<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 September 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 September 30, 1999:
3,146,603 shares
<PAGE> 2
O.I. CORPORATION
Condensed Consolidated Balance Sheet
(In thousands, except par value)
(unaudited)
<TABLE>
<CAPTION>
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 851 $ 1,537
Short-term investments ....................................... 1,210 2,772
Accounts receivable, net of allowance for doubtful accounts
of $254 and $216, respectively............................. 4,492 3,361
Investment in sales-type lease ............................... 511 459
Inventories .................................................. 4,557 4,917
Current deferred tax asset ................................... 538 538
Other current assets ......................................... 187 302
-------- --------
Total current assets ...................................... 12,346 13,886
Property, plant and equipment, net ............................... 3,812 3,620
Investment in sales-type lease, net of current ................... 534 576
Long-term investments ............................................ 1,258 0
Goodwill ......................................................... 1,379 399
Other assets ..................................................... 541 348
-------- --------
TOTAL ASSETS .............................................. $ 19,870 $ 18,829
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 1,960 $ 1,198
Accrued compensation ......................................... 678 752
Accrued expenses ............................................. 2,158 1,907
-------- --------
Total current liabilities ................................. 4,796 3,857
Deferred income taxes ............................................ 203 228
-------- --------
TOTAL LIABILITIES ......................................... 4,999 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, 3,147 and 3,349 outstanding .......... 410 410
Additional paid in capital ................................... 4,376 4,374
Treasury stock, 956 and 754 shares respectively, at cost ..... (4,196) (3,328)
Retained earnings ............................................ 14,281 13,288
-------- --------
TOTAL SHAREHOLDERS' EQUITY ................................ 14,871 14,744
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................ $ 19,870 $ 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 Nine Months Ended
September 30 September 30
------------------------ -----------------------
1999 1998 1999 1998
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net sales ........................................... $ 6,922 $ 6,077 $19,825 $17,653
Cost of goods sold .................................. 4,028 3,321 11,344 9,716
------- ------- ------- -------
Gross profit ........................................ 2,894 2,756 8,481 7,937
Research and development expenses ................... 551 371 1,369 1,118
Selling, general and administrative expenses ........ 1,975 1,776 5,802 5,052
------- ------- ------- -------
Operating income .................................... 368 609 1,310 1,767
Interest income/other income ........................ 82 130 269 397
------- ------- ------- -------
Income before income taxes .......................... 450 739 1,579 2,164
Provision for taxes on earnings ..................... 164 277 586 808
------- ------- ------- -------
Net income .......................................... $ 286 $ 462 $ 993 $ 1,356
======= ======= ======= =======
Earnings per share:
Basic ........................................... $ 0.09 $ 0.13 $ 0.30 $ 0.37
Diluted ......................................... $ 0.09 $ 0.13 $ 0.30 $ 0.37
Shares used in computing earnings per share:
Basic ........................................... 3,187 3,437 3,266 3,632
Diluted ......................................... 3,226 3,518 3,329 3,705
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>
Nine Months Ended
Sept. 30, 1999 Sept. 30, 1998
-------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 993 $ 1,356
Depreciation and amortization .................................... 470 293
Deferred income taxes ............................................ (25) (15)
Change in working capital ........................................ (564) (870)
Gain on disposition of equipment ................................. (9) (15)
------- -------
Net cash flows provided by operating activities ............... 865 749
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment .............. 24 38
Purchase of property, plant and equipment ........................ (531) (1,529)
Purchase of General Analysis Corporation ......................... (260) 0
Purchase of manufacturing rights ................................. (190) 0
Purchase of investments .......................................... (2,322) (2,338)
Maturity of investments .......................................... 2,626 4,376
Change in other assets ........................................... (32) 12
------- -------
Net cash flows (used in) provided by investing activities ..... (685) 559
CASH FLOW FROM FINANCING ACTIVITIES:
Purchase of treasury stock ....................................... (894) (2,111)
Issuance of common stock ......................................... 28 20
------- -------
Net cash flows used in financing activities ................... (866) (2,091)
NET DECREASE IN CASH AND CASH EQUIVALENTS ............................ (686) (783)
Cash and cash equivalents at beginning of period ..................... 1,537 1,430
------- -------
Cash and cash equivalents at end of period ........................... $ 851 $ 647
======= =======
</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 nine months ended
September 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
$1,074 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.
2. INVENTORIES.
<TABLE>
<CAPTION>
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
Raw Materials $ 2,726 $ 2,041
Work in Process 318 810
Finished Goods 1,513 2,066
----------- ---------
$ 4,557 $ 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 share outstanding and all dilutive potential common shares
outstanding. Stock options are the only dilutive potential common shares
the Company has outstanding. At September 30, 1999, options to acquire
108 shares of common stock at weighted average exercise price of $7.28
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 third quarter of 1999 increased 14% to $6,922,000, compared
to $6,077,000 for 1998, primarily due to sales of beverage and refrigerant air
monitoring products obtained in the acquisition of General Analysis Corporation
(GAC) assets, and increased sales of total organic carbon (TOC) analyzers and
sample preparation products, which offset lower sales of gas chromatography
(GC) systems and components and flow analyzers.
International sales for the third quarter of 1999 grew slightly, while domestic
sales contributed the majority of the growth in sales.
Year-to-date sales through September 30, 1999 increased 12% to $19,825,000
compared to $17,653,000 for 1998, primarily due to sales of beverage and
refrigerant air monitoring equipment obtained in the acquisition of GAC assets.
Year-to-date sales of GC systems and components and revenue derived from
service increased, while sales of TOC analyzers, flow analyzers and sample
preparation products decreased.
International sales for the nine months ended September 30, 1999 decreased as
compared to the same period of 1998, while domestic sales increased.
Gross profit increased to $2,894,000 for the third quarter of 1999, compared to
$2,756,000 for the same quarter of 1998. Gross profit, as a percent of sales,
decreased to 42% for the third quarter of 1999, compared to 45% for the same
quarter of 1998. The increase in gross profit dollars was due to the increase
in sales. The decrease in gross profit percent was due to product mix, an
increase in cost related to service revenue, and increased manufacturing
variance. The increased manufacturing variance was primarily due to lower sales
volume and accordingly production of beverage and refrigerant monitoring
products obtained in the acquisition of GAC assets. To reduce costs, the
manufacturing of the beverage and refrigerant air monitoring products will be
relocated to the Company's headquarters in College Station, Texas during the
fourth quarter of 1999.
Year-to-date gross profit increased to $8,481,000 through September 30, 1999,
compared to $7,937,000 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 changes in 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 operations at GAC.
<PAGE> 7
Research and development (R&D) expenses for the third quarter of 1999 increased
49% to $551,000, or 8% of sales, compared to $371,000, or 6% of sales for the
same period of 1998. Year-to-date R&D expenses through September 30, 1999
increased 22% to $1,369,000, or 7% of sales, compared to $1,118,000, or 6% of
sales, for the same period of 1998. The increased amount of R&D expense for the
third quarter of 1999, compared to the same period of 1998, was due to new
product development cost at GAC, additional personnel, and an increase in the
purchase of supplies for R&D projects. The increased amount of R&D for the nine
months ended September 30, 1999 was due to new product development cost at GAC,
increased number of personnel, and an increase in consulting expense. These
increases were offset in part by a decrease in the purchase of supplies for R&D
projects.
Selling, general, and administrative (SG&A) expenses for the third quarter of
1999 increased 11% to $1,975,000, or 29% of sales, compared to $1,776,000, or
29% of sales, for 1998. SG&A expenses for the third quarter of 1999 were higher
than 1998 primarily due to cost relating to sales at GAC and increased staffing
in the domestic and international sales and service organization, offset in
part by a decrease in the accrual for certain discretionary employee benefits.
Year-to-date SG&A expenses through September 30, 1999, increased 15% to
$5,802,000, or 29% of sales, compared to $5,052,000, or 29% of sales, for the
same period of 1998. SG&A expenses for the nine months ended September 30, 1999
were higher than the same period of 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, increased staffing 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 has not resulted and is 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 for certain discretionary employee
benefits during 1999.
Income before tax decreased 39% to $450,000 for the third quarter of 1999,
compared to $739,000 for the same period of 1998. Year-to-date income before
tax decreased 27% to $1,579,000 through September 30, 1999, compared to
$2,164,000 for the same period of 1998. The lower profit for 1999 was due to
increased operating costs, decreased interest income and the one-time
settlement in 1998, offset in part by increased sales. The third quarter
effective tax rates were 36% in 1999 and 37% in 1998. The year-to-date
effective tax rates were 37% in 1999 and 1998.
Net income for the third quarter 1999 decreased 38% to $286,000, or $0.09 per
share diluted, compared to $462,000, or $0.13 per share diluted in the same
period of 1998. Year-to-date net income after tax decreased 27% to $993,000, or
$0.30 per share diluted through September 30, 1999, from $1,356,000, or $0.37
per share diluted for the same period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $851,000 as of September 30, 1999, compared
to $1,537,000 as of December 31, 1998. Working capital, as of September 30,
1999, was $7,550,000, a decrease of 25%, 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 38% as of September 30, 1999, compared to 53% as of December
31, 1998. The current ratio was 2.57 to 1 at September 30, 1999, as compared to
3.60 to 1 at December 31, 1998. Total liabilities-to-equity was 34% as of
September 30, 1999, compared to 28% at December 31, 1998.
<PAGE> 8
Net cash flow provided by operating activities for the nine months ended
September 30, 1999, was $865,000, compared to $749,000 for the same period of
1998. The increase in cash flow provided by operating activities for the first
nine months in 1999 was primarily due to the decrease in inventory and
increases in accounts payable and depreciation expense, offset in part by a
decrease in net income and an increase in accounts receivable. Net cash flow
(used in) provided by investing activities for the nine months ended September
30, 1999 was ($685,000), compared to $559,000 for the same period of 1998. The
increase in cash flow used in investing activities resulted from the
acquisition of GAC, the purchase of the manufacturing rights for a headspace
product, and decreased maturation of bonds, 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 nine
months ended June 30, 1999 was $866,000, compared to $2,091,000 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.
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 policies and procedures to manage its
exposure to changes in the market value of its investment. 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 September 30, 1999 was $2,458,277.
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 has implemented
one of
<PAGE> 9
these systems. The Company plans to implement the other system during the
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
has implemented a number of such plans with remaining actions expected to be
completed by December 31, 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.
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 have been
substantially completed with few issues remaining to be completed by December
31, 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: None
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: November 10, 1999 BY: /s/ Julie Wright
-----------------------------------
Julie Wright, Corp. Controller
Date: November 10, 1999 BY: /s/ William W. Botts
-----------------------------------
William W. Botts, President
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 851
<SECURITIES> 1,210
<RECEIVABLES> 4,746
<ALLOWANCES> 254
<INVENTORY> 4,557
<CURRENT-ASSETS> 12,346
<PP&E> 6,144
<DEPRECIATION> 2,332
<TOTAL-ASSETS> 19,870
<CURRENT-LIABILITIES> 4,796
<BONDS> 0
0
0
<COMMON> 410
<OTHER-SE> 14,461
<TOTAL-LIABILITY-AND-EQUITY> 14,871
<SALES> 19,825
<TOTAL-REVENUES> 19,825
<CGS> 11,344
<TOTAL-COSTS> 4,260
<OTHER-EXPENSES> 2,911
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,579
<INCOME-TAX> 586
<INCOME-CONTINUING> 993
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 993
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.30
</TABLE>
