-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HXaH/vLoNk1vo4OLAsjmQutAKvhQ992lA4TS2BRJR8rVz2QoytBac4b3VdS8gn2k im9WUY+I3HbNR16QyhYqtQ== 0000950129-06-007744.txt : 20060809 0000950129-06-007744.hdr.sgml : 20060809 20060809161904 ACCESSION NUMBER: 0000950129-06-007744 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060809 DATE AS OF CHANGE: 20060809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OI CORP CENTRAL INDEX KEY: 0000073773 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 730728053 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06511 FILM NUMBER: 061017856 BUSINESS ADDRESS: STREET 1: P O BOX 9010 STREET 2: 151 GRAHAM RD CITY: COLLEGE STATION STATE: TX ZIP: 778429010 BUSINESS PHONE: 4096901711 MAIL ADDRESS: STREET 1: 151 GRAHAM RD STREET 2: P O BOX 9010 CITY: COLLEGE STATION STATE: TX ZIP: 77842-9010 FORMER COMPANY: FORMER CONFORMED NAME: OCEANOGRAPHY INTERNATIONAL CORP DATE OF NAME CHANGE: 19801205 10-Q 1 h38522e10vq.txt FORM 10-Q - QUARTERLY REPORT 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 June 30, 2006 [ ] 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 [X] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] As of June 30, 2006, there were 2,885,715 shares of the issuer's common stock, $.10 par value, outstanding. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS O.I. CORPORATION Condensed Consolidated Balance Sheets (In thousands, except par value)
JUNE 30, DEC. 31, 2006 2005 ----------- -------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,473 $ 1,727 Accounts receivable-trade, net of allowance for doubtful accounts of $312 and $326, respectively 5,555 6,324 Investment in sales-type leases, current portion 195 307 Investments, at market 9,493 9,841 Inventories, net 5,334 4,617 Current deferred income tax assets 901 904 Other current assets 305 179 ------- ------- Total current assets 24,256 23,899 Property, plant, and equipment, net 3,325 3,229 Investment in sales-type leases, net of current 246 190 Long-term deferred income tax assets 663 539 Intangible assets, net 309 276 Other assets 32 26 ------- ------- Total assets $28,831 $28,159 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, trade $ 1,467 $ 1,428 Accrued liabilities 4,029 3,963 Total current liabilities 5,496 5,391 Commitments and contingencies Stockholders' equity: Preferred stock, $0.10 par value, 3,000 shares authorized, no shares issued and outstanding Common stock, $0.10 par value, 10,000 shares authorized, 4,103 shares issued, 2,885 and 2,853 outstanding, respectively 410 410 Additional paid-in capital 4,458 4,374 Treasury stock, 1,218 and 1,250 shares, respectively, at cost (5,424) (5,456) Retained earnings 24,033 23,502 Accumulated other comprehensive (loss), net (142) (62) ------- ------- Total stockholders' equity 23,335 22,768 ------- ------- Total liabilities and stockholders' equity $28,831 $28,159 ======= =======
See notes to unaudited condensed consolidated financial statements 2 O.I. CORPORATION Condensed Consolidated Statements of Income and Comprehensive Income (In thousands, except per share data) (Unaudited)
THREE MONTHS SIX MONTHS ENDED JUNE 30 ENDED JUNE 30 --------------- ----------------- 2006 2005 2006 2005 ------ ------ ------- ------- Net revenues: Products $5,295 $6,012 $11,771 $13,013 Services 1,320 1,012 2,653 1,711 ------ ------ ------- ------- 6,615 7,024 14,424 14,724 Cost of revenues: Products 2,760 3,079 5,944 6,371 Services 696 386 1,358 739 ------ ------ ------- ------- 3,456 3,465 7,302 7,110 Gross Profit 3,159 3,559 7,122 7,614 Selling, general & administrative Expenses 2,270 2,121 4,725 4,435 Research and development expenses 686 967 1,428 1,905 ------ ------ ------- ------- Operating income 203 471 969 1,274 Other income, net 171 125 294 238 ------ ------ ------- ------- Income before income taxes 374 596 1,263 1,512 Provision for income taxes 176 154 443 449 ------ ------ ------- ------- Net income $ 198 $ 442 $ 820 $ 1,063 ====== ====== ======= ======= Other comprehensive (loss)/income, net of tax: Unrealized (losses)/gains on Investments (92) 9 (80) (54) ------ ------ ------- ------- Comprehensive income $ 106 $ 451 $ 740 $ 1,009 ====== ====== ======= ======= Earnings per share: Basic $ 0.07 $ 0.16 $ 0.29 $ 0.38 Diluted $ 0.07 $ 0.15 $ 0.28 $ 0.37 Shares used in computing earnings per share: Basic 2,846 2,837 2,853 2,812 Diluted 2,923 2,898 2,934 2,888 Cash dividends declared per share of common stock $ 0.05 -- $ 0.05 --
See notes to unaudited condensed consolidated financial statements 3 O. I. CORPORATION CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands) (Unaudited)
Common Stock Accum Other Total --------------- Treasury Retained Comprehensive Stockholders' Shares Amount APIC Stock Earnings Income Equity ------ ------ ----- -------- -------- ------------- ------------- Balance at Dec 31, 2005 4,103 410 4,374 (5,456) 23,502 (62) 22,768 Purchase of treasury stock (67) (67) Employee stock option exercise 4 95 99 Employee stock purchase plan 8 4 12 FAS 123R expense 45 45 Dividends Declared (289) (289) Permanent Tax Difference 27 27 Comprehensive income (loss): Unrealized gain (loss) on investments, net of deferred tax benefit of $41,609 (80) (80) Net income 820 820 ----- --- ----- ------ ------ ---- ------ Balance at June 30, 2006 4,103 410 4,458 (5,424) 24,033 (142) 23,335 ===== === ===== ====== ====== ==== ======
See notes to unaudited condensed consolidated financial statements 4 O.I. CORPORATION Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
SIX MONTHS ENDED JUNE 30, ----------------- 2006 2005 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 820 $ 1,063 Depreciation & amortization 289 285 Deferred income taxes (81) (96) Change in working capital (191) (547) ------- ------- Net cash flows provided by operating activities 837 705 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investments (5,190) (2,643) Maturity of investments 5,447 2,170 Purchase of property, plant & equipment (398) (202) Proceeds from sales of assets 10 -- Change in other assets (48) (56) ------- ------- Net cash flows (used in) investing activities (179) (731) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock pursuant to exercise of employee stock options and employee stock purchase plan 139 147 Excess tax benefits from stock-based compensation 16 -- Purchase of Treasury Stock (67) -- ------- ------- Net cash flows provided by financing activities 88 147 NET INCREASE IN CASH AND CASH EQUIVALENTS 746 121 Cash and cash equivalents, at beginning of period 1,727 1,541 ------- ------- Cash and cash equivalents, at end of period $ 2,473 $ 1,662 ======= =======
See notes to unaudited condensed consolidated financial statements 5 O.I. CORPORATION Notes to Unaudited Condensed Consolidated Financial Statements 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. O.I. Corporation (the "Company", "we", or "us"), 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 accompanying unaudited condensed consolidated financial statements have been prepared by O.I. Corporation and include all adjustments that are, in the opinion of management, necessary for a fair presentation of financial results pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). All adjustments and provisions included in these statements are of a normal recurring nature. All intercompany transactions and balances have been eliminated in the financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2005. 2. INVENTORIES, NET. Inventories, net, which include material, labor, and manufacturing overhead, are stated at the lower of first-in, first-out cost or market (in thousands):
June 30, 2006 Dec. 31, 2005 ------------- ------------- Raw materials $4,825 $4,203 Work-in-process 695 651 Finished goods 708 669 Reserves (894) (906) ------ ------ $5,334 $4,617 ====== ======
3. COMPREHENSIVE INCOME. Other comprehensive income refers to revenues, expenses, gains and losses that under generally accepted accounting principles are recorded as an element of stockholders' equity. The Company's components of comprehensive income are net income and unrealized gains and losses on available-for-sale investments. 4. 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 common shares the Company has outstanding. Incremental shares from assumed exercise of dilutive options for the three and six months ended June 30, 2006 of 77,000 and 81,000 respectively, were added to the weighted average shares used to calculate diluted earnings per share. Incremental shares from assumed exercise of dilutive options for the same period of the prior year of 61,000 and 76,000, respectively, were added to the weighted average shares used to calculate diluted earnings per share. There were no adjustments made to net income as reported to calculate basic or diluted earnings per share. For the three and six months ended June 30, 2006 and 2005 there were no anti-dilutive shares. 5. STOCK-BASED COMPENSATION. On January 1, 2006, we adopted the provisions of Statement 123 (revised 2004) (Statement 123(R)), Share-Based Payment, which revises Statement 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion 25, Accounting for Stock Issued to Employees. Statement 123(R) requires us to recognize expense related to the fair value of our stock-based compensation awards, including employee stock options. Prior to the adoption of Statement 123(R), we accounted for stock-based compensation awards using the intrinsic value method of Opinion 25. Accordingly, we did not recognize compensation expense in our statements of income for options we granted that had an exercise price equal to the market 6 value of the underlying common stock on the date of grant. As required by Statement 123, we also provided certain pro forma disclosures for stock-based awards as if the fair-value-based approach of Statement 123 had been applied. We have elected to use the modified prospective transition method as permitted by Statement 123(R) and therefore have not restated our financial results for prior periods. Under this transition method, we will apply the provisions of Statement 123(R) to new awards and to awards modified, repurchased, or cancelled after January 1, 2006. Additionally, we will recognize compensation cost for the portion of awards for which the requisite service has not been rendered (unvested awards) that are outstanding as of January 1, 2006, as the remaining service is rendered. The compensation cost we record for these awards will be based on their grant-date fair value as calculated for the pro forma disclosures required by Statement 123. Our pre-tax compensation cost for stock-based compensation was $28,000 and $45,000($17,000 and $27,000 after tax effects) for the three and six months ended June 30, 2006. As a result of the adoption of Statement 123(R), our financial results were lower than under our previous accounting method for share-based compensation by the following amounts:
Three Months Ended Six Months Ended June 30, 2006 June 30, 2006 ------------------ ------------------ (in 000s, except (in 000s, except per share amounts) per share amounts) Income before income taxes $ 28 $ 45 Net income $ 17 $ 27 Basic earnings per share $0.01 $0.01 Diluted earnings per share $0.01 $0.01
Statement 123(R) 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. For the three and six months ended June 30, the excess tax benefit was $8,000 and $16,000. The following table illustrates the effect on net income after tax and net income per common share as if we had applied the fair value recognition provisions of Statement 123 to stock-based compensation for the three and six months ended June 30, 2005:
Three Months Six Months Ended Ended June 30, June 30, 2005 2005 ------------------ ------------------ (in 000s, except (in 000s, except per share amounts) per share amounts) Net income: Net income, as reported $ 442 $ 1,063 Deduct: Stock-based compensation expense determined under fair value-based method for all awards, net of related tax effects 20 41 Pro forma net income 422 1,022 Basic earnings per common share: As reported $0.16 $ 0.38 Pro forma $0.15 $ 0.36 Diluted earnings per common share: As reported $0.15 $ 0.37 Pro forma $0.15 $ 0.35
No options were granted during the first quarter of 2006, however 8,000 non-qualified stock options were granted to members of the board of directors under the 2003 Incentive Compensation Plan during the three months ended June 30, 2006. 7 Stock option plans We have three stock option plans, two of which have expired and one with shares available for grant at June 30, 2006 as follows:
Plan 2003 Incentive Compensation Plan ----------------- Minimum exercise price as a percentage of fair market value at date of grant 100% Plan termination date December 31, 2012 Shares available for grant at June 30, 2006 263,000
Option grants under all three plans have a contractual life of ten years, except grants to non-employee directors, which have a contractual life of three years. Option grants vest equally on each anniversary of the grant date, commencing with the first anniversary, except grants to non-employee directors that vest 100% after six months. We recognize compensation costs for these awards on a straight-line basis over the service period. The following is a summary of the changes in outstanding options for the six months ended June 30, 2006:
Weighted Weighted Average Aggregate Average Remaining Intrinsic Shares Exercise Contractual Value (000) Price Life (000) ------ -------- ----------- --------- Outstanding at beginning of period 235 $ 5.60 4.3 years Granted 8 $11.90 2.9 years Exercised (26) $ 4.68 -- Forfeited (1) -- -- Expired (--) -- -- Outstanding at end of period 216 $ 5.93 4.7 years $1,412 Vested or expected to vest at end of period 27 $ 8.41 5.7 years $ 109 Exercisable at end of period 187 $ 5.92 4.4 years $1,228
During the six months ended June 30, 2006 and 2005, 8,000 non-qualified stock options were granted to members of the board of directors under the 2003 Incentive Compensation Plan, respectively. The total intrinsic value of share options exercised for the six months ended June 30, 2006 was $203,000. Other information As of June 30, 2006, we have $233,000 of total unrecognized compensation cost related to non-vested awards granted under our various share-based plans, which we expect to recognize over a weighted-average period of 5.5 years. 8 We received cash from options exercised for the six months ended June 30, 2006 of $122,000. 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. Under the terms of the 2003 Incentive Compensation Plan, we may issue treasury shares or purchase shares on the open market to fulfill the requirements of option exercises. We believe that we have sufficient shares in our treasury to satisfy any exercises in 2006. 6. INTANGIBLE ASSETS, NET. Intangible assets, net, consisted of patents, rights to licenses and trademarks relating to technology used in the Company's products. Intangible assets, net, as of June 30, 2006 and December 31, 2005 were approximately $309,000 and $276,000, net of accumulated amortization of $175,000 and $166,000, respectively. Total amortization expense on intangible assets for the three and six months ended June 30, 2006 and 2005 was approximately $4,000, $9,000, $4,000 and $8,000, respectively. The estimated aggregate amortization expense for the remainder of 2006 and each of the four succeeding fiscal years, 2007 to 2010, is approximately $8,000, $15,000, $15,000, $15,000, and $14,000, respectively. 7. PRODUCT WARRANTY LIABILITIES. The changes in the Company's product warranty liabilities for the six months ended June 30, 2006 were as follows (in thousands): Liabilities, beginning of year $ 636 Expense for new warranties issued 378 Warranty claims (358) ----- Liabilities, June 30, 2006 $ 656 =====
8. COMMITMENTS AND CONTINGENCIES. Other than as described below, there are no material pending legal proceedings other than ordinary, routine litigation incidental to the business to which the Company is a party or of which any of its property is subject. The Company and its wholly-owned subsidiary CMS Research Corp. ("CMS Research") have been sued by Aviv Amirav ("Amirav") in a Complaint filed in the United States District Court for the Southern District of New York on January 26, 2006 styled Amirav v. CMS Research Corp. and O.I. Corporation, Case No. 06-Civ-00659. The Complaint alleges (i) infringement and contributory infringement of United States patent no. 5,153,673, issued to Amirav, and (ii) breach of a license agreement between Amirav and CMS Research. Amirav's Complaint seeks (i) preliminary and permanent injunctive relief, (ii) actual damages in an unspecified amount, treble damages, and punitive damages, and (iii) attorneys' fees, interest, and other relief. On July 12, 2006 the plaintiff amended the complaint to omit the claims of infringement and contributory infringement. The Company is currently preparing its answer to the amended complaint and plans to vigorously oppose the plaintiff's claims. It is not possible at this stage of the case to determine what liability exposure, if any, is faced by the Company; however, an unfavorable outcome, including a determination that the Company is not entitled to the license and/or a determination that the Company's sales are breaching conditions of the license, would have a material adverse impact on the Company's results of operations. 9. RECENT PRONOUNCEMENTS. On June 8, 2005, the FASB issued a FASB Staff Position (FSP) interpreting FASB Statement No. 143, "Accounting for Asset Retirement Obligations." Specifically, the FASB issued FSP SFAS 143-1, "Accounting for Electronic Equipment Waste Obligations." This standard addresses the accounting for obligations associated with Directive 2002/96/EC, Waste Electrical and Electronic Equipment, which was adopted by the European Union. The FSP provides guidance on how to account for the effects of the Directive but only with respect to historical waste (i.e., waste associated with products placed on the market on or before August 13, 2005). The guidance in the FSP is required to be applied the later of (1) the first reporting period ending after June 8, 2005, or (2) the date of the adoption of the law by the applicable EU-member country. As of June 30, 2006, many EU-member countries had not yet adopted the Directive and the Company is still evaluating the impact, if any, of FSP FAS 143-1 on its financial position, cash flow, or results of operations. In February 2006, the FASB issued Statement No. 155, "Accounting for Certain Hybrid Financial Instruments" 9 ("SFAS 155"), which amends FASB Statement No. 133 and FASB Statement 140, and improves the financial reporting of certain hybrid financial instruments by requiring more consistent accounting that eliminates exemptions and provides a means to simplify the accounting for these instruments. Specifically, FASB Statement No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. The Company does not intend to issue or acquire the hybrid instruments included in the scope of SFAS 155 and does not expect the adoption of SFAS 155 to affect future reporting or disclosures. In July 2006, the FASB issued FASB Interpretation 48, "Accounting for Income Tax Uncertainties" ("FIN 48"). FIN 48 defines the threshold for recognizing the benefits of tax return positions in the financial statements as "more-likely-than-not" to be sustained by the taxing authority. The recently issued literature also provides guidance on the recognition, measurement and classification of income tax uncertainties, along with any related interest and penalties. FIN 48 also includes guidance concerning accounting for income tax uncertainties in interim periods and increases the level of disclosures associated with any recorded income tax uncertainties. FIN 48 is effective for fiscal years beginning after December 15, 2006. The differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. Because the guidance was recently issued, we have not yet determined the impact, if any, of adopting the provisions of FIN 48 on our financial position, results of operations and liquidity. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended, concerning, among other things, (i) possible or assumed future results of operations, contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations," (ii) prospects for the Company's business or products; (iii) other matters that are not historical facts. These forward-looking statements are identified by their use of terms and phrases such as "believes," "expects," "anticipates," "intends," "estimates," "plans" and similar terms and phrases. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. The Company's business and results of operations are subject to a number of assumptions, risks and uncertainties, many of which are beyond the Company's ability to control or predict. Because of these risks and uncertainties, actual results may differ materially from those expressed or implied by forward-looking statements, and investors are cautioned not to place undue reliance on such statements, which are not guarantees of future performance and which speak only as of the date thereof. The cautionary statements contained or referred to herein should be considered in connection with any written or oral forward-looking statements that may be issued by the Company or persons acting on the Company's behalf. The Company does not undertake any obligation to release any revisions to or to update publicly any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. When considering forward-looking statements, you should also keep in mind the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2005. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto. O.I. Corporation (referred to as "the Company," "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, the Company moved from Oklahoma City, Oklahoma to College Station, Texas, and the Company's name was changed to Oceanography International Corporation. The Company's name was changed to O.I. Corporation in July 1980; and in January 1989, the Company began doing business as OI Analytical to better align the company name with the products offered and markets served. O.I. Corporation provides innovative products for chemical analysis. The Company's products perform detection, analysis, measurement, and monitoring applications in food, beverage, pharmaceutical, semiconductor, power generation, chemical, petrochemical, and chemical treatment and security industries. Headquartered in College Station, Texas, the Company's products are sold worldwide by a direct sales force, 10 independent sales representatives, and distributors. The Company's principal business strategy is to direct its product development capabilities, manufacturing processes, and marketing skills toward market niches that it believes it can successfully penetrate and then assume a leading position in such markets. Management continually emphasizes product innovation, improvement in quality and product performance, on-time delivery, cost reductions, and other value-added activities. The Company seeks growth opportunities through technological and product improvement, the development of new applications for existing products, and by acquiring and developing new products for new markets, and new competencies. RECENT DEVELOPMENTS On January 31, 2006, the Company entered into a Letter Contract with Wyle Laboratories, Inc. Life Sciences, Systems and Services ("Wyle"). Under the Letter Contract, the Company assists Wyle in the planning, acquisition of materials, development of software and hardware, systems engineering, and fabrication of components that Wyle will use to deliver a Total Organic Carbon Analyzer ("TOCA") for use on the International Space Station. As of June 30, 2006, we have billed Wyle $882,000 for services rendered under the Letter Contract which has a potential total value of $1.8 million. The Company's work on the project began in the first quarter of 2006 and is being conducted in the Company's facilities in College Station, Texas, with the majority of the work anticipated to be completed no later than the end of the third quarter of 2006 with a continuing support effort to follow. We believe the research, development, and engineering work required and funded under this agreement will provide insights into technology and components that could further enhance the performance of our existing products and become the basis of potential new products. OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO JUNE 30, 2005 REVENUES. Total net revenues for the three months ended June 30, 2006 decreased $409,000, or 5.8%, to $6,615,000, compared to $7,024,000 for the same period of the prior year. Product revenues decreased $717,000, or 11.9% to $5,295,000, compared to $6,012,000 for the same period of the prior year. Sales for the quarter were lower in MINICAMS(R) products, Total Organic Carbon (TOC) analyzers, and beverage analyzers, partially offset by an increase in sales of Gas Chromatography (GC) components and systems. We believe product sales were lower primarily due to lower market demand in markets served, customer's delay of capital expenditure decisions, and intensified competition for what we perceive as lower prospective market demand. With the exception of the $3.2 million order for MINICAMS announced on May 17, 2006, we will end the second quarter with the lowest backlog for any quarter for several years. Revenues from services increased $308,000, or 30.4% to $1,320,000, compared to $1,012,000 for the same period of the prior year. The increase was primarily due to billings of approximately $474,000 under the Letter Contract with Wyle. Domestic revenues for the three months ended June 30, 2006 decreased compared to the same period of the prior year. We believe U.S. market demand from environmental laboratories has been reduced by increased interest rates and declines in the U.S. stock market. International revenues also decreased in every geographic region. We are currently experiencing increased competitive pressures in China, a market in which suppliers are vigorously pursuing competitive pricing. We are reviewing the performance of our international distributors with the intent of upgrading our channel of distribution to meet ever increasing global competition. Although we believe that the outlook for the environmental instrument market is flat, we have released several new products that we believe will better position the Company for growth. However, growth in revenues will be dependent in part on improved capital spending in developed global markets including the domestic market, continued spending on environmental instruments in emerging markets, and successful market penetration of our new products. We believe our success in market penetration with newly introduced products has resulted in aggressive actions by competitors including the lowering of their prices for products and after-sale service products being bundled into packages at no cost to the buyer or at highly discounted prices. As we view market conditions including demand for our products, competitor actions, and prior year quarterly sales levels, no assurance can be given that sales will meet prior year levels or that sales will not decline further than experienced in the quarter ending June 30, 2006. GROSS PROFIT. Gross profit for the three months ended June 30, 2006 decreased $400,000, or 11.2% to $3,159,000, compared to $3,559,000 for the same period of the prior year primarily due to lower revenue, changes in our product mix as a result of decreased sales of the MINICAMS product, and increases in warranty expenses and costs incurred in resolving technical issues with newly released products. Gross profit 11 represented 47.8% of revenues for the period, compared to 50.7% for the same period of the prior year. The lower margin was primarily due to higher cost of sales related to the services performed in fulfillment of the Letter Contract with Wyle. SELLING, GENERAL, AND ADMINISTRATIVE. SG&A expenses for the three months ended June 30, 2006 increased $149,000, or 7.0%, to $2,270,000, compared to $2,121,000 for the same period of the prior year. SG&A expenses increased as a percentage of revenues for the three months ended June 30, 2006 to 34%, compared to 30% of revenues for the same period of the prior year. The increase in SG&A expenses is primarily due to increased legal fees related to defending against a patent infringement claim, expenses related to an increase in the size of the board of directors including the expense of restricted stock grants to new directors, and the implementation of SFAS 123(R) in the current fiscal year which requires the expensing of stock options. RESEARCH AND DEVELOPMENT. R&D expenses for the three months ended June 30, 2006 decreased $281,000, or 29%, to $686,000, compared to $967,000 for the same period of the prior year. R&D expenses represented 10.4% of revenues for the period compared to 13.8% of revenues for the same period of the prior year. The decreased R&D expenditures were primarily due to certain R&D personnel resources being assigned to work on the Letter Contract announced by the Company on February 3, 2006. Expenses relating to the work under the Letter Contract are accounted for as service cost of sales. We anticipate that R&D resources currently assigned to this project will return to internal company R&D projects. Should such reassignment be made, R&D expenses would return to previous period levels or even higher. OPERATING INCOME. Operating income for the three months ended June 30, 2006 decreased $268,000, or 57%, to $203,000, compared to $471,000 for the same period of the prior year. The decrease in operating income for the three months ended June 30, 2006 is primarily due to lower revenues and increased SG&A expenses partially offset by lower R&D costs. OTHER INCOME, NET. Other income, net, which is comprised of interest and dividend income from investments, interest income from customer leases and gain/loss from dispositions of Company property, increased $46,000, or 37%, to $171,000 for the three months ended June 30, 2006 compared to $125,000 for the same period of the prior year. The increase was due to higher yields on short term and fixed income investments. INCOME BEFORE INCOME TAXES. Income before income taxes decreased $222,000, or 37%, to $374,000 compared to $596,000 for the same period of the prior year. The decrease in income before income taxes was primarily due to lower revenues and increased SG&A expenses partially offset by lower R&D costs and increased investment income. PROVISION FOR INCOME TAXES. Provision for income taxes increased $22,000 for the three months ended June 30, 2006 to a provision of $176,000 compared to a provision of $154,000 for the same period of the prior year. The effective tax rate was 47% for the three months ended June 30, 2006, compared to 26% for the same period of the prior year. The R&D tax credit contained in the Internal Revenue Code section 41 expired on December 31, 2005. The possible reenactment of the credit is in process but has not yet been finalized, therefore we determined that the credit should not be included in our tax calculations until it is reenacted. Because the credit was taken in the first quarter of 2006, an adjustment was necessary in the second quarter to correct the tax accrual, thus increasing the effective tax rate for this period. During the second quarter of 2006, the State of Texas adopted an amendment to its franchise tax law to be effective January 1, 2007. The amended Texas tax, which is based on taxable gross margin, is considered an income tax under FASB SFAS No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Because of the amendment to the tax law, the Company recognized an immaterial one-time, non-cash income tax benefit during the second quarter of 2006, primarily as a result of recording deferred taxes for research and development credits permitted under the new legislation. NET INCOME. Net income for the three months ended June 30, 2006 decreased $244,000 to $198,000 compared to net income of $442,000 in the same period of the prior year. Basic earnings per share was $0.07, and diluted earnings per share was $0.07 for the three months ended June 30, 2006, compared to basic and diluted earnings of $0.16 and $0.15 per share, respectively, for the same period of the prior year. The decrease in net income for the three months ended June 30, 2006 was primarily due to a decrease in revenues from product sales compared to the same period of the prior year combined with an increase in SG&A expense and provision for income taxes, partially offset by an increase in other income and a decrease in R&D expenses. FOR THE SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO JUNE 30, 2005 Total net revenues for the six months ended June 30, 2006 decreased $300,000, or 2.0% to $14,424,000, compared to $14,724,000 for the same period of the prior year. Product revenues decreased $1,242,000, or 9.5%, to 12 $11,771,000, compared to $13,013,000 for the same period of the prior year. The year-to-date decrease in product revenues was primarily due to lower shipments of MINICAMS products, TOC products and Beverage products, partially offset by increased sales of GC systems, Automated Chemistry Analyzers (ACA), and GPC products. Overall, the decrease in product sales in the first quarter of 2006 were followed by a weaker second quarter in sales of MINICAMS products and TOC products, due to customer delays in capital expenditure decisions and intensified competition. Revenues from services increased $942,000, or 55.1%, to $2,653,000, compared to $1,711,000 for the same period of the prior year. The increase was primarily due to billings in the amount of approximately $882,000 under the Letter Contract with Wyle. The increase in service revenues may not continue after the letter contract with Wyle is completed. Domestic revenues decreased due to the same reasons mentioned above. International revenues increased slightly for the six months ended June 30, 2006 compared to the same period of the prior year. In particular, sales to Europe, the Middle East, Africa, and Latin America increased, while sales to China and the Asian Pacific region decreased. We are currently experiencing extreme competitive pressures, particularly in Asia, and have replaced some non-performing distributors in that region. GROSS PROFIT. Gross profit for the six months ended June 30, 2006 decreased $492,000, or 6.5%, to $7,122,000, compared to $7,614,000 for the same period of the prior year, primarily due to a decrease in revenues and an increase in warranty costs and higher cost of sales related to the services performed in fulfillment of the Letter Contract with Wyle. Gross profit represented 49.4% of revenues for the period compared to 51.7% for the same period of the prior year. SELLING, GENERAL, AND ADMINISTRATIVE. SG&A expenses for the six months ended June 30, 2006 increased $290,000, or 6.5% to $4,725,000, compared to $4,435,000 for the same period of the prior year, primarily due to increased legal fees due to a patent infringement claim, increased board of directors expenses and stock option expensing. RESEARCH AND DEVELOPMENT. R&D expenses for the six months ended June 30, 2006 decreased $477,000, or 25.0%, to $1,428,000, compared to $1,905,000 for the same period of the prior year. R&D expense represented 9.9% of revenues for the period compared to 12.9% of revenues for the same period of the prior year. R&D expenses decreased compared to the same period of the prior year primarily due to certain R&D personnel resources being assigned to work on the Letter Contract with Wyle; consequently, their expenses were classified as service cost of sales. We anticipate that R&D resources currently assigned to this project will return to internal company R&D projects. Should such reassignment be made, R&D expenses would return to previous period levels or even higher. OPERATING INCOME. Operating income for the six months ended June 30, 2006 decreased $305,000, or 23.9%, to $969,000, compared to $1,274,000 for the same period of the prior year. The decrease in operating income was primarily due to decreased revenues and gross profit and increases in SG&A costs partially offset by a decrease in R&D expenses. OTHER INCOME, NET. Other income for the six months ended June 30, 2006 increased $56,000, or 24%, to $294,000, compared to $238,000 for the same period of the prior year. The increase was due to higher yields on short term and fixed income investments. INCOME BEFORE INCOME TAXES. Income before income taxes for the six months ended June 30, 2006 decreased $249,000, or 16.5%, to $1,263,000, compared to $1,512,000 for the same period of the prior year, primarily due to a decrease in revenues and gross profit from sales of products and increases in SG&A expenses. PROVISION FOR INCOME TAXES. Provision for income taxes decreased $6,000 for the six months ended June 30, 2006 to a provision of $443,000, compared to $449,000 for the same period of the prior year. The effective tax rate was 35% for the six months ended June 30, 2006, compared to 30% for the same period of the prior year, primarily due to the elimination of income tax credits by Internal Revenue Code section 41 for R&D expenditures. During the second quarter of 2006, the State of Texas adopted an amendment to its franchise tax law to be effective January 1, 2007. The amended Texas tax, which is based on taxable gross margin, is considered an income tax under FASB SFAS No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Because of the amendment to the tax law, the Company recognized an immaterial one-time, non-cash income tax benefit during the second quarter of 2006, primarily as a result of recording deferred taxes for research and development credits permitted under the new legislation. NET INCOME. Net income for the six months ended June 30, 2006 decreased $243,000, or 23%, to $820,000, compared to net income of $1,063,000 for the same period of the prior year. Basic earnings per share was $0.29 per share, and diluted earnings per share was $0.28 per share for the six months ended June 30, 2006 13 compared to basic and diluted earnings of $0.38 and $0.37 per share for the same period of the prior year. The decrease in net income for the six months ended June 30, 2006 was primarily due to a decrease in revenues from sales of products and an increase in SG&A expenses and the effective tax rate compared to the same period of the prior year, partially offset by a decrease in R&D expense. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents totaled $2,473,000 as of June 30, 2006 compared to $1,727,000 as of December 31, 2005. Working capital as of June 30, 2006 increased to $18,760,000, compared to $18,508,000 as of December 31, 2005 primarily due to increases in cash and equivalents, and inventory and decreases in accrued compensation. Working capital, as a percentage of total assets, was 65% as of June 30, 2006 and 66% at December 31, 2005. The current ratio was 4.4 at June 30, 2006 and 4.4 at December 31, 2005. Total liabilities-to-equity ratio was 24% as of June 30, 2006, compared to 24% as of December 31, 2005. Net cash flow provided by operating activities for the six months ended June 30, 2006 was $837,000 compared to $705,000 for the same period of the prior year. The increase in cash flow from operating activities in the six months ended June 30, 2006 was primarily due to changes to working capital resulting from decreases in accounts receivable and investment in sales-type leases, and an increase in accounts payable. Net cash flow (used in) investing activities was $(179,000) for the six months ended June 30, 2006, compared to $(731,000) for the same period of the prior year. The decrease in cash (used in) investing activities was primarily due to an increase in the maturity of investments partially offset by an increase in the purchase of investments and an increase in the purchase of property, plant, and equipment. The Company invests a portion of its excess funds generated from operations in short-term securities, including money market funds, treasury bills, and a portion in preferred stocks. The Company's primary plan for the use of cash is continuing significant research and development efforts to introduce new products. Other possible uses of cash could include future acquisitions of other businesses or product lines. We may engage in discussions with third parties to acquire new products or businesses or to form joint ventures. We may also use our capital resources to enhance the Company's competitiveness in the marketplace by providing favorable credit terms to more customers, and increase stock levels of certain products to take advantage of market opportunities. Net cash flow provided by financing activities for the six months ended June 30, 2006 was $88,000 compared to $147,000 for the same period of the prior year. The decrease in cash provided by financing activities was primarily due to stock repurchases that were transacted in the second quarter of 2006 and fewer issuances of employee stock options, partially offset by an increase in SFAS 123(R) stock option expenses. Since 1995, we have repurchased an aggregate of 1,761,399 shares of our common stock at an average purchase price of $4.17 per share, pursuant to the Company's stock repurchase program. No repurchases were made during 2005, however in the second quarter of 2006 we repurchased 5,421 shares at an average price of $12.42. As of June 30, 2006, 13,601 shares remain under the current stock repurchase program. We may seek approval from the Company's Board of Directors to expand this program in the future if we believe repurchases continue to be in the best interests of the Company. Expansion of this program would also be funded from cash on hand and cash from operations. We have historically been able to fund working capital and capital expenditures from operations, and we expect to be able to finance our 2006 working capital requirements from cash on hand and funds generated from operations. The Company's Board of Directors declared a quarterly cash dividend on June 23, 2006 of $0.05 per common share payable on July 21, 2006 to shareholders of record at the close of business on July 7, 2006. The quarterly dividend was declared in connection with the Board of Directors' decision to establish an annual cash dividend of $0.20 per share, payable at $0.05 per quarter. The payment of future cash dividends under the policy are subject to the continuing determination by the Board of Directors that the policy remains in the best interests of the Company's shareholders and complies with the law and any agreements the Company may enter into applicable to the declaration and payment of cash dividends. The Company conducts some operations in leased facilities in Birmingham, Alabama, under an operating lease expiring on November 30, 2006. Future minimum rental payments under the lease in Birmingham are $81,000 for 2006. This lease agreement allows the Company to renew the lease for one year prior to each expiration date. The Company plans to exercise this clause before the lease expires. Other than the items discussed above, we are not aware of other commitments or contingent liabilities that would have a materially adverse effect on the Company's financial condition, results of operations, or cash flows. 14 SEGMENT INFORMATION The Company manages its businesses primarily on a product and services basis. The Company aggregates its segments as one reportable segment based on the similar characteristics of their operations. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to implement critical accounting policies and to make estimates that could significantly influence the results of operations and financial position. The accounting policies and estimates, which significantly influence the results of the Company's operations and its financial position, include revenue recognition policies, the valuation allowance for inventories and accounts receivable, evaluation of the impairment of and estimated useful lives of intangible assets, and estimates for future losses on product warranties. REVENUE RECOGNITION. The Company derives revenues from three sources: system sales, part 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 have 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 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. Revenue related to part sales is recognized when the parts have been shipped, and title and risk of loss have passed to the customer. Deferred revenue from such system sales is presented as unearned revenues in accrued liabilities in the accompanying condensed consolidated balance sheets. 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 contracts. Unearned extended warranty revenue is included in unearned revenues in accrued liabilities in the accompanying condensed consolidated balance sheets. ACCOUNTS RECEIVABLE. The Company maintains allowances for doubtful accounts for estimated losses resulting from the failure of its customers to make required payments and for estimated sales returns. Customers may not make payments or return products due to a variety of reasons, including deterioration of their financial condition or dissatisfaction with the Company's products. Management makes regular assessments of doubtful accounts and uses the best information available, including correspondence with customers and credit reports. If the Company determines that there is impairment in the ability to collect payments from customers, additional allowances may be required. Certain distributors or manufacturers representatives in growing geographic areas, on management approval, may exceed credit limits to accommodate financial growth. Historically, the Company has not experienced significant bad debt losses, but the Company could experience increased losses if general economic conditions of its significant customers or any of the markets in which it sells its products were to deteriorate. This could result in the impairment of a number of its customers' ability to meet their obligations, or if management made different judgments or utilized different estimates for sales returns and allowances for doubtful accounts. INVENTORIES. Inventories consist of electronic equipment and various components. The Company operates in an industry where technological advances or new product introductions are a frequent occurrence. Either one of these occurrences can make obsolete or significantly impair customer demand for a portion of the Company's inventory on hand. The Company regularly evaluates its inventory and maintains a reserve for inventory obsolescence and excess inventory. As a policy, the Company provides a reserve for products with no movement in six months or more and which management determines, based on available market information, are no longer saleable. The Company also applies subjective judgment in the evaluation of the recoverability of the rest of its inventory based upon known and expected market conditions and company plans. If the Company's competitors were to introduce a new technology or product that renders a product sold by the Company obsolete or unnecessary, it could have a significant adverse effect on the Company's future operating results and financial position. The Company had changes in required reserves in recent periods due to discontinuation of certain product lines and obsolescence related to new product introductions, as well as declining market conditions. As a result, the Company incurred net inventory charges of approximately $47,000 and $18,000 for the second and 15 first quarters of 2006, respectively, and the Company incurred net inventory charges of approximately $16,000 and $16,000 for the second and first quarters of 2005, respectively. INTANGIBLE ASSETS. The Company's intangible assets primarily include product patents. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142 on January 1, 2002, as required. Accordingly, the Company reviews the recoverability and estimated useful lives of other intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. PRODUCT WARRANTIES. Products are sold with warranties ranging from 90 days to one year, and extended warranties may be purchased for some products. The Company establishes a reserve for warranty expenditures and then adjusts the amount of reserve, annually, if actual warranty experience is different than accrued. 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. Should actual product failure rates, material usage, or service delivery costs differ from estimates, revisions to the estimated warranty liability would be required. RECENT PRONOUNCEMENTS-SEE NOTE 8 OF ITEM 1 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to a variety of market risks, including changes in interest rates and the market value of its investments. In the normal course of business, the Company employs established policies and procedures to manage its exposure to changes in the market value of its investments. The fair value of the Company's investments in debt and equity securities at June 30, 2006 and December 31, 2005 was $9,493,000 and $9,841,000, respectively. A year-to-date unrealized loss in the fair value of those investments is $80,000 primarily due to recent increases in interest rates that negatively affect the value of various preferred stock holdings. The Company's investment policy is to manage its investment portfolio to preserve principal and liquidity while maximizing the return on the investment portfolio by investing in multiple types of investment grade securities. The Company's investment portfolio is primarily invested in short-term securities, with at least an investment grade rating to minimize credit risk, and preferred stocks. We believe that our investment policy is conservative, both in terms of the average maturity of investments that we allow and in terms of the credit quality of the investments we hold. Although changes in interest rates may affect the fair value of the investment portfolio and cause unrealized gains or losses, such gains or losses would not be realized unless the investments were sold. There were realized losses on sales of such investments of $10,000 during the second quarter of 2006. There were no such sales of investments during the second quarter of 2005. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. We performed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and our acting principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d -15(f) under the Securities Exchange Act of 1934. Based on their evaluation, our management, including our CEO and acting principal financial officer, concluded that our disclosure controls and procedures were effective as of June 30, 2006, (the end of the period covered by this Quarterly Report on Form 10-Q) to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. (b) Changes in internal control over financial reporting. During the three months ended June 30, 2006, our Vice President-Corporate Controller and principal accounting officer, Juan M. Diaz, voluntarily resigned from his position effective June 8, 2006. We have not yet hired a replacement for him and members of our existing finance staff have served as and will continue to perform the duties of our principal accounting officer until we hire a replacement. Other than the aforementioned, there was no change in our internal control over financial reporting that occurred during the three months ended June 30, 2006 that has materially affected, or that we believe is reasonably likely to materially affect, our internal control over financial reporting. 16 PART II- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Company has disputes that arise in the ordinary course of its business. One such incident is the following: The Company and its wholly-owned subsidiary CMS Research Corp. ("CMS Research") have been sued by Aviv Amirav ("Amirav") in a Complaint filed in the United States District Court for the Southern District of New York on January 26, 2006 styled Amirav v. CMS Research Corp. and O.I. Corporation, Case No. 06-Civ-00659. The Complaint alleges (i) infringement and contributory infringement of United States patent no. 5,153,673, issued to Amirav, and (ii) breach of a license agreement between Amirav and CMS Research. Amirav's Complaint seeks (i) preliminary and permanent injunctive relief, (ii) actual damages in an unspecified amount, treble damages, and punitive damages, and (iii) attorneys' fees, interest, and other relief. On July 12, 2006 the plaintiff amended the complaint to omit the claims of infringement and contributory infringement. The Company is currently preparing its answer to the amended complaint and plans to vigorously oppose the plaintiff's claims. It is not possible at this stage of the case to determine what liability exposure, if any, is faced by the Company; however, an unfavorable outcome, including a determination that the Company is not entitled to the license and/or a determination that the Company's sales are breaching conditions of the license, would have a material adverse impact on the Company's results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: (a) Our annual meeting of shareholders was held on May 8, 2006 at 11:00 a.m. at O.I. Corporation headquarters, 151 Graham Road, College Station, Texas, for the purposes of considering and voting upon the following matters: (i) the election of directors; and (ii) the ratification of the appointment of independent public accountants. (c)
Proposal No. 1 - Election of Directors For Withheld - -------------------------------------- --------- -------- Jack S. Anderson 2,114,412 88,474 William W. Botts 2,147,693 55,193 Richard W. K. Chapman 2,147,412 55,474 Edwin B. King 2,146,612 56,274 Craig R. Whited 2,160,812 42,074 Raymond E. Cabillot 2,143,246 59,640 Leo B. Womack 2,144,546 58,340 Robert L. Moore 2,146,046 56,840 Kenneth M. Dodd 2,146,046 56,840
Proposal No. 2 - Ratification of Auditors For Against Abstain - ----------------------------------------- --------- ------- ------- Grant Thornton LLP 2,195,105 3,381 4,400
ITEM 5. OTHER INFORMATION (a) On July 27, 2006, O.I. Corporation ("OI") entered into a Definitive Agreement (Agreement) with Wyle Laboratories, Inc. Life Sciences, Systems and Services ("Wyle"). Under the Agreement, the Company will assist Wyle in the planning, acquisition of materials, development of software and hardware, systems engineering, and fabrication of components that Wyle will use to deliver a Total Organic Carbon Analyzer ("TOCA") for use on the International Space Station. The agreement supercedes a Letter Contract entered into January 31, 2006. The potential value of the Agreement is up to $2,124,000 through fiscal year 2008. ITEM 6. EXHIBITS 31.1 Principal Executive Officer certification pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 17 32.1 Principal Executive Officer certification pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 Definitive Contract between Wyle Laboratories and O.I. Corporation dated July 27, 2006. 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: August 9, 2006 BY: /s/ William W. Botts ------------------------------------ William W. Botts President, Chief Executive Officer (Principal Executive Officer), and Acting Vice President-Corporate Controller (Acting Principal Financial Officer and Accounting Officer) 18 Exhibit Index
Exhibit Number Exhibit Title - ------- ------------- 31.1 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. 32.1 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 99.1 Definitive Contract between Wyle Laboratories and O.I. Corporation dated July 27, 2006.
21 EX-31.1 2 h38522exv31w1.txt PEO CERTIFICATION PURSUANT TO SECTION 302 Exhibit 31.1 CERTIFICATIONS I, William W. Botts, certify that: 1. I have reviewed this quarterly report on Form 10-Q of O.I. Corporation; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and I have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to me by others within those entities, particularly during the period in which this report is being prepared; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 9, 2006 /s/ William W. Botts ---------------------------------------- William W. Botts, Chairman of the Board of Directors, President, Chief Executive Officer (Principal Executive Officer), and Acting Vice President-Corporate Controller (Acting Principal Financial Officer and Acting Principal Accounting Officer) 19 EX-32.1 3 h38522exv32w1.txt PEO CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of O.I. Corporation (the "Company") on Form 10-Q for the period ended June 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William W. Botts, President, Chief Executive Officer, and Acting Vice President-Corporate Controller of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is made solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and not for any other purpose. A signed original of this written statement required by Section 906 has been provided to O.I. Corporation and will be retained by O.I. Corporation and furnished to the Securities and Exchange Commission or its staff upon request. /s/ William W. Botts - ------------------------------------ Name: William W. Botts Title: President, Chief Executive Officer, and Acting Vice President-Corporate Controller Date: August 9, 2006 20 EX-99.1 4 h38522exv99w1.txt DEFINITVE CONTRACT EXHIBIT 99.1 WYLE Laboratories, Life Purchase Order: T70720 Change Order: 3 Sciences, Sys&Srv Page: 1 of 3 1290 Hercules Drive Date Printed: 01/17/2006 Suite 120 Houston, TX 77058 Order To: OI ANALYTICAL 07000135 Ship To: WYLE Laboratories, Life 151 GRAHAM ROAD Sciences, Sys & Srv 1100 P. 0. BOX 9010 Hercules Drive Suite 305 COLLEGE STATION, Shipping/Receiving Department TX 77842-9010 Houston, TX 77058 Contact: MILL BOTTS Ph: 979-690-1711 Fax: 979-690-0400
ORDER DATE BUYER TERMS FOB SALES ORDER SHIP VIA DELIVER TO - -------- -------- ------ ------ ----------- -------- ----------------------- 03/08/06 Mary NET 30 ORIGIN N/A W4 MAIGNAUD, S. SERVICE Holiahan
DUE DESIRED ORDER LINE ITEM/DESCRIPTION REV U/M DATE DATE QUANTITY NET UNIT COST EXTENDED COST - ---- ------------------------- --- ---- ---- ------- ----------- ------------- ------------- CONFIRMATION ACKNOWLEDGEMENT REQUIRED Period of Performance: 01/11/06 To 09/30/06 Change Order #3 This change to contract T70720 revises the order as follows: - Increase funding via line item #5 of $158,612; which brings the total funding to $1,528,436 - Extend the period of performance through 9/30/06 - Incorporate the statement of Work dated July 17, 2006 - Incorporate the Sections of the contract - Total contract value is $2,124,095 and will be funded by fiscal year Except as modified, all terms and conditions remain the same. This is a Time and Material contract for the Total Organic Carbon Analyzer (TOCA) Subsystem in accordance with the attached Statement of Work. Line Item #1 is associated with the planning stages only of the contract and Line Item #2 associated with the project itself and Letter Contract, Rev. 1. Line Item #3 is associated with Letter Contract, Rev. 2. Line item #4 is associated with Letter Contract, Rev. 3. 1 LETTER CONTRACT FOR TOCA - PLANNING STAGES LOT 03/31/06 03/31/06 21,945.0000 l.0000 $ 21,945.00 (1/11/06-1/31/06) Vdr Part: N/A Req: 0000031779 Price Contract #: NAS 9-02078 AOP: 4300-022-02 1.07.04000 60000.620.2.07.04.01.0927 2 REVISED LETTER CONTRACT FOR TOCA (2/1/06 - LOT 07/31/06 07/31/06 637,566.0000 l.0000 $637,566.00 3/31/06); REV.1 Vdr Part: N/A Req: 0000032109 Deliver To: W4 MAIGNAUD, S/SERVICE Prime Contract #: NAS 9-02078 AOP: 4300-022-02 1.07.04000 60000.620.2.07.06.01.1234 3 REVISED LETTER CONTRACT FOR TOCA (4/1/06 - LOT 07/31/06 07/31/06 710,313.0000 l.0000 $710,313.00 6/30/06); REV.2 Vdr Part: N/A Req: 0000033118 Deliver To: W4 MAIGNAUD,S SERVICE Prime Contract #: NAS 9-02078 AOP: 4300-022-02 1.07.04000 60000.620.2.07.06.01.1234 4 REVISED LETTER CONTRACT FOR TOCA (7/1/06 - LOT 07/31/06 07/31/06 0.0000 0.0000 $ 0.00 7/31/06); REV.3 Vdr Part: N/A Req: 0000031779 Deliver To: W4 MAIGNAUD S SERVICE Prime Contract #: NAS 9-02078 AOP: 4300-022-02 1.07.04000 60000.620.2.07.06.01.1234 5 INCREASE FUNDING FOR TOCA SUBSYSTEM HARDWARE LOT 09/30/06 09/30/06 159,612.0000 1.0000 $158,612.00 DEVELOPMENT Vdr Part: N/A Req: 0000034937 Deliver To: W4 MAIGNAUD, SERVICE Prime Contract #: NAS 9-02078 AOP: 4300-022-02 1.07.04000 60000.620.2.07.06.01.1234 OPAS RATING:DO-C9 "This is a rated order certified for national defense use, and you are required to follow all the Provision of Defense Priorities and Allocation System regulation." (15 CFR 700) HUMAN SPACE FLIGHT ITEM (NASA 1852.246-73) (MARCH 1997) "FOR USE IN HUMAN SPACE FLIGHT; MATERIALS, MANUFACTURING, AND WORKMANSHIP OF HIGHEST QUALITY STANDARDS ARE ESSENTIAL TO ASTRONAUT SAFETY. IF YOU ARE ABLE TO SUPPLY THE DESIRED ITEM WITH A HIGHER QUALITY THAN THAT OF THE ITEMS SPECIFIED OR PROPOSED, YOU ARE REQUESTED TO BRING THIS FACT TO THE IMMEDIATE ATTENTION OF THE PURCHASER."
WYLE LABORATORIES, LIFE PURCHASE ORDER: T70720 CHANGE ORDER: 3 SCIENCES, SYS & SRV Page: 2 of 3 1290 Hercules Drive Date Printed: 07/17/2006 Suite 120 Houston, TX 77058 Order To: OI ANALYTICAL 07000135 151 GRAHAM ROAD P. O. BOX 9010 COLLEGE STATION, TX 77842-9010 Contact: WILL BOTTS Ph: 979-690-1711 Fax: 979-690-0400
ORDER DATE BUYER TERMS FOB SALES ORDER SHIP VIA DELIVER TO - -------- -------- ------ ------ ----------- -------- ----------------------- 03/08/06 Mary NET 30 ORIGIN N/A W4 MAIGNAUD, S. SERVICE Hollahan
DUE DESIRED ORDER LINE ITEM/DESCRIPTION REV U/M DATE DATE QUANTITY NET UNIT COST EXTENDED COST - ---- ------------------------- --- ---- ---- ------- ----------- ------------- ------------- (End of clause) (LIMITED) RELEASE OF CONTRACTOR CONFIDENTIAL BUSINESS INFORMATION (CBI) (JSC 52.227-91) (FEB 2001) (a) Wyle Laboratories may find it necessary to release information submitted by the Subcontractor, pursuant to the provisions of this subcontract, to NASA and individuals not employed by NASA. Business information that would ordinarily be entitled to confidential treatment may be included in the information released to these individuals. Accordingly, by signature on this subcontract, the Subcontractor hereby consents to a limited release of its confidential business information (CBI). (b) Possible circumstances where the Agency may release the Subcontractor's CBI include the following: (1) To other Agency contractors and subcontractors, and their employees tasked with assisting the Agency in handling and processing information and documents in the administration of Agency contracts, such as providing post award audit support and specialized technical support to NASA; (2) To NASA contractors and subcontractors, and their employees engaged in information systems analysis, development, operation, and maintenance, including performing data processing and management functions for the Agency. (c) NASA recognizes its obligation to protect the contractor and subcontractors from competitive harm that could result from the release of such information to a competitor. Except where otherwise provided by law, NASA will permit the limited release of CBI under subparagraphs (1) or (2) only pursuant to non-disclosures agreements signed by the assisting contractor or subcontractor, and their individual employees who nay require access to the CBI to perform the assisting contract). (d) NASA's and Wyle Laboratories' responsibilities under the Freedom of Information Act are not affected by this clause. (e) The Subcontractor agrees to include this clause, including this paragraph (e), in all subcontracts at all levels awarded pursuant to this contract that require the furnishing of confidential business information by the subcontractor. (End of clause) SERVICES MINIMUM INSURANCE COVERAGE (NASA 1852.228-75) (OCT 1988) The Subcontractor shall obtain and maintain insurance coverage as follows for the performance of this subcontract: (a) Worker's compensation and employer's liability insurance as required by applicable Federal and state workers' compensation and occupational disease statutes. If occupational diseases are not compensable under those statutes, they shall be covered under the employer's liability section of the insurance policy, except when contract operations are so commingled with the Subcontractor's commercial operations that it would not be practical. The employer's liability coverage shall be at least $100,000, except in States with exclusive or monopolistic funds that do not permit workers' compensation to be written by private carriers. (b) Comprehensive general (bodily injury) liability insurance of at least $500,000 per occurrence. (c) Motor vehicle liability insurance written on the comprehensive form of policy which provides for bodily injury and property damage liability covering the operation of all motor vehicles used in connection with performing the contract. Policies covering motor vehicles operated in the United States shall provide coverage of at least $200,000 per person and $500,000 per occurrence for bodily injury liability and $20,000 per occurrence for property damage. The amount of liability coverage on other policies shall be commensurate with any legal requirements of the locality and sufficient to meet normal and customary claims. (d) Comprehensive general and motor vehicle liability policies shall contain a provision worded as follows: "The insurance company waives any right of subrogation against the United States of America which may arise by reason of any payment under the policy."
WYLE LABORATORIES, LIFE PURCHASE ORDER: T70720 CHANGE ORDER: 3 SCIENCES, SYS&SRV Page: 3 of 3 1290 Hercules Drive Date Printed: 07/17/200 Suite 120 Houston, TX 77058 Order To: OI ANALYTICAL 07000135 151 GRAHAM ROAD P. O. BOX 9010 COLLEGE STATION, TX 77842-9010 Contact: WILL BOTTS Ph: 979-690-1711 Fax: 979-690-0400
ORDER DATE BUYER TERMS FOB SALES ORDER SHIP VIA DELIVER TO - -------- -------- ------ ------ ----------- -------- ----------------------- 03/08/06 Mary NET 30 ORIGIN N/A W4 MAIGNAUD, S. SERVICE Hollahan
DUE DESIRED ORDER LINE ITEM/DESCRIPTION REV U/M DATE DATE QUANTITY NET UNIT COST EXTENDED COST - ---- ------------------------- --- ---- ---- ------- ----------- ------------- ------------- (e) When aircraft are used in connection with performing the contract, aircraft public and passenger liability insurance of at least $200,000 per person and $500,000 per occurrence for bodily injury, other than passenger liability, and $200,000 per occurrence for property damage. Coverage for passenger liability bodily injury shall be at least $200,000 multiplied by the number of seats or passengers, whichever is greater. (End of Clause) Vendor Signature ------------------------------ Bill To: WYLE Laboratories, Life Sciences, Sys&Srv 1290 Hercules Drive PO Total Amt: $1,528,436.00 Attn: Accounts Payable Houston, TM 77098 /s/ D. Moreno ------------------------------ D. Moreno/Manager, Subcontracts Authorized Signature(s) /s/ R. M. Ellis ------------------------------ R. M. Ellis Senior Vice President & General Manager
SECTION B SUPPLIES OR SERVICES AND PRICES B.1 SUPPLIES AND SERVICES The Contractor shall, in a manner consistent with and subject to the terms and conditions hereof, furnish all resources necessary to accomplish the requirements set forth in the Statement of Work entitled "The Total Organic Carbon Analyzer (TOCA) Subsystem". B.2 COST OF MATERIALS The total cost of materials is $439,005. B.3 CEILING PRICE AND RATES The parties estimate that performance of this contract will not cost the Buyer more than $2,124,095. The Seller agrees to use its best efforts to perform the work specified in the Statement of Work of this contract within the dollar amounts agreed to in the "OI Analytical Labor Rates" document located in the Letter Contract dated January 11 2006. The following are the totals for the labor, material, ODC, and travel for the Basic FY06 and the option years FY07 and FY08.
YEAR FY06 FY07 FY08 - ---- --------- ------- ---------- Labor Totals 940,884 413,513 120,929 Materials 439,005 0 0 ODC 143,107 59,657 0 Travel 5,440 780 780 --------- ------- ---------- 1,528,436 473,950 121,709 Total Project $2,124,095
B.4 TRAVEL Travel, by the Seller, if required under this subcontract, will be reimbursed at the Federal Government allowable rates, for actual expenses not to exceed $7,000.00. B.5 CONTRACT FUNDING For purposes of payments, the total amount allotted by the Seller to this contract is $1,528,436 and covers the following estimated period of performance: January 11, 2006 through September 30, 2006. B.6 INVOICING Seller shall submit invoices to Accounts Payable, Wyle Laboratories, Inc., 1290 Hercules Drive, Suite 120, Houston, Texas 77058, setting forth: 1) Purchase Order Number T70720, 2) labor category, 3) number of hours worked, 4) dollar amount, and 5) total amount billed. All invoices submitted will reflect, respective deliveries (if any), and a detailed listing of actual hours worked. Invoices shall be submitted on a monthly basis. All invoices shall be payable Net 30 days after receipt thereof, and are subject to review and approval prior to payment. A final invoice should be submitted within thirty (30) days after project completion. B-1 -----END PRIVACY-ENHANCED MESSAGE-----