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, 2009
OR
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from _________to_________
Commission File Number: 0-6511
O. I. CORPORATION
(Exact name of registrant as specified in its charter)
OKLAHOMA | 73-0728053 |
State of Incorporation | I.R.S. Employer Identification No. |
P.O. Box 9010 | 77842-9010 |
151 Graham Road | (Zip Code) |
College Station, Texas | |
(Address of Principal Executive Offices) |
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 o
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 o No o
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 o Accelerated filer o Non-accelerated filer o Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of August 1, 2009, there were 2,355,223 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.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
O.I. Corporation |
and Subsidiary |
Condensed Consolidated Balance Sheets |
(In Thousands, Except Par Value) |
June 30, | ||||||||
2009 | December 31, | |||||||
Assets | (Unaudited) | 2008 | ||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 3,654 | $ | 3,134 | ||||
Accounts receivable, trade, net of allowance for | ||||||||
doubtful accounts of $277 and $299, respectively | 4,327 | 6,195 | ||||||
Investments at market | 103 | 300 | ||||||
Inventories, net | 5,568 | 5,754 | ||||||
Current deferred income tax assets | 825 | 825 | ||||||
Other current assets | 737 | 729 | ||||||
Total current assets | 15,214 | 16,937 | ||||||
Property, plant, and equipment ,net | 2,934 | 3,159 | ||||||
Long-term deferred income tax assets | 657 | 657 | ||||||
Intangible assets, net | 508 | 462 | ||||||
Other assets | 331 | 389 | ||||||
Total assets | $ | 19,644 | $ | 21,604 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable, trade | $ | 976 | $ | 1,516 | ||||
Accrued compensation and other related expenses | 1,001 | 1,281 | ||||||
Accrued liabilities | 320 | 846 | ||||||
Total current liabilities | 2,297 | 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, 2,355 and 2,349 outstanding, respectively | 410 | 410 | ||||||
Additional paid-in capital | 5,478 | 5,402 | ||||||
Treasury stock, 1,748 and 1,754 shares, respectively, at cost | (13,167 | ) | (13,195 | ) | ||||
Retained earnings | 24,599 | 25,317 | ||||||
Total stockholders' equity | 17,320 | 17,934 | ||||||
Total liabilities and stockholders' equity | $ | 19,644 | $ | 21,604 |
See Notes to Unaudited Condensed Consoldiated Financial Statements.
O.I. Corporation
and Subsidiary
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(In Thousands, Except Per $ Share Amounts)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net revenues: | ||||||||||||||||
Products | $ | 4,070 | $ | 7,186 | $ | 7,901 | $ | 13,593 | ||||||||
Services | 806 | 858 | 1,596 | 1,778 | ||||||||||||
4,876 | 8,044 | 9,497 | 15,371 | |||||||||||||
Cost of revenues: | ||||||||||||||||
Products | 2,211 | 3,736 | 4,280 | 7,093 | ||||||||||||
Services | 293 | 419 | 674 | 942 | ||||||||||||
2,504 | 4,155 | 4,954 | 8,035 | |||||||||||||
Gross profit | 2,372 | 3,889 | 4,543 | 7,336 | ||||||||||||
Selling, general and administrative expenses | 1,629 | 2,462 | 3,605 | 4,761 | ||||||||||||
Research and development expenses | 746 | 957 | 1,692 | 1,865 | ||||||||||||
Operating (loss) income | (3 | ) | 470 | (754 | ) | 710 | ||||||||||
Other income (loss), net | 16 | (216 | ) | 27 | (136 | ) | ||||||||||
Income (loss) before income taxes | 13 | 254 | (727 | ) | 574 | |||||||||||
Provision (benefit) for income taxes | - | 63 | (244 | ) | 143 | |||||||||||
Net income (loss) | $ | 13 | $ | 191 | $ | (483 | ) | $ | 431 | |||||||
Other comprehensive income, net of tax, | ||||||||||||||||
Unrealized gains on investments | $ | - | $ | 169 | $ | - | $ | 147 | ||||||||
Comprehensive income (loss) | $ | 13 | $ | 360 | $ | (483 | ) | $ | 578 | |||||||
Earnings (loss) per share: | ||||||||||||||||
Basic | $ | 0.01 | $ | 0.07 | $ | (0.21 | ) | $ | 0.16 | |||||||
Diluted | $ | 0.01 | $ | 0.07 | $ | (0.21 | ) | $ | 0.16 | |||||||
Shares used in computing earnings (loss) per share: | ||||||||||||||||
Basic | 2,354 | 2,611 | 2,353 | 2,613 | ||||||||||||
Diluted | 2,369 | 2,647 | 2,353 | 2,648 | ||||||||||||
Cash dividends declared per share of common stock | $ | 0.05 | $ | 0.05 | $ | 0.10 | $ | 0.10 |
See Notes to Unaudited Condensed Consolidated Financial Statements.
O.I. Corporation
and Subsidiary
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended | ||||||||
June 30, | ||||||||
2009 | 2008 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net (loss) / income | $ | (483 | ) | $ | 431 | |||
Depreciation and amortization | 271 | 285 | ||||||
Stock based compensation | 60 | 81 | ||||||
Loss on securities including amortization of discounts | - | 353 | ||||||
Change in working capital | 755 | (801 | ) | |||||
Net cash flows provided by operating activities | 603 | 349 | ||||||
Cash Flows from Investing Activities: | ||||||||
Purchase of investments | - | (2,881 | ) | |||||
Sales and maturity of investments | 197 | 3,917 | ||||||
Purchase of property, plant and equipment | (37 | ) | (180 | ) | ||||
Proceeds from sale of property, plant and equipment | 4 | 37 | ||||||
Change in other assets | (55 | ) | (44 | ) | ||||
Net cash flows provided by investing activities | 109 | 849 | ||||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from issuance of common stock pursuant to exercise | ||||||||
of employee stock options and employee stock purchase plan | 43 | 52 | ||||||
Purchase of Treasury stock | - | (267 | ) | |||||
Payment of cash dividends on common stock | (235 | ) | (261 | ) | ||||
Net cash flows used in financing activities | (192 | ) | (476 | ) | ||||
Net increase in cash and cash equivalents | 520 | 722 | ||||||
Cash and cash equivalents: | ||||||||
Beginning of period | 3,134 | 3,356 | ||||||
End of period | $ | 3,654 | $ | 4,078 |
See Notes to Unaudited Condensed Consolidated Financial Statements.
O.I. CORPORATION and SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation.
O.I. Corporation (the “Company”, “we”, or “our”), an Oklahoma corporation, was organized in 1963. The Company designs, manufactures, markets, and services analytical, monitoring and sample preparation products, components, and systems used to detect, measure, and analyze chemical compounds.
The consolidated financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and include all normal and recurring adjustments which are, in the opinion of management, necessary for a fair presentation. These financial statements have not been audited by an independent accountant. The consolidated financial statements include the accounts of the Company and its subsidiary. All inter-company transactions and balances have been eliminated in the financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations for interim reporting.
The Company believes that the disclosures are adequate to prevent the information from being misleading. However, these financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, for the year ended December 31, 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):
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
Raw materials | $ | 4,878 | $ | 4,838 | ||||
Work-in-process | 152 | 486 | ||||||
Finished goods | 1,110 | 1,084 | ||||||
Reserves | (572 | ) | (654 | ) | ||||
$ | 5,568 | $ | 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 (loss) and unrealized gains and losses on available-for-sale investments.
4. Earnings (loss) Per Share.
The following table sets forth the computation of basic and diluted earnings per share (in thousands except per share data):
Three Months | Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Numerator, earnings (loss) attributable to common stockholders | $ | 13 | $ | 191 | $ | (483 | ) | $ | 431 | |||||||
Denominator: | ||||||||||||||||
Basic-weighted average common shares outstanding | 2,354 | 2,611 | 2,353 | 2,613 | ||||||||||||
Dilutive effect of employee stock options | 15 | 36 | - | 35 | ||||||||||||
Diluted outstanding shares | 2,369 | 2,647 | 2,353 | 2,648 | ||||||||||||
Basic earnings (loss) per common share | $ | 0.01 | $ | 0.07 | $ | (0.21 | ) | $ | 0.16 | |||||||
Diluted earnings (loss) per common share | $ | 0.01 | $ | 0.07 | $ | (0.21 | ) | $ | 0.16 |
For the three months ended June 30, 2009, 107,550 shares were not in-the-money and were thus anti-dilutive. These shares were not used in the calculation of diluted earnings per share for the second quarter of 2009. For the six months ended June 30, 2009, the Company’s potentially dilutive options of 107,550 were not used in the calculation of diluted earnings since the effect of potentially dilutive securities in computing a loss per share was anti-dilutive. For the three and six months ended June 30, 2008, there were 69,500 and 89,500 anti-dilutive shares, respectively.
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 June 30, 2009 and 2008 was $29,000 and $40,000 ($17,000 and $24,000 after tax effects), respectively. Our pre-tax compensation cost for stock-based compensation was $60,000 and $81,000 ($36,000 and $48,000 after tax effects) for the six months ended June 30, 2009 and 2008, 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. There was no excess tax benefit for the six months ended June 30, 2009 or 2008.
No options were granted during the six months ended June 30, 2009 or 2008.
Other information
As of June 30, 2009, we had $172,000 of total unrecognized compensation cost related to non-vested awards granted under our various share-based plans, which we expect to recognize over a 1.6 year period.
We received cash from options exercised during the first six months of fiscal years 2009 and 2008 of $14,000 and $35,000, 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.
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 June 30, 2009 and 2008:
Laboratory | Air-Monitoring | ||||||||||||
Products | Systems | Total | |||||||||||
2009 | |||||||||||||
2nd Quarter Revenue | $ | 3,684 | $ | 1,192 | $ | 4,876 | |||||||
Year to Date Revenue | 6,911 | 2,586 | 9,497 | ||||||||||
2nd Quarter Operating income (loss) | 21 | (24 | ) | (3 | ) | ||||||||
Year to Date Operating income (loss) | (555 | ) | (199 | ) | (754 | ) | |||||||
Total Assets | 16,093 | 3,551 | 19,644 | ||||||||||
Capital Expenditures | 36 | 1 | 37 | ||||||||||
Depreciation and amortization | 236 | 35 | 271 | ||||||||||
2008 | |||||||||||||
2nd Quarter Revenue | $ | 6,040 | $ | 2,004 | $ | 8,044 | |||||||
Year to Date Revenue | 11,590 | 3,781 | 15,371 | ||||||||||
2nd Quarter Operating income (loss) | 320 | 150 | 470 | ||||||||||
Year to Date Operating income (loss) | 664 | 46 | 710 | ||||||||||
Total Assets | 21,248 | 4,073 | 25,321 | ||||||||||
Capital Expenditures | 172 | 8 | 180 | ||||||||||
Depreciation and amortization | 236 | 49 | 285 |
7. Subsequent Events
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
We continued to feel the effects of the global economic downturn during the second quarter of 2009 as our sales declined 39% in comparison to the second quarter of 2008. Despite continued slow sales, we generated a small profit in the second quarter of 2009, primarily due to cost savings measures implemented during the first and second quarters.
The staff reduction and other cost cutting initiatives we instituted this year significantly lowered our cost structure. In comparison to the first quarter of 2009, our SG&A expenses declined 18% and R&D expenses declined 21% during the second quarter. A number of these reductions occurred during the quarter, and their impact is not fully reflected in our second quarter results. In addition, we incurred severance costs of approximately $100,000 during the second quarter.
Although our sales continued to be weak during the second quarter, sales in the Laboratory Products segment increased by 14% in comparison to the first quarter of 2009. We believe economic conditions have stabilized in this segment and anticipate slight growth over the balance of the year. In our Air Monitoring segment, we believe sales will increase as we approach the end of the U.S. Government’s fiscal year, which historically results in higher bookings. In addition, we expect to receive significant orders for MINICAMS® systems during the second half of 2009 in connection with projects that are currently underway.
In the second quarter we completed a number of prototype, beta versions of our innovative new process Total Organic Carbon analyzer and ion-CCD based miniaturized mass spectrometer. During the second half of the year, we will incorporate changes as required from our beta testing and expect to have production-ready commercial models in place by year-end. We believe that revenues from these new products will help to reduce our reliance on the current markets we serve and enhance future growth.
Despite the challenges of the current economy, our financial position remains strong. At the end of the second quarter, our cash and investments totaled $3,757,000, up $323,000 from year-end, with no bank debt. We believe that we are structured to generate positive earnings at our current level of business and are confident in our ability to produce improved results once economic conditions in our industry improve.
Results of Operations (dollars in 000’s)
Revenues
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||||||||||||||||||
(dollars in 000’s) | 2009 | % of Rev. | 2008 | % of Rev. | Increase (Decrease) | 2009 | % of Rev. | 2008 | % of Rev. | Increase (Decrease) | ||||||||||||||||||||||||||||||
Sales by Segment: | ||||||||||||||||||||||||||||||||||||||||
Laboratory Products | $ | 3,684 | 75.6 | % | $ | 6,040 | 75.1 | % | $ | (2,356 | ) | $ | 6,911 | 72.8 | % | $ | 11,590 | 75.4 | % | $ | (4,679 | ) | ||||||||||||||||||
Air-Monitoring Systems | 1,192 | 24.4 | % | 2,004 | 24.9 | % | (812 | ) | 2,586 | 27.2 | % | 3,781 | 24.6 | % | (1,195 | ) | ||||||||||||||||||||||||
Total | $ | 4,876 | 100.0 | % | $ | 8,044 | 100.0 | % | $ | (3,168 | ) | $ | 9,497 | 100.0 | % | $ | 15,371 | 100.0 | % | $ | (5,874 | ) |
Total revenue declined $3,168,000, or 39.4%, for the three months ended June 30, 2009 compared to the same period in 2008, with sales down substantially in both of our operating segments.
In the Laboratory Products segment, domestic product sales decreased 50% compared to the second quarter of 2008 as customers continued to conserve cash due to economic conditions. The decline in international product sales during the second quarter was somewhat lower at 38%. Increased sales in China and Taiwan partially offset larger declines in Europe, Latin America and the Asia Pacific region. Service revenues remained largely unchanged from last year. While down from last year, sales in this segment increased 14% from the first quarter, leading us to believe that economic conditions affecting this segment have stabilized. We anticipate slight growth in the sales of these products over the balance of the year.
In the Air-Monitoring Systems segment, sales declined due to very sluggish orders from the U.S. Government for MINICAMS®. Sales are historically weak in this segment during the second quarter but should improve over the balance of the year as we approach the end of the U.S. Government’s fiscal year. In addition, we expect to receive significant orders for MINICAMS® systems during the second half of 2009 in connection with projects that are currently underway.
On a year to date basis, our overall revenue declined $5,874,000, or 38.2%, compared to the six months ended June 30, 2008. Laboratory Products segment sales decreased 40.4% and Air-Monitoring Systems segment sales declined 31.6% during this period. Domestic product sales in the Laboratory Products segment declined 50% compared to the first six months of 2008, while international sales declined 38% during that same period. International sales declined in Europe, Latin America and the Asia Pacific region but remained consistent with last year’s levels in China and Taiwan.
Gross Profit
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||||||||||
(dollars in 000’s) | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
Gross Profit by Segment: | ||||||||||||||||||||||||||||||||
Laboratory Products | $ | 1,614 | 43.8 | % | $ | 2,682 | 44.4 | % | $ | 3,039 | 44.0 | % | $ | 5,184 | 44.7 | % | ||||||||||||||||
Air-Monitoring Systems | 758 | 63.6 | % | 1,207 | 60.2 | % | 1,504 | 58.2 | % | 2,152 | 56.9 | % | ||||||||||||||||||||
Total | $ | 2,372 | 48.6 | % | $ | 3,889 | 48.3 | % | $ | 4,543 | 47.8 | % | $ | 7,336 | 47.7 | % |
Overall gross profit for the three months ended June 30, 2009 decreased $1,517,000, or 39.0%, compared to the second quarter of 2008 because of lower sales volume. Margins in our Laboratory Products segment were down slightly because of unfavorable manufacturing variances associated with our decreased production levels, while margins in our Air-Monitoring Systems segment increased due to a higher composition of service revenues in the overall sales mix.
On a year to date basis, gross profit decreased $2,793,000, or 38.1%, in 2009 compared to last year because of lower sales volume. However, gross profit margins were largely unchanged from last year.
Operating Expenses
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||||||||||
(dollars in 000’s) | $ | % of Rev. | $ | % of Rev. | $ | % of Rev. | $ | % of Rev. | ||||||||||||||||||||||||
SG&A Expenses by Segment: | ||||||||||||||||||||||||||||||||
Laboratory Products | $ | 1,204 | 32.7 | % | $ | 1,839 | 30.4 | % | $ | 2,670 | 38.6 | % | $ | 3,528 | 30.4 | % | ||||||||||||||||
Air-Monitoring Systems | 425 | 35.7 | % | 623 | 31.1 | % | 935 | 36.2 | % | 1,233 | 32.6 | % | ||||||||||||||||||||
Total | $ | 1,629 | 33.4 | % | $ | 2,462 | 30.6 | % | $ | 3,605 | 38.0 | % | $ | 4,761 | 31.0 | % | ||||||||||||||||
R&D Expenses by Segment: | ||||||||||||||||||||||||||||||||
Laboratory Products | $ | 389 | 10.6 | % | $ | 523 | 8.7 | % | $ | 924 | 13.4 | % | $ | 992 | 8.6 | % | ||||||||||||||||
Air-Monitoring Systems | 357 | 29.9 | % | 434 | 21.7 | % | 768 | 29.7 | % | 873 | 23.1 | % | ||||||||||||||||||||
Total | $ | 746 | 15.3 | % | $ | 957 | 11.9 | % | $ | 1,692 | 17.8 | % | $ | 1,865 | 12.1 | % |
Selling, general and administrative ("SG&A") expenses for the three months ended June 30, 2009 decreased $833,000, or 33.8%, compared to the same period of the prior year due largely to cost cutting measures we implemented in response to the economic downturn. These cost reduction efforts lowered salary and benefit expenses, travel and entertainment, consulting fees and Board-related expenses. In the Laboratory Products segment, SG&A expenses also declined because of lower sales commissions. We anticipate continued lower SG&A expenses in comparison to last year as our cost savings measures remain in effect.
For the six months ended June 30, 2009, SG&A expenses decreased $1,156,000, or 24.3%, compared to the same period of the prior year. The decline in Laboratory Products related SG&A expenses was attributable to decreased sales commissions, lower wage-related expenses, travel expenses, consulting fees, insurance costs 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.
During the second quarter of 2009, research and development ("R&D") expenses decreased by $211,000, or 22.0%, compared to the same period of last year. The decline in Laboratory Products related R&D expenses during the second quarter was attributable to lower expenses related to compensation, contract labor, consulting and supplies. R&D expenses in the Air-Monitoring Systems segment were down because of lower wage-related and supplies expenses. Our cost control measures reduced R&D expenses during the second quarter and we anticipate lower R&D expenses compared to last year in the coming quarters.
R&D expenses for the six months ended June 30, 2009 decreased by $173,000, or 9.3%, compared to the same period of the prior year. The decline in Laboratory Products related R&D expenses during the second quarter was partially offset by higher R&D expenses in the first quarter of 2009 attributable the completion of beta units for our new process TOC analyzer. R&D expenses in the Air-Monitoring Systems declined in both quarters compared to the same periods last year.
Operating Income (Loss)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||||||||||
(dollars in 000’s) | $ | % of Rev. | $ | % of Rev. | $ | % of Rev. | $ | % of Rev. | ||||||||||||||||||||||||
Operating (Loss) Income by Segment | ||||||||||||||||||||||||||||||||
Laboratory Products | $ | 21 | 0.6 | % | $ | 320 | 5.3 | % | $ | (555 | ) | -8.0 | % | $ | 664 | 5.7 | % | |||||||||||||||
Air-Monitoring Systems | (24 | ) | -2.0 | % | 150 | 7.5 | % | (199 | ) | -7.7 | % | 46 | 1.2 | % | ||||||||||||||||||
Total | $ | (3 | ) | -0.1 | % | $ | 470 | 5.8 | % | $ | (754 | ) | -7.9 | % | $ | 710 | 4.6 | % |
We essentially broke even for the second quarter of 2009, generating an operating loss of $3,000 compared to operating income of $470,000 for the three months ended June 30, 2008. On a year to date basis, we incurred an operating loss of $754,000 compared to operating income of $710,000 during the first six months of 2008. This decrease in earnings was primarily attributable to a large decrease in sales and gross profit, partially offset by decreases in SG&A and R&D expenses during the second quarter.
Other Income, Net
During the three months ended June 30, 2009 we recorded $16,000 of other income, compared to a loss of $216,000 in the second quarter of 2008, when we recognized a loss on our investment holdings. Because of turbulent financial markets last year, we recorded a loss on our preferred stock and corporate bond holdings.
During the six months ended June 30, 2009 we recognized $27,000 of other income. Due to the second quarter of 2008 investment loss noted above, we incurred a net loss in other income of $136,000 for the six months ended June 30, 2008.
Liquidity and Capital Resources
Net cash flow provided by operating activities for the six months ended June 30, 2009 totaled $603,000 compared to $349,000 during the comparable period of 2008. Despite our year to date loss, 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 $1,868,000. This positive cash flow was partially offset by decreases in our current liabilities; the most significant was primarily attributable to reduced income taxes payable.
Net cash flow provided by investing activities totaled $109,000 through the first six months of 2009, compared to $849,000 for the same period in 2008. Our net investment activity was minimal in 2009, while we liquidated a substantial portion of our investment holdings in 2008. Purchases of property, plant and equipment decreased to $37,000 in 2009, down $143,000 from last year as we continue to minimize capital equipment purchases. We have no material commitments for capital expenditures as of June 30, 2009.
Net cash flow used in financing activities for the six months ended June 30, 2009, totaled $192,000, compared to $476,000 for the same period of the prior year. This decrease was primarily attributable to reduced purchases of treasury stock in 2009 compared to 2008. In addition, our purchases of treasury stock in 2008 reduced our shares outstanding, which lowered our dividend payments. During the third quarter of 2009, we expect to reinstate purchases of our stock in the open market pursuant to the 2008 plan authorized by our Board of Directors. We have authority to purchase approximately 37,000 additional shares under this plan and additional shares may be authorized for repurchase.
Cash, cash equivalents and short-term investments totaled $3,757,000 as of June 30, 2009, compared to $3,434,000 at the end of 2008. Despite the year to date loss we have incurred, our cash position has increased $323,000 from year-end. We believe our cash holdings 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. In view of our current financial position and anticipated liquidity, we plan to discontinue our bank line of credit that we initiated in May of 2008. We have made no borrowings under this line of credit and have no short term plans which are likely to require external financing.
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 May 14, 2009 of $0.05 per common share payable on May 29, 2009 to shareholders of record at the close of business on May 14, 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.
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 4T. 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 April 1, 2009 to June 30, 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 June 30, 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 June 30, 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.
Item 5. Other Information
On August 7, 2009, the Board of Directors amended the Company’s Employee Stock Purchase Plan to further clarify a modification implemented in 2008 regarding the calculation of the purchase price. The Plan is open to all employees, including Executive Officers.
Item 6. Exhibits
10.1* | Employee Stock Purchase Plan as amended August 7, 2009. |
31* | Principal Executive Officer and Principal Financial Officer certification pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32 * | Principal Executive Officer and Principal Financial Officer certification pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
O. I. CORPORATION | |||
(Registrant) | |||
Date: August 11, 2009 | BY: | /s/ J. Bruce Lancaster | |
Chief Executive Officer and Chief Financial Officer (Principal Executive and Principal Financial Officer) | |||
EXHIBIT INDEX
EXHIBIT | |
NUMBER | EXHIBIT TITLE |
10.1* | Employee Stock Purchase Plan as amended August 7, 2009. |
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