statements, other than statements of historical
facts, included in this Form 10-K that address activities, events, or
developments that the Company expects, believes, or anticipates will or may
occur in the future, are forward-looking statements. These statements are based
on certain assumptions and analyses made by the Company in light of its
experience and its perception of historical trends, current conditions,
expected future developments, and other factors it believes are appropriate in
the circumstances. Such statements are subject to a number of assumptions,
risks, and uncertainties, many of which are beyond the control of the Company.
Investors are cautioned that any such statements are not guarantees of future
performance and that actual results or developments may differ materially from
those projected in the forward-looking statements.
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SUMMARY Net revenue increased 7% in 1997, compared to 1996, while net income
was up 39% for the same period. The Company's financial position as of December
31, 1997 reflects a slight decrease in working capital to $12,300,000, compared
to $12,391,000 at December 31, 1996. Diluted earnings per share were $0.35 in
1997, $0.24 in 1996, and $0.24 in 1995.
RESULTS OF OPERATIONS Net revenue was $21,630,000 in 1997, compared to
$20,156,000 in 1996, and $17,942,000 in 1995. Export revenue increased 2% to
$4,689,000 in 1997, while domestic revenue increased 9% to $16,941,000. In
1996, export revenue increased 62% to $4,588,000 and domestic revenue increased
3% to $15,568,000.
Sales of TOC analyzers were flat in 1997 compared to 1996 due to slower sales
in certain markets and delays in the shipment of the Company's newly-introduced
combustion TOC analyzer.
Microwave product sales were flat in 1997 due to a delay in product redesign of
the closed-vessel microwave system and price competition for the Company's
private label, open-vessel microwave systems. The Company has continued to
improve the performance, reliability, and value to the customer of its
closed-vessel microwave system. Microwave product sales increased from 1995 to
1996 due to increased sales of the Company's closed-vessel microwave systems
and sales of private label, open-vessel microwave systems, which the Company
began shipping in early 1996.
Sales of GC components and systems increased in 1997 primarily due to an
increase in the sale and lease of GC/MS systems configured with the Company's
sample inlet systems. Previously, the GC/MS system sold by certain of the
Company's competitors displaced GC systems offered by the Company that included
selective 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; accordingly, gross profit margins are reduced to the extent that
GC/MS systems sales increase and sales of GC systems with Company-manufactured,
selective detectors decrease. Sales of GC components and systems declined from
1995 to 1996 primarily due to shrinking demand in the environmental market.
The Company is also positioning its GC components and systems to capture sales
to nonenvironmental markets, in order to offset lower demand in the
environmental market. The Company shipped its first on-line analyzer system, a
Fluorinated By-Products Analyzer (FBA) in the fourth quarter of 1997. The FBA
is configured in a traditional process arrangement suitable for use in a
hazardous environment. The proprietary analyzer includes the Company's patented
ELCD, a heated column, and electronic controls to interface with a SCADA
system. The Company's halogen selective detector has proven very successful in
configured systems for continuous monitoring applications.
Sales of continuous emissions monitoring (CEM) systems increased in 1997
compared to 1996 due primarily to U.S. government purchases of chemical warfare
agent monitoring systems. The ratification of the Chemical Weapons Convention
Treaty by the U.S. in mid-1997 appears to have provided momentum for a number
of government agencies to commence programs requiring chemical warfare agent
monitoring systems. Sales of CEM systems also increased from 1995 to 1996 due
to U.S. government purchases of chemical warfare agent monitoring systems.
Sales of flow analyzer products increased in 1997 due to only eight months of
sales of such products being included in 1996. On an annualized basis, flow
analyzer revenues decreased in 1997 compared to 1996 due to the effect of lower
sales in environmental testing and loss of sales momentum resulting from the
change in ownership and management. Nevertheless, the Company believes sales
performance will resume with the full integration of the flow analyzer product
line into the Company's sales and distribution network.
11
<PAGE> 12
Leasing sales increased in 1997 compared to 1996 which decreased from 1995.
Leases are generally three to four years and allow customers to manage their
cash outflow against the income generated by their instruments. The Company
files Uniform Commercial Code documents in conjunction with each lease to
protect its interest in the equipment. As of December 31, 1997, the Company had
$890,000 in its investment in sales-type lease portfolios compared to $613,000
as of December 31, 1996. The average effective interest rate of the leases is
9.7%.
International revenues increased 2% to $4,689,000, or 22% of total revenue in
1997 compared to $4,588,000, or 23% of total revenue in 1996, and $2,832,000,
or 16% of total revenue in 1995. The Company had 77 distributors and
representatives in 39 countries at December 31, 1997, compared to 77
distributors and representatives in 37 countries at December 31, 1996 and 35
distributors and representatives in 38 countries at December 31, 1995.
Gross profit was 47% in 1997, compared to 50% in 1996, and 48% in 1995. During
1997 gross profit decreased due to an increase in warranty expense and an
increase in sales of GC/MS systems, which are lower margin products. The
increase in warranty expense was primarily related to the TOC analyzers and
microwave product lines. The Company believes the majority of the problems with
these products have been corrected. During 1996 gross profit increased due to
decreased depreciation expense related to demonstration equipment, decreased
costs related to service revenue, and the receipt of $290,000 related to a
legal settlement in February 1996.
Selling, general, and administrative (SG&A) expenses were $6,880,000 in 1997,
or 32% of revenue, compared to $6,404,000, or 32% of revenue in 1996, and
$5,512,000, or 31% of revenue in 1995. The increase in SG&A expenses from 1996
to 1997 resulted from higher commissions due to the increase in sales, the
addition of a vice president/general manager, and an increase in travel
expenses. Other expenses, such as salaries, rent, utilities, and telephone
increased due to the acquisition of ALPKEM. ALPKEM expenses were included for
eight months of 1996 and for the full year of 1997. 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 ISO9000
certification. Other expenses such as salaries, rent, utilities, and telephone
increased during 1996 due to the acquisition of ALPKEM.
Research and development (R&D) expenditures amounted to $1,697,000, or 8% of
revenue in 1997, compared to $1,811,000, or 9% of revenue in 1996, and
$1,937,000, or 11% of revenue in 1995. R&D expenses decreased from 1996 to 1997
due to fewer personnel, offset in part by an increase in the purchase of
supplies used in the design of products. R&D and engineering for some of the
acquired businesses have been consolidated to achieve cost reduction and
improved productivity. 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. The Company also incurred expenses
relating to product redesign and certification to qualify certain of its
products for the CE mark.
Patent litigation expenses were $49,000, or less than 1% of revenue, in 1997
compared to $901,000, or 5% of revenue, in 1996 and $285,000, or 2% of revenue
in 1995. The decrease in expense from 1996 to 1997 was due to the conclusion of
the Tekmar case (See discussion in Item 3, "Legal Proceedings"). The increase
in expense from 1995 to 1996 was due to the Tekmar trial activity in 1996. On
June 17, 1996, a Motion by Tekmar for summary judgment of noninfringement was
granted. The Company appealed this decision to the U.S. Court of Appeals for
the Federal Circuit in Washington, DC. In May 1997, the U.S. Court of Appeals
for the Federal Circuit upheld the summary judgment of noninfringement granted
to Tekmar by the Galveston Division of the U.S. District Court.
Interest income increased 18% to $468,000 in 1997 from $398,000 in 1996, which
decreased 18% from $483,000 in 1995. The increase in interest income from 1996
to 1997 was due to an increase in cash, cash equivalents, and investments
during 1997. The decrease in interest income from 1995 to 1996 was due to a
decrease in cash and cash equivalents during 1996, offset in part by an
increase in interest income relating to sales type leases.
Income before income taxes increased 39% to $2,035,000, or 9% of revenue in
1997 from $1,469,000, or 7% of revenue in 1996, which decreased 3% from
$1,507,000, or 8% of revenue in 1995. Income before tax increased in 1997
compared to 1996 due to the decrease in patent litigation and the increase in
interest income. Income before
12
<PAGE> 13
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 1997, 1996, and 1995.
Net income increased 39% to $1,393,000, or 6% of revenue for 1997 compared to
$1,003,000, or 5% of revenue for 1996, which decreased 2% from $1,023,000, or
6% of revenue for 1995.
Basic earnings per share were $0.36 for 1997, compared to $0.24 for 1996 and
$0.25 for 1995 computed based on 3,924,128 shares outstanding for 1997,
4,097,463 in 1996, and 4,107,957 in 1995. Diluted earnings per share were $0.35
for 1997, compared to $0.24 for 1996 and 1995 computed based on 3,991,911
shares outstanding for 1997, 4,146,777 in 1996, and 4,287,556 in 1995.
LIQUIDITY AND CAPITAL RESOURCES The Company considers a number of liquidity
measures that aid in measuring the Company's ability to meet its financial
obligations. Such ratios, working capital, and changes in cash and cash
equivalents as of the end of the Company's last three years are as follows:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996 1995
--------------------------------------------------------------------------------------
LIQUIDITY MEASURES
<S> <C> <C> <C>
Ratio of current assets to current liabilities 4.5 4.2 4.8
Total liabilities to equity 25% 28% 25%
Days sales in accounts receivable 60 71 67
Average annual inventory turnover 3.1 3.2 4.0
Working capital $ 12,300 $ 12,391 $ 11,855
CHANGES IN CASH AND CASH EQUIVALENTS
Net cash provided by (used in):
Operating activities $ 1,721 $ 511 $ 1,561
Investing activities (1,343) (3,447) 1,094
Financing activities (911) (604) 0
Net increase (decrease) in:
Cash and cash equivalents $ (533) $ (3,540) $ 2,655
Cash and cash equivalents:
Beginning of year 1,963 5,503 2,848
End of year 1,430 1,963 5,503
</TABLE>
Working capital decreased less than 1%, or $91,000, to $12,300,000 in 1997,
compared to $12,391,000 in 1996 and $11,855,000 in 1995. The current ratio of
4.5 for 1997 was up from 4.2 for 1996, primarily due to a decrease in accrued
legal expenses and other accrued liabilities. The 1996 current ratio of 4.2 was
down from 4.8 in 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 $1,430,000 in 1997 from $1,963,000 in
1996, primarily due to the purchase of treasury stock and the purchase of
investments in 1997. Average annual inventory turnover was lower at 3.1 in
1997, compared to 3.2 in 1996 and 4.0 in 1995 due primarily to an increase in
finished goods inventory over the three years in order to provide faster
delivery to customers. The number of days of sales in accounts receivable
decreased to 60 days in 1997, from 71 days in 1996, and 67 days in 1995, due to
an
13
<PAGE> 14
increased focus on collection in 1997 and the timing of the payments for large
government contracts in 1996. Current liabilities decreased to $3,524,000 in
1997 from $3,839,000 in 1996 due primarily to a decrease in accrued legal
expenses. Total liabilities represented 25% of equity in 1997, compared to 28%
in 1996 and 25% in 1995.
Net cash flow provided by operating activities for 1997 was $1,721,000,
compared to $511,000 in 1996 and $1,561,000 in 1995. The increase in cash flow
from operations in 1997 was primarily due to a decrease in accounts receivable
and an increase in net income, offset in part by a decrease in accounts
payable. The decrease in cash flow from operations in 1996 compared to 1995 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 for 1996 are net of the effect of the
purchase of ALPKEM. Net cash flow provided by (used in) investing activities
for 1997 was ($1,343,000), compared to ($3,447,000) in 1996, and $1,095,000 in
1995. The decrease in cash flow used in investing activities during 1997 was
due to the acquisition of ALPKEM in 1996 with no acquisitions in 1997. The
decrease in cash flow provided by investing activities from 1995 to 1996 was
due to the purchase of investments. Net cash flow used in financing activities
was ($911,000) in 1997, compared to ($604,000) in 1996, and $0 in 1995. The
increase in cash flow used in financing activities in 1997 and 1996 was due to
increased purchases of treasury stock.
The Company has historically been able to fund working capital and capital
expenditures from operations, and expects to be able to finance its 1998
working capital requirements from cash on hand and funds generated from
operations. The Company is in the final planning phase of a facilities
expansion at its College Station location to accommodate future growth and
consolidation of certain existing operations. The estimated cost of the project
is $2,100,000. The Company plans to complete the expansion in the third quarter
of 1998.
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 1998 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
business to achieve the level
14
<PAGE> 15
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
that 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.
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 businesses of the Company. In addition, most air, water, and soil
analyses are 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.
POSSIBLE ADVERSE EFFECT FROM DEPENDENCE ON SALES TO THE U.S. GOVERNMENT The
Company's customers include various government agencies and public and private
research institutions, which accounted for 35% of the Company's sales in 1997.
The capital spending of these entities can have a significant effect on the
demand for the Company's products. Such spending is based on a wide variety of
factors, including the resources available to make purchases, the spending
priorities among various types of equipment, public policy, political trends,
and the effects of different economic cycles. 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.
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 SALES Sales outside the
United States accounted for approximately 22% of the Company's revenues in
1997, and 23% of the Company's revenue in 1996. 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
15
<PAGE> 16
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 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 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 that 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.
16
<PAGE> 17
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
Date: 3-23-98
---------------------------
17
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of O.I. Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in stockholders
equity present fairly, in all material respects, the financial position of O.I.
Corporation and its subsidiaries at December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibilities 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 22, 1998
18
<PAGE> 19
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
- --------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,429,780 $ 1,963,174
Investments 5,709,517 5,137,471
Accounts receivable-trade, net of allowance for doubtful
accounts of $255,637 and $259,989, respectively 3,570,489 3,928,149
Investment in sales-type leases 358,115 312,359
Inventories 3,777,778 3,779,953
Deferred income tax assets 667,069 809,938
Other current assets 311,987 298,832
------------ ------------
Total current assets 15,824,735 16,229,876
Property, plant and equipment, net 1,459,049 1,548,002
Investment in sales-type leases, net of current 531,489 300,551
Long-term investments 434,818 0
Other assets 849,510 1,107,262
------------ ------------
Total assets $ 19,099,601 $ 19,185,691
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 1,225,080 $ 1,308,475
Accrued liabilities 2,299,169 2,530,112
------------ ------------
Total current liabilities 3,524,249 3,838,587
------------ ------------
Deferred income taxes 291,569 386,352
------------ ------------
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,
4,103,377 and 4,143,046 shares issued, respectively 410,338 414,305
Additional paid-in capital 4,379,862 4,586,661
Treasury stock, 249,493 and 32,482 shares, respectively, at cost (971,763) (112,968)
Retained earnings 11,465,346 10,072,754
------------ ------------
15,283,783 14,960,752
------------ ------------
Total liabilities and stockholders' equity $ 19,099,601 $ 19,185,691
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
19
<PAGE> 20
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenue $ 21,630,245 $ 20,156,448 $ 17,942,343
Cost of revenue 11,554,442 10,076,740 9,240,786
------------ ------------ ------------
Gross profit 10,075,803 10,079,708 8,701,557
Selling, general and administrative expenses 6,880,026 6,403,810 5,511,924
Research and development expenses 1,696,688 1,811,403 1,936,792
Patent litigation expense 48,653 900,951 284,959
------------ ------------ ------------
Operating income 1,450,436 963,544 967,882
Other income (expense):
Interest income 467,782 398,095 483,499
Other income 116,626 106,930 60,494
Interest expense 0 0 (4,649)
------------ ------------ ------------
Income before income taxes 2,034,844 1,468,569 1,507,226
Provision for income taxes (642,252) (465,147) (484,000)
------------ ------------ ------------
Net income $ 1,392,592 $ 1,003,422 $ 1,023,226
============ ============ ============
Basic earnings per share $ 0.36 $ 0.24 $ 0.25
============ ============ ============
Diluted earnings per share $ 0.35 $ 0.24 $ 0.24
============ ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
20
<PAGE> 21
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,392,592 $ 1,003,422 $ 1,023,226
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 570,010 576,589 447,527
Deferred income taxes 48,086 (39,586) (242,000)
Gain on disposition of property (45,589) (6,639) (16,039)
Changes in assets and liabilities,
net of the effect of the purchase of
ALPKEM (1996) and LAI (1995):
Accounts receivable 357,660 (654,979) 370,013
Inventories 2,175 (757,104) 593,363
Other assets (289,674) (111,863) (186,547)
Accounts payable (83,395) 458,778 (501,477)
Accrued liabilities (230,943) 42,850 72,541
----------- ----------- -----------
Net cash provided by operating activities 1,720,922 511,468 1,560,607
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant, and equipment (404,984) (299,540) (251,781)
Proceeds from sale of assets 124,076 18,900 36,150
Purchase of ALPKEM (1996) and LAI (1995) 0 (526,743) (1,173,706)
Purchase of investments (7,757,298) (8,710,000) (3,425,359)
Maturity of investments 6,682,000 6,124,000 5,917,000
Change in patents and other intangibles 12,776 (53,949) (7,621)
----------- ----------- -----------
Net cash provided by (used in) investing activities (1,343,430) (3,447,332) 1,094,683
----------- ----------- -----------
Cash flows from financing activities:
Purchase of treasury stock (949,713) (640,182)
Proceeds from issuance of common stock 38,827 35,898
----------- ----------- -----------
Net cash provided by (used in) financing activities (910,886) (604,284) 0
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (533,394) (3,540,148) 2,655,290
Cash and cash equivalents:
Beginning of year 1,963,174 5,503,322 2,848,032
----------- ----------- -----------
End of year $ 1,429,780 $ 1,963,174 $ 5,503,322
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during year for:
Interest $ 12,241 $ 594 $ 4,705
Income taxes 883,519 567,039 621,135
The accompanying notes are an integral part of these financial statements.
</TABLE>
21
<PAGE> 22
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-in Treasury Retained
Shares Amount Capital Stock Earnings
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 4,039,650 $ 403,965 $ 4,432,401 $ 0 $ 8,046,106
Issuance of shares in conjunction
with the acquisition 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 9,069,332
Purchase of 220,629 shares
of treasury stock (640,182)
Issuance of common and 73,083
treasury shares in conjunction
with the acquisition of ALPKEM 26,917 2,692 144,955 202,353
Issuance of 110,000 shares from
treasury for exercise of stock options (290,625) 309,375
Issuance of 5,064 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 (112,968) 10,072,754
Purchase of 243,233 shares
of treasury stock (949,713)
Shares cancelled (39,669) (3,967) (154,709)
Issuance of 2,256 shares from treasury
for directors' compensation 245 7,755
Issuance of 21,001 shares from treasury
for exercise of stock options (54,218) 72,972
Issuance of 2,965 shares from treasury
to Employee Stock Purchase Plan 1,883 10,191
Net income 1,392,592
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 4,103,377 $ 410,338 $ 4,379,862 $ (971,763) $11,465,346
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
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 1969. 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 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 four 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. The Company maintains a reserve for inventory
obsolescence and regularly evaluates its inventory. Items with no movement in
six months or more are reserved for or written off. The Company also provides
an obsolescence reserve for items that have impairments in their realizable
value below cost as a result of new product introductions.
DEMO EQUIPMENT The demonstration of the Company's products is often required
prior to a customer's purchase. The Company makes available certain equipment
for use in demonstration, believing that a successful demonstration will
promote the customer's purchase of the equipment. Equipment used in
demonstration is classified as inventory and is depreciated to a zero value in
a six-month period from the date of being placed on-site for demonstration.
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
23
<PAGE> 24
extended product warranties typically covering an additional period of nine
months. Revenue from extended warranties is recorded ratably over the period.
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 income 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.
BUSINESS SEGMENT AND MAJOR CUSTOMERS The Company operates in a single segment.
No single customer accounted for more than 10% of revenue in 1997, 1996, or
1995. Federal, state and municipal governments accounted for 35% of revenue in
1997, 27% in 1996, and 26% in 1995. Export sales accounted for approximately
22% of total revenue in 1997, 23% in 1996, and 16% in 1995, although no one
region accounted for greater than 10% of total revenues in any one year.
OTHER ASSETS Other assets primarily include acquired patents, licenses,
customer lists, and trademarks that are amortized on a straight-line basis over
10 to 17 years.
EARNINGS PER SHARE In February 1997, Financial Accounting Standards No. 128
(FAS 128) Earnings Per Share was issued. FAS 128 is effective for both interim
and annual periods ending after December 15, 1997. The Company adopted the
pronouncement for the year ended December 31, 1997. FAS 128 requires the
Company to report both basic earnings per share, which is based on the weighted
average number of common shares outstanding and diluted earnings per share,
which is based on the weighted average number of common shares outstanding and
all dilutive potential common shares outstanding. Stock options are the only
dilutive potential shares the Company has outstanding for all periods
presented. All prior years' earnings per share data in this report have been
recalculated to reflect the provisions for FAS 128. The weighted average of
shares used in the basic earnings per share calculation was 3,924,128 in 1997,
4,097,463 in 1996, and 4,107,957 in 1995. The weighted average number of shares
used in the diluted earnings per share computation was 3,991,911 in 1997,
4,146,777 in 1996, and 4,287,556 in 1995. At December 31, 1997, 1996, and 1995
options to acquire 152,200, 148,500, and 232,400 shares at weighted average
exercise prices of $5.98, $5.90, and $6.39 respectively, were not included in
the computations of dilutive earnings per share as the options' exercise price
was greater than the average market price of the common shares.
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 investment grade domestic corporate bonds. The Company's 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, 1997 and 1996, the Company had no
significant concentrations of credit risk related to accounts receivable.
However, agencies of the U.S. government constitute a significant percent of
the Company's sales. Any federal budget cuts affecting the chemical warfare
programs or the USEPA 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 PRONOUNCEMENTS In 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130 (FAS 130)
Reporting Comprehensive Income. FAS 130 requires the
24
<PAGE> 25
adoption of its provisions for fiscal years beginning after December 15, 1997.
The Company will adopt the statement in 1998. FAS 130 calls for disclosure of
comprehensive income in a financial statement that is displayed with the same
prominence as other financial statements that constitute a full set of
financial statements. Comprehensive income includes all changes in the equity
of a business enterprise during a period except those resulting from
investments by shareholders and distributions to shareholders. Such changes
would include net income and the cumulative translation adjustment. The
adoption of FAS 130 is not expected to have a material impact on the Company's
financial position or results of operations.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131 (FAS 131) Disclosures about Segments of an
Enterprise and Related Information in June 1997. FAS 131 requires a business
enterprise to determine segments based on the "management approach." The
management approach means reporting segment information similar to the way
management reviews operating results and makes management decisions regarding
its various operating divisions. The requirements of this statement are
effective for fiscal years beginning after December 15, 1997, with no interim
application required in the initial year of applications. Management believes
the Company operates in one business segment; therefore, this Statement is not
expected to impact financial reporting of the Company.
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. As consideration for the acquisition, Perstorp Analytical received
$505,000 in cash and 100,000 shares of the Company's common stock valued at
$350,000 at the date of acquisition. 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 shares of LAI stock in exchange for 76,479 shares of the Company's common
stock with a market value of approximately $306,000 at the date of acquisition
and $117,000 in cash. In addition, $880,000 of liabilities of LAI were assumed
by the Company 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.
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
$317,500 in cash and a 5% royalty on future sales.
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 with a
market value of approximately $3.2 million at the date of acquisition in
exchange for all of the common stock of CMS. This acquisition was accounted for
as a pooling of interests and the Company's financial statements were restated
accordingly. There were no intercompany transactions between the Company and
CMS prior to the acquisition.
25
<PAGE> 26
- --------------------------------------------------------------------------------
NOTE 3: INVESTMENTS
Investments considered held to maturity at December 31, 1997, consist of the
following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Market Unrealized Unrealized
Cost Value Holding Gains Holding Losses
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
Short-term corporate bonds $ 5,709,517 $ 5,712,909 $ 4,815 $ (1,423)
Long-term corporate bonds 434,818 435,179 417 (56)
---------- ---------- --------------- ---------------
Total corporate bonds $ 6,144,335 $ 6,148,088 $ 5,232 $ (1,479)
</TABLE>
All of the investments at December 31, 1997 are scheduled to mature within 14
months. Market value is based upon quoted market prices for the investments.
Short-term investments at December 31, 1996, 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 $ 5,137,471 $ 5,133,178 $ 372 $ (4,665)
</TABLE>
- --------------------------------------------------------------------------------
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, 1997:
Future minimum lease payments to be received are:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $ 358,115
1999 260,271
2000 191,761
2001 79,457
2002 0
------------
889,604
Less: amount relating to interest 107,713
------------
Present value of minimum lease
payments to be received $ 781,891
============
</TABLE>
26
<PAGE> 27
- --------------------------------------------------------------------------------
NOTE 5: INVENTORIES
Inventories, which include material, labor, and overhead, on December 31, 1997
and 1996, consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 2,137,979 $ 2,365,496
Work-in-process 624,650 457,721
Finished goods 1,015,149 956,736
----------- -----------
$ 3,777,778 $ 3,779,953
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
NOTE 6: PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment on December 31, 1997 and 1996, consists of the
following:
<TABLE>
<CAPTION>
Estimated
Useful lives 1997 1996
------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 41,221 $ 41,221
Buildings 33 to 40 years 1,474,391 1,474,391
Construction in progress 83,998 0
Furniture and equipment 3 to 10 years 2,219,716 2,280,231
----------- -----------
3,819,326 3,795,843
Less accumulated depreciation
and amortization (2,360,277) (2,247,841)
----------- -----------
$ 1,459,049 $ 1,548,002
=========== ===========
- --------------------------------------------------------------------------------
NOTE 7: ACCRUED LIABILITIES
Accrued liabilities on December 31, 1997 and 1996, consist of the following:
<CAPTION>
1997 1996
------------------------------------------------------------------------------
<S> <C> <C>
Accrued compensation $ 769,911 $ 636,872
Accrued warranties 524,706 551,342
Accrued legal expenses 0 127,847
Unearned revenue-service contracts 186,322 238,762
Unearned interest-investment in
sales-type leases 166,126 109,028
Other liabilities and accrued expenses 652,104 866,261
----------- -----------
$ 2,299,169 $ 2,530,112
=========== ===========
</TABLE>
27
<PAGE> 28
- --------------------------------------------------------------------------------
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 provided 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. The options
generally expire 10 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. The 1987 Plan
expired in accordance with its terms on December 31, 1997. At such time,
options to purchase 483,837 of the 500,000 shares reserved for issuance had
been granted. The Company does not currently intend to adopt a plan to replace
the 1987 Plan.
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
nonemployee directors of the Company are eligible for such grants. The options
generally expire 10 years from the date of grant. During 1997, the Company
granted 93,700 options under the 1993 Plan, with a weighted average exercise
price based on the stock price of $3.92 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, 1997, 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 been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C> <C>
Net income As reported $ 1,393 $ 1,003 $ 1,023
Pro forma 1,347 981 1,020
Basic earnings per share As reported $ 0.36 $ 0.24 $ 0.25
Pro forma 0.343 0.239 0.248
Diluted earnings per share As reported $ 0.35 $ 0.24 $ 0.24
Pro forma 0.337 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 1997, 1996, and 1995 respectively: dividend
yield of zero for each year; expected volatility of 34, 33, and 27 percent;
risk-free interest rates of 6.04, 6.13, and 5.63 percent; and expected lives of
seven years. The weighted average fair value at the date of grant for options
granted during 1997, 1996, and 1995 was $1.90, $1.73, and $1.26, respectively.
28
<PAGE> 29
Activity under the 1987 Plan and the 1993 Plan for each of the three years in
the period ended December 31, 1997 was as follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Price per Share Price per Share
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding, December 31, 1994 401,101 $0.10 - 14.00 $ 4.21
Options granted 84,500 3.50 - 2.50 2.54
Options exercised 0
Options forfeited or cancelled (26,701) 3.94 - 6.00 5.01
--------
Options outstanding, December 31, 1995 458,900 0.10 - 14.00 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 0.8125 - 14.00 4.12
Options granted 93,700 3.50 - 4.25 3.92
Options exercised (21,001) 0.8125 - 2.50 0.89
Options forfeited or cancelled (21,466) 2.50 - 3.94 3.25
--------
Options outstanding, December 31, 1997 399,233 2.50 - 14.00 4.29
</TABLE>
There were 223,477, 194,510, and 268,304 share options exercisable at December
31, 1997, 1996, and 1995, respectively.
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1997.
<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>
$2.50 - 3.75 210,533 7.6 $ 3.13 96,477 $ 2.96
3.75 - 5.63 156,700 6.9 4.38 95,000 4.38
5.63 - 8.45 10,000 5.2 6.01 10,000 6.01
14.00 22,000 4.0 14.00 22,000 14.00
</TABLE>
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 or issued from shares held in
treasury. 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, 1997, 32,636 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, 1997, no preferred stock had been issued.
29
<PAGE> 30
- --------------------------------------------------------------------------------
NOTE 10. INCOME TAXES
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
---------------------------------------------------
1997 1996 1995
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision:
Federal $ 480,653 $384,583 $ 587,000
State 113,513 120,150 139,000
Deferred provision 48,086 (39,586) (242,000)
--------- --------- -----------
$ 642,252 $ 465,147 $ 484,000
========= ========= ===========
</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
----------------------------------------------
1997 1996 1995
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 5.4 4.0 3.1
Permanent differences (6.3) 6.3
Changes in valuation allowance (13.8)
Other, net (7.9) 2.5
------- ------- -------
31.5% 31.7% 32.1%
======= ======= =======
</TABLE>
30
<PAGE> 31
Deferred tax assets (liabilities) are comprised of the following at December
31, 1997 and 1996:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
-------------------------
<S> <C> <C>
Noncurrent:
Depreciation $(122,898) $(243,938)
Deferred compensation 20,000 20,000
Intangibles (103,083) (107,787)
Other (34,071) (3,110)
--------- ---------
Total noncurrent $(240,052) $(334,835)
========= =========
Current:
Warranty reserve $ 209,883 $ 220,537
Bad debt allowance 93,584 102,224
Inventory reserve 92,845 199,700
Uniform capitalization 177,949 177,046
Accrued legal 0 51,139
Accrued vacation 72,469 59,292
Other 20,339 0
--------- ---------
Total current $ 667,069 $ 809,938
--------- ---------
Net tax asset before valuation allowance 427,017 475,103
Valuation allowance (51,517) (51,517)
--------- ---------
Net deferred tax asset (liability) $ 375,500 $ 423,586
========= =========
</TABLE>
- --------------------------------------------------------------------------------
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 $120,000, $100,000 and $90,000 to the Plan for the years ended
December 31, 1997, 1996, and 1995, 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 certain microwave-based products up to a maximum
amount of $1,182,500 (Note 2). No minimum payments are required in the
agreement. The Company recognized royalty expense related to this agreement of
$50,954, $51,683, and $28,233 in 1997, 1996, and 1995, respectively.
The Company has entered operating leases for certain facilities. These
operating leases expire in 1998. Rental expense recognized in 1997, 1996, and
1995 was $324,000, $229,000, and $184,000, respectively. Future minimum rental
payments under these leases for 1998 are $189,393.
- --------------------------------------------------------------------------------
NOTE 13: RELATED PARTY TRANSACTION
On January 10, 1996, the Company purchased from Gary D. Sides, Vice President,
162,658 shares of the Company's common stock at a price of $2.75 per share. The
Company also purchased, on January 11, 1996, from an employee at CMS, 10,721
shares of common stock at a price of $2.75 per share. The Company's common
stock price per share on NASDAQ on January 10, 1996 was $2.75 Bid and $3.00
Ask. Therefore, there was no difference between the price paid and fair market
value.
31
<PAGE> 32
- --------------------------------------------------------------------------------
NOTE 14: QUARTERLY INFORMATION (UNAUDITED)
Quarterly financial information for 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
($ in thousands, except per share amounts) First Second Third Fourth
1997 Qtr. Qtr. Qtr. Qtr.
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $ 5,321 $ 5,735 $ 5,210 $ 5,364
Gross profit 2,584 2,788 2,306 2,398
Net income 322 364 319 388
Basic earnings per share $ 0.08 $ 0.10 $ 0.08 $ 0.10
Diluted earnings per share $ 0.08 $ 0.09 $ 0.08 $ 0.10
($ in thousands, except per share amounts) First Second Third Fourth
1996 Qtr. Qtr. Qtr. Qtr.
-----------------------------------------------------------------------------------
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
Basic earnings per share $ 0.05 $ 0.05 $ 0.04 $ 0.10
Diluted earnings per share $ 0.05 $ 0.05 $ 0.04 $ 0.10
</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 11, 1998 (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.
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
32
<PAGE> 33
Directors-Compensation of Executive Officers" of the Company's Proxy Statement
for the annual meeting of shareholders on May 11, 1998, 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 11, 1998, 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 11, 1998, is
hereby incorporated by reference.
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, 1997 and 1996...............................................19
Consolidated Statement of Income for the years ended December 31, 1997, 1996, and 1995.................20
Consolidated Statement of Cash Flows for the years ended December 31, 1997, 1996, and 1995.............21
Consolidated Statement of Stockholders' Equity for the years ended December 31, 1997, 1996,
and 1995.......................................................................................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.
33
<PAGE> 34
(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
(filed as Exhibit 10.3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996 and incorporated
herein by reference).
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).
*10.7 Employment Agreement between the Company and Mark G. Whiteman.
23.1 Consent of Price Waterhouse LLP.
99.1 The O.I. Corporation definitive Proxy Statement, dated April
9, 1998 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, 1997.
- -------
* 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: March 23, 1998 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, March 23, 1998
- -------------------------------- -----------------------
William W. Botts Director and Principal Financial Officer
/s/ Julie A. Wright Controller, Principal Accounting Officer March 23, 1998
- --------------------------------- -----------------------
Julie A. Wright
/s/ Jack S. Anderson Director March 12, 1998
- -------------------------------- -----------------------
Jack S. Anderson
/s/ J. Lester Heath, Jr. Director March 12, 1998
- --------------------------------- -----------------------
J. Lester Heath, Jr.
/s/ Edwin B. King Director March 12, 1998
- -------------------------------- -----------------------
Edwin B. King
/s/ Craig R. Whited Director March 12, 1998
- -------------------------------- -----------------------
Craig R. Whited
</TABLE>
35
<PAGE> 36
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
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
(filed as Exhibit 10.3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996 and incorporated
herein by reference).
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).
*10.7 Employment Agreement between the Company and Mark G. Whiteman.
23.1 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule.
99.1 The O.I. Corporation definitive Proxy Statement, dated April
9, 1998 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.
</TABLE>
- -------
* Management contract or compensatory plan or arrangement.
<PAGE> 1
EXHIBIT 10.7
February 20, 1997
Mr. Mark G. Whiteman FAX: 215-997-9069
110 Gordon Lane
North Wales, PA 19454
Dear Mark:
It has been a pleasure getting to know you during the interview process. As we
discussed, O.I. Corporation (the "Company") offers you (also referred to as
"Employee") employment as follows:
1. Subject to your passing, to the Company's satisfaction, a company-paid
physical examination, which includes a drug screen, you are offered
employment by the Company under the conditions of the Company's Employee
Handbook. By accepting this offer you certify and warrant that you are not
restrained in any way by agreement with any third party from accepting
employment with the Company and discharging the duties stated herein.
2. Position - Your position title will be Vice President/General Manager, and
Vice President of the Company, reporting to the undersigned, and you will
be located in our headquarters in College Station. You will be responsible
for the general management of the Company including, but not limited to,
directing and coordinating research and development and engineering,
manufacturing, quality control, materials management, marketing and sales,
and product management. You will participate in developing the Company's
strategic plan, and will be responsible for implementation and execution of
the Company's operating strategy and achievement of related business plan
goals. You should devote your full productive time, energy, and ability to
the proper and efficient conduct of the Company's business. You shall
observe and comply with all lawful directions and instructions by and on
the part of the Company, endeavor to promote the interests of the Company
and not at any time do anything which may cause or tend to be likely to
cause any loss or damage to the Company in business, reputation or
otherwise.
3. Salary - Your salary will be $9,166/month, which is equivalent to $110,000
annually, paid every two weeks, from which shall be deducted income tax
withholdings, social security and other customary employee deductions in
conformity with the Company's payroll policies in effect from time to time;
provided that the Board of Directors of the Company may review Employee's
annual salary from time to time and increase or decrease such salary based
upon Employee's performance of services for the Company.
<PAGE> 2
4. Bonus - You will be eligible to participate in the Company's bonus program,
a discretionary bonus that is awarded by the Compensation Committee of the
Board of Directors on the basis of the Company sales growth, profits, and
your personal performance and achievements. You will be eligible for an
annual bonus up to 25% of your annual base salary.
5. Termination of Employment and Severance. The Company shall have the right
at its option to terminate the employment of Employee hereunder by giving
ten (10) days written notice thereof to the Employee. In the event of
termination for any reason other than for "cause" as described below in
this Paragraph 5, the Company will continue payment of your salary for six
(6) months from the date of termination. Termination for cause shall be as
follows:
a. If Employee has (i) failed or refused to carry out or to perform the
duties required of him hereunder or otherwise breached any provision of
this Agreement, or (ii) violated any statutory or common law duty of
loyalty to the Company;
b. If the Board of Directors of the Company, or a duly authorized committee
thereof, acting in good faith and upon reasonable grounds, determines
that Employee has engaged in personal conduct which would injure the
reputation of the Company or otherwise adversely affect its interest if
Employee were retained as an employee of the Company.
6. Competition with the Company.
a. While employed by the Company, Employee will not engage in or carry on,
directly or indirectly, either for himself or as a member of a
partnership or as a stockholder (except as a stockholder of less than
one percent (1%) of the issued and outstanding stock of a publicly held
corporation whose gross assets exceed one hundred million dollars),
investor, officer or director of a corporation (other than Company or a
parent, subsidiary, affiliate or successor of the Company), or as an
employee, agent, associate or consultant of any person partnership,
corporation or other entity (other than the Company or a parent,
subsidiary, affiliate, or successor of the Company) any business in
competition with that carried on by the Company, its subsidiaries,
affiliates, or parent.
b. Employee hereby covenants and agrees with the Company that for a period
of two (2) years from and after Employee's last day of employment under
this Agreement, without the written consent of the Company, and unless
acting as an officer or employee of the Company or any of its
subsidiaries, own all or a portion of, manage, operate, join, control or
participate in, directly or indirectly, or derive any benefits whatever
from, or be an officer, director, employee, partner, agent, consultant
or shareholder of any business engaged in any activity that is in
"Competition" in
<PAGE> 3
any manner whatsoever with the business of the Company in the "Specified
Geographical Area," and neither Employee nor any "Affiliate" of Employee
shall render assistance or advice to any person, firm or enterprise
which is so engaged. For purposes of this paragraph,
(1) "Competition" means the research, development, manufacture sale or
distribution of any instrumentation of any nature whatsoever related to
the products and/or markets of the Company either then existing or those
the Company has plans to produce or service within the non-compete
period set forth in this Section 6.
(2) "Specified Geographical Area" means the United States of America.
(3) "Affiliate" means any individual, corporation, partnership, trust,
unincorporated organization, association or other entity that, directly
or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control, with, the specified person.
c. Employee agrees that the remedy at law for any breach by him of this
Section 6 will be inadequate and that the Company shall be entitled to
injunctive relief.
7. Stock options - You will be eligible to participate in the Company's Stock
Option award program. Options are typically awarded by the Compensation
Committee of the Board of Directors at each year end based on the Company's
achievement of business plan goals, and your individual performance. An
explanation of the stock option plan is set forth in the attached proxy
statement.
8. Stock Option Grant - At the time you become an employee, and upon the
approval of the Compensation Committee of the Board of Directors, you will
be awarded a stock option for 40,000 shares of the Company's common stock
under the Company's incentive stock option program. The option price of
the shares will be determined based on the market value of the stock on the
day of your employment. The option shall vest as follows:
<TABLE>
<S> <C>
10,000 shares June 1, 1998
10,000 shares June 1, 1999
10,000 shares June 1, 2000
10,000 shares June 1, 2001
</TABLE>
As an officer of the Company, you must comply with Section 16 reporting
responsibilities and regulations of the Securities and Exchange Commission.
The Corporate Secretary will brief you on these matters.
9. Company Vehicle - You will be provided a company vehicle (Ford Taurus) for
use in connection with company business by you as well as other company
employees as the need might arise. All expenses you incur, in connection
with the
<PAGE> 4
business use of the vehicle, will be reimbursed by the OI. Personal use of
the vehicle will result in the equivalent of taxable income to you, which
will be reported on your W-2. Maintaining a record of the business use of
the vehicle will be your responsibility.
10. Benefits - You will be covered by the Company's standard benefit package
which includes an Employee Stock Purchase Plan, Employee Savings Plan
(401-K), Flexible Benefits Plan, group health insurance, long-term
disability, and paid personal time off (PTO) and holidays, all of which are
defined in the Company's employee handbook and packet on each plan.
11. Vacation - You will begin accruing time under the Company's PTO policy at
the rate of 22 days per year. Should you leave the Company within one year
of your date of employment, any PTO benefit shall be treated as if you
began employment under the Company's policy of PTO accrual for a new
employee.
12. Interim Insurance - The cost of COBRA will be paid by OI in the amount of
$400/month for up to three (3) months commencing on your hire date to
provide for pre-existing condition medical coverage for you and your
family.
13. Performance Review and Salary Adjustment - All OI personnel receive a
written performance review and salary review on an annual basis as of
December 31 of each year.
14. Relocation Expense - The Company will provide a moving allowance of up to
$35,000 with your relocation to College Station, Texas.
15. Assignment - The Company may assign this Agreement to any parent,
subsidiary, affiliate or successor of the Company.
16. Governing Law - This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
17. Cumulative Rights - Each and all of the various rights, powers and remedies
of the Company in this Agreement shall be considered as cumulative with and
in addition to any other rights, powers or remedies of Company, and no one
of them shall be considered as exclusive of the others or as exclusive of
any other rights, powers and remedies allowed by law. The exercise or
partial exercise of any rights, power or remedy shall neither constitute
the election thereof nor the waiver of any other rights, power or remedy.
18. Entire Agreement - This Agreement contains the entire agreement of the
parties hereto and may be modified or amended only by a written instrument
executed by both parties hereto.
<PAGE> 5
Mark, the staff at OI looks forward to your joining O.I. at the earliest
possible date and no later than March 15, 1997.
If you have any questions, please let me know.
Sincerely,
O.I. CORPORATION
William W. Botts
President/CEO
WWB:js
ACCEPTED:
Mr. Mark G. Whiteman Date
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-14683) of our report dated January 22, 1998
appearing on page F-2 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Houston, Texas
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,429,780
<SECURITIES> 6,144,335
<RECEIVABLES> 3,826,126
<ALLOWANCES> 255,637
<INVENTORY> 3,777,778
<CURRENT-ASSETS> 15,824,735
<PP&E> 3,819,326
<DEPRECIATION> 2,360,277
<TOTAL-ASSETS> 19,099,601
<CURRENT-LIABILITIES> 3,524,249
<BONDS> 0
0
0
<COMMON> 410,338
<OTHER-SE> 14,873,445
<TOTAL-LIABILITY-AND-EQUITY> 19,099,601
<SALES> 21,630,245
<TOTAL-REVENUES> 21,630,245
<CGS> 11,554,442
<TOTAL-COSTS> 4,842,199
<OTHER-EXPENSES> 3,783,168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,034,844
<INCOME-TAX> 642,252
<INCOME-CONTINUING> 1,392,592
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,392,592
<EPS-PRIMARY> .36
<EPS-DILUTED> .35
</TABLE>
