<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 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 June 30, 1999:
3,191,757 shares
<PAGE> 2
O.I. CORPORATION
Condensed Consolidated Balance Sheet
(In thousands, except par value)
(unaudited)
<TABLE>
<CAPTION>
June 30, 1999 Dec 31, 1998
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................... $ 1,351 $ 1,537
Short-term investments ....................................... 1,155 2,772
Accounts receivable, net of allowance for doubtful accounts
of $255 and $216, respectively .......................... 3,873 3,361
Investment in sales-type lease ............................... 508 459
Inventories .................................................. 4,580 4,917
Current deferred tax asset ................................... 538 538
Other current assets ......................................... 237 302
-------- --------
Total current assets ...................................... 12,242 13,886
Property, plant and equipment, net ............................... 3,738 3,620
Investment in sales-type lease, net of current ................... 604 576
Long-term investments ............................................ 1,207 0
Goodwill ......................................................... 1,406 399
Other assets ..................................................... 434 348
-------- --------
TOTAL ASSETS .............................................. $ 19,631 $ 18,829
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 1,636 $ 1,198
Accrued compensation ......................................... 853 752
Accrued expenses ............................................. 2,145 1,907
-------- --------
Total current liabilities ................................. 4,634 3,857
Deferred income taxes ............................................ 214 228
-------- --------
TOTAL LIABILITIES ......................................... 4,848 4,085
Shareholders' equity:
Preferred stock, $0.10 par value, 3,000 shares authorized,
no shares issued and outstanding
Common stock $0.10 par value, 10,000 shares authorized,
4,103 shares issued, 3,192 and 3,349 outstanding .......... 410 410
Additional paid in capital ................................... 4,376 4,374
Treasury stock, 911 and 754 shares respectively, at cost ..... (3,998) (3,328)
Retained earnings ............................................ 13,995 13,288
-------- --------
TOTAL SHAREHOLDERS' EQUITY ................................ 14,783 14,744
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................ $ 19,631 $ 18,829
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements
<PAGE> 3
O.I. CORPORATION
Condensed Consolidated Statement of Earnings
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ----------------------
1999 1998 1999 1998
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net sales ...................................... $ 6,798 $ 5,752 $12,903 $11,577
Cost of goods sold ............................. 3,835 3,292 7,315 6,396
------- ------- ------- -------
Gross profit ................................... 2,963 2,460 5,588 5,181
Research and development expenses .............. 430 363 819 747
Selling, general and administrative expenses ... 2,004 1,499 3,827 3,276
------- ------- ------- -------
Operating income ............................... 529 598 942 1,158
Interest income/other income ................... 84 136 186 266
------- ------- ------- -------
Income before income taxes ..................... 613 734 1,128 1,424
Provision for taxes on earnings ................ 229 274 421 531
------- ------- ------- -------
Net income ..................................... $ 384 $ 460 $ 707 $ 893
======= ======= ======= =======
Earnings per share:
Basic ...................................... $ 0.12 $ 0.13 $ 0.21 $ 0.24
Diluted .................................... $ 0.12 $ 0.12 $ 0.21 $ 0.23
Shares used in computing earnings per share:
Basic ...................................... 3,260 3,642 3,306 3,732
Diluted .................................... 3,300 3,717 3,318 3,800
Dividends per share ............................ -0- -0- -0- -0-
</TABLE>
See notes to unaudited condensed consolidated financial statements
<PAGE> 4
O.I. CORPORATION
Condensed Consolidated Statement of Cash Flows
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 707 $ 893
Depreciation and amortization .................................. 307 197
Deferred income taxes .......................................... (14) (23)
Change in working capital ...................................... (324) (84)
------- -------
Net cash flows provided by operating activities ................ 676 983
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment ............ 20 11
Purchase of property, plant and equipment ...................... (334) (768)
Purchase of General Analysis Corporation ....................... (260) 0
Purchase of investments ........................................ (1,462) (2,338)
Maturity of investments ........................................ 1,872 3,754
Change in other assets ......................................... (31) 12
------- -------
Net cash flows (used in) provided by investing activities ... (195) 671
CASH FLOW FROM FINANCING ACTIVITIES:
Purchase of treasury stock ..................................... (692) (1,425)
Issuance of common stock ....................................... 25 9
------- -------
Net cash flows used in financing activities ................. (667) (1,416)
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............... (186) 238
Cash and cash equivalents at beginning of period ................... 1,537 1,430
------- -------
Cash and cash equivalents at end of period ......................... $ 1,351 $ 1,668
======= =======
</TABLE>
See notes to unaudited condensed consolidated financial statements
<PAGE> 5
O.I. CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The accompanying unaudited condensed consolidated financial statements
have been prepared by O.I. Corporation (the Company) and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of financial results for the three and six months ended June
30, 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 and no substantial right of return exists.
Effective February 1, 1999, the Company paid approximately $260 to
acquire certain assets and assumed certain liabilities of General
Analysis Corporation (GAC). The Company has recognized approximately
$1,065 of goodwill in connection with the acquisition. The purchase price
allocation is preliminary. Thus, as additional information concerning the
value of the 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.
<TABLE>
<CAPTION>
June 30, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
Raw Materials $ 2,338 $ 2,041
Work in Process $ 391 $ 810
Finished Goods $ 1,851 $ 2,066
------------- -------------
$ 4,580 $ 4,917
============= =============
</TABLE>
3. COMPREHENSIVE INCOME.
Comprehensive income is comprised of two components: net income and
comprehensive income. Other comprehensive income refers to revenues,
expenses, gains and losses that under generally accepted accounting
principles are recorded as an element of stockholder's equity and are
excluded from net income. The Company's only component of comprehensive
income is net income.
4. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES.
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 common shares
the Company has outstanding. At June 30, 1999, options to acquire 108
shares of common stock at weighted average exercise price of $7.27 per
share were not included in the computation of earnings per share as the
options' exercise price is greater than the average market price of the
common shares.
<PAGE> 6
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 may differ materially from those projected
in the forward-looking statements.
OPERATING RESULTS
Net sales for the second quarter of 1999 increased 18% to $6,798,000, compared
to $5,752,000 for 1998, primarily due to the acquisition of GAC in February
1999. Sales of gas chromatography (GC) systems and components, sample
preparation products and revenue derived from service increased, while sales of
total organic carbon (TOC) analyzers and flow analyzers decreased.
International sales for the second quarter of 1999 grew slightly, while
domestic sales contributed the majority of the growth in sales.
Year-to-date sales through June 30, 1999 increased 11% to $12,903,000 compared
to $11,577,000 for 1998. Year-to-date sales of GC systems and components and
revenue derived from service increased, while sales of TOC analyzers and sample
preparation products decreased. Sales of flow analyzers were relatively flat.
International sales for the six months ended June 30, 1999 decreased as
compared to the same period of 1998, while domestic sales increased.
Gross profit increased to $2,963,000, or 44% of sales, for the second quarter
of 1999, compared to $2,460,000, or 43% of sales, for the same quarter of 1998.
The increase in gross profit was due to product mix, increased manufacturing
efficiencies, and decreased warranty expense, offset in part by an increase in
cost related to service revenue.
Year-to-date gross profit increased to $5,588,000 through June 30, 1999,
compared to $5,181,000 for the same period of 1998. Year-to-date gross profit,
as a percent of sales, was 43% for 1999 and 45% for 1998. Year-to-date gross
profit dollars increased due to the increase in sales. Year-to-date gross
profit, as a percent of sales, decreased due to product mix, an increase in
warranty expense, and an increase in cost related to service revenue.
Year-to-date gross profit, as a percent of sales, was also adversely affected
by operating inefficiencies related to the acquisition of GAC that occurred
primarily in the first quarter of 1999.
Research and development (R&D) expenses for the second quarter of 1999 were
$430,000, or 6% of sales, compared to $363,000, or 6% of sales for the same
period of 1998. Year-to-date R&D expenses through June 30, 1999 increased 10%
to $819,000, or 6% of sales, compared to $747,000, or 6% of sales, for the same
period of 1998. The increased amount of R&D expense for the second quarter of
1999 and for the six months ended June 30, 1999, compared to the prior periods,
was due to the acquisition of GAC, offset in part by a decrease in the purchase
of supplies for R&D projects.
<PAGE> 7
Selling, general, and administrative (SG&A) expenses for the second quarter of
1999 increased 34% to $2,004,000, or 29% of sales, compared to $1,499,000, or
26% of sales, for 1998. SG&A expenses for the second quarter of 1999 were
higher than 1998 due to the settlement during 1998 of certain post-closing
matters associated with a prior year asset acquisition, higher commissions due
to the increase in sales, and the acquisition of GAC in February 1999. The
terms of the 1998 settlement agreement resulted in the Company purchasing
100,000 shares of the Company's common stock for $2.20 per share from the
seller of the assets. At the time of the settlement, the market value of the
Company's common stock was $5.00 per share. The $280,000 difference between the
market value and the purchase price of the Company's common stock received in
the settlement was accounted for as a recovery of legal fees and other excess
operating costs incurred in connection with the acquisition, reducing SG&A
expense for the three months ended June 30, 1998. This settlement was not
expected to result in a reduction of SG&A expenses in any future periods. These
increases were offset in part by a reduction in the accrual of certain
discretionary employee benefits during the second quarter of 1999. Year-to-date
SG&A expenses through June 30, 1999, increased 17% to $3,827,000, or 30% of
sales, compared to $3,276,000, or 28% of sales, for the same period of 1998.
Year-to-date SG&A expenses decreased due to the factors discussed above.
Income before tax decreased 16% to $613,000 for the second quarter of 1999,
compared to $734,000 for the same period of 1998. Year-to-date income before
tax decreased 21% to $1,128,000 through June 30, 1999, compared to $1,424,000
for the same period of 1998. The lower profit for 1999 was due to increased
operating costs, decreased interest income and one-time SG&A settlement in
1998, offset in part by increased sales. The second quarter and year-to-date
effective tax rates were 37% in 1999 and 1998.
Net income for the second quarter 1999 decreased 17% to $384,000, or $0.12 per
share diluted, compared to $460,000, or $0.12 per share diluted in the same
period of 1998. Year-to-date net income after tax decreased 21% to $707,000, or
$0.21 per share diluted through June 30, 1999, from $893,000, or $0.23 per
share diluted for the same period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $1,351,000 as of June 30, 1999, compared to
$1,537,000 as of December 31, 1998. Working capital, as of June 30, 1999, was
$7,608,000, a decrease of 24%, compared to $10,029,000 as of December 31, 1998.
The decrease in working capital was primarily due to the purchase of treasury
stock, the acquisition of GAC, and the reinvestment of maturing bonds into
longer-term bonds to increase yield. Working capital, as a percentage of total
assets, was 39% as of June 30, 1999, compared to 53% as of December 31, 1998.
The current ratio was 2.64 to 1 at June 30, 1999, as compared to 3.60 to 1 at
December 31, 1998. Total liabilities-to-equity was 33% as of June 30, 1999,
compared to 28% at December 31, 1998.
Net cash flow provided by operating activities for the six months ended June
30, 1999, was $676,000, compared to $983,000 for the same period of 1998. The
decrease in cash flow provided by operating activities for the first six months
in 1999 was primarily due to the decrease in net income and an increase in
accounts receivable, offset in part by a decrease in inventory and an increase
in accounts payable. Net cash flow (used in) provided by investing activities
for the six months ended June 30, 1999 was ($195,000), compared to $671,000 for
the same period of 1998. The increase in cash flow used in investing activities
resulted from the acquisition of GAC, offset in part by decreased purchase of
property, plant and equipment due to the completion of the facility expansion
in Texas. Net cash flow used in financing activities for the six months ended
June 30, 1999 was $667,000, compared to $1,416,000 for the same period of 1998.
The decrease in cash flow used in financing activities was due to a decrease in
the purchase of treasury stock.
<PAGE> 8
MARKET RISK
The Company is exposed to a variety of risks, including changes in interest
rates and the market value of its investment. In the normal course of business,
the Company employs established policies 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 June 30, 1999 was $2,354,804.
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 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 is
addressing 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 issues 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 has purchased replacement systems and plans to implement
these systems in the third or fourth quarter of 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.
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 expended approximately $100,000 related to
its Year 2000 Compliance assessment.
<PAGE> 9
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 of third parties to achieve Year 2000 compliance will not adversely
affect the Company.
<PAGE> 10
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: At the
Company's Annual Meeting of Shareholders on May 10, 1999, the
following members were elected to the Board of Directors:
<TABLE>
<CAPTION>
Votes For Withheld
--------- --------
<S> <C> <C>
Jack S. Anderson 2,628,657 14,734
William W. Botts 2,628,657 14,734
Edwin B. King 2,628,657 14,734
Craig R. Whited 2,628,657 14,734
</TABLE>
The following proposals were also approved at the Company's Annual
Meeting:
<TABLE>
<CAPTION>
Votes For Against Abstain
--------- ------- -------
<S> <C> <C> <C>
Ratification of PricewaterhouseCoopers LLP 2,552,510 88,500 2,381
as the Company's auditors
</TABLE>
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K: None
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: 8/4/99 BY: /s/ Julie Wright
----------------- --------------------------------
Julie Wright, Corporate Controller
Date: 8/4/99 BY: /s/ William W. Botts
----------------- --------------------------------
William W. Botts, President
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The 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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,351
<SECURITIES> 1,155
<RECEIVABLES> 4,128
<ALLOWANCES> 255
<INVENTORY> 4,580
<CURRENT-ASSETS> 12,242
<PP&E> 5,977
<DEPRECIATION> 2,239
<TOTAL-ASSETS> 19,631
<CURRENT-LIABILITIES> 4,634
<BONDS> 0
0
0
<COMMON> 410
<OTHER-SE> 14,373
<TOTAL-LIABILITY-AND-EQUITY> 19,631
<SALES> 12,903
<TOTAL-REVENUES> 12,903
<CGS> 7,315
<TOTAL-COSTS> 2,742
<OTHER-EXPENSES> 1,904
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,128
<INCOME-TAX> 421
<INCOME-CONTINUING> 707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 707
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.21
</TABLE>
