SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
[X] Annual report pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the fiscal year ended: December 31, 2002
-----------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 0-6511
------
O. I. CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
OKLAHOMA 73-0728053
(State of Incorporation) (IRS Employer Identification No.)
151 GRAHAM ROAD, BOX 9010
COLLEGE STATION, TEXAS 77842-9010
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (979) 690-1711
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS NAME OF EACH ELECTRONIC SYSTEM ON WHICH QUOTED
Common Stock, par value $0.10 per share National Association of Securities Dealers Automated
Quotation System (NASDAQ)
</Table>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value, as of June 30, 2002, of the common stock (based on
the average of the high and low trade prices of these shares on NASDAQ) of O. I.
Corporation held by non-affiliates was approximately $11,693,704.
The number of shares outstanding of the common stock as of March 17, 2003 was
2,759,273.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the 2003 Annual Meeting of Shareholders
Part III information is incorporated by reference to the Proxy Statement
EXPLANATORY NOTE
O.I. Corporation is filing this amendment to Item 8 of its Annual Report on Form
10-K for the fiscal year ended December 31, 2002, to correct the quarterly
financial information disclosure contained in Note 14 of the Consolidated
Financial Statements for certain computational errors. This amendment does not
affect the Company's historical results of operations, financial conditions or
cash flows for any period presented. Other than this change to Note 14, there is
no change to the consolidated financial statements, the notes to the
consolidated financial statements, the report of the independent auditors or the
report of management. Nor does this amendment change the Company's previously
filed Quarterly Interim Consolidated Financial Statements or the notes thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT RESPONSIBILITY FOR FINANCIAL REPORTING Management is responsible for
the integrity and objectivity of the data included in this report. Management
believes it has provided financial information (both audited and unaudited) that
is representative of the Company's operations, reliable on a consistent basis
throughout the periods presented, and relevant for a meaningful appraisal of the
Company. The financial statements have been prepared in accordance with
generally accepted accounting principles. Where necessary, they reflect
estimates based on management's judgment.
Established accounting procedures and related systems of internal control
provide reasonable assurance that assets are safeguarded, that the books and
records properly reflect all transactions, and that qualified personnel
implement policies and procedures. Management periodically reviews the Company's
accounting and control systems.
The Company's Audit Committee, composed of at least four members of the Board of
Directors who are not employees of the Company, meets regularly with
representatives of management and the independent accountants to monitor the
functioning of the accounting and control systems and to review the results of
the audit performed by the independent accountants. The independent accountants
and Company employees have full and free access to the Audit Committee without
the presence of management.
By authority of the Board of Directors, the Audit Committee has full authority
and responsibility to oversee the appointment, termination, funding, evaluation,
and independence of the independent auditors engaged by the Company.
The independent accountants conduct an objective, independent examination of the
financial statements. Their report appears as a part of this Annual Report on
Form 10-K.
1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF O.I. CORPORATION:
We have audited the accompanying consolidated balance sheet of O.I. Corporation
(an Oklahoma corporation) and subsidiaries as of December 31, 2002, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of O.I. Corporation and
subsidiaries as of December 31, 2002, and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
GRANT THORNTON LLP
Houston, Texas
February 28, 2003
2
REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS AND STOCKHOLDERS OF O. I. CORPORATION
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of O. I. Corporation
and its subsidiaries at December 31, 2001, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 15, 2002
3
O. I. CORPORATION
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
December 31
-----------------------------
2002 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,915,240 $ 3,140,078
Accounts receivable-trade, net of allowance for doubtful accounts of
$282,620 and $153,222, respectively 3,774,430 4,417,776
Investment in sales-type leases 277,923 259,845
Investments 3,733,184 1,926,769
Inventories 4,138,123 4,573,358
Current deferred income tax assets 800,959 554,065
Other current assets 145,815 147,929
------------ ------------
Total current assets $ 16,785,674 $ 15,019,820
Property, plant and equipment, net 3,414,739 3,394,277
Investment in sales-type leases, net of current 271,120 168,968
Long-term deferred income tax assets 310,140 237,706
Intangible assets, net 116,266 480,776
Other assets 84,477 89,047
------------ ------------
Total assets $ 20,982,416 $ 19,390,594
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 1,312,568 $ 1,330,002
Accrued liabilities 3,118,557 2,211,697
------------ ------------
Total current liabilities 4,431,125 3,541,699
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.10 par value, 3,000,000 shares authorized, no shares
issued and outstanding -- --
Common stock, $0.10 par value, 10,000,000 shares authorized,
4,103,377 shares issued 410,338 410,338
Additional paid-in capital 4,330,876 4,329,379
Treasury stock, 1,345,212 and 1,351,874 shares, respectively, at cost (5,865,823) (5,893,761)
Retained earnings 17,619,313 16,961,250
Accumulated other comprehensive income, net 56,587 41,689
------------ ------------
16,551,291 15,848,895
------------ ------------
Total liabilities and stockholders' equity $ 20,982,416 $ 19,390,594
============ ============
</Table>
The accompanying notes are an integral part of these financial statements.
4
O. I. CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<Table>
<Caption>
Years Ended December 31
----------------------------------------------
2002 2001 2000
------------ ------------ ------------
Net Revenues:
Products $ 20,329,919 $ 22,479,688 $ 20,777,084
Services 3,353,075 3,389,082 3,624,288
------------ ------------ ------------
Total net revenues $ 23,682,994 $ 25,868,770 $ 24,401,372
Cost of revenues:
Products 10,863,221 10,856,462 10,991,176
Services 2,149,078 2,756,033 2,454,083
------------ ------------ ------------
Total cost of revenues 13,012,299 13,612,495 13,445,259
------------ ------------ ------------
Gross profit 10,670,695 12,256,275 10,956,113
Selling, general and administrative expenses 7,524,813 7,475,351 7,409,722
Research and development expenses 2,246,189 2,157,364 1,942,585
Impairment of intangible assets 346,000 -- 960,385
------------ ------------ ------------
Operating income 553,693 2,623,560 643,421
Other income:
Interest income, net 59,208 96,292 253,776
Other income 258,348 243,608 80,687
------------ ------------ ------------
Income before income taxes 871,249 2,963,460 977,884
Provision for income taxes (213,186) (957,671) (361,647)
------------ ------------ ------------
Net income $ 658,063 $ 2,005,789 $ 616,237
============ ============ ============
Basic earnings per share $ 0.24 $ 0.75 $ 0.21
============ ============ ============
Diluted earnings per share $ 0.24 $ 0.74 $ 0.21
============ ============ ============
Weighted average number of shares outstanding:
Basic shares 2,755,634 2,659,844 2,895,615
Diluted shares 2,778,478 2,701,784 2,896,841
</Table>
The accompanying notes are an integral part of these financial statements.
5
O. I. CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
Years Ended December 31,
-------------------------------------------
2002 2001 2000
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 658,063 $ 2,005,789 $ 616,237
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 487,317 581,142 713,894
Impairment of intangible assets 346,000 -- 960,385
Deferred income taxes (311,653) 47,183 (427,349)
Stock compensation expense -- 73,680 --
Gain on disposition of property (26,948) (29,896) (43,119)
Changes in assets and liabilities
Accounts receivable 480,303 (1,351,334) 861,557
Inventories 435,235 1,325,032 (975,642)
Other current assets and investments in sales-type leases 36,375 350,482 114,334
Accounts payable (17,434) (359,377) (609,676)
Accrued liabilities 892,113 (207,494) (36,931)
----------- ----------- -----------
Net cash provided by operating activities 2,979,378 2,435,207 1,173,690
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property plant, and equipment (480,148) (271,371) (293,553)
Proceeds from sale of assets 36,949 57,958 102,596
Purchase of investments (2,683,843) (975,820) (893,283)
Maturity of investments 900,000 550,000 1,753,000
Change in other assets (6,609) (16,109) 57,705
----------- ----------- -----------
Net cash (used in) provided by investing activities (2,233,651) (655,342) 726,465
----------- ----------- -----------
Cash flows from financing activities:
Purchase of treasury stock -- (176,938) (1,375,435)
Proceeds from issuance of common stock 29,435 93,068 32,320
----------- ----------- -----------
Net cash used in financing activities 29,435 (83,870) (1,343,115)
----------- ----------- -----------
Net increase in cash and cash equivalents 775,162 1,695,995 557,040
Beginning of year 3,140,078 1,444,083 887,043
----------- ----------- -----------
End of year $ 3,915,240 $ 3,140,078 $ 1,444,083
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during year for:
Interest $ -- $ -- $ 1,947
Income taxes 110,000 1,262,691 676,688
Non-cash investing and financing activities:
Exercise of stock options -- 39,535 2,126
</Table>
The accompanying notes are an integral part of these financial statements.
6
O. I. CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
Common Stock Additional
-------------------- Paid-In Treasury
Shares Amount Capital Stock
--------- -------- ---------- -----------
Balance, December 31, 1999 4,103,377 $410,338 $4,381,089 $(4,597,732)
Purchase of 380,332 shares of treasury stock (1,375,435)
Issuance of 3,000 shares from treasury for exercise of stock options (750) 11,250
Issuance of 5,667 shares from treasury to Employee Stock Purchase Plan 569 21,251
Conversion of 15,903 outstanding mature shares for 17,000 new shares
from treasury for exercise of stock options (2,126) 2,126
Comprehensive income (loss):
Unrealized gain (loss) on investments, net of deferred tax benefit
of $5,867
Net income
Total comprehensive income (loss)
--------- -------- ---------- -----------
Balance, December 31, 2000 4,103,377 410,338 4,378,782 (5,938,540)
Purchase of 61,394 shares of treasury stock (176,938)
Issuance of 19,634 shares from treasury for exercise of stock options 1,124 72,904
Issuance of 5,367 shares from treasury to Employee Stock Purchase Plan (960) 20,000
Conversion of 55,237 outstanding mature shares for 133,060 new shares
from treasury for exercise of stock options (39,535) 39,535
Issuance of 24,000 shares from treasury stock to directors (15,598) 89,278
Deferred tax benefit for disqualifying employee stock option dispositions 5,566
Comprehensive income (loss):
Unrealized gain on investments, net of deferred tax benefit of $12,597
Net income
Total comprehensive income (loss)
--------- -------- ---------- -----------
Balance, December 31, 2001 4,103,377 410,338 4,329,379 (5,893,761)
Issuance of 3,100 shares from treasury for exercise of stock options (941) 13,073
Issuance of 3,562 shares from treasury to Employee Stock Purchase Plan 2,438 14,865
Comprehensive income (loss):
Unrealized gain on investments, net of deferred tax benefit of $7,675
Net income
Total comprehensive income (loss)
--------- -------- ---------- -----------
Balance, December 31, 2002 4,103,377 $410,338 $4,330,876 $(5,865,823)
========= ======== ========== ============
<Caption>
Accumulated
Other Com- Total
Retained prehensive Stockholders'
Earnings Income/(Loss) Equity
----------- ------------ ------------
Balance, December 31, 1999 $14,339,224 $ -- $ 14,532,919
Purchase of 380,332 shares of treasury stock (1,375,435)
Issuance of 3,000 shares from treasury for exercise of stock options 10,500
Issuance of 5,667 shares from treasury to Employee Stock Purchase Plan 21,820
Conversion of 15,903 outstanding mature shares for 17,000 new shares
from treasury for exercise of stock options --
Comprehensive income (loss):
Unrealized gain (loss) on investments, net of deferred tax benefit
of $5,867 (9,989)
Net income 616,237
Total comprehensive income (loss) 606,248
----------- ------- ----------
Balance, December 31, 2000 14,955,461 (9,989) 13,796,052
Purchase of 61,394 shares of treasury stock (176,938)
Issuance of 19,634 shares from treasury for exercise of stock options 74,028
Issuance of 5,367 shares from treasury to Employee Stock Purchase Plan 19,040
Conversion of 55,237 outstanding mature shares for 133,060 new shares
from treasury for exercise of stock options --
Issuance of 24,000 shares from treasury stock to directors 73,680
Deferred tax benefit for disqualifying employee stock option dispositions 5,566
Comprehensive income (loss):
Unrealized gain on investments, net of deferred tax benefit of $12,597 51,678
Net income 2,005,789
Total comprehensive income (loss) 2,057,467
----------- ------- ----------
Balance, December 31, 2001 16,961,250 41,689 15,848,895
Issuance of 3,100 shares from treasury for exercise of stock options 12,132
Issuance of 3,562 shares from treasury to Employee Stock Purchase Plan 17,303
Comprehensive income (loss):
Unrealized gain on investments, net of deferred tax benefit of $7,675 14,898
Net income 658,063
Total comprehensive income (loss) 672,961
----------- ------- ----------
Balance, December 31, 2002 $17,619,313 $56,587 16,551,291
=========== ======= ==========
</Table>
The accompanying notes are an integral part of these financial statements.
7
O. I. CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
O. I. Corporation, an Oklahoma corporation, was organized in 1969. O.I.
Corporation designs, manufactures, markets, and services analytical, monitoring,
and sample preparation products, components, and systems used to detect,
measure, and analyze chemical compounds.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and include the accounts of O.I. Corporation and its
wholly owned subsidiary, (collectively, the "Company"). All significant
intercompany transactions and balances have been eliminated in the consolidated
financial statements.
REVENUE RECOGNITION The Company derives revenues from three sources--system
sales, parts sales, and services. For system sales and parts sales, revenue is
generally recognized when persuasive evidence of an arrangement exists, delivery
has occurred, the contract price is fixed or determinable, title and risk of
loss has passed to the customer and collection is reasonably assured. The
Company's sales are typically not subject to rights of return and, historically,
sales returns have not been significant. System sales that do not involve unique
customer acceptance terms or new specifications or technology with customer
acceptance provisions, and that involve installation services are accounted for
as multiple-element arrangements, where the larger of the contractual billing
hold back or the fair value of the installation service is deferred when the
product is delivered and recognized when the installation is complete. In all
cases, the fair value of undelivered elements, such as accessories ordered by
customers, is deferred until the related items are delivered to the customer.
For certain other system sales that do involve unique customer acceptance terms
or new specifications or technology with customer acceptance provisions, all
revenue is generally deferred until customer acceptance. Deferred revenue from
such system sales is presented, net of related deferred cost of sales, as
unearned revenues in accrued liabilities in the accompanying consolidated
balance sheets. Revenues from services are recognized upon provision of service
to the customer.
Our products generally carry one year of warranty. Once the warranty period has
expired, the customer may purchase an extended product warranty typically
covering an additional period of one year. Extended warranty billings are
generally invoiced to the customer at the beginning of the contract term.
Revenue from extended warranties is deferred and recognized ratably over the
duration of the contract. Unearned extended warranty revenue is included in
deferred revenues in accrued liabilities in the accompanying consolidated
balance sheets.
Revenues from bill and hold sales are recognized in accordance with the criteria
specified in SAB 101. In addition to the criteria above, the customer must
request that the transaction be on a bill and hold basis and have a substantial
business purpose for ordering the goods on that basis, there must be a
reasonable, fixed schedule for delivery consistent with the business purpose,
the Company must no longer retain any performance obligations and the earnings
process must be substantially complete, and the items sold are segregated from
the rest of the Company's inventory and must be ready for final shipment to the
customer.
CASH AND CASH EQUIVALENTS The Company considers all highly liquid cash
investment instruments with an original maturity of three months or less to be
cash equivalents.
INVESTMENTS The Company accounts for its investments that represent less than
twenty percent ownership using Statement of Financial Accounting Standards No.
115 (FAS 115), Accounting for Certain Investments in Debt and Equity Securities.
This standard requires that certain debt and equity securities be adjusted to
market value at the end of each accounting period. The Company invests in debt
securities and preferred stocks. The Company's
8
investments in debt securities are classified as held-to-maturity as the Company
has the positive intent and ability to hold the investments until maturity.
Company investments in bonds are reported at amortized cost. The Company's
investments as of December 31, 2002 and 2001 consisted entirely of preferred
stock investments. These investments were classified as available-for-sale and
are stated at fair value at December 31, 2002 and 2001. The unrealized gain
(loss) on preferred stock is reported net of tax as accumulated other
comprehensive income (loss) in the accompanying consolidated statements of
stockholders' equity. Realized gains and losses on sales of investments are
included in the consolidated statements of income.
INVESTMENT IN SALES-TYPE LEASES The Company's leasing operations consist of the
leasing of analytical instruments. The majority of the Company's leases are
classified as sales-type leases. These leases typically expire over a four-year
period. The Company recognizes as revenues the principal portion of sales-type
leases upon initiation of the lease. Interest is deferred and recognized as
revenues over the initial term of the lease. Security deposits are deferred
until the lease expires and either recognized as revenues or returned to the
customer, as appropriate.
INVENTORIES Inventories consist of electronic equipment and various components
and are stated at the lower of cost or market. Cost is determined on a first-in,
first-out basis. The Company maintains a reserve for inventory obsolescence and
regularly evaluates its inventory. Items with no movement in six months or more
are reserved or written off. The Company also provides an obsolescence reserve
for items that have impairments in their realizable value below cost.
DEMONSTRATION EQUIPMENT The demonstration of the Company's products is often
required prior to a customer's purchase. The Company makes available certain
equipment for use in demonstrations believing that a successful demonstration
will promote the customer's purchase of the equipment. Equipment used in
demonstration is classified as inventory and is depreciated to a zero value in a
six-month period from the date of being used in a customer demonstration.
Product shipments, including those for demonstration or evaluation, are not
recorded as revenues until a valid purchase order is received specifying fixed
terms and prices.
PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment is recorded at
cost and depreciated over the estimated useful lives of 3 to 40 years using the
straight-line method. Repairs and maintenance are expensed as incurred.
INTANGIBLE ASSETS Intangible assets primarily include acquired patents, trade
names and trademarks, manufacturing rights and know-how that is amortized on a
straight-line basis over their estimated useful lives as follows.
<Table>
<Caption>
Life in Years
Patents 17
Trademarks and trade names 15
Application notes 15
Manufacturing rights 5
</Table>
US GAAP requires that long-lived assets to be held and used, including
intangible assets, be reviewed for impairment whenever changes in circumstances
indicate the carrying value may not be recoverable. The carrying value is
considered impaired when the anticipated separately identifiable undiscounted
cash flows from such an asset are less than the carrying value of the asset. In
that event, a loss is recognized based on the amount by which the carrying value
exceeds the fair value of the long-lived asset.
PRODUCT WARRANTIES Products are sold with warranties ranging from 90 days to one
year. Estimated expenses associated with these warranties are provided for at
the time of revenue recognition in the accompanying consolidated financial
statements. The Company makes estimates of these costs based on historical
experience and on various other assumptions including historical and expected
product failure rates, material usage, and service delivery costs incurred in
correcting a product failure.
RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as
incurred.
INCOME TAXES The Company provides for deferred taxes in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, which requires the Company to use the asset and liability approach to
account for income taxes. This approach requires the recognition of deferred
income tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities. The provision for income taxes is based on income before income
taxes as reported in the accompanying consolidated statements of income.
CONCENTRATION OF CREDIT RISK Financial instruments, which potentially subject
the Company to concentrations of credit risk, consist principally of investments
and trade receivables. The Company places its available cash in money market
9
funds, investment grade domestic corporate bonds, and highly-rated corporate
preferred stocks. The Company's investments are subject to fluctuations based on
interest rates and trading conditions prevailing in the marketplace. The Company
sells its products primarily to large corporations, environmental testing
laboratories, and governmental agencies. The majority of its customers are
located in the U. S. and all sales are denominated in U.S. dollars. Credit risk
with respect to trade receivables is limited due to the financial stability of
the customers comprising the Company's customer base. The Company performs
ongoing credit evaluations of its customers to minimize credit risk. As of
December 31, 2002 and 2001, the Company had no significant concentrations of
credit risk related to accounts receivable. However, agencies of the U.S.
government constitute a significant percentage of the Company's revenues (See
Note 13). Any federal budget cuts or changes in regulations affecting the U.S.
chemical warfare programs or the USEPA may have a negative impact on the
Company's future revenues.
EARNINGS PER SHARE The Company reports both basic earnings per share, which is
based on the weighted average number of common shares outstanding, and diluted
earnings per share, which is based on the weighted average number of common
shares outstanding and all dilutive potential common shares outstanding. Stock
options are the only dilutive potential shares the Company has outstanding. The
weighted average of shares used in the basic earnings per share calculation was
2,755,634 in 2002, 2,659,844 in 2001, and 2,895,615 in 2000. The weighted
average number of shares used in the diluted earnings per share computation was
2,778,478 in 2002, 2,701,784 in 2001, and 2,896,841 in 2000. At December 31,
2002, 2001 and 2000, options to acquire 133,700, 128,900, and 260,600 shares at
weighted average exercise prices of $5.88, $6.85, and $5.39, respectively, were
not included in the computations of dilutive earnings per share as the options'
exercise price was greater than the average market price of the common shares.
COMPREHENSIVE INCOME (LOSS) Effective January 1, 1998, the Company adopted
Statement No. 130 (FAS 130), Reporting Comprehensive Income. This Statement
established standards for reporting and display of comprehensive income and its
components. Net income and unrealized gains and losses on available-for-sale
investments are the Company's only components of comprehensive income (loss).
STOCK BASED COMPENSATION At December 31, 2002, the Company has three stock-based
employee compensation plans, which are described more fully in Note 8. The
company accounts for those plans under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. No stock-based employee compensation cost is reflected
in net income, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income and earnings per share
if the company had applied the fair value recognition provisions of FAS
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.
<Table>
<Caption>
Year ended December 31
---------------------------------
(in thousands)
2002 2001 2000
-------- -------- --------
Net income, as reported $ 658 $ 2,006 $ 616
Deduct: Total stock-based compensation
expense determined under fair value based
method for awards granted, modified, or
settled, net of related tax effects $ 88 $ 73 $ 108
======== ======== ========
Pro forma net income $ 570 $ 1,933 $ 508
======== ======== ========
Earnings per share:
Basic--as reported $ 0.24 $ 0.75 $ 0.21
======== ======== ========
Basic--pro forma $ 0.21 $ 0.73 $ 0.18
======== ======== ========
Diluted--as reported $ 0.24 $ 0.74 $ 0.21
======== ======== ========
Diluted--pro forma $ 0.21 $ 0.72 $ 0.18
======== ======== ========
</Table>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants in 2002, 2001, and 2000, respectively: dividend yield of zero for each
year; expected volatility of 37, 37, and 33 percent; risk-free interest rates of
1.30, 6.38, and 6.38 percent; and expected lives
10
of seven years. The weighted average fair value at the date of grant for options
granted during 2002, 2001, and 2000 was $2.09, $1.90, and $1.90, respectively.
USE OF ESTIMATES The preparation of the consolidated financial statements in
accordance with accounting principles generally accepted in the U.S. requires
the use of management's estimates. These estimates are subjective in nature and
involve judgments that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at year end, and the
reported amounts of revenues and expenses during the year. Actual results could
differ from those estimates.
RECLASSIFICATIONS Certain prior period amounts in the consolidated financial
statements have been reclassified for comparative purposes. Such
reclassifications had no effect on the net income or the overall financial
condition of the Company.
RECENT PRONOUNCEMENTS In September 2000, the FASB issued Statement No. 140 (FAS
140), Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. This Statement replaces FAS 125, issued in June
of 1996. The new Statement will be effective for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000, and for transfers occurring after March 31, 2001. Adoption of
FAS 140 did not have a material effect on the Company's financial position or
operating results.
In June 2001, the FASB issued Statement No. 141 (FAS 141), Business
Combinations. FAS 141 requires that all business combinations completed after
June 30, 2001, be accounted for under the purchase method, eliminating the use
of the pooling method. This Statement also establishes for all business
combinations made after June 30, 2001, specific criteria for the recognition of
intangible assets separately from goodwill. FAS 141 also requires that the
excess of fair value of acquired assets over cost in a business combination
(negative goodwill) be recognized immediately as an extraordinary gain, rather
than deferred and amortized.
In June 2001, the FASB issued Statement No. 142 (FAS 142), Goodwill and Other
Intangibles. FAS 142 addresses the accounting for goodwill and other intangible
assets after an acquisition. The most significant changes made by FAS 142 are
goodwill and intangible assets with indefinite lives will no longer be
amortized; goodwill and intangible assets with indefinite lives must be tested
for impairment at least annually; and the amortization period for intangible
assets with finite lives will no longer be limited to forty years. The Company
adopted FAS 142 effective January 1, 2002, as required. A transitional
impairment test was required for existing goodwill as of the date of adoption of
this Standard; however, the Company did not have any goodwill on its books.
Goodwill recorded after adoption of this Standard is to be tested for impairment
at least annually and any resulting impairment is considered part of operating
income.
In June 2001, the FASB issued Statement No. 143 (FAS 143), Accounting for
Obligations Associated with the Retirement of Long-Lived Assets. FAS 143
establishes a new accounting model for the recognition and measurement of
retirement obligations associated with tangible long-lived assets. FAS 143
requires that an asset retirement cost should be capitalized as part of the cost
of the related long-lived asset and subsequently allocated to expense using a
systematic and rational method. The Company adopted this Statement effective
January 1, 2003. Adoption of this Statement did not have a material effect on
the Company's financial position and results of operations.
In August 2001, the FASB issued Statement No. 144 (FAS 144), Accounting for the
Impairment or Disposal of Long-Lived Assets, which establishes one accounting
model to be used for long-lived assets to be disposed of by sale and broadens
the presentation of discontinued operations to include more disposal
transactions. FAS 144 supersedes FAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30. FAS No. 144 is
effective for fiscal years beginning after December 15, 2001. During the third
quarter ended September 30, 2002, the Company performed an evaluation of future
prospects of certain products and their related intangible assets. As a result
of this evaluation, the Company recorded an impairment loss for those intangible
assets totaling approximately $346,000 (See Note 5).
11
In April 2002, the FASB issued FAS 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections, which is
effective for transactions occurring after May 15, 2002. FAS 145 rescinds FAS 4
and FAS 64, which addressed the accounting for gains and losses from
extinguishment of debt. FAS 44 set forth industry-specific transitional guidance
that did not apply to the Company. FAS 145 amends FAS 13 to require that certain
lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback transactions.
FAS 145 also makes technical corrections to certain existing pronouncements that
are not substantive in nature. The adoption of FAS 145 in the second quarter of
fiscal year 2002 did not have a significant impact on the Company's financial
condition or results of operations.
In July 2002, the FASB issued FAS 146, Accounting for Exit or Disposal
Activities. FAS 146 addresses the recognition, measurement, and reporting of
costs associated with exit and disposal activities, including restructuring
activities that are currently accounted for pursuant to the guidance set forth
in Emerging Issues Task Force issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other costs to Exit an Activity (including
Certain Costs Incurred in Restructuring). The Scope of FAS 146 includes costs
related to terminating a contract that is not a capital lease, costs to
consolidate facilities or relocate employees, and certain termination benefits
provided to employees who are involuntarily terminated. FAS 146 is effective for
exit or disposal activities initiated after December 31, 2002. The Company does
not expect the adoption of FAS 146 to have a significant impact on its financial
condition or results of operations.
In 2003, the FASB, issued FAS 148, Accounting for Stock-Based Compensation
Transition and Disclosure, an amendment of FAS 123. The disclosure requirements
of FAS 123, Accounting for Stock-Based Compensation, which apply to stock
compensation plans of all companies, are amended to require certain disclosures
about stock-based employee compensation plans in an entity's accounting policy
note. Those disclosures include a tabular format of pro forma net income and, if
applicable, earnings per share under the fair value method if the intrinsic
value method is used in any period presented. Pro forma information in a tabular
format is also required in the notes to interim financial information if the
intrinsic value method is used in any period presented. The amendments to the
disclosure and transition provisions of FAS 123 are effective for fiscal years
ending after December 15, 2002. The Company does not plan a change to the fair
value based method of accounting for stock-based employee compensation and has
included the disclosure requirements of FAS 148 in the accompanying financial
statements.
In November 2002, the Emerging Issues Task Force reached a consensus opinion on
EITF 00-21, "Revenue Arrangements with Multiple Deliverables." The consensus
provides that revenue arrangements with multiple deliverables should be divided
into separate units of accounting if certain criteria are met. The consideration
for the arrangement should be allocated to the separate units of accounting
based on their relative fair values, with different provisions if the fair value
of all deliverables are not known or if the fair value is contingent on delivery
of specified items or performance conditions. Applicable revenue recognition
criteria should be considered separately for each separate unit of accounting.
EITF 00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. Entities may elect to report the change as a
cumulative effect adjustment in accordance with APB Opinion 20, Accounting
Changes. The Company has not determined the effect of adoption of EITF 00-21 on
its financial statements or the method of adoption it will use.
In November 2002, the Emerging Issues Task Force reached a consensus opinion on
EITF 02-16, "Accounting by a Customer (including a reseller) for Certain
Consideration Received from a Vendor." EITF 02-16 requires that cash payments,
credits, or equity instruments received as consideration by a customer from a
vendor should be presumed to be a reduction of cost of sales when recognized by
the customer in the income statement. In certain situations, the presumption
could be overcome and the consideration recognized either as revenue or a
reduction of a specific cost incurred. The consensus should be applied
prospectively to new or modified arrangements entered into after December 31,
2002. The Company has not yet determined the effects of EITF 02-16 on its
financial statements.
In November 2002, FASB Interpretation 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN 45), was issued. FIN 45 requires a guarantor entity, at the
inception of a guarantee covered by the measurement provisions of the
interpretation, to record a liability for
12
the fair value of the obligation undertaken in issuing the guarantee. FIN 45
applies prospectively to guarantees the Company issues or modifies subsequent to
December 31, 2002, but has certain disclosure requirements effective for interim
and annual periods ending after December 15, 2002. The Company has historically
issued guarantees only on in the form of product warranties and does not
anticipate FIN 45 will have a material effect on its 2003 financial statements.
Disclosures required by FIN 45 are included in the accompanying financial
statements.
In January 2003, the FASB issued FASB Interpretation 46 (FIN 46), Consolidation
of Variable Interest Entities. FIN 46 clarifies the application of Accounting
Research Bulletin 51, Consolidated Financial Statements, for certain entities
that do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties,
or in which equity investors do not have the characteristics of a controlling
financial interest ("variable interest entities"). Variable interest entities
within the scope of FIN 46 will be required to be consolidated by their primary
beneficiary. The primary beneficiary of a variable interest entity is determined
to be the party that absorbs a majority of the entity's expected losses,
receives a majority of its expected returns, or both. FIN 46 applies immediately
to variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date. It
applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Company is in the process
of determining what impact, if any, the adoption of the provisions of FIN 46
will have upon its financial condition or results of operations.
NOTE 2. NET INVESTMENT IN SALES-TYPE LEASES
The following lists the components of the net investment in sales-type leases as
of December 31:
<Table>
<Caption>
2002 2001
--------- ---------
Total minimum lease payments to be received $ 549,043 $ 428,813
Less: Unearned income $ (67,030) $ (43,479)
--------- ---------
Net investment in direct financing and sales-type leases $ 482,013 $ 385,334
========= =========
</Table>
At December 31, 2002, minimum lease payments for each of the five succeeding
fiscal years are as follows: $277,923 in 2003, $143,587 in 2004, $82,652 in
2005, $44,881 in 2006, and $0 in 2007.
NOTE 3. INVENTORIES
Inventories, which include material, labor, and overhead, on December 31, 2002
and 2001, consisted of the following:
<Table>
<Caption>
2002 2001
---------- ----------
Raw materials $3,215,760 $3,766,365
Work-in-process 220,666 567,475
Finished goods 701,697 239,518
---------- ----------
$4,138,123 $4,573,358
========== ==========
</Table>
13
NOTE 4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment on December 31, 2002 and 2001, consisted of the
following:
<Table>
<Caption>
Estimated Useful Lives 2002 2001
---------------------- ----------- -----------
Land $ 40,462 $ 40,462
Buildings 33 to 40 years 3,842,960 3,835,294
Leasehold improvements 5 years 49,065 29,239
Furniture and equipment 3 to 10 years 2,664,065 2,355,163
----------- -----------
6,596,552 6,260,158
Less accumulated depreciation (3,181,813) (2,865,881)
----------- -----------
$ 3,414,739 $ 3,394,277
=========== ===========
</Table>
Depreciation expenses totaled $449,108 and $460,205 for the years ended December
31, 2002 and 2001, respectively.
NOTE 5. INTANGIBLE ASSETS
Intangible assets on December 31, 2002 and 2001, consisted of the
following:
<Table>
<Caption>
2002 2001
------------------------------ -----------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------------ ------------ ------------ ------------
Patents $ 138,189 $ (57,942) $ 115,083 $ (51,497)
Alpkem trademarks & trade names 180,000 (180,000) 180,000 (68,488)
Floyd patents 217,500 (217,500) 217,500 (106,940)
Alpkem patents 5,000 (5,000) 5,000 (1,902)
GAC patents 97,742 (61,723) 97,742 (24,384)
Application notes 191,541 (191,541) 191,541 (72,879)
------------ ------------ ------------ ------------
$ 829,972 $ (713,706) $ 806,866 $ (326,090)
</Table>
Amortization charged to operations amounted to approximately $38,209, $132,327,
and $191,000, for the years ended December 31, 2002, 2001, and 2000,
respectively.
<Table>
Estimated amortization expense:
For year ended 12/31/03 $ 9,614
For year ended 12/31/04 $ 9,614
For year ended 12/31/05 $ 9,614
For year ended 12/31/06 $ 9,614
For year ended 12/31/07 $ 9,614
</Table>
Consistent with the Company's accounting policies, during 2002, the Company
performed an annual evaluation of the future prospects of certain products and
their related inventory and intangible assets. As a result of this evaluation,
the Company decided to discontinue manufacturing, sales, service, and support
for certain sample preparation, gas chromatography, and ion analyzer products.
The Company came to these decisions because purchase components are no longer
available for support of certain products, and the Company's current or
anticipated sales volume for certain other products no longer represent a viable
business opportunity for the Company.
14
As a result of the determination to discontinue these products, the Company
recorded an impairment loss for intangible assets and a loss for obsolete
inventory related to those products. The impaired intangible assets consisted of
acquired trade names and trademarks that are no longer used to market the
Company's products, application notes for products that are no longer produced
or sold, and patents on technology that is no longer used in the Company's
products. To determine if any impairment existed, the Company compared the
carrying amount of each intangible asset, separately, to the undiscounted cash
flow stream over the remaining life of each intangible asset. To value the
indicated impairment, the Company compared the carrying amount of each
intangible asset, separately, to the fair value of those intangible assets. The
Company determined the fair value of each intangible asset by estimating the
future cash flows from the use and disposition of those intangible assets. The
aggregate fair value of those intangible assets was less than the aggregate
carrying value and resulted in an impairment loss totaling approximately
$346,000, which is included in SG&A expense in the consolidated statements of
income.
The loss for obsolete inventory was determined by taking the total of the
inventory related to these discontinued products and consistent with the
Company's policy relating to obsolete inventory, the total of other inventory
with no movement in six months, which the Company determined is no longer
saleable based on available market information. The loss for obsolete inventory
totaled approximately $200,000, and is included in cost of goods sold in the
consolidated statements of income.
On February 1, 1999, the Company acquired substantially all of the assets of
General Analysis Corporation (GAC). GAC is a supplier of beverage monitors used
to measure dissolved Brix (sugar), diet syrup and carbon dioxide in beverage
streams. Assets acquired also included air and gas monitors that are used by the
chiller/refrigerant industry for the rapid detection of low-level refrigerant
leaks. The excess of the purchase price over fair market value of the underlying
assets acquired of $1,078,000 was allocated to intangibles, including patents,
non-compete agreements, trademarks, and goodwill based upon estimates of
relative fair values. The intangible assets were being amortized over a 5 to 15
year period, dependent upon the nature of the assets and are included within the
other intangible assets caption of the consolidated balance sheets. In the
fourth quarter of 2000, the Company performed an analysis of intangible assets
related to the acquisition of GAC and for a GC inlet product for which the
manufacturing rights were acquired in 1999 and determined that part of the
carrying value of these assets was not recoverable due to continuous delays in
the introduction of a new product, resulting in deterioration of market
presence. The Company evaluated the realizability of the intangible assets based
on expectations of non-discounted cash flows and operating income for each
product line having a material intangible asset balance. An impairment loss was
recognized as the estimated future undiscounted cash flows expected to result
from the use of the asset and its eventual disposition was less than its
carrying amount. The impairment loss was measured as the difference between the
carrying value of the asset and the discounted cash flows expected to be
produced by the assets. As a result of this analysis, the Company recorded asset
impairment charges in the fourth quarter of 2000 amounting to $960,000 before
tax, which reduced net income by approximately $605,000, or $0.21 per share
(diluted). The asset impairment charges consisted of $793,000 relating to the
value of intangible assets acquired from GAC in February 1999, and $167,000
relating to the value of manufacturing rights acquired in 1999.
NOTE 6. ACCRUED LIABILITIES
Accrued liabilities on December 31, 2002 and 2001, consisted of the following:
<Table>
<Caption>
2002 2001
---------- ----------
Accrued compensation and other related expenses $ 769,672 $ 834,233
Accrued warranties 734,637 684,446
Unearned revenues 394,303 33,050
Unearned revenues - service contracts 348,231 319,603
Unearned revenues/deposits - sales-type leases 215,967 208,286
Other liabilities and accrued expenses 655,747 132,079
---------- ----------
$3,118,557 $2,211,697
========== ==========
</Table>
15
NOTE 7. PRODUCT WARRANTY LIABILITIES
The changes in the Company's product warranty liability on December 31, 2002 and
2001 are as follows:
<Table>
<Caption>
2002 2001
--------- ---------
Liabilities, beginning of year $ 684,446 $ 532,819
Expense for new warranties issued $ 54,678 $ 151,627
Warranty claims $ (4,487) $ 0
--------- ---------
Liability, end of year $ 734,637 $ 684,446
========= =========
</Table>
NOTE 8. STOCK OPTION AND STOCK PURCHASE PLAN
In 1987, the Company established a stock option and stock appreciation rights
plan (1987 Plan) qualified under Section 422 of the Internal Revenue Code of
1986. The 1987 Plan expired in accordance with its terms on December 31, 1997.
Options granted to purchase 33,766 shares remain outstanding under the 1987 Plan
at December 31, 2002.
During 1992, the Company's Board of Directors, and during 1993, the Company's
stockholders, approved the O. I. Corporation 1993 Incentive Compensation Plan
(1993 Plan). The 1993 Plan provides for the granting of options to purchase up
to 500,000 shares of the Company's common stock with the options having an
exercise price of not less than the par value of such stock. Employees and
non-employee directors of the Company are eligible for such grants. The options
generally expire ten years from the date of grant and generally vest over three
or four years. The 1993 Plan was amended effective January 1, 2001 to also
provide for the one-time award of 6,000 shares to directors upon their initial
election to the Board. During 2001, 24,000 shares were awarded under this
provision resulting in $73,680 in compensation expense. During 2002, the Company
granted 135,000 share options under the 1993 Plan, with a weighted average
exercise price based on the stock price of $5.20 at the date of grant. The 1993
Plan expired in accordance with its terms on December 2002. At such time,
409,134 of the 500,000 shares reserved for issuance had been granted and 90,866
shares expired ungranted.
Both the 1987 Plan and the 1993 Plan allow for the exercise of options with
mature shares. During 2001, 55,237 outstanding mature shares were used to
exercise stock options for 133,060 shares of the Company's stock. Options
outstanding under the 1987 Plan and the 1993 Plan have exercise prices equal to
the market value on the date of grant.
The 2003 Incentive Compensation Plan (the "Incentive Plan") was adopted by the
Board of Directors on February 25, 2002, and approved by the Company's
shareholders at the annual meeting of shareholders on May 6, 2002. The Incentive
Plan became effective on January 1, 2003. Key personnel and non-employee
directors of the Company are eligible to participate in the Incentive Plan. The
purpose of the Incentive Plan is to attract, retain, and motivate key employees
and non-employee directors of the Company by providing additional benefits to
such employee and non-employee directors by way of granting stock options, stock
appreciation rights ("SARs"), stock awards and performance awards. The Incentive
Plan is administered by the Compensation Committee. Members of the Compensation
Committee are not eligible to participate under the Incentive Plan, other than
to receive stock option grants or awards of stock on a formula basis as set
forth in the Plan. The 2003 Plan also provides that each non-employee director
will be awarded 3,000 shares of restricted stock upon his initial election to
the Board of Directors.
The aggregate number of shares of the Company's common stock as to awards may be
granted under the Incentive Plan is 350,000, subject to adjustments as described
in the Incentive Plan; provided, however, that 150,000 shares of Common Stock
shall be reserved for the grant of incentive stock options under the Incentive
Plan. The Incentive Plan terminates on December 31, 2012.
The option price for each stock option is determined by the Compensation
Committee, but in no event may the
16
exercise price per share be less than the market value per share (as defined in
the Plan) on the date of the grant; provided, however, that in the case of an
employee who, at the time an incentive stock option is granted, owns (within the
meaning of Section 424(d) of Code) more than 10% of the total combined voting
power of all classes of stock of the Company or any subsidiary corporation, then
the exercise price for the incentive stock option shall be at least 110% of the
market value per share of Common Stock at the time of grant.
The Company intends to register shares of Common Stock issuable pursuant to the
Incentive Plan under the Securities Act of 1933, as amended.
Activity under the 1987 Plan and the 1993 Plan for each of the three years in
the period ended December 31, 2002 was as follows:
<Table>
<Caption>
Weighted Average
Shares Price Per Share Price per Share
-------- --------------- ----------------
Options outstanding, December 31, 1999 387,700 $ 2.50 - 14.00 $ 4.60
Options granted 62,400 3.875 - 3.969 3.88
Options exercised (20,000) 3.50 - 3.63 3.61
Options forfeited or cancelled (24,500) 2.50 - 5.625 4.22
--------
Options outstanding, December 31, 2000 405,600 2.50 - 14.00 4.56
Options granted 77,400 2.90 - 4.90 3.82
Options exercised (152,694) 2.50 - 5.625 3.73
Options forfeited or cancelled (117,000) 2.50 - 5.625 3.99
--------
Options outstanding, December 31, 2001 213,306 2.50 - 6.06 4.18
Options granted 135,000 3.82 - 6.52 5.199
Options exercised (3,100) 3.125 - 3.94 3.914
Options forfeited or cancelled (20,900) 2.50 - 6.52 5.138
--------
Options outstanding, December 31, 2002 324,306 2.50 - 6.52 4.348
</Table>
There were 114,852, 86,766, and 284,050 share options exercisable at December
31, 2002, 2001, and 2000, respectively.
The following table summarizes significant ranges of outstanding and exercisable
options at December 31, 2002:
<Table>
<Caption>
Options Outstanding Options Exercisable
------------------------------------------ -------------------
Weighted Weighted
Weighted Average Average Average
Ranges of Remaining Life in Exercise Exercise
Exercise Prices Shares Years Price Shares Price
--------------- ------- ------------------- -------- ------ --------
$2.50 - $3.50 61,066 6.18 $ 3.247 31,867 $ 3.29
3.81 - 5.625 205,240 7.59 4.378 81,985 4.55
6.06 - 6.52 58,000 8.93 6.512 1,000 6.06
</Table>
In 1989, the Company established an Employee Stock Purchase Plan, which the
Board of Directors, in 1998, re-authorized to continue in its same format. Under
the plan provisions, employees may purchase shares of the Company's common stock
on a regular basis through payroll deductions. Any person who is a full-time
employee of the Company is eligible to participate in the plan, with each
participant's purchases limited to 10% of annual gross compensation. The
Compensation Committee of the Board of Directors administers the plan. Shares of
common stock are purchased in the open market or issued from shares held in
treasury. The Company pays all commissions and contributes an additional 15% for
the purchase of shares that are distributed to eligible participating employees.
The
17
Company's contribution to the plan was not significant in any of the years
reported. The aggregate number of shares of common stock available for purchase
under this plan is 200,000. As of December 31, 2002, 55,668 shares had been
purchased under the plan.
NOTE 9. STOCKHOLDERS' EQUITY
The Company's Articles of Incorporation authorize the issuance of up to
3,000,000 shares of preferred stock with $0.10 par value per share. The voting
rights, dividend rate, redemption price, rights of conversion, rights upon
liquidation, and other preferences are subject to determination by the Board of
Directors. As of December 31, 2002, no preferred stock had been issued.
The Company's Board of Directors has authorized the Company to repurchase shares
of its common stock through open market purchases or privately negotiated
transactions. Since 1995, the Company has repurchased an aggregate 1,727,378
shares related to these authorizations. The shares are held by the Company and
accounted for using the cost method. The Company is authorized to purchase up to
47,622 additional shares as of December 31, 2002.
NOTE 10. INCOME TAXES
The Company's operations are only taxed under domestic jurisdictions.
The provision for income taxes is summarized as follows:
<Table>
<Caption>
Years Ended December 31
------------------------------------
2002 2001 2000
--------- --------- ---------
Current provision:
Federal $ 454,931 $ 800,544 $ 680,730
State 69,908 153,623 108,266
Deferred provision (benefit) (311,653) 3,504 (427,349)
--------- --------- ---------
$ 213,186 $ 957,671 $ 361,647
========= ========= =========
</Table>
The provision for income taxes differs from the amount computed by applying the
federal statutory rates for the following reasons:
<Table>
<Caption>
Years Ended December 31
------------------------------
2002 2001 2000
------ ------ ------
Tax at statutory rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 5.6 4.0 5.8
Future research and development credits (5.2) (5.9) --
Dividends received deduction (5.7) -- --
Reduction in valuation allowance -- (1.7) --
Other, net (4.3) 1.9 (2.9)
------ ------ ------
24.4% 32.3% 36.9%
====== ====== ======
</Table>
18
Deferred tax assets (liabilities) are comprised of the following at December 31,
2002 and 2001:
<Table>
<Caption>
2002 2001
----------- -----------
Current:
Warranty reserve $ 293,855 $ 240,044
Bad debt allowance 101,438 50,730
Inventory reserve 126,492 37,692
Uniform capitalization 144,875 158,873
Accrued vacation 101,449 49,587
Other 32,850 17,139
----------- -----------
Total current $ 800,959 $ 554,065
=========== ===========
Noncurrent:
Depreciation $ 146,016 $ 151,432
Deferred compensation 47,447 17,975
Intangibles 213,969 182,148
Other (97,292) (113,849)
----------- -----------
Total noncurrent 310,140 237,706
Net tax asset before valuation allowance 1,111,099 791,771
Valuation allowance -- --
----------- -----------
Net deferred tax asset $ 1,111,099 $ 791,771
=========== ===========
</Table>
NOTE 11. EMPLOYEE BENEFIT PLANS
The Company maintains a Retirement Savings Plan (the 401(k) Plan) for its
employees, which allows participants to make contributions by salary reduction
pursuant to Section 401(k) of the Internal Revenue Code. The Company's
contributions to the 401(k) Plan are discretionary. Employees vest immediately
in their contributions and vest in the Company's contributions ratably over five
years. The Company accrued contributions of $55,000, $150,000, and $80,000 to
the 401(k) Plan for the years ended December 31, 2002, 2001, and 2000,
respectively.
NOTE 12. COMMITMENTS AND CONTINGENCIES
On February 1, 1999, the Company acquired substantially all of the assets of
General Analysis Corporation (GAC). GAC is a supplier of beverage monitors used
to measure dissolved Brix (sugar), diet syrup, and carbon dioxide in beverage
streams. Assets acquired also included air and gas monitors that are used by the
chiller/refrigerant industry for the rapid detection of low-level refrigerant
leaks. The Company acquired GAC for $259,459 in cash and the assumption of
approximately $1,100,000 in liabilities. In addition, the Company may be
obligated to make earn-out payments to the former owner of GAC based upon the
achievement of potential future revenue targets. The earn-out provision is based
upon a percentage of equipment sales, as defined in the purchase agreement, in
excess of certain thresholds through 2003. The sales thresholds approximate
$1,000,000 for 1999 and increase ratably each year to a total sales threshold of
at least $5,000,000 in 2003. No earn-out payments were earned for the years
ended December 31, 2002, 2001, or 2000. Any earn-out payments will be recorded
as an adjustment to the purchase price of the acquisition because the earn-out
payments are based upon the future performance of the Company and not upon
continued employment of the former owners. As of December 31, 2002, the maximum
aggregate amount of the potential earn-out payments is approximately $3,500,000.
The Company has an agreement with the former owner of Floyd Associates, Inc. to
pay a royalty equal to 5% of the net revenue earned from certain microwave-based
products up to a maximum amount of $1,182,500. The contingent liability arose as
a result of the acquisition of Floyd in 1994. No minimum payments are required
in the agreement. The Company recognized royalty expense related to this
agreement of $24,249, $34,860, and $41,764 in 2002, 2001, and 2000,
respectively.
19
The Company leases approximately 20,000 sq.ft. of office, engineering,
laboratory, production, and warehouse space in Pelham, Alabama, a suburb of
Birmingham, under a lease expiring in October 2006. The Company also leases 500
sq. ft of office space in Edgewood, Maryland, which can be automatically renewed
annually up to three years. Rental expense recognized in 2002, 2001, and 2000,
was $201,220, $150,000, and $157,000, respectively. Future minimum rental
payments under these leases for each year of the next five successive years are
$192,904, $193,093, $188,785, $171,050, and $-0-.
NOTE 13. SEGMENT DATA
The Company adopted Statement of Financial Accounting Standards No. 131 (FAS
131), Disclosures about Segments of an Enterprise and Related Information. FAS
131 designates the internal reporting that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. FAS 131 also requires disclosure about products and
sources, geographic areas and major customers. The Company operates its business
as a single segment.
Revenues related to operations in the U.S. and foreign countries for the years
ended December 31, 2002, 2001, and 2000, are presented below. The basis for
attributing revenues from external customers to individual countries is based
upon locations to which the product is shipped. Long-lived assets related to
continuing operations in the U.S. and foreign countries as of the years ended
December 31, 2002, 2001, and 2000, are as follows:
<Table>
<Caption>
Years Ended December 31
-----------------------------------------
2002 2001 2000
----------- ----------- -----------
Net revenues from unaffiliated customers:
United States $17,699,135 $21,230,585 $19,402,106
Foreign 5,983,859 4,638,185 4,999,266
Long-lived assets at end of year:
United States $ 3,414,739 $ 3,394,277 $ 3,606,028
</Table>
One customer accounted for approximately 10% of revenues in 2002, 12% of
revenues in 2001, and no single customer accounted for more than 10% of revenues
in 2000. Sales to federal, state, and municipal governments accounted for 17% of
total revenues in 2002, 13% of total revenues in 2001, and 31% of total revenues
in 2000.
NOTE 14. QUARTERLY INFORMATION (UNAUDITED)
Quarterly financial information for 2002 and 2001 is summarized as follows:
<Table>
<Caption>
($ in thousands, except per share amounts) First Second Third Fourth
2002 Qtr. Qtr. Qtr. Qtr.
- ------------------------------------------ ------ ------ ------ ------
Net revenues $5,059 $5,560 $6,688 $6,376
Gross profit 2,170 2,691 2,952 2,858
Net income (174) 256 172 404
Basic earnings per share $(0.06) $ 0.09 $ 0.06 $ 0.15
Diluted earnings per share $(0.06) $ 0.09 $ 0.06 $ 0.15
</Table>
<Table>
<Caption>
($ in thousands, except per share amounts) First Second Third Fourth
2001 Qtr. Qtr. Qtr. Qtr.
- ------------------------------------------ ------ ------ ------ ------
Net revenues $6,585 $6,920 $5,872 $6,492
Gross profit 3,012 3,288 2,833 3,123
Net income 410 643 395 558
Basic earnings per share $ 0.15 $ 0.24 $ 0.15 $ 0.21
Diluted earnings per share $ 0.15 $ 0.24 $ 0.15 $ 0.20
</Table>
20
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements of O. I. Corporation and its
subsidiary that are included in Part II, Item 8:
<Table>
<Caption>
Page
-----
Report of Independent Accountants ................................................................... 2-3
Consolidated Balance Sheets at December 31, 2002 and 2001 ........................................... 4
Consolidated Statements of Income for the years ended December 31, 2002, 2001, and 2000 ............. 5
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000 ......... 6
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2002, 2001,
and 2000 ................................................................................... 7
Notes to Consolidated Financial Statements .......................................................... 8-20
</Table>
(a) 2. Financial Statement Schedules required to be filed by Item 8 of this
Form:
All schedules are omitted as they are not required, or are not
applicable, or the required information is included in the financial
statements or notes thereto.
(a) 3. Exhibits
3.1 Articles of Incorporation of the Company (filed as Exhibit 3.1
to the Company's Annual Report on Form 10-K for the year ended
December 31, 2001 and incorporated herein by reference).
21
3.2 Amended and restated Bylaws of the Company.
*10.1 Amended and Restated 1987 Stock Option and SAR Plan (filed as
Exhibit 4.3 to the Company's Registration Statement on Form
S-8 (No. 33-24505) and incorporated herein by reference).
*10.2 Employee Stock Purchase Plan (filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8 (No. 33-62209)
and incorporated herein by reference).
*10.3 Employment Agreement between the Company and William W. Botts
(filed as Exhibit 10.3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996 and incorporated
herein by reference).
*10.4 Value-Added Reseller Agreement between the Company and
Hewlett-Packard Company (filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1989 and incorporated herein by reference).
*10.5 1993 Incentive Compensation Plan (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference).
10.6 Registration Rights Agreement among O. I. Corporation and the
former shareholders of CMS Research Corporation dated January
4, 1994 (filed as Exhibit 10.8 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference).
*10.7 2003 Incentive Compensation Plan (filed as Exhibit A to the
Company's Proxy Statement dated April 5, 2002, and
incorporated herein by reference).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Grant Thornton LLP.
99.1 The O. I. Corporation definitive Proxy Statement, dated April
9, 2003, is incorporated by reference as an Exhibit hereto for
the information required by the Securities and Exchange
Commission, and, except for those portions of such definitive
proxy statement specifically incorporated by reference
elsewhere herein, such definitive proxy statement is deemed
not to be filed as a part of this report.
99.2 Certifications of Chief Executive Officer.
99.3 Certifications of Chief Financial Officer.
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
Form 8-K, Change in Registrant's Certifying Accountants was
filed November 1, 2002.
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
O. I. CORPORATION
/s/ William W. Botts
---------------------------
Date: April 2, 2003 By: William W. Botts
------------------ President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<Table>
<Caption>
Signature Title Date
--------- ----- ----
/s/ William W. Botts President, Chief Executive Officer, April 2, 2003
- -------------------------- Director
William W. Botts
/s/ Juan M. Diaz Corporate Controller, April 2, 2003
- -------------------------- Principal Accounting Officer
Juan M. Diaz
/s/ Jack S. Anderson Director April 2, 2003
- -------------------------
Jack S. Anderson
/s/ Richard W. K. Chapman Director April 2, 2003
- -------------------------
Richard W. K. Chapman
/s/ Edwin B. King Director April 2, 2003
- -------------------------
Edwin B. King
/s/ Craig R. Whited Director April 2, 2003
- -------------------------
Craig R. Whited
</Table>
23
CERTIFICATIONS
I, William W. Botts, certify that:
1. I have reviewed this annual report on Form 10-K/A of O.I. Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 2, 2003 /s/ William W. Botts
----------------------------------
William W. Botts, Chairman of the
Board of Directors, President, and
Chief Executive Officer
(Principal Executive Officer)
24
CERTIFICATIONS
I, Juan M. Diaz, certify that:
1. I have reviewed this annual report on Form 10-K/A of O.I. Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 2, 2003 /s/ Juan M. Diaz
-----------------------------
Juan M. Diaz
Corporate Controller
(Principal Financial Officer)
25
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Articles of Incorporation of the Company, as amended (filed as Exhibit
3.1 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2001 and incorporated herein by reference).
3.2 Amended and restated Bylaws of the Company.
*10.1 Amended and Restated 1987 Stock Option and SAR Plan (filed as Exhibit
4.3 to the Company's Registration Statement on Form S-8 (No. 33-24505)
and incorporated herein by reference).
*10.2 Employee Stock Purchase Plan (filed as Exhibit 4.3 to the Company's
Registration Statement on Form S-8 (No. 33-62209) and incorporated
herein by reference).
*10.3 Employment Agreement between the Company and William W. Botts (filed as
Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference).
10.4 Value-Added Reseller Agreement between the Company and Hewlett-Packard
Company (filed as Exhibit 10.5 to the Company's Annual Report on Form
10-K for the year ended December 31, 1989 and incorporated herein by
reference).
*10.5 1993 Incentive Compensation Plan (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993 and incorporated herein by reference).
10.6 Registration Rights Agreement among O.I. Corporation and the former
shareholders of CMS Research Corporation dated January 4, 1994 (filed
as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994 and incorporated herein by reference).
10.7 2003 Incentive Compensation Plan (filed as Exhibit A to the Company's
Proxy Statement dated April 5, 2002, and incorporated herein by
reference).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Grant Thornton LLP.
99.1 The O.I. Corporation definitive Proxy Statement, dated April 9, 2003 is
incorporated by reference as an Exhibit hereto for the information
required by the Securities and Exchange Commission, and, except for
those portions of such definitive proxy statement specifically
incorporated by reference elsewhere herein, such definitive proxy
statement is deemed not to be filed as a part of this report.
99.2 Certification of Chief Executive Officer.
99.3 Certification of Chief Financial Officer.
</Table>
- ----------
* Management contract or compensatory plan or arrangement.