SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ ] Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ________ to _________
Commission File Number: 0-6511
O. I. CORPORATION
_______________________________________________________
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-0728053
_________________________ _______________________________
State of Incorporation I.R.S. Employer Identification No.
P.O. Box 9010
151 Graham Road
College Station, Texas 77842-9010
______________________________________ ____________________
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (409) 690-1711
Not Applicable
________________________________________________________________
Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report
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
_____ _____
Number of shares outstanding of each of the issuer's classes
of common stock, as of March 31, 1999: 3,353,285 shares
<PAGE>
O.I. CORPORATION
Condensed Consolidated Balance Sheet
(In thousands)
(unaudited)
March 31, December 31,
1999 1998
_________ ___________
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . $ 2,005 $ 1,537
Short-term investments. . . . . . . . . . . 1,994 2,772
Accounts receivable-trade, net of allowance
for doubtful accounts of $255,000 and
$216,000, respectively. . . . . . . . . . 3,668 3,361
Investment in sales-type leases . . . . . . 530 459
Inventories . . . . . . . . . . . . . . . . 4,474 4,917
Current deferred tax asset. . . . . . . . . 538 538
Other current assets. . . . . . . . . . . . 79 302
________ ________
TOTAL CURRENT ASSETS. . . . . . . . . . 13,288 13,886
Property, plant and equipment, net. . . . . . 3,644 3,620
Investment in sales-type lease, net of current 707 576
Goodwill. . . . . . . . . . . . . . . . . . . 1,444 399
Other assets. . . . . . . . . . . . . . . . . 418 348
________ ________
TOTAL ASSETS. . . . . . . . . . . . . . $ 19,501 $ 18,829
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . $ 1,092 $ 1,198
Accrued compensation. . . . . . . . . . . . 570 752
Accrued expenses. . . . . . . . . . . . . . 2,535 1,907
________ ________
TOTAL CURRENT LIABILITIES . . . . . . . 4,197 3,857
Deferred income taxes . . . . . . . . . . . . 219 228
________ ________
TOTAL LIABILITIES . . . . . . . . . . . 4,416 4,085
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 shares issued 410 410
Additional paid in capital . . . . . . . . . 4,375 4,374
Treasury stock, 750,092 and 754,334 shares,
respectively, at cost. . . . . . . . . . . (3,312) (3,328)
Retained earnings. . . . . . . . . . . . . . 13,612 13,288
_______ _______
TOTAL STOCKHOLDERS' EQUITY . . . . . . . 15,085 14,744
_______ _______
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 19,501 $ 18,829
======= =======<PAGE>
O.I. CORPORATION
Condensed Consolidated Statement of Earnings
(In thousands, except share and per share data)
(unaudited)
Three Months Ended
March 31,
_________________________
1999 1998
___________ ___________
Net sales . . . . . . . . . . . . . . . . . . $ 6,105 $ 5,825
Cost of goods sold. . . . . . . . . . . . . . 3,480 3,104
__________ __________
Gross profit. . . . . . . . . . . . . . . . . 2,625 2,721
Research and development expenses . . . . . . 389 384
Selling, general & administrative expenses. . 1,823 1,777
__________ __________
Operating income. . . . . . . . . . . . . . . 413 560
Interest income/other income. . . . . . . . . 102 130
Interest expense. . . . . . . . . . . . . . . 0 0
__________ __________
Income before income taxes. . . . . . . . . . 515 690
Provision for taxes on earnings . . . . . . . (192) (257)
__________ __________
Net income. . . . . . . . . . . . . . . . . . $ 323 $ 433
========= ==========
Weighted average number of shares
outstanding, basic. . . . . . . . . . . . . 3,351,274 3,822,306
Basic earnings per share. . . . . . . . . . . $ 0.10 $ 0.11
Weighted average number of shares
outstanding, assuming dilution. . . . . . . 3,461,749 3,882,431
Diluted earnings per share. . . . . . . . . . $ 0.09 $ 0.11
Dividends per share . . . . . . . . . . . . . -0- -0-
<PAGE>
O.I. CORPORATION
Condensed Consolidated Statement of Cash Flows
(In thousands)
(unaudited)
Three Months Ended
March 31,
______________________
1999 1998
_________ _________
CASH FLOW FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . $ 323 $ 433
Depreciation & amortization. . . . . . . . 151 104
Deferred income taxes (9) (19)
Change in working capital, net of effect
of purchase of GAC . . . . . . . . . . (396) (302)
Net cash flows provided by operating
activities . . . . . . . . . . . . . . 69 216
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock . . 16 5
Purchase of treasury stock . . . . . . . . 0 (510)
Net cash flows provided by (used in)
financing activities 16 (505)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant & equipment. . (150) (57)
Sale of property, plant & equipment. . . . 20 6
Purchase of GAC. . . . . . . . . . . . . . (260) 0
Purchase of investments. . . . . . . . . . 0 (2,338)
Maturity of investments. . . . . . . . . . 778 2,595
Change in other assets . . . . . . . . . . (5) 5
Net cash flows provided by investing
activities 383 211
INCREASE (DECREASE) IN CASH. . . . . . . . . . 468 (78)
Cash and cash equivalents at beginning of quarter 1,537 1,430
Cash and cash equivalents at end of quarter $ 2,005 $ 1,352
<PAGE>
O.I. CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The accompanying unaudited consolidated financial statements have been
prepared by O.I. Corporation and include all adjustments which are, in the
opinion of management, necessary for a fair presentation of financial results
for the three months ended March 31, 1999 and 1998, pursuant to the rules and
regulations of the Securities and Exchange Commission. All adjustments and
provisions included in these statements are of a normal recurring nature.
All significant intercompany balances and transfers have been eliminated. For
further information regarding the Company's accounting policies, refer to the
Consolidated Financial Statements and related notes included in the Company's
Annual Report and Form 10-K for the year ended December 31, 1998.
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. Sales of the Company's products are recorded based on shipments
of products with no substantial right of return.
Effective February 1, 1999, the Company paid approximately $261,000 to
acquire certain assets and assumed certain liabilities of General Analysis
Corporation. The Company has recognized approximately $1,065,000 of goodwill
in connection with the acquisition. The purchase price allocation is
preliminary. Thus, as additional information concerning the value of assets
acquired and liabilities assumed becomes known, adjustments will be made to
the purchase price allocation. The acquisition is not expected to
significantly impact the Company's financial condition or results of
operations.
2. INVENTORIES.
Mar. 31, 1999 Dec. 31, 1998
_____________ _____________
Raw Materials $ 2,342,000 $ 2,041,000
Work in Process 540,000 810,000
Finished Goods 1,592,000 2,066,000
____________ _____________
$ 4,474,000 $ 4,917,000
3. EARNINGS PER SHARE.
The Company reports 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.
At March 31, 1999, options to acquire 94,800 shares of common stock at
weighted average exercise prices of $7.60 per share were not included in the
computation of dilutive earnings per share as the options' exercise price was
greater than the average market price of the common shares.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10Q includes certain statements that may be 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 10Q 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.
OPERATING RESULTS
Net sales for the quarter ended March 31, 1999 increased 5% to $6,105,000,
compared to $5,825,000 for the same period of the prior year, primarily due
to sales from General Analysis Corporation (GAC) acquired on February 1,
1999. Sales of total organic carbon (TOC) analyzers and sample preparation
products were down, while sales of gas chromatography (GC) systems and
components and revenue derived from service increased slightly. Sales of
flow analyzers were relatively flat.
First quarter 1999 international sales were down compared to the same quarter
of 1998 while domestic sales increased. In the domestic market, sales of
water analysis products to the pharmaceutical and semiconductor industries
were down compared to prior year, while sales to the environmental market
were flat compared to prior year. International sales were down in all
markets compared to prior year, and the Company continues to emphasize sales
to international markets by investing in staff and travel to Asia and Europe.
Gross profit was $2,625,000, or 43% of sales, for the first quarter of 1999,
compared to $2,721,000, or 47% of sales, for the same quarter of 1998. The
decrease in gross profit was due to product mix, an increase in the cost
related to service revenue, an increase in warranty expense, and an increase
in unabsorbed manufacturing expenses. Gross profit was also negatively
impacted due to operating inefficiencies and transition costs relating to the
acquisition of GAC.
Research and development (R&D) expenses for the first quarter of 1999 were
$389,000, or 6.4% of sales, compared to 1998 first quarter expenses of
$384,000, or 6.6% of sales. The Company's product development effort
consists of improving existing products and developing possible new products
and applications.
Selling, general, and administrative (SG&A) expenses for the first quarter of
1999 increased 3% to $1,823,000, or 31% of sales, compared to $1,777,000, or
31% of sales for 1998. SG&A expenses for the first quarter of 1999 were
higher than 1998 due to the acquisition of GAC. Salaries, rent, and other
related expenses increased due to the acquisition and addition of the GAC
office in South Norwalk, CT.
Income before tax for the first quarter of 1999 amounted to $515,000,
compared to $690,000 for the same period of 1998. The lower profit for 1999
was primarily a result of decreased gross margin and increased SG&A expense.
The effective tax rates were 37% for 1998 and 1999. Net income after tax
for the first quarter of 1999 was down 25% to $323,000, compared to $433,000
in the same period of 1998. Basic earnings per share was $0.10 per share in
the first quarter of 1999 compared to $0.11 per share for the same period of
1998. Diluted earnings per share decreased to $0.09 per share in the first
quarter of 1999, compared to $0.11 per share in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $2,005,000 as of March 31, 1999, compared
to $1,537,000 as of December 31, 1998. Working capital, as of March 31,
1999, was $9,091,000, compared to $10,029,000 as of December 31, 1998.
Working capital decreased primarily due to a decrease in inventory and an
increase in accrued liabilities. Much of the increase in accrued liabilities
related to the acquisition of GAC. Working capital, as a percentage of total
assets, was 47% as of March 31, 1999, compared to 53% at December 31, 1998.
The current ratio was 3.2 to 1 at March 31, 1999, as compared to 3.6 to 1 at
December 31, 1998. Total liabilities to equity was 29% as of March 31, 1999,
compared to 28% as of December 31, 1998.
Net cash flow provided from operating activities for the period ending March
31, 1999, was $69,000, as compared to $216,000 for the same period of 1998.
The decrease in cash flow from operating activities for 1998 was primarily
due to the decrease in net income and an increase in accounts receivable and
investment in sales-type leases, offset in part by a decrease in inventory.
Net cash flow provided by (used in) financing activities for the first
quarter 1999 was $16,000, compared to ($505,000) for the first quarter 1998.
The increase in cash flow provided by financing activities was the result of
the Company not purchasing any treasury stock during the first quarter of
1999. Net cash flow provided by investing activities was $383,000 for the
first quarter 1999, compared to $211,000 for the first quarter 1998. The
increase in cash provided by investing activities was due to the maturity of
certain investments, offset in part by the purchase of GAC. The Company has
financed its growth from funds generated from operations and expects to
continue to do so for the foreseeable future.
Management regularly evaluates opportunities to acquire products or
businesses complementary to the Company's operations. Such acquisition
opportunities, if they arise and are successfully consummated, may involve
the use of cash, or, depending upon the size and terms of the acquisitions
may involve equity or debt financing. Although the Company has completed
five acquisitions in the past five years, the Company cannot guarantee that
it will be able to successfully consummate any future acquisitions or that,
if consummated, that they will have either a short-term or a long-term
positive effect on the Company's results of operations.
MARKET RISK
The Company is exposed to a variety of risks, including changes in interest
rates and the market value of its investments. In the normal course of
business, the company employs, established polices and procedures to manage
its exposure to changes in the market value of its investments. To date, the
Company has not experienced any material effects to its financial position or
results of operations due to market risks. The fair value of the Company's
investments in debt securities at March 31, 1999 was $1,996,451.
YEAR 2000
Year 2000 Issue. Many software applications, hardware and equipment and
embedded chip systems identify dates using only the last two digits of the
year. These products may be unable to distinguish between dates in the year
2000 and the dates in the year 1900. That inability (referred to as the
"Year 2000" issue), if not addressed, could cause applications, equipment or
systems to fail or provide incorrect information after December 31, 1999, or
when using dates after December 31, 1999. This in turn could have an adverse
effect on the Company due to the Company's direct dependence on its own
applications, equipment, and systems and indirect dependence on those of
other entities with which the Company must interact.
Compliance Program. In order to address the Year 2000 issue, the Company
established during 1998 a project team to assure that key automated systems
and related processes will remain functional through year 2000. The team will
address the project in the following stages: (i) awareness, (ii) assessment,
(iii) remediation, (iv) testing and (v) implementation of the necessary
modifications. The key automated systems consist of (a) project estimating,
management and financial systems applications, (b) hardware and equipment,
(c) embedded chip systems, and (d) third-party developed software. The
evaluation of the Year 2000 issue includes the evaluation of the Year 2000
exposure of third parties material to the operations of the Company.
Company State of Readiness. The awareness phase of the Year 2000 project has
begun with a corporate-wide awareness program , which will continue to be
updated throughout the life of the project. The assessment phase of the
project involves, among other things, efforts to obtain representations and
assurances from third parties, including third party vendors, that their
hardware and equipment, embedded chip systems and software being used by or
impacting the Company or any of its business units are or will be modified to
be Year 2000 compliant. To date, the Company does not expect that responses
from such third parties will be conclusive. As a result, management cannot
predict the potential consequences if these or other third parties are not
Year 2000 compliant. The exposure associated with the Company's interaction
with third parties is also currently being evaluated. Through the awareness
program, the Company has determined that some internal applications are not
Year 2000 compliant. The Company plans to replace or upgrade these systems
by mid-1999. The Company has evaluated its products and believes that most
of the products it is currently shipping are Year 2000 compliant. The
Company has plans to upgrade the products that are not Year 2000 compliant
and anticipates completion of this process during 1999. The Company believes
it has no legal obligation to upgrade previously shipped products that are
not Year 2000 compliant. It may make available for sale compliance fixes for
certain products.
Management expects that the remediation, testing, and implementation phases
will be completed prior to the Year 2000.
Costs to Address Year 2000 Compliance Issues. While the total cost to the
Company of the Year 2000 project is still being evaluated, management
currently estimates that the costs to be incurred by the Company in 1999 and
2000 associated with assessing and testing applications, hardware and
equipment, embedded chip systems, and third party developed software will be
less than $150,000. To date, the Company has not expended significant funds
related to its Year 2000 compliance assessment.
Risk of Non-Compliance and Contingency Plans. The major applications, which
pose the greatest Year 2000 risks for the Company if implementation of the
Year 2000 compliance program is not successful, are the Company's systems,
financial systems applications and related third-party software. Potential
problems if the Year 2000-compliance program is not successful include
disruptions of the Company's revenue gathering from and distribution to its
customers and vendors and the inability to perform its other financial and
accounting functions.
The goal of the Year 2000 project is to ensure that all of the critical
systems and processes, which are under the direct control of the Company,
remain functional. However, because certain systems and processes may be
interrelated with systems outside of the control of the Company, there can be
no assurance that all implementations will be successful. Accordingly, as
part of the Year 2000 project, contingency and business plans will be
developed to respond to any failures as they may occur. Such contingency and
business plans are scheduled to be completed during 1999. Because the
Company's internal systems are PC-based, management does not expect the costs
to the Company of the Year 2000 project to have a material adverse effect on
the Company's financial position, results of operations or cash flows.
However, based on information available at this time, the Company cannot
conclude that any failure of the Company or third parties to achieve Year
2000 compliance will not adversely affect the Company.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities: None
Item 3. Defaults upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K: Reference is made to the Reports
on Form 8-K filed on February 12, 1999 and April 12, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
O.I. CORPORATION
(Registrant)
Date: May 13, 1999 BY: /s/ William W. Botts
___________________________
William W. Botts
President/CEO
Date: May 13, 1999 BY: /s/ Julie A. Wright
___________________________
Julie A. Wright
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>This schedule contains summary financial
information extracted from the condensed consolidated
balance sheet and the condensed consolidated statement
of earnings and is qualified in its entirety by
reference to such financial statements.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 2,005,000
<SECURITIES> 1,994,000
<RECEIVABLES> 3,923,000
<ALLOWANCES> 255,000
<INVENTORY> 4,474,000
<CURRENT-ASSETS> 13,288,000
<PP&E> 5,828,000
<DEPRECIATION> 2,184,000
<TOTAL-ASSETS> 19,501,000
<CURRENT-LIABILITIES> 4,197,000
<BONDS> 0
0
0
<COMMON> 410,000
<OTHER-SE> 14,675,000
<TOTAL-LIABILITY-AND-EQUITY> 19,501,000
<SALES> 6,105,000
<TOTAL-REVENUES> 6,105,000
<CGS> 3,480,000
<TOTAL-COSTS> 1,237,000
<OTHER-EXPENSES> 975,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 515,000
<INCOME-TAX> 192,000
<INCOME-CONTINUING> 323,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 323,000
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.09
</TABLE>
