UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2009
OR
¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _________to_________
Commission File Number: 0-6511
O. I. CORPORATION
(Exact name of registrant as specified in its charter)
OKLAHOMA | 73-0728053 | |
State of Incorporation | I.R.S. Employer | |
Identification No. |
P.O. Box 9010 | ||
151 Graham Road | ||
College Station, Texas | 77842-9010 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant's telephone number, including area code: | (979) 690-1711 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
As of May 8, 2009, there were 2,355,214 shares of the issuer’s common stock, $.10 par value, outstanding.
Caution Regarding Forward-Looking Information; Risk Factors
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of United States securities laws, including the United States Private Securities Litigation Reform Act of 1995. From time to time, our public filings, press releases and other communications will contain forward-looking statements. Forward-looking information is often, but not always, identified by the use of words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “forecast”, “target”, “project”, “may”, “will”, “should”, “could”, “estimate”, “predict” or similar words suggesting future outcomes or language suggesting an outlook. Forward-looking statements in this quarterly report on Form 10-Q include, but are not limited to, statements with respect to expectations of our prospects, future revenues, earnings, activities and technical results.
Forward-looking statements and information are based on current beliefs as well as assumptions made by, and information currently available to, us concerning anticipated financial performance, business prospects, strategies and regulatory developments. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. The forward-looking statements in this quarterly report on Form 10-Q are made as of the date it was issued and we do not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks that outcomes implied by forward-looking statements will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations and anticipations, estimates and intentions expressed in such forward-looking statements. These risks and uncertainties may cause our actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. When relying on our forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events.
Our public filings are available at www.oico.com and on EDGAR at www.sec.gov.
Please see “Part I, Item 1A—Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2008, as well as Part II, Item IA—“Risk Factors” of this quarterly report on Form 10-Q, for further discussion regarding our exposure to risks. Additionally, new risk factors emerge from time to time and it is not possible for us to predict all such factors nor to assess the impact such factors might have on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
O.I. CORPORATION
and SUBSIDIARY
Condensed Consolidated Balance Sheets
(In Thousands, Except Par Value)
March 31, | ||||||||
2009 | December 31, | |||||||
(Unaudited) | 2008 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 3,551 | $ | 3,134 | ||||
Accounts receivable, trade, net of allowance for | ||||||||
doubtful accounts of $295 and $299, respectively | 4,372 | 6,195 | ||||||
Investments at market | 200 | 300 | ||||||
Inventories, net | 5,800 | 5,754 | ||||||
Current deferred income tax assets | 825 | 825 | ||||||
Other current assets | 720 | 729 | ||||||
Total current assets | 15,468 | 16,937 | ||||||
Property, plant and equipment, net | 3,059 | 3,159 | ||||||
Long-term deferred income tax assets | 657 | 657 | ||||||
Intangible assets, net | 487 | 462 | ||||||
Other assets | 355 | 389 | ||||||
Total assets | $ | 20,026 | $ | 21,604 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable, trade | $ | 1,327 | $ | 1,516 | ||||
Accrued compensation and other related expenses | 1,051 | 1,281 | ||||||
Accrued liabilities | 247 | 846 | ||||||
Total current liabilities | 2,625 | 3,643 | ||||||
Uncertain tax positions-Long term liabilities | 27 | 27 | ||||||
Commitments and contingencies | ||||||||
Stockholders' equity: | ||||||||
Common stock, $.10 par value, 10,000 shares | ||||||||
authorized, 4,103 shares issued, 2,351 and 2,349 | ||||||||
shares outstanding, respectively | 410 | 410 | ||||||
Additional paid-in capital | 5,440 | 5,402 | ||||||
Treasury stock, 1,752 and 1,754 shares, respectively, at cost | (13,180 | ) | (13,195 | ) | ||||
Retained earnings | 24,704 | 25,317 | ||||||
Total stockholders' equity | 17,374 | 17,934 | ||||||
Total liabilities and stockholders' equity | $ | 20,026 | $ | 21,604 |
See Notes to Unaudited Condensed Consoldiated Financial Statements.
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and Subsidiary
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
(In Thousands, Except Per $ Share Amounts)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2009 | 2008 | |||||||
Net revenues: | ||||||||
Products | $ | 3,832 | $ | 6,407 | ||||
Services | 789 | 920 | ||||||
4,621 | 7,327 | |||||||
Cost of revenues: | ||||||||
Products | 2,068 | 3,281 | ||||||
Services | 382 | 599 | ||||||
2,450 | 3,880 | |||||||
Gross profit | 2,171 | 3,447 | ||||||
Selling, general and administrative expenses | 1,977 | 2,299 | ||||||
Research and development expenses | 946 | 908 | ||||||
Operating (loss) income | (752 | ) | 240 | |||||
Other income, net | 12 | 80 | ||||||
(Loss) income before income taxes | (740 | ) | 320 | |||||
(Benefit) provision for income taxes | (244 | ) | 80 | |||||
Net (loss) income | $ | (496 | ) | $ | 240 | |||
Comprehensive (loss) income | $ | (496 | ) | $ | 218 | |||
(Loss) earnings per share: | ||||||||
Basic | $ | (0.21 | ) | $ | 0.09 | |||
Diluted | $ | (0.21 | ) | $ | 0.09 | |||
Shares used in computing (loss) earnings per share: | ||||||||
Basic | 2,351 | 2,615 | ||||||
Diluted | 2,351 | 2,654 | ||||||
Cash dividends declared per share of common stock | $ | 0.05 | $ | 0.05 |
See Notes to Unaudited Condensed Consolidated Financial Statements.
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and Subsidiary
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2009 | 2008 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income (loss) | $ | (496 | ) | $ | 240 | |||
Depreciation and amortization | 139 | 153 | ||||||
Stock based compensation | 31 | 41 | ||||||
Change in working capital | 802 | (286 | ) | |||||
Net cash flows provided by operating activities | 476 | 148 | ||||||
Cash Flows from Investing Activities: | ||||||||
Purchase of investments | - | (2,533 | ) | |||||
Maturity of investments | 100 | 301 | ||||||
Purchase of property, plant and equipment | (35 | ) | (26 | ) | ||||
Proceeds from sale of property, plant and equipment | - | 37 | ||||||
Change in other assets | (29 | ) | (17 | ) | ||||
Net cash flows provided by (used in) investing activities | 36 | (2,238 | ) | |||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from issuance of common stock pursuant to exercise | ||||||||
of employee stock options and employee stock purchase plan | 22 | 14 | ||||||
Purchase of Treasury stock | - | (132 | ) | |||||
Payment of cash dividends on common stock | (117 | ) | (131 | ) | ||||
Net cash flows (used in) financing activities | (95 | ) | (249 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 417 | (2,339 | ) | |||||
Cash and cash equivalents: | ||||||||
Beginning of period | 3,134 | 3,356 | ||||||
End of period | $ | 3,551 | $ | 1,017 |
See Notes to Unaudited Condensed Consolidated Financial Statements.
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O.I. CORPORATION and SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
O.I. Corporation (the “Company”, “we”, or “our”), an Oklahoma corporation, was organized in 1963. The Company designs, manufactures, markets, and services analytical, monitoring and sample preparation products, components, and systems used to detect, measure, and analyze chemical compounds.
The consolidated financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and include all normal and recurring adjustments which are, in the opinion of management, necessary for a fair presentation. These financial statements have not been audited by an independent accountant. The consolidated financial statements include the accounts of the Company and its subsidiary. All inter-company transactions and balances have been eliminated in the financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations for interim reporting.
The Company believes that the disclosures are adequate to prevent the information from being misleading. However, these financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2008. The financial data for the interim periods presented may not necessarily reflect the results to be anticipated for the complete year.
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):
March 31, | December 31, | |||||||
2009 | 2008 | |||||||
Raw materials | $ | 5,129 | $ | 4,838 | ||||
Work-in-process | 107 | 486 | ||||||
Finished goods | 1,140 | 1,084 | ||||||
Reserves | (576 | ) | (654 | ) | ||||
$ | 5,800 | $ | 5,754 |
3. Comprehensive Income (Loss)
Other comprehensive income (loss) 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 (loss) are net income and unrealized gains and losses on available-for-sale investments.
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4. (Loss) Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands except per share data):
Quarter Ended March 31, | ||||||||
2009 | 2008 | |||||||
Numerator, (loss) earnings attributable to common stockholders | $ | (496 | ) | $ | 240 | |||
Denominator: | ||||||||
Basic-weighted average common shares outstanding | 2,351 | 2,615 | ||||||
Dilutive effect of employee stock options | - | 39 | ||||||
Diluted outstanding shares | 2,351 | 2,654 | ||||||
Basic (loss) earnings per common share | $ | (0.21 | ) | $ | 0.09 | |||
Diluted (loss) earnings per common share | $ | (0.21 | ) | $ | 0.09 |
For the three months ended March 31, 2009, the Company’s potentially dilutive options of 88,000 were not used in the calculation of diluted earnings since the effect of potentially dilutive securities in computing a loss per share was antidilutive. For the three months ended March 31, 2008, there were 98,000 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. In accordance with Statement 123(R), our financial statements recognize expense related to our stock-based compensation awards that were granted after January 1, 2006, or that were unvested as of January 1, 2006, based on their grant-date fair value.
Our pre-tax compensation cost for stock-based compensation for the three months ended March 31, 2009 and 2008 was $31,000 and $41,000 ($19,000 and $25,000 after tax effects), respectively.
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 months ended March 31, 2009 and 2008, there was no excess tax benefit, respectively.
No options were granted during the three months ended March 31, 2009 or 2008.
Other Information
As of March 31, 2009, we had $203,000 of total unrecognized compensation cost related to non-vested awards granted under our various share-based plans, which we expect to recognize over 1.6 years.
We received cash from options exercised during the first three months of fiscal years 2009 and 2008 of $12,000 and $9,000, respectively. The impact of these cash receipts is included in financing activities in the accompanying consolidated statements of cash flows.
The Company’s practice has been to issue shares for option exercises out of treasury stock as provided under the terms of the 2003 Incentive Compensation Plan. We believe our treasury stock holdings are sufficient to satisfy any exercises in 2009.
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6. Segment Data
The Company categorizes its operations into two business segments: Laboratory Products and Air-Monitoring Systems. Operations in these segments include designing, manufacturing, marketing and selling analytical instruments. In the Laboratory Products segment, the Company provides products generally used to ensure regulatory compliance with environmental requirements for water. Analytical instruments sold in the Air-Monitoring Systems segment are used for trace level detection of airborne gaseous chemical warfare agents.
Following is the Company’s business segment information for March 31, 2009 and 2008:
Laboratory | Air-Monitoring | ||||||||||||
Products | Systems | Total | |||||||||||
2009 | |||||||||||||
Revenue | $ | 3,228 | $ | 1,393 | $ | 4,621 | |||||||
Operating income (loss) | (577 | ) | (175 | ) | (752 | ) | |||||||
Total Assets | 16,655 | 3,371 | 20,026 | ||||||||||
Capital Expenditures | 34 | 1 | 35 | ||||||||||
Depreciation and amortization | 121 | 18 | 139 | ||||||||||
2008 | |||||||||||||
Revenue | $ | 5,549 | $ | 1,778 | $ | 7,327 | |||||||
Operating income (loss) | 346 | (106 | ) | 240 | |||||||||
Total Assets | 21,008 | 3,902 | 24,910 | ||||||||||
Capital Expenditures | 25 | 1 | 26 | ||||||||||
Depreciation and amortization | 126 | 27 | 153 |
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto. This discussion also contains forward-looking statements. Please see the “Caution Regarding Forward-Looking Information; Risk Factors” above.
Company Overview
O. I. Corporation, referred to as “the Company,” “OI,” “we,” “our” or “us”, was organized in 1963 in accordance with the Business Corporation Act of the State of Oklahoma as Clinical Development Corporation, a builder of medical and research laboratories. In 1969, we moved from Oklahoma City, Oklahoma to College Station, Texas and changed our name to Oceanography International Corporation. To better reflect current business operations, we again changed our name to O.I. Corporation in July 1980, and in January 1989 we began doing business as OI Analytical.
At OI, we provide innovative products for chemical monitoring and analysis. Our products perform chemical detection, analysis, measurement and monitoring applications in a wide variety of industries including food, beverage, pharmaceutical, semiconductor, power generation, chemical, petrochemical and security. Headquartered in College Station, Texas, we sell our products throughout the world utilizing a direct sales force as well as a network of independent sales representatives and distributors.
Recent Developments
During the first quarter of 2009, we felt the full impact of the global economic downturn. Our sales declined 37% in comparison to the first quarter of 2008, with bookings down across virtually all product lines and all regions. Although quotation levels were relatively strong during the quarter, many of our customers deferred purchase commitments in order to conserve cash.
In response to this slowdown in business activity, we initiated a 10% across the board pay reduction in February and began evaluating other cost saving measures. We subsequently reduced staffing by approximately 20% at our College Station facility in April, initiated a reduction in certain employee benefits, reduced Board-related expenses, and curtailed travel and entertainment expenses. Although our savings from these efforts will initially be offset by severance benefits of approximately $100,000, when they are fully in effect during the second quarter, we anticipate annualized savings of approximately $2,200,000. We believe these expense reductions will enable us to return to profitability during the second half of the year.
Our cash and investments position increased during the first quarter, despite the loss we incurred. The savings initiatives we have implemented should enable us to maintain an adequate level of liquidity to meet our operating needs during this economic slowdown.
During the first quarter, we renewed our value-added reseller agreement with Agilent, extending this contract through the end of 2009. We are pleased to continue our relationship with Agilent, the industry leader in gas chromatography (“GC”) solutions, and believe our cooperative efforts will improve future sales opportunities. Last year, we announced a strategic alliance with Picarro, Inc., to develop a solution combining our total organic compound (“TOC”) technology with Picarro’s cavity ring-down spectroscopy technology. This novel technology won a prestigious new product innovation award in March and should enable us to pursue new market segments such as the analysis of food origin and adulteration, and ecosystem studies.
We began producing prototype, beta versions of our new process TOC and miniaturized mass spectrometer products during the first quarter and will conduct field tests of these new products during the second quarter. This represents the final stage in developing these products for market release.
9
While we do not know how long the global economic downturn will last, we believe that our financial strength and lower cost structure will enable us to weather this short term decline as we work to achieve longer term sales growth through our new products and strategic alliances.
Results of Operations
Revenues
Three Months Ended | ||||||||||||||||||||
March 31, | Increase | |||||||||||||||||||
(dollars in 000’s) | 2009 | % of Rev. | 2008 | % of Rev. | (Decrease) | |||||||||||||||
Sales by Segment: | ||||||||||||||||||||
Laboratory Products | $ | 3,228 | 69.9 | % | $ | 5,549 | 75.7 | % | $ | (2,321 | ) | |||||||||
Air-Monitoring Systems | 1,393 | 30.1 | % | 1,778 | 24.3 | % | (385 | ) | ||||||||||||
Total | $ | 4,621 | 100.0 | % | $ | 7,327 | 100.0 | % | $ | (2,706 | ) |
Our total revenue declined $2,706,000, or 36.9%, for the three months ended March 31, 2009 compared to the first quarter of 2008. Laboratory Products segment sales decreased 41.8% in the first quarter, while sales in the Air-Monitoring Systems segment declined 21.7%.
The slowdown in Laboratory Products sales was most pronounced in the domestic market where sales declined 48%, with sales of GC products experiencing the largest decline. Domestic sales of our TOC product line also declined substantially from last year, though we experienced some growth in sales of Automated Chemistry Analyzers (“ACA”) in the first quarter and anticipate future opportunities due to the recent regulatory approval for a new cyanide-analysis method using our ACA products.
Internationally, the decline in Laboratory Product sales was less severe, with revenues down 38%, due largely to improved sales of GC products in Latin America. While we experienced small pockets of success in certain regions, in general sales of more expensive equipment such as configured systems, sample introduction products and TOC’s declined as customers deferred purchase commitments due to the difficult economy. We are increasing our efforts to sell Laboratory Products into the governmental and educational markets where funds are more readily available. However, our backlog remains low and it is difficult to project the success of these efforts in the near term.
Sales in the Air-Monitoring Systems segment declined during the first quarter of 2009 compared to the same period in 2008 because of a diminished backlog at the end of 2008. Our sales in this segment generally involve products and services provided in connection with U.S. governmental projects. As a result, the sales process is longer in duration than the sales process in our Lab Products segment. The federal government did not complete its budget at the end of 2008 and governmental activity was slowed by uncertainty surrounding the transition in administration. We historically experience improved bookings in this segment during the second quarter and anticipate this trend to continue in the current year.
Gross Profit
Three Months Ended March 31, | ||||||||||||||||
2009 | 2008 | |||||||||||||||
(dollars in 000’s) | $ | % | $ | % | ||||||||||||
Gross Profit by Segment: | ||||||||||||||||
Laboratory Products | $ | 1,425 | 44.1 | % | $ | 2,504 | 45.1 | % | ||||||||
Air-Monitoring Systems | 746 | 53.6 | % | 943 | 53.0 | % | ||||||||||
Total | $ | 2,171 | 47.0 | % | $ | 3,447 | 47.0 | % |
Our overall gross profit for the three months ended March 31, 2009 decreased $1,276,000, or 37.0%, compared to the first quarter of 2008 because of lower sales. On a percentage of sales basis, our overall margins were unchanged in first quarter 2009. Margins in our Laboratory Products segment were down 1.0% because of unfavorable manufacturing variances associated with our decreased production levels, while margins in our Air-Monitoring Systems segment increased slightly.
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Operating Expenses
Three Months Ended March 31, | ||||||||||||||||
2009 | 2008 | |||||||||||||||
(dollars in 000’s) | $ | % of Rev. | $ | % of Rev. | ||||||||||||
SG&A Expenses by Segment: | ||||||||||||||||
Laboratory Products | $ | 1,467 | 45.4 | % | $ | 1,689 | 30.4 | % | ||||||||
Air-Monitoring Systems | 510 | 36.6 | % | 610 | 34.3 | % | ||||||||||
Total | $ | 1,977 | 42.8 | % | $ | 2,299 | 31.4 | % | ||||||||
R&D Expenses by Segment: | ||||||||||||||||
Laboratory Products | $ | 535 | 16.6 | % | $ | 469 | 8.5 | % | ||||||||
Air-Monitoring Systems | 411 | 29.5 | % | 439 | 24.7 | % | ||||||||||
Total | $ | 946 | 20.5 | % | $ | 908 | 12.4 | % |
Total selling, general and administrative ("SG&A") expenses for the three months ended March 31, 2009 decreased $322,000, or 14.0%, compared to the same period of the prior year. The decline in Laboratory Products SG&A expenses was attributable to decreased sales commissions, lower wage-related expenses and reduced Board-related expenses. SG&A expenses in the Air-Monitoring Systems segment were down because of lower wage related expenses and reduced legal fees. Our recent cost savings measures were minimally reflected in these first quarter results. We anticipate a further reduction in SG&A expenses during the second quarter, and significantly lower SG&A expenses in subsequent quarters when these cost savings measures are fully in effect.
Total research and development ("R&D") expenses for the three months ended March 31, 2009 increased by $38,000, or 4.2%, compared to the first quarter of 2008. This increase resulted from higher R&D expenses in our Laboratory Products segment, which was primarily attributable to decreased billings under our U.S. Army contract. Lower contract billings resulted in an increased allocation of R&D resources for product development activities. R&D expenses for the Air-Monitoring Systems segment declined because of lower wage related and consulting expenses. Our cost control measures in the Laboratory Products segment should result in lower R&D expenses in future quarters.
Operating Income (Loss)
Three Months Ended March 31, | ||||||||||||||||
2009 | 2008 | |||||||||||||||
(dollars in 000’s) | $ | % of Rev. | $ | % of Rev. | ||||||||||||
Operating (Loss) Income by Segment | ||||||||||||||||
Laboratory Products | $ | (577 | ) | -17.9 | % | $ | 346 | 6.2 | % | |||||||
Air-Monitoring Systems | (175 | ) | -12.6 | % | (106 | ) | -6.0 | % | ||||||||
Total | $ | (752 | ) | -16.3 | % | $ | 240 | 3.3 | % |
For the three months ended March 31, 2009, we generated a total operating loss of $752,000, or (16.3%) of revenues compared to operating income of $240,000 in the first quarter of 2008. The loss in the first quarter of 2009 resulted from lower sales activity in both segments.
Other Income, Net
Other income totaled $12,000 for the three months ended March 31, 2009, compared to $80,000 in 2008. Due to our return of value to shareholders through stock repurchases in 2008 and last year’s loss on our investment holdings in preferred stock and corporate bonds, our cash available to invest in 2009 was down compared to 2008. Because of lower interest rates on investments and reduced cash to invest, our other income declined in 2009.
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Provision (Benefit) for Income Taxes
Our benefit for income taxes totaled $244,000 during the first quarter of 2009, an effective rate of 33% based on our estimated tax rate after taking into consideration applicable tax credits such as the R&D tax credit and the Domestic Production Activity Deduction. In the first quarter of 2008, we recorded a tax provision of $80,000, which reflected a 25% estimated tax rate.
Liquidity and Capital Resources
Net cash flow provided by operating activities for the quarter ended March 31, 2009 totaled $476,000 compared to $148,000 during the comparable period of 2008. Despite our loss for the quarter, we generated positive cash flow from operations because of reduced working capital, which resulted primarily from collections on our accounts receivable. The combination of lower sales and positive collections caused our accounts receivable to decline by $1,823,000. This positive cash flow was partially offset by decreases in our current liabilities, the most significant of which occurred in our accrued liabilities and was largely attributable to reduced income taxes payable.
Net cash flow provided by investing activities totaled $36,000 for the three months ended March 31, 2009, compared to a $2,238,000 use of cash in the first quarter of 2008. Last year’s use of cash resulted primarily from investment purchases such as commercial paper and bank certificates of deposit as we invested excess cash on hand. Our net investment activity was minimal during the first quarter of 2009. We kept purchases of property, plant and equipment to a minimum in both periods. As of March 31, 2009, we had no material commitments for the purchase of property, plant and equipment outstanding.
Net cash flow used in financing activities for the three months ended March 31, 2009 totaled $95,000, compared to $249,000 in 2008. During the first quarter of 2008, we purchased approximately 12,000 shares of our common stock on the open market, while in 2009 we had no stock purchases. Our cash dividends declined slightly in 2009 compared to 2008 because we had fewer shares of common stock outstanding. Over the course of the year, we repurchased 284,569 shares of our common stock in 2008 as part of our effort to return value to our shareholders.
Cash, cash equivalents and short-term investments totaled $3,751,000 as of March 31, 2009, compared to $3,434,000 as of December 31, 2008. We believe our liquidity and expected cash flows from operations should be sufficient to meet expected working capital, capital expenditure and R&D requirements for the short term. As the economy improves, we anticipate that cash flows from operations will generate sufficient cash flow to meet our long term liquidity needs. As of March 31, 2009, we had no borrowings under our $6,000,000 revolving line of credit. Availability under this agreement may be limited by our eligible collateral value, which we have not calculated because we have no borrowings. With the significant decline we have experienced in our accounts receivable, we believe our availability under the revolving line of credit is substantially less than $6,000,000. We were not in compliance with our loan covenants as of March 31, 2009, but received a loan covenant waiver from the bank.
Because interest rates are historically low, we have established an investment committee consisting of two independent directors and our CEO/CFO to evaluate alternative investment options for excess funds to improve our returns. These investments may include less than investment grade bonds or other securities that the committee feels are likely to increase in value and/or provide a higher interest return. Though we have not currently invested in any such instruments, future investments made by the Investment Committee could subject us to a higher risk of loss than our current insured or government backed investments.
Our Board of Directors declared a cash dividend on February 2, 2009 of $0.05 per common share payable on February 27, 2009 to shareholders of record at the close of business on February 12, 2009. The quarterly dividend was declared in connection with the Board's decision in 2006 to establish an annual cash dividend of $0.20 per share, payable at $0.05 per quarter. The payment of future cash dividends under the policy is subject to the approval of our Board of Directors.
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Critical Accounting Policies
Please reference Part II-Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2008.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
Item 4. Controls and Procedures
We maintain a set of disclosure controls and procedures designed to ensure that the information we are required to disclose in reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. During the period from January 1, 2009 to March 31, 2009, an evaluation under the supervision and with the participation of management, including the Chief Executive Officer/CFO (our principal executive officer and principal financial officer), of the effectiveness of our disclosure controls and procedures was conducted. Based on that evaluation, the Chief Executive Officer/CFO has concluded that, as of March 31, 2009, our disclosure controls and procedures are effective.
Subsequent to the date of his evaluation, there have been no changes in our internal controls that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Our management, including the Chief Executive Officer/CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
Part II- Other Information
Item 1. Legal Proceedings
In the normal course of our business, we are subject to legal proceedings brought against us. There have been no material developments to the legal proceedings described in Part I, Item 3, "Legal Proceedings" in our Annual Report on Form 10-K for the year-ended December 31, 2008, and there are no new reportable legal proceedings for the quarter ended March 31, 2009.
Item 1A. Risk Factors
There have been no material changes in the risk factors described in Part I, Item 1A, “Risk Factors”, of our Annual Report on Form 10-K for the year ended December 31, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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Item 5. Other Information
The terms of our Value Added Reseller Program Agreement with Agilent Technologies, Inc., filed as Exhibit 10.1 to our Form 10-Q filed with the Securities and Exchange Commission on August 11, 2008, have been subsequently modified in part by two amendments which are being filed as Exhibits 10.1 and 10.2 hereto. The amendments renew the Agreement through December 31, 2009, establish new sales volume targets for OI, provide for volume-based discount on eligible products, and provide additional procedural clarification.
Item 6. Exhibits
10.1* | Amendment No. 1 to the Value Added Reseller Program Agreement AHA47 By and Between Agilent Technologies, Inc. and O.I. Corporation dated September 5, 2008 |
10.2* | Amendment No. 2 to the Value Added Reseller Program Agreement AHA47 By and Between Agilent Technologies, Inc. and O.I. Corporation dated January 6, 2009. (Confidential Treatment Requested) |
31* | Principal Executive Officer and Principal Financial Officer certification pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32 * | Principal Executive Officer and Principal Financial Officer certification pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* Filed herewith
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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: | May 15, 2009 | BY: /s/ J. Bruce Lancaster | |
Chief Executive Officer and Chief Financial Officer | |||
(Principal Executive and Principal Financial Officer) |
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EXHIBIT | ||
NUMBER | EXHIBIT TITLE | |
10.1* | Amendment No. 1 to the Value Added Reseller Program Agreement AHA47 By and Between Agilent Technologies, Inc. and O.I. Corporation dated September 5, 2008. | |
10.2* | Amendment No. 2 to the Value Added Reseller Program Agreement AHA47 By and Between Agilent Technologies, Inc. and O.I. Corporation dated January 6, 2009. (Confidential Treatment Requested) | |
31* | Principal Executive Officer and Principal Financial Officer certification pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32* | Principal Executive Officer and Principal Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
*Filed herewith
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