UNITED
STATES
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, 2010
OR
|
o
|
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:
|
|
(979)
690-1711
|
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
þ
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such
files). Yes
¨
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. Large accelerated filer
¨
Accelerated
filer
¨
Non-accelerated
filer
¨
Smaller
reporting company
þ
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
¨
No
þ
As of
November 1, 2010, there were 2,362,388 shares of the issuer’s common stock, $.10
par value, outstanding.
Caution
Regarding Forward-Looking Information; Risk Factors
This
quarterly report on Form 10-Q contains forward-looking statements within the
meaning of United States securities laws, including the United States Private
Securities Litigation Reform Act of 1995. From time to time, our public filings,
press releases and other communications will contain forward-looking statements.
Forward-looking information is often, but not always, identified by the use of
words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “forecast”,
“target”, “project”, “may”, “will”, “should”, “could”, “estimate”, “predict” or
similar words suggesting future outcomes or language suggesting an outlook.
Forward-looking statements in this quarterly report on Form 10-Q include, but
are not limited to, statements with respect to expectations of our prospects,
future revenues, earnings, activities and technical results.
Forward-looking
statements and information are based on current beliefs as well as assumptions
made by, and information currently available to, us concerning anticipated
financial performance, business prospects, strategies and regulatory
developments. Although management considers these assumptions to be reasonable
based on information currently available to it, they may prove to be incorrect.
The forward-looking statements in this quarterly report on Form 10-Q are made as
of the date it was issued and we do not undertake any obligation to update
publicly or to revise any of the included forward-looking statements, whether as
a result of new information, future events or otherwise, except as required by
applicable law.
By their
very nature, forward-looking statements involve inherent risks and
uncertainties, both general and specific, and risks that outcomes implied by
forward-looking statements will not be achieved. We caution readers not to place
undue reliance on these statements as a number of important factors could cause
the actual results to differ materially from the beliefs, plans, objectives,
expectations and anticipations, estimates and intentions expressed in such
forward-looking statements. These risks and uncertainties may cause our actual
results, levels of activity, performance or achievements to be materially
different from those expressed or implied by any forward-looking statements.
When relying on our forward-looking statements to make decisions, investors and
others should carefully consider the foregoing factors and other uncertainties
and potential events.
Our
public filings are available at www.oico.com and on EDGAR at
www.sec.gov.
Please
see “Part I, Item 1A—Risk Factors” of our annual report on Form 10-K for
the year ended December 31, 2009, as well as Part II, Item IA—“Risk
Factors” of this quarterly report on Form 10-Q, for further discussion regarding
our exposure to risks. Additionally, new risk factors emerge from time to time
and it is not possible for us to predict all such factors nor to assess the
impact such factors might have on our business or the extent to which any factor
or combination of factors may cause actual results to differ materially from
those contained in any forward looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
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and
Subsidiary
|
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Condensed
Consolidated Balance Sheets
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|
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(In
Thousands, Except Par Value)
|
|
|
|
|
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|
September
30,
|
|
|
|
|
|
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|
2010
|
|
|
December
31,
|
|
|
|
|
(Unaudited)
|
|
|
2009
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
6,340
|
|
|
$
|
4,614
|
|
|
Accounts
receivable, trade, net of allowance for
|
|
|
|
|
|
|
|
|
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doubtful
accounts of $176 and $206, respectively
|
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5,532
|
|
|
|
4,371
|
|
|
Inventories,
net
|
|
|
5,318
|
|
|
|
5,657
|
|
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Current
deferred income tax assets
|
|
|
651
|
|
|
|
651
|
|
|
Other
current assets
|
|
|
663
|
|
|
|
1,177
|
|
|
Total
current assets
|
|
|
18,504
|
|
|
|
16,470
|
|
|
|
|
|
|
|
|
|
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Property,
plant, and equipment, net
|
|
|
2,615
|
|
|
|
2,787
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|
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Long-term
deferred income tax assets
|
|
|
566
|
|
|
|
566
|
|
|
Intangible
assets, net
|
|
|
533
|
|
|
|
507
|
|
|
Other
assets
|
|
|
170
|
|
|
|
257
|
|
|
Total
assets
|
|
$
|
22,388
|
|
|
$
|
20,587
|
|
|
|
|
|
|
|
|
|
|
|
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Liabilities
and Stockholders' Equity
|
|
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|
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|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable, trade
|
|
$
|
1,035
|
|
|
$
|
1,077
|
|
|
Accrued
compensation and other related expenses
|
|
|
1,137
|
|
|
|
761
|
|
|
Accrued
liabilities
|
|
|
1,471
|
|
|
|
1,030
|
|
|
Total
current liabilities
|
|
|
3,643
|
|
|
|
2,868
|
|
|
|
|
|
|
|
|
|
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Uncertain
tax positions-Long term liabilities
|
|
|
27
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
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Commitments
and contingencies
|
|
|
|
|
|
|
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|
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|
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Stockholders'
equity:
|
|
|
|
|
|
|
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Common
stock, $.10 par value, 10,000 shares
|
|
|
|
|
|
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authorized,
4,103 shares issued, 2,361 and 2,363 outstanding,
respectively
|
|
|
410
|
|
|
|
410
|
|
|
Additional
paid-in capital
|
|
|
5,600
|
|
|
|
5,515
|
|
|
Treasury
stock, 1,742 and 1,740 shares, respectively, at cost
|
|
|
(13,161
|
)
|
|
|
(13,134
|
)
|
|
Retained
earnings
|
|
|
25,869
|
|
|
|
24,901
|
|
|
Total
stockholders' equity
|
|
|
18,718
|
|
|
|
17,692
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
22,388
|
|
|
$
|
20,587
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Unaudited Condensed Consoldiated Financial
Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
(In
Thousands, Except Per $ Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
5,474
|
|
|
$
|
4,030
|
|
|
$
|
15,719
|
|
|
$
|
11,931
|
|
|
Services
|
|
|
960
|
|
|
|
859
|
|
|
|
2,691
|
|
|
|
2,455
|
|
|
|
|
|
6,434
|
|
|
|
4,889
|
|
|
|
18,410
|
|
|
|
14,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
2,696
|
|
|
|
2,020
|
|
|
|
7,878
|
|
|
|
6,300
|
|
|
Services
|
|
|
381
|
|
|
|
335
|
|
|
|
992
|
|
|
|
1,009
|
|
|
|
|
|
3,077
|
|
|
|
2,355
|
|
|
|
8,870
|
|
|
|
7,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
3,357
|
|
|
|
2,534
|
|
|
|
9,540
|
|
|
|
7,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
1,955
|
|
|
|
1,634
|
|
|
|
5,650
|
|
|
|
5,239
|
|
|
Research
and development expenses
|
|
|
515
|
|
|
|
615
|
|
|
|
1,806
|
|
|
|
2,307
|
|
|
Operating
income (loss)
|
|
|
887
|
|
|
|
285
|
|
|
|
2,084
|
|
|
|
(469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income, net
|
|
|
13
|
|
|
|
8
|
|
|
|
33
|
|
|
|
35
|
|
|
Income
(loss) before income taxes
|
|
|
900
|
|
|
|
293
|
|
|
|
2,117
|
|
|
|
(434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes
|
|
|
338
|
|
|
|
81
|
|
|
|
794
|
|
|
|
(163
|
)
|
|
Net
income (loss)
|
|
$
|
562
|
|
|
$
|
212
|
|
|
$
|
1,323
|
|
|
$
|
(271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
0.09
|
|
|
$
|
0.56
|
|
|
$
|
(0.12
|
)
|
|
Diluted
|
|
$
|
0.24
|
|
|
$
|
0.09
|
|
|
$
|
0.56
|
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,363
|
|
|
|
2,357
|
|
|
|
2,365
|
|
|
|
2,354
|
|
|
Diluted
|
|
|
2,380
|
|
|
|
2,366
|
|
|
|
2,380
|
|
|
|
2,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per share of common stock
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
See Notes
to Unaudited Condensed Consolidated Financial Statements.
|
O.I.
Corporation
|
|
|
|
|
|
|
|
and
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
Net
income / (loss)
|
|
$
|
1,323
|
|
|
$
|
(271
|
)
|
|
Depreciation
and amortization
|
|
|
358
|
|
|
|
399
|
|
|
Stock
based compensation
|
|
|
69
|
|
|
|
83
|
|
|
Change
in working capital
|
|
|
555
|
|
|
|
1,113
|
|
|
Net
cash flows provided by operating activities
|
|
|
2,305
|
|
|
|
1,324
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
Purchase
of investments
|
|
|
(494
|
)
|
|
|
-
|
|
|
Sales
and maturity of investments
|
|
|
492
|
|
|
|
300
|
|
|
Purchase
of property, plant and equipment
|
|
|
(170
|
)
|
|
|
(106
|
)
|
|
Proceeds
from sale of property, plant and equipment
|
|
|
2
|
|
|
|
20
|
|
|
Change
in other assets
|
|
|
(43
|
)
|
|
|
(55
|
)
|
|
Net
cash flows (used in) provided by investing activities
|
|
|
(213
|
)
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock pursuant to exercise
|
|
|
|
|
|
|
|
|
|
of
employee stock options and employee stock purchase plan
|
|
|
38
|
|
|
|
55
|
|
|
Purchase
of Treasury stock
|
|
|
(49
|
)
|
|
|
(7
|
)
|
|
Payment
of cash dividends on common stock
|
|
|
(355
|
)
|
|
|
(353
|
)
|
|
Net
cash flows used in financing activities
|
|
|
(366
|
)
|
|
|
(305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
1,726
|
|
|
|
1,178
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
|
|
Beginning
of period
|
|
|
4,614
|
|
|
|
3,134
|
|
|
End
of period
|
|
$
|
6,340
|
|
|
$
|
4,312
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Unaudited Condensed Consolidated Financial
Statements.
|
|
|
|
|
|
|
|
|
O.I.
CORPORATION and SUBSIDIARY
Notes to
Unaudited Condensed Consolidated Financial Statements
|
1.
|
Basis
of Presentation.
|
O.I.
Corporation (the “Company”, “we”, or “our”), an Oklahoma corporation, was
organized in 1963. The Company designs, manufactures, markets, and
services analytical, monitoring and sample preparation products, components, and
systems used to detect, measure, and analyze chemical compounds.
The
consolidated financial statements included in this report have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all normal and recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation. These financial statements have not been audited by an independent
accountant. The consolidated financial statements include the accounts of the
Company and its subsidiary. All inter-company transactions and
balances have been eliminated in the financial statements. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations
for interim reporting.
The
Company believes that the disclosures are adequate to prevent the information
from being misleading. However, these financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K, for the year ended December 31,
2009. The financial data for the interim periods presented may not
necessarily reflect the results to be anticipated for the complete
year.
Inventories,
net, which include material, labor, and manufacturing overhead, are stated at
the lower of first-in, first-out cost or market (in thousands):
|
|
|
September
30,
|
|
|
December
31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
4,090
|
|
|
$
|
4,763
|
|
|
Work-in-process
|
|
|
304
|
|
|
|
415
|
|
|
Finished
goods
|
|
|
1,546
|
|
|
|
1,073
|
|
|
Reserves
|
|
|
(622
|
)
|
|
|
(594
|
)
|
|
|
|
$
|
5,318
|
|
|
$
|
5,657
|
|
|
3.
|
Earnings (loss) Per
Share.
|
The
following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share data):
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
|
Ended
September 30,
|
|
|
Ended
September 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Numerator,
earnings attributable to common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
$
|
562
|
|
|
$
|
212
|
|
|
$
|
1,323
|
|
|
$
|
(271
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic-weighted
average common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
2,363
|
|
|
|
2,357
|
|
|
|
2,365
|
|
|
|
2,354
|
|
|
Dilutive
effect of employee stock options
|
|
|
17
|
|
|
|
9
|
|
|
|
15
|
|
|
|
-
|
|
|
Diluted
outstanding shares
|
|
|
2,380
|
|
|
|
2,366
|
|
|
|
2,380
|
|
|
|
2,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.24
|
|
|
$
|
0.09
|
|
|
$
|
0.56
|
|
|
$
|
(0.12
|
)
|
|
Diluted
earnings per common share
|
|
$
|
0.24
|
|
|
$
|
0.09
|
|
|
$
|
0.56
|
|
|
$
|
(0.12
|
)
|
For the
three and nine months ended September 30, 2010, 73,000 shares were not
in-the-money and were thus anti-dilutive. These shares were not used
in the calculation of diluted earnings per share for 2010. For the
three and nine months ended September 30, 2009, there were 118,900 and 102,000
anti-dilutive shares, respectively.
4.
Stock-Based
Compensation.
On
January 1, 2006, we adopted the provisions of ASC 718 Compensation-Stock
Compensation. In accordance with ASC 718, our financial statements
recognize expense related to our stock-based compensation awards that were
granted after January 1, 2006, or that were unvested as of January 1, 2006,
based on their grant-date fair value.
Our
compensation cost for stock-based compensation for the three months ended
September 30, 2010 and 2009 was $23,000. Our compensation cost for stock-based
compensation was $69,000 and $83,000, respectively for the nine months ended
September 30, 2010 and 2009.
ASC 718
requires that cash flows from the exercise of stock options resulting from tax
benefits in excess of recognized cumulative compensation cost (excess tax
benefits) be classified as financing cash flows. There was no excess
tax benefit for the nine months ended September 30, 2010 or 2009.
No
options were granted during the nine months ended September 30, 2010 or
2009.
Other
information
As of
September 30, 2010, we had $58,000 of total unrecognized compensation cost
related to non-vested awards granted under our various share-based plans, which
we expect to recognize over a 0.6-year period.
We
received cash from options exercised during the first nine months of fiscal
years 2010 and 2009 of $1,000 and $14,000, respectively. The impact
of these cash receipts is included in financing activities in the accompanying
consolidated statements of cash flows.
The
Company’s practice has been to issue shares for option exercises out of treasury
stock as provided under the terms of the 2003 Incentive Compensation Plan. We
believe that our treasury stock holdings are sufficient to satisfy any exercises
in 2010.
5.
Segment
Data
The
Company categorizes its operations into two business segments: Laboratory
Products and Air-Monitoring Systems. Operations in these segments
include designing, manufacturing, marketing and selling analytical
instruments. In the Laboratory Products segment, the Company provides
products generally used to ensure regulatory compliance with environmental
requirements for water. Analytical instruments sold in the
Air-Monitoring Systems segment are used for trace-level detection of airborne
gaseous chemical-warfare agents.
Following
is the Company’s business segment information for September 30, 2010 and 2009
(in thousands):
|
|
|
Laboratory
|
|
|
Air-Monitoring
|
|
|
|
|
|
|
|
Products
|
|
|
Systems
|
|
|
Total
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
3rd
Quarter Revenue
|
|
$
|
4,082
|
|
|
$
|
2,352
|
|
|
$
|
6,434
|
|
|
Year
to Date Revenue
|
|
|
12,460
|
|
|
|
5,950
|
|
|
|
18,410
|
|
|
3rd
Quarter Operating income
|
|
|
216
|
|
|
|
671
|
|
|
|
887
|
|
|
Year
to Date Operating income
|
|
|
785
|
|
|
|
1,299
|
|
|
|
2,084
|
|
|
Total
Assets
|
|
|
17,886
|
|
|
|
4,502
|
|
|
|
22,388
|
|
|
Capital
Expenditures
|
|
|
154
|
|
|
|
16
|
|
|
|
170
|
|
|
Depreciation
and amortization
|
|
|
333
|
|
|
|
25
|
|
|
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3rd
Quarter Revenue
|
|
$
|
3,565
|
|
|
$
|
1,324
|
|
|
$
|
4,889
|
|
|
Year
to Date Revenue
|
|
|
10,476
|
|
|
|
3,910
|
|
|
|
14,386
|
|
|
3rd
Quarter Operating income
|
|
|
156
|
|
|
|
129
|
|
|
|
285
|
|
|
Year
to Date Operating income (loss)
|
|
|
(399
|
)
|
|
|
(70
|
)
|
|
|
(469
|
)
|
|
Total
Assets
|
|
|
16,449
|
|
|
|
3,415
|
|
|
|
19,864
|
|
|
Capital
Expenditures
|
|
|
105
|
|
|
|
1
|
|
|
|
106
|
|
|
Depreciation
and amortization
|
|
|
356
|
|
|
|
43
|
|
|
|
399
|
|
During
the third quarter of 2010, the Company entered into an Agreement and Plan of
Merger with ITT Corporation and Oyster Acquisition Corp. to be acquired for a
cash purchase price of $12 per share. In addition, the Agreement
provides for the payment of a special contingent dividend of up to $0.50 per
share to the Company’s shareholders as of a record date to be established by the
Company’s Board, provided the Company has a certain Net Cash Amount, as such
term is defined in the Agreement, as of immediately prior to the acquisition,
and after giving effect to the payment of the special contingent
dividend. The Company’s Board of Directors believes that at the
closing of the merger contemplated by the Agreement the Company’s Net Cash
Amount will exceed the amount required by the Agreement, after giving effect to
the payment of the $0.50 per share special contingent
dividend. Accordingly, the Company’s Board has declared a special
contingent dividend of $0.50 per share, with a record date of November 10, 2010
and payable on November 15, 2010.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS
OF OPERATIONS.
The
following discussion should be read in conjunction with the unaudited condensed
consolidated financial statements and the notes thereto. In addition, reference
should be made to our audited consolidated financial statements and notes
thereto and related “Management’s Discussion and Analysis of Financial Condition
and Results of Operations included in our annual report on Form 10-K for the
year ended December 31, 2009. This discussion also contains
forward-looking statements. Please see the “Caution Regarding
Forward-Looking Information; Risk Factors” above.
COMPANY
OVERVIEW
O.I.
Corporation, referred to as “the Company,” “OI,” “we,” “our” or “us”, was
organized in 1963 in accordance with the Business Corporation Act of the State
of Oklahoma as Clinical Development Corporation, a builder of medical and
research laboratories. In 1969, we moved from Oklahoma City, Oklahoma
to College Station, Texas and changed our name to Oceanography International
Corporation. To better reflect current business operations, we again
changed our name to O.I. Corporation in July 1980, and in January 1989 we began
doing business as OI Analytical.
At OI, we
provide innovative products for chemical monitoring and analysis. Our
products perform chemical detection, analysis, measurement and monitoring
applications in a wide variety of industries including food, beverage,
pharmaceutical, semiconductor, power generation, chemical, petrochemical and
security. Headquartered in College Station, Texas, we sell our
products throughout the world utilizing a direct sales force as well as a
network of independent sales representatives and distributors.
RECENT
DEVELOPMENTS
During
the third quarter of 2010, we entered into an Agreement and Plan of Merger with
ITT Corporation and Oyster Acquisition Corp. to be acquired for a cash purchase
price of $12 per share. In addition, the Agreement provides for the
payment of a special contingent dividend of up to $0.50 per share to our
shareholders as of a record date to be established by our Board, provided we
have a certain Net Cash Amount, as such term is defined in the Agreement, as of
immediately prior to our acquisition, and after giving effect to the payment of
the special contingent dividend. Our Board of Directors believes that
at the closing of the merger contemplated by the Agreement our Net Cash Amount
will exceed the amount required by the Agreement, after giving effect to the
payment of the $0.50 per share special contingent
dividend. Accordingly, our Board has declared a special contingent
dividend of $0.50 per share, with a record date of November 10, 2010 and payable
on November 15, 2010.
In
connection with the Agreement, the Company has filed its definitive proxy
statement with the SEC on October 14, 2010. Before making any voting
or investment decision relating to the Agreement or the transactions
contemplated by the Agreement, shareholders are urged to read carefully in their
entirety the proxy statement regarding the proposed transaction and any other
relevant documents filed by the Company with the SEC when they become available
because they will contain important information about the proposed
transaction
From an
operational standpoint, we continued to experience improved performance during
the third quarter with sales and profitability up significantly in both
operating segments. Our improved earnings have generated positive
cash flow with our cash up $1,726,000 as of September 30, 2010 as compared to
the previous year-end. Our cash and cash equivalents totaled
$6,340,000 at the end of the third quarter and we have no bank debt
outstanding.
Results of Operations
(dollars in 000’s)
Revenues
|
|
|
Three
Months Ended
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
|
September
30,
|
|
|
|
|
|
(dollars
in 000’s)
|
|
2010
|
|
|
% of
Rev.
|
|
|
2009
|
|
|
% of
Rev.
|
|
|
Increase
|
|
|
2010
|
|
|
% of
Rev.
|
|
|
2009
|
|
|
% of
Rev.
|
|
|
Increase
|
|
|
Sales
by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laboratory
Products
|
|
$
|
4,082
|
|
|
|
63.4
|
%
|
|
$
|
3,565
|
|
|
|
72.9
|
%
|
|
$
|
517
|
|
|
$
|
12,460
|
|
|
|
67.7
|
%
|
|
$
|
10,476
|
|
|
|
72.8
|
%
|
|
$
|
1,984
|
|
|
Air-Monitoring
Systems
|
|
|
2,352
|
|
|
|
36.6
|
%
|
|
|
1,324
|
|
|
|
27.1
|
%
|
|
|
1,028
|
|
|
|
5,950
|
|
|
|
32.3
|
%
|
|
|
3,910
|
|
|
|
27.2
|
%
|
|
|
2,040
|
|
|
Total
|
|
$
|
6,434
|
|
|
|
100.0
|
%
|
|
$
|
4,889
|
|
|
|
100.0
|
%
|
|
$
|
1,545
|
|
|
$
|
18,410
|
|
|
|
100.0
|
%
|
|
$
|
14,386
|
|
|
|
100.0
|
%
|
|
$
|
4,024
|
|
Total
revenue increased $1,545,000, or 31.6%, for the three months ended September 30,
2010 compared to the same period in 2009. Sales in the Laboratory
Products segment were up 15%, and sales in the Air-Monitoring Systems segment
were up 78% from the prior year.
In the
Laboratory Products segment, domestic product sales increased 16% compared to
the third quarter of 2009 due largely to increased demand for our gas
chromatography (or GC) sample introduction equipment used for testing volatile
organic compounds. International product sales increased 23% compared
to the third quarter of 2009 with gains in Asia and Latin America partially
offset by a decrease in European sales. Our new distribution network
in China has improved sales in that region with a particular emphasis on our
total organic carbon product while the decrease in sales to Europe was primarily
driven by decreased demand for GC related products in the major European
economies.
In the
Air-Monitoring Systems segment, sales increased 78% compared to the third
quarter of 2009 primarily due to the third of six quarterly shipments under our
previously announced contract with Bechtel National, Inc. for the purchase of
MINICAMS
®
. We
expect quarterly shipments to Bechtel to continue through the second quarter of
2011.
On a year
to date basis, our overall revenue increased $4,024,000, or 28.0%, compared to
the nine months ended September 30, 2009. Laboratory Products segment
sales increased 18.9% while Air-Monitoring Systems segment sales increased 52.2%
compared to the first nine months of 2009. Domestic product sales
provided the majority of growth in the Laboratory Products segment, up 40%
compared to the first nine months of 2009 primarily driven by strong demand for
GC product sales. International sales increased 15% during that
same period due largely to total organic carbon, or TOC, sales growth in
Asia. These increases were partially offset by a decrease in European
sales attributable to the sluggish European economy and lower sales of our
automated chemistry analyzers, or ACA, products. Air-Monitoring Systems sales
growth was attributable to shipments to Bechtel National as noted
above.
Gross
Profit
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
(dollars
in 000’s)
|
|
$
|
|
%
|
|
|
$
|
|
%
|
|
|
$
|
|
%
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laboratory
Products
|
|
$
|
2,035
|
|
49.9
|
%
|
|
$
|
1,687
|
|
47.3
|
%
|
|
$
|
6,041
|
|
48.5
|
%
|
|
$
|
4,726
|
|
|
45.1
|
%
|
|
Air-Monitoring
Systems
|
|
|
1,322
|
|
56.2
|
%
|
|
|
847
|
|
64.0
|
%
|
|
|
3,499
|
|
58.8
|
%
|
|
|
2,351
|
|
|
60.1
|
%
|
|
Total
|
|
$
|
3,357
|
|
52.2
|
%
|
|
$
|
2,534
|
|
51.8
|
%
|
|
$
|
9,540
|
|
51.8
|
%
|
|
$
|
7,077
|
|
|
49.2
|
%
|
Consolidated
gross profit for the three months ended September 30, 2010 increased $823,000,
or 32.5%, compared to the third quarter of 2009 because of higher sales
volume. Our consolidated gross profit margin increased to 52.2%
compared to 51.8% during the same period last year. Margins in our
Laboratory Products segment were up 2.6% on a percentage of sales basis because
of decreased warranty costs and a favorable mix of service
revenues. Margins in our Air-Monitoring Systems segment decreased
7.8% in the third quarter of 2010 due in large part to last year’s above average
margin which was largely attributable to a favorable mix of service
revenues.
On a year
to date basis, gross profit increased $2,463,000, or 34.8%, compared to last
year largely because of higher sales volume. As a percentage of
sales, gross profit margins increased 2.6% from last year with margins up 3.4%
in the Laboratory Products segment and down 1.3% in the Air-Monitoring Systems
segment.
Operating
Expenses
|
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
(dollars
in 000’s)
|
|
$
|
|
|
% of
Rev.
|
|
|
$
|
|
|
% of
Rev.
|
|
|
$
|
|
|
% of
Rev.
|
|
|
$
|
|
|
% of
Rev.
|
|
|
SG&A
Expenses by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laboratory
Products
|
|
$
|
1,444
|
|
|
|
35.4
|
%
|
|
$
|
1,212
|
|
|
|
34.0
|
%
|
|
$
|
4,146
|
|
|
|
33.3
|
%
|
|
$
|
3,882
|
|
|
|
37.1
|
%
|
|
Air-Monitoring
Systems
|
|
|
511
|
|
|
|
21.7
|
%
|
|
|
422
|
|
|
|
31.9
|
%
|
|
|
1,504
|
|
|
|
25.3
|
%
|
|
|
1,357
|
|
|
|
34.7
|
%
|
|
Total
|
|
$
|
1,955
|
|
|
|
30.4
|
%
|
|
$
|
1,634
|
|
|
|
33.4
|
%
|
|
$
|
5,650
|
|
|
|
30.7
|
%
|
|
$
|
5,239
|
|
|
|
36.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R&D
Expenses by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laboratory
Products
|
|
$
|
375
|
|
|
|
9.2
|
%
|
|
$
|
319
|
|
|
|
8.9
|
%
|
|
$
|
1,110
|
|
|
|
8.9
|
%
|
|
$
|
1,243
|
|
|
|
11.9
|
%
|
|
Air-Monitoring
Systems
|
|
|
140
|
|
|
|
6.0
|
%
|
|
|
296
|
|
|
|
22.4
|
%
|
|
|
696
|
|
|
|
11.7
|
%
|
|
|
1,064
|
|
|
|
27.2
|
%
|
|
Total
|
|
$
|
515
|
|
|
|
8.0
|
%
|
|
$
|
615
|
|
|
|
12.6
|
%
|
|
$
|
1,806
|
|
|
|
9.8
|
%
|
|
$
|
2,307
|
|
|
|
16.0
|
%
|
Selling,
general and administrative ("SG&A") expenses for the three months ended
September 30, 2010 increased $321,000, or 19.6%, compared to the same period of
the prior year. In the Laboratory Products segment, the increase in
SG&A expenses was attributable to higher commissions and selling expenses
related to our growth in sales and increased compensation expense as we
increased salaries to their levels prior to the salary reductions initiated
during the 2009 economic downturn. Our increased SG&A expense in
the Air Monitoring Systems segment was due primarily to increased compensation
expense related to salary increases as noted above.
For the
nine months ended September 30, 2010, SG&A expenses increased $411,000, or
7.8%, compared to the same period of the prior year. Increased
SG&A expenses in the Laboratory Products segment resulted from increased
sales commissions, wage-related expenses, travel expenses, and consulting fees
partially offset by lower Board-related expenses, legal fees and audit
fees. SG&A expenses in the Air-Monitoring Systems segment were up
because of higher compensation expenses and increased intellectual property
related legal fees.
During
the third quarter of 2010, research and development ("R&D") expenses
decreased by $100,000, or 16.3%, compared to the same period last
year. In the Laboratory Products segment, R&D expenses increased
$56,000 due to reduced utilization of engineering resources related to third
party funded research projects and increased compensation
expense. R&D expenses in the Air Monitoring Systems segment
declined $156,000 due in large part to increased utilization of engineering
resources related to third party funded research efforts as well as utilization
of certain R&D resources to support engineering efforts related to
fulfillment of the Bechtel contract.
R&D
expenses for the nine months ended September 30, 2010 decreased by $501,000, or
21.7%, compared to the same period of the prior year. The bulk of
this decline was attributable to the Air Monitoring Systems segment as discussed
above.
Operating Income
(Loss)
|
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
(dollars
in 000’s)
|
|
$
|
|
|
% of
Rev.
|
|
|
$
|
|
|
% of
Rev.
|
|
|
$
|
|
|
% of
Rev.
|
|
|
$
|
|
|
% of
Rev.
|
|
|
Operating
Income (Loss) by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laboratory
Products
|
|
$
|
216
|
|
|
|
5.3
|
%
|
|
$
|
156
|
|
|
|
4.4
|
%
|
|
$
|
785
|
|
|
|
6.3
|
%
|
|
$
|
(399
|
)
|
|
|
-3.8
|
%
|
|
Air-Monitoring
Systems
|
|
|
671
|
|
|
|
28.5
|
%
|
|
|
129
|
|
|
|
9.7
|
%
|
|
|
1,299
|
|
|
|
21.8
|
%
|
|
|
(70
|
)
|
|
|
-1.8
|
%
|
|
Total
|
|
$
|
887
|
|
|
|
13.8
|
%
|
|
$
|
285
|
|
|
|
5.8
|
%
|
|
$
|
2,084
|
|
|
|
11.3
|
%
|
|
$
|
(469
|
)
|
|
|
-3.3
|
%
|
Operating
income totaled $887,000 for the three months ended September 30, 2010, up
$602,000 compared to the same period in 2009, due to higher sales and gross
profit partially offset by higher operating expenses. On a
year-to-date basis, our operating income totaled $2,084,000 compared to an
operating loss of $469,000 during the first nine months of 2009. This increase
in earnings was primarily attributable to significantly higher sales and gross
profit and slightly lower operating expenses.
Liquidity and Capital
Resources
For the
nine months ended September 30, 2010, cash flow provided by operating activities
totaled $2,305,000, compared to $1,324,000 during the same period in
2009. Our improved operating cash flow in 2010 was primarily the
result of increased net income compared to 2009. While changes in
working capital provided a positive impact on operating cash flow in both
periods, the working capital impact was significantly greater in 2009 due to
reduced accounts receivable attributable to lower sales.
Cash flow
used in investing activities totaled $213,000 through the first nine months of
2010, compared to cash flow provided by investing activities of $159,000 during
the same period in 2009. The primary use of cash was the purchase of
$494,000 of third party preferred stock acquired in an effort to improve the
return on our funds. We liquidated our preferred stock holdings,
incurring a minimal expense, upon entering into the definitive agreement with
ITT in order to eliminate the potential for incurring any short term losses
which might negatively impact our cash position. Purchases of property, plant
and equipment increased to $170,000 in 2010, up $64,000 from the same period
last year due in large part to the purchase of a specialized instrument that
will be used for application support related to the combined TOC and WS-CRDS
technology we recently developed in conjunction with Picarro, Inc. We
have also purchased certain computer hardware for an ERP system upgrade to be
completed in the fourth quarter of this year. We have no material
commitments for capital expenditures as of September 30, 2010.
Net cash
flow used in financing activities for the nine months ended September 30, 2010
totaled $366,000 compared to $305,000 during the same period in
2009. Dividend payments constituted the primary component of cash
used in financing activities during both periods presented.
Cash and
cash equivalents totaled $6,340,000 as of September 30, 2010, compared to
$4,614,000 as of December 31, 2009. Due to strong operating earnings,
our cash position has increased $1,726,000 from year-end. We continue
to believe that our liquid assets are sufficient to fund working capital,
R&D, and capital expenditures for the near term. As the economy
continues to improve, we anticipate that cash flows from operations will
generate sufficient cash flow to meet our long-term liquidity needs should the
expected transaction with ITT fail to
close.
On August
30, 2010 we paid a cash dividend of $0.05 per common share to shareholders of
record at the close of business on August 13, 2010 pursuant to a declaration by
our Board of Directors. This quarterly dividend was declared in
connection with the Board's decision in 2006 to establish an annual cash
dividend of $0.20 per share, payable at $0.05 per quarter. Our Board has
declared that the record date for the fourth quarter dividend of $0.05 per
common share will be November 10, 2010 and such quarterly dividend will be
payable concurrently with the special contingent dividend on November 15,
2010. In the event the merger does not close as anticipated, payment
of future cash dividends under the policy is subject to the approval of our
Board of Directors.
Off-Balance Sheet
Arrangements
As of
September 30, 2010 we had no off-balance sheet arrangements.
Critical Accounting
Policies
Please
reference Part II-Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations, of our Annual Report on Form 10-K for the
year ended December 31, 2009.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
Not
Applicable
Item 4. Controls
and Procedures
We
maintain a set of disclosure controls and procedures designed to ensure that the
information we are required to disclose in reports filed or submitted under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms. During the period from July 1, 2010 to September 30, 2010,
an evaluation under the supervision and with the participation of management,
including the Chief Executive Officer/CFO (our principal executive officer and
principal financial officer), of the effectiveness of our disclosure controls
and procedures was conducted. Based on that evaluation, the Chief
Executive Officer/CFO has concluded that, as of September 30, 2010, our
disclosure controls and procedures are effective.
Subsequent
to the date of his evaluation, there have been no changes in our internal
controls that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
Our
management, including the Chief Executive Officer/CFO, does not expect that our
disclosure controls and procedures or our internal controls will prevent all
error and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their
costs.
PART
II- OTHER INFORMATION
Item 1. Legal
Proceedings
In the normal course of our business, we are subject to legal
proceedings brought against us. There have been no material developments
to the legal proceedings described in Part I, Item 3, "Legal
Proceedings" in our Annual Report on Form 10-K for the year-ended December
31, 2009, and there are no new reportable legal proceedings for the
quarter ended September 30, 2010.
Item 1A. Risk
Factors
“Item 1A.
Risk Factors” of our Form 10-K for the year ended December 31, 2009,
as amended, includes a discussion of our risk factors. The information presented
below updates, and should be read in conjunction with, the risk factors and
information disclosed in our Form 10-K for the year ended December 31,
2009, as amended.
We
entered into an Agreement and Plan of Merger with ITT Corporation and we expect
that we will be acquired by ITT in November 2010. To the extent the
transaction does not close in a timely manner or at all, it would have a
significant negative impact on us.
On
September 13, 2010, we entered into an Agreement and Plan of Merger with ITT
Corporation and Oyster Acquisition Corp. (the “Agreement”). While we
expect to obtain shareholder approval of the transaction and believe that the
transaction will be closed in a timely manner, we can provide no assurance that
the transaction will indeed close. If the transaction is challenged
by an interested party who believes that the transaction is not fair to and in
the best interest of shareholders, we may incur substantial legal costs and
experience management distractions which could be detrimental to future
performance. Further, should the transaction not be approved by our
shareholders or not close due to our failure to meet certain obligations set
forth in the Agreement, we could potentially owe ITT a break-up fee of
$1,000,000 and further be obligated to pay up to $285,000 of their costs
incurred in connection with the planned merger. Should the merger not
be completed as planned, we may experience a significant negative impact in our
financial position and operating results.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
None.
Item 3. Defaults
Upon Senior Securities
None.
Item 4. Removed
and Reserved
Item 5. Other
Information
In the
event the merger is not completed, our shareholders will continue to be entitled
to attend and participate in our shareholder meetings. If the merger
is not completed and you wish to present a proposal to be considered for
inclusion in our proxy materials in connection with the 2011 Annual Meeting of
Shareholders, the proposal, including the nomination of persons to stand for
election to our Board of Directors, shall be presented no more than ninety nor
less than sixty days prior to the first anniversary of the preceding year’s
annual meeting, or between February 18, 2011 and March 19, 2011. All
proposals submitted for inclusion in the proxy statement must comply with all
requirements of the Securities and Exchange Commission as well as our
Bylaws.
Item 6.
Exhibits
31* Principal
Executive Officer and Principal Financial Officer certification pursuant to 18.
U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32* Principal
Executive Officer and Principal Financial Officer certification pursuant to 18.
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
* Filed
herewith
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 3, 2010
|
|
BY:
/s/ J. Bruce Lancaster
|
|
|
|
|
|
J.
Bruce Lancaster
|
|
|
|
|
Chief
Executive Officer and Chief Financial Officer
(Principal
Executive and Principal Financial
Officer)
|
EXHIBIT
INDEX
|
EXHIBIT
|
|
|
|
NUMBER
|
|
EXHIBIT
TITLE
|
|
|
|
|
|
31*
|
|
Principal
Executive Officer and Principal Financial Officer certification pursuant
to 18. U.S.C.
Section
1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
32*
|
|
Principal Executive
Officer and Principal Financial Officer certification pursuant to 18.
U.S.C.
Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|