UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2005 or
[ ] TRANSITION REPORT pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition from ____________ to ___________
LANDAUER, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Commission File Number 1-9788
Delaware 06-1218089
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2 Science Road, Glenwood, Illinois 60425
----------------------------------------------------
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code (708) 755-7000
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 an accelerated filer as
defined in Rule 12b.2 of the Exchange Act. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 5, 2005
---------------------------- -----------------------------
Common stock, $.10 par value 8,975,335
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LANDAUER, INC. AND SUBSIDIARIES
Condensed Consolidated Unaudited Balance Sheets
(000's, except share amounts)
ASSETS
------
June 30, September 30,
2005 2004
---------- -------------
Current assets:
Cash and cash equivalents. . . . . . . . . . $ 8,202 $ 8,595
Accounts receivable, net of allowances
of $390 and $460, respectively . . . . . . 18,135 15,060
Inventories. . . . . . . . . . . . . . . . . 3,036 3,206
Prepaid expenses . . . . . . . . . . . . . . 816 1,116
Prepaid income taxes . . . . . . . . . . . . 3,207 2,292
Deferred income taxes. . . . . . . . . . . . 21 21
---------- ----------
Current assets . . . . . . . . . . . . 33,417 30,290
Property, plant and equipment, at cost . . . . 43,808 41,021
Less: Accumulated depreciation
and amortization . . . . . . . . . . . . . (25,638) (22,481)
---------- ----------
Net property, plant and equipment. . . . . . . 18,170 18,540
Goodwill . . . . . . . . . . . . . . . . . . . 13,240 13,156
Other intangible assets,
net of amortization. . . . . . . . . . . . . 5,970 6,337
Dosimetry devices, net of amortization of
$5,924 and $4,447, respectively. . . . . . . 6,193 4,791
Equity in joint venture. . . . . . . . . . . . 4,254 3,916
Other assets . . . . . . . . . . . . . . . . . 1,219 488
---------- ----------
$ 82,463 $ 77,518
========== ==========
The accompanying notes are an integral part of these financial statements.
2
LANDAUER, INC. AND SUBSIDIARIES
Condensed Consolidated Unaudited Balance Sheets (Cont'd.)
(000's, except share amounts)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
----------------------------------------
June 30, September 30,
2005 2004
---------- -------------
Current liabilities:
Accounts payable . . . . . . . . . . . . . . $ 1,011 $ 1,306
Notes payable. . . . . . . . . . . . . . . . 4,311 5,262
Deferred contract revenue. . . . . . . . . . 13,596 12,554
Dividends payable. . . . . . . . . . . . . . 3,811 3,577
Accrued pension costs. . . . . . . . . . . . 315 834
Accrued income taxes . . . . . . . . . . . . 1,000 20
Deferred income taxes. . . . . . . . . . . . 94 94
Accrued expenses . . . . . . . . . . . . . . 4,582 4,629
---------- ----------
Current liabilities. . . . . . . . . . 28,720 28,276
Non-current liabilities:
Pension and postretirement obligation. . . . 5,033 3,845
Deferred income taxes. . . . . . . . . . . . 1,199 1,317
---------- ----------
Non-current liabilities. . . . . . . . 6,232 5,162
Minority interest in subsidiary. . . . . . . 77 83
---------- ----------
Shareholders' investment:
Preferred stock, $.10 par value per share
- Authorized - 1,000,000 shares;
Outstanding - None . . . . . . . . . . . . -- --
Common stock, $.10 par value per share -
Authorized - 20,000,000 shares;
Outstanding - 8,973,732 shares
at 6/30/05 and 8,945,665 shares
at 9/30/04 . . . . . . . . . . . . . . . 897 895
Premium paid in on common stock. . . . . . . 15,111 14,400
Cumulative translation adjustments . . . . . (210) (251)
Retained earnings. . . . . . . . . . . . . . 31,636 28,953
---------- ----------
Total shareholders' investment . . . . 47,434 43,997
---------- ----------
$ 82,463 $ 77,518
========== ==========
The accompanying notes are an integral part of these financial statements.
3
LANDAUER, INC. AND SUBSIDIARIES
Condensed Consolidated Unaudited Statements of Income
(000's, except per share amounts)
Three Months Ended Nine Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
-------- -------- -------- --------
Revenues, net of sales
allowances . . . . . . . . $ 18,200 $ 17,203 $ 56,231 $ 52,242
Costs and expenses:
Cost of revenues . . . . . 7,071 6,436 21,427 18,938
Selling, general and
administrative . . . . . 4,487 4,050 13,538 12,561
-------- -------- -------- --------
11,558 10,486 34,965 31,499
-------- -------- -------- --------
Operating income . . . . . . 6,642 6,717 21,266 20,743
Equity in income of
joint venture. . . . . . . 355 300 1,037 818
Other income (expense),
net. . . . . . . . . . . . 28 (3) (10) 64
-------- -------- -------- --------
Income before income
taxes and minority
interest . . . . . . . . . 7,025 7,014 22,293 21,625
Income taxes . . . . . . . . 2,475 2,615 8,133 8,115
-------- -------- -------- --------
Income before minority
interest . . . . . . . . . 4,550 4,399 14,160 13,510
Minority interest therein. . 19 5 56 272
-------- -------- -------- --------
Net income . . . . . . . . . $ 4,531 $ 4,394 $ 14,104 $ 13,238
======== ======== ======== ========
Net income per common share:
Basic. . . . . . . . . . . $ 0.50 $ 0.49 $ 1.57 $ 1.49
======== ======== ======== ========
Based on average shares
outstanding. . . . . . . 8,964 8,903 8,956 8,884
======== ======== ======== ========
Diluted. . . . . . . . . . $ 0.50 $ 0.49 $ 1.56 $ 1.48
======== ======== ======== ========
Based on average shares
outstanding. . . . . . . 9,039 8,976 9,028 8,961
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
4
LANDAUER, INC. AND SUBSIDIARIES
Condensed Consolidated Unaudited Statements of Cash Flows
(000's, except per share amounts)
Nine Months Ended
---------------------
June 30, June 30,
2005 2004
-------- --------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . $ 14,104 $ 13,238
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . 4,918 3,837
Amortization . . . . . . . . . . . . . . . . . . 481 338
Equity in net income of foreign affiliate. . . . (1,037) (818)
Tax effect of stock options. . . . . . . . . . . 389 668
Loss on sale and disposition of assets . . . . . 20 110
Increase in accounts receivable, net . . . . . . (3,126) (2,115)
Increase in other current assets . . . . . . . . (440) (1,091)
Increase in dosimetry devices at cost. . . . . . (2,880) (1,315)
Increase in other long-term assets . . . . . . . (201) (2,151)
Increase in accounts payable and other
current liabilities. . . . . . . . . . . . . . 170 2,254
Increase in deferred contract revenue. . . . . . 993 809
Increase in long-term liabilities. . . . . . . . 1,070 449
Increase in minority interest. . . . . . . . . . 56 255
-------- --------
Net cash provided from operating activities. . . 14,517 14,468
Cash flows from investing activities:
Acquisition of property, plant and
equipment. . . . . . . . . . . . . . . . . . . (3,096) (3,666)
Acquisition of minority interests. . . . . . . . -- (10,404)
-------- --------
Net cash used by investing activities. . . . . . (3,096) (14,070)
Cash flows from financing activities:
Proceeds from revolving credit facilities. . . . 1,500 7,916
Payments on revolving credit facilities. . . . . (2,360) (1,970)
Dividends paid to minority interest. . . . . . . (85) (913)
Dividends paid to stockholders . . . . . . . . . (11,189) (10,429)
Proceeds from the exercise of stock options. . . 324 756
Advance from affiliate . . . . . . . . . . . . . -- 598
-------- --------
Net cash used by financing activities. . . . . . (11,810) (4,042)
Effects of foreign currency translation. . . . . . (4) (20)
Net decrease in cash and cash equivalents. . . . . (393) (3,664)
Opening balance - cash and cash equivalents. . . . 8,595 11,012
-------- --------
Ending balance - cash and cash equivalents . . . . $ 8,202 $ 7,348
======== ========
The accompanying notes are an integral part of these financial statements.
5
LANDAUER, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Unaudited Financial Statements
June 30, 2005
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements reflect the financial position of Landauer, Inc. and
subsidiaries ("Landauer" or "the Company") as of June 30, 2005 and
September 30, 2004, and the condensed consolidated results of operations
and cash flows for the three and nine-month periods ended June 30, 2005 and
2004. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the consolidated financial position of Landauer as of
June 30, 2005 and September 30, 2004, and the consolidated results of
operations and cash flows for the three and nine-month periods ended
June 30, 2005 and 2004.
Certain prior year amounts have been reclassified to conform to
current year presentation. These reclassifications have no effect on the
results of operations or financial position. Additionally, the balance of
short-term investments with original maturities of three months or less
were reclassed to cash and cash equivalents.
The results of operations for the three and nine-month periods ended
June 30, 2005 and 2004 are not necessarily indicative of the results to be
expected for the full year.
The accounting policies followed by the Company are set forth in the
2004 Landauer Annual Report on Form 10-K. The only significant source of
revenues for the Company is radiation measuring and monitoring services
including other services incidental to measuring and monitoring. The
services provided by the Company to its customers are of a subscription
nature and are continuous. The Company views its business as services
provided to customers over a period of time and the wear period is the
period over which those services are provided. Badge production, wearing
of badges, badge analysis, and report preparation are integral to the
benefit that the Company provides to its customers. These services are
provided to customers on an agreed-upon recurring basis (monthly, bi-
monthly or quarterly) that the customer chooses for the wear period.
Revenue is recognized on a straight-line basis, adjusted for changes in
pricing and volume, over the wear period as the service is continuous and
no other discernible pattern of recognition is evident. Revenues are
recognized over the periods in which the customers wear the badges
irrespective of whether invoiced in advance or in arrears. Ancillary
service revenues are recognized upon delivery of the reports to customers
or as other such services are provided.
(2) CASH DIVIDENDS
On June 3, 2005, the Company declared a regular quarterly cash
dividend in the amount of $0.425 per share payable on July 8, 2005, to
shareholders of record on June 17, 2005. On March 4, 2005, the Company
declared a regular quarterly cash dividend in the amount of $0.425 per
share payable on April 8, 2005, to shareholders of record on March 18,
2005. On November 12, 2004, the Company declared a regular quarterly cash
dividend in the amount of $0.425 per share payable on January 17, 2005, to
shareholders of record on December 17, 2004.
Regular quarterly cash dividends of $.40 per share ($1.60 annually)
were declared during fiscal 2004.
6
LANDAUER, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Unaudited Financial Statements (Cont'd)
June 30, 2005
(3) COMPREHENSIVE INCOME
Comprehensive income is the total of net income and all other changes
in equity. The following table sets forth the Company's comprehensive
income for the three and nine-month periods ended June 30, 2005 and 2004
(000's):
Three Months Ended Nine Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
-------- -------- -------- --------
Net income . . . . . . . . . $ 4,531 $ 4,394 $ 14,104 $ 13,238
Other comprehensive income -
foreign currency
translation adjustment . . (79) (471) 41 (20)
-------- -------- -------- --------
Comprehensive income . . . . $ 4,452 $ 3,923 $ 14,145 $ 13,218
======== ======== ======== ========
(4) EARNINGS PER SHARE
Earnings per share computations have been made in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share." Basic earnings per share were computed by dividing
net income by the weighted average number of shares of common stock
outstanding during each period. Diluted earnings per share were computed
by dividing net income by the weighted average number of shares of common
stock that would have been outstanding assuming dilution during each
period.
The following table presents the weighted average number of shares of
common stock for the three and nine-month periods ended June 30, 2005 and
2004 (000's):
Three Months Ended Nine Months Ended
------------------- --------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
-------- -------- -------- --------
Weighted average number
of shares of common stock
outstanding. . . . . . . . 8,964 8,903 8,956 8,884
Options issued to
executives & directors . . 75 73 72 77
-------- -------- -------- --------
Weighted average number
of shares of common stock
assuming dilution. . . . . 9,039 8,976 9,028 8,961
======== ======== ======== ========
7
LANDAUER, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Unaudited Financial Statements (Cont'd)
June 30, 2005
(5) STOCK-BASED COMPENSATION PLANS
The Company maintains stock option plans for key employees. It also
maintains a stock option plan for its non-employee directors. The Company
accounts for those plans under the recognition and measurement principles
of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees", and related Interpretations. Under APB Opinion
No. 25, no compensation cost is recognized except for performance based
grants. Under SFAS No. 123, "Accounting for Stock-Based Compensation",
compensation costs are recognized based on the fair-value method of the
stock options granted, calculated using certain assumptions about future
volatility and dividend growth. Had compensation cost for these plans been
determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share in each
period would have been as follows (000's, except per share data):
Three Months Ended Nine Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
-------- -------- -------- --------
Net income, as reported. . . $ 4,531 $ 4,394 $ 14,104 $ 13,238
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects. . . . 62 356 1,411 896
-------- -------- -------- --------
Pro forma net income . . . . $ 4,469 $ 4,038 $ 12,693 $ 12,342
======== ======== ======== ========
Earnings per share:
Basic - As reported. . . . $ 0.50 $ 0.49 $ 1.57 $ 1.49
======== ======== ======== ========
Basic - Pro forma. . . . . $ 0.50 $ 0.45 $ 1.42 $ 1.39
======== ======== ======== ========
Diluted - As reported. . . $ 0.50 $ 0.49 $ 1.56 $ 1.48
======== ======== ======== ========
Diluted - Pro forma. . . . $ 0.49 $ 0.45 $ 1.41 $ 1.38
======== ======== ======== ========
On December 16, 2004, the Financial Accounting Standards Board issued
SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"). SFAS
123R eliminates the alternative of applying the intrinsic value measurement
provisions of Opinion 25 to stock compensation awards issued to employees.
Rather, the new standard requires enterprises to measure the cost of
employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. That cost will be
recognized over the period during which an employee is required to provide
services in exchange for the award, known as the requisite service period
(usually the vesting period).
In April 2005, the SEC approved a new rule that delays the effective
date of SFAS 123R for public companies to annual, rather than interim,
periods that begin after June 15, 2005. Under the SEC's rule, SFAS 123R
will be effective for the Company beginning October 1, 2005. The Company
is in the process of assessing the impact of SFAS 123R on its consolidated
financial statements.
8
LANDAUER, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Unaudited Financial Statements (Cont'd)
June 30, 2005
(6) NOTES PAYABLE
In April 2004, the Company negotiated a $25 million line of credit
provided by LaSalle Bank, ABN AMRO. The credit agreement was amended,
effective March 25, 2005, to extend the maturity date to March 25, 2006 and
reduce the aggregate loan commitment under the credit facility to $15
million, with an option for the Company to increase to $25 million. The
remaining terms of the amended credit facility are consistent with the
original credit facility.
In April 2004, the Company borrowed $7,724,000 (euro denominated)
under this facility as part of funding the acquisition of the remaining 49%
minority interest in LCIE-Landauer, Ltd. During the third quarter of
fiscal 2005, the Company borrowed $1,500,000 and made principal and
interest payments of $1,796,000 and $40,000, respectively. Year to date
the Company has made principal payments of $2,360,000 and interest payments
of $185,000.
The outstanding balances under the line of credit of $4,311,000 at
June 30, 2005 and $5,262,000 at September 30, 2004 are denominated in euros
and at June 30, 2005, bears interest at 3.42% until July 29, 2005, at which
time the Company has executed a new EURIBOR election notice for an
additional interest period of 180 days at a rate of 3.37%, as permitted
under the terms of the credit agreement. While the Company expects to
renew the credit facility at maturity, in the event it is not renewed, it
is expected that cash on hand, and cash flow from operations, and the
Company's borrowing capacity will be sufficient to satisfy the obligation.
The expectation is the Company will fund euro-based debt service payments
from the euro-denominated cash flows.
(7) PENSION AND POSTRETIREMENT MEDICAL BENEFIT EXPENSES
The components of net periodic benefit cost for pension and retiree
medical plans are as follows (000's):
Pension Benefits Other Benefits
------------------- -------------------
Three Months Ended June 30,
------------------------------------------
2005 2004 2005 2004
-------- -------- -------- --------
Components of net periodic
benefit cost:
Service cost . . . . . . . $ 259 $ 250 $ 25 $ 25
Interest cost. . . . . . . 273 247 27 20
Expected return on plan
assets . . . . . . . . . (181) (162) -- --
Amortization of transi-
tion (asset) obliga-
tion . . . . . . . . . . (2) (2) 6 6
Amortization of prior
service cost . . . . . . 68 39 4 4
Recognized net actuarial
loss . . . . . . . . . . 26 30 11 3
-------- -------- -------- --------
Net periodic benefit
cost . . . . . . . . . . $ 443 $ 402 $ 73 $ 58
======== ======== ======== ========
9
LANDAUER, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Unaudited Financial Statements (Cont'd)
June 30, 2005
Pension Benefits Other Benefits
------------------- -------------------
Nine Months Ended June 30,
------------------------------------------
2005 2004 2005 2004
-------- -------- -------- --------
Components of net periodic
benefit cost:
Service cost . . . . . . . $ 777 $ 715 $ 76 $ 71
Interest cost. . . . . . . 820 720 81 56
Expected return on plan
assets . . . . . . . . . (543) (464) -- --
Amortization of transi-
tion (asset) obliga-
tion . . . . . . . . . . (5) (6) 17 18
Amortization of prior
service cost . . . . . . 204 117 13 12
Recognized net actuarial
loss . . . . . . . . . . 77 83 34 6
-------- -------- -------- --------
Net periodic benefit
cost . . . . . . . . . . $ 1,330 $ 1,165 $ 221 $ 163
======== ======== ======== ========
Landauer contributed $789,000 to its pension plan in fiscal 2005, the
maximum amount permitted under U.S. tax law. The Company made $250,000 in
pension contributions in the first fiscal quarter of 2005 and funded the
remaining $539,000 on April 20, 2005.
(8) ACQUISITION OF MINORITY INTEREST IN LCIE-LANDAUER, LTD.
In April 2004, Landauer, Inc. consummated an agreement with Bureau
Veritas ("BV") to acquire the 49% minority interest in LCIE-Landauer, Ltd.
owned by BV's subsidiary, Laboratoire Central Industries des Electriques
("LCIE"), for $10.4 million in cash. The purchase price was allocated to
identifiable intangible assets based on estimates of fair value as
determined by an independent third party valuation consultant.
Substantially all of the purchase price, plus deferred tax liabilities
recorded, was allocated to intangible assets including $3.9 million of
customer lists (amortized over the estimated useful life of 15 years) and
goodwill of $7.9 million. Had the acquisition occurred at the beginning of
the periods presented, unaudited net income of the Company on a pro forma
basis would have been as follows (000's, except per share data):
Three Nine
Months Months
Ended Ended
June 30, June 30,
2004 2004
---------- ----------
Pro forma net income . . . . . . . . . . . $ 4,394 $ 13,355
Diluted earnings per share . . . . . . . . $ 0.49 $ 1.49
The unaudited pro forma net income is for illustrative purposes only
and is not necessarily indicative of the financial results had the
acquisition actually occurred at the beginning of the periods presented.
Landauer funded the purchase price from a combination of working
capital funds ($2.7 million), and $7.7 million borrowed under a credit
facility obtained in April 2004. See Note 6 for additional information on
the credit facility.
10
LANDAUER, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Unaudited Financial Statements (Cont'd)
June 30, 2005
(9) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2005, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 154, "Accounting Changes and Error Corrections." SFAS No. 154
replaces APB Opinion No. 20, "Accounting Changes." SFAS No. 154 requires
that voluntary changes in accounting principle be applied retrospectively
to prior periods' financial statements, unless it is impracticable to do
so. SFAS No. 154 also provides that a change in method of depreciating or
amortizing long-lived nonfinancial assets be accounted for as a change in
accounting estimate. SFAS No. 154 is effective for accounting changes and
correction of errors made in fiscal years beginning after December 15,
2005. The Company does not believe that implementing SFAS No. 154 will
have a material impact on its financial position and results of operations.
11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Landauer is a leading provider of analytical services to determine
occupational and environmental radiation exposure. For over 50 years, the
Company has provided complete radiation dosimetry services to hospitals,
medical and dental offices, universities, national laboratories, and other
industries in which radiation poses a potential threat to employees.
Landauer's services include the manufacture of various types of radiation
detection monitors, the distribution and collection of the monitors to and
from clients, and the analysis and reporting of exposure findings. The
majority of these services are provided to customers in the U.S., Japan,
France, the United Kingdom, Brazil, Canada and China.
Substantially all of the Company's revenues are realized from
radiation monitoring services and other services incidental to radiation
dose measurement. The Company enters into agreements with customers to
provide them with radiation monitoring services, generally for a twelve-
month period; these agreements have a high degree of renewal.
Relationships with customers are generally stable and recurring, and the
Company provides them with on-going services. As part of its services, the
Company provides to its customers radiation detection badges, which are
produced and owned by the Company. Raw material components related to the
production of radiation detection badges are included in inventories.
Finished badges are included in dosimetry devices in the consolidated
balance sheet. The customers wear the badges for a period selected by the
customers ("wear period"), which is usually one, two, or three months in
duration. At the end of the wear period, the badges are returned to the
Company for analysis. The Company analyzes the badges that have been worn
and provides its customers with a report indicating radiation exposures.
The Company recycles the badges for reuse, while also producing new
replacement badges on a continual basis. Additional reporting and other
radiation measurement and management services are provided to customers at
their option ("ancillary services").
Landauer's InLightTM dosimetry system, introduced in late fiscal
2003, provides smaller in-house and commercial laboratories with the
ability to offer a complete radiation monitoring service using optically
stimulated luminescence ("OSL") technology. The system is based on the
Company's propriety technology and instruments and dosimetry devices
developed by Matsushita Industrial Equipment Company and allows customers
the flexibility to tailor their precise dosimetry needs. InLight services
may involve a customer acquiring or leasing dosimetry reading equipment
from the Company.
Landauer's operations include services for the measurement and
monitoring of radon gas (referred to as "sales of radon kits") and services
related to the remediation of radon gas, which require the customer to
deploy a radon detector and return the detector to the Company's
laboratories for dose determination and reporting. Where a customer has
purchased a radon services agreement, the Company may assist with
remediation services on properties where radon measurements exceed a
specified threshold.
InLight and radon services represent less than 5% of consolidated
revenues.
Landauer operates a mature business, and growth in numbers of
customers is modest. In recent years, the Company's strategy has been to
expand into new international markets, primarily by partnering with
existing dosimetry service providers with a prominent local presence. In
addition, the Company has been developing new platforms and formats for its
optically stimulated luminescence ("OSL") technology such as InLight to
gain access to markets where the Company previously did not have a
significant presence such as smaller in-house and commercial laboratories.
12
Revenue growth in recent years has occurred as a result of increased
prices for certain services, entry into new markets through joint ventures
and acquisitions, modest unit growth and new ancillary services.
The services provided by the Company to its customers are ongoing and
are of a subscription nature. As such, revenues are recognized in the
periods in which such services are rendered irrespective of whether
invoiced in advance or in arrears. Given the subscription nature of
Landauer's services, quarterly revenues are fairly consistent. During the
second quarter of each fiscal year, however, the Company provides the
additional services of reporting annual radiation dose summaries that
generate increased revenues. The introduction of the Company's InLight
product line may introduce some variability in quarter-to-quarter revenue
comparisons given the nature of purchase cycles associated with sales of
radiation dose measurement instruments and detectors.
LIQUIDITY AND CAPITAL RESOURCES
Landauer's cash provided from operating activities for the nine-month
periods ended June 30, 2005 and 2004 amounted to $14,517,000 and
$14,468,000, respectively. Acquisitions of property, plant and equipment
were $3,096,000 and $3,666,000, respectively for the nine months ended June
30, 2005 and 2004. The Company's financing activities are comprised of
credit facility activities and payments of cash dividends to shareholder
and minority partners, offset partially by proceeds from the exercise of
stock options and, in 2004, foreign dividends received from Nagase-
Landauer, Ltd., the Company's Japanese joint venture and its subsidiary in
Brazil.
The Company has long-term liabilities in the amount of $6,232,000 and
$5,162,000 at June 30, 2005 and September 30, 2004, respectively, and its
requirement for cash flows to support investing activities is generally
limited. Capital expenditures for the balance of fiscal 2005 are expected
to be between $1,600,000 and $2,000,000 principally for the acquisition of
equipment to support the Company's introduction of the InLight service
line, introduction of new services, and the development of supporting
software systems, and computer hardware. The Company anticipates that
funds for these capital improvements will be provided from operations. As
described in Note 6 to the financial statements, the Company borrowed under
its credit facility, which expires in March 2006. In April 2004, the
Company borrowed under this facility as part of funding the $10,400,000
acquisition of the remaining 49% minority interest in LCIE-Landauer Ltd.
The borrowings are classified as current liabilities and are denominated in
euros, which is the functional currency of LCIE-Landauer, Ltd. The credit
facility permits borrowing up to a maximum of $15,000,000. In the opinion
of management, cash flows from operations and the Company's borrowing
capacity under its line of credit are adequate for projected operations and
capital spending programs, as well as continuation of the regular cash
dividend program. From time to time, the Company may have the opportunity
to make investments for acquisitions or other purposes, and borrowings can
be made under the credit facility to fund such investments.
Landauer requires limited working capital for its operations since
many of its customers pay for services in advance. Such advance payments,
reflected on the balance sheet as "Deferred Contract Revenue", amounted to
$13,596,000 and $12,554,000, respectively, as of June 30, 2005 and
September 30, 2004. While these amounts represent approximately 47% and
44% of current liabilities, respectively, such amounts generally do not
represent a cash requirement.
All customers are invoiced in accordance with the Company's standard
terms, with payment due thirty days from date of invoice. Considering the
Company's invoicing practices and that a significant portion of the
Company's revenues are subject to health care industry reimbursement
cycles, the average days of sales outstanding for the Company have ranged
from 43 to 78 days over the course of fiscal 2004 and fiscal 2005 year to
date.
13
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2005
Revenues for the third quarter of fiscal 2005 were $18,200,000, a
5.8% increase compared to revenues of $17,203,000 for the same quarter in
fiscal 2004. Higher domestic radiation monitoring activities represented
approximately $500,000 of revenue growth for the quarter, due to the
realization of higher pricing, increased ancillary service revenues and
modest unit gains. Growth in international radiation monitoring revenues
of more than $425,000 over the prior year resulted from a mix of increased
business activity in Europe, Asia and Brazil, as well as a weaker U.S.
dollar. The balance of revenue growth was attributable to sales of InLight
products and services in the U.S. and abroad.
Gross margins were 61.1% of revenues for the third quarter of fiscal
2005, slightly lower than the 62.6% reported for the same period in fiscal
2004. Cost of revenues was approximately $650,000 or 9.9% higher than
fiscal 2004. Direct labor costs exceeded the prior year by $53,000 as a
result of wage increases and currency impact; direct materials were $65,000
higher attributable to InLight sales activity as well as currency related
cost increases. Factors contributing to higher overhead costs include
increases in outside services primarily related to information technology
projects, $158,000; depreciation expense, $178,000; postage, $94,000; and
higher international costs, $129,000, impacted by the weakened U.S. dollar
particularly in relation to the euro and the costs associated with the
conversion of French customers to InLight.
Selling, general and administrative expenses in the third quarter of
fiscal 2005 were approximately $450,000 or 10.8% higher versus a year ago
primarily due to increases of $148,000 for professional fees including
Sarbanes Oxley Section 404 compliance and $112,000 for international costs
impacted by foreign exchange. Resulting operating income for the quarter
ended June 30, 2005 was $6,642,000, a decrease of 1.1% compared with
$6,717,000 reported in the same quarter a year ago.
Net other income for the quarter was $86,000 higher than a year ago,
reflecting increased earnings of Nagase-Landauer, Ltd., the Company's joint
venture in Japan, and higher net interest income.
The effective income tax rate for the third quarter of fiscal 2005
was lower at 35.2% than the prior year at 37.3%, reflecting higher Nagase-
Landauer income, as well as certain non-taxable items. Resulting net
income for the third quarter amounted to $4,531,000, or $0.50 per diluted
share, compared with $4,394,000, or $0.49 per diluted share, for the same
quarter in fiscal 2004.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 2005
Revenues for the first nine months of the fiscal year were
$56,231,000, or 7.6% higher than revenues of $52,242,000 for the same
period in fiscal 2004. Domestic revenue growth, representing more than
$1,800,000 of the increase, resulted from improved pricing and modestly
higher volume for radiation measurement and ancillary services.
International radiation monitoring revenues were approximately $1,200,000
higher as a result of higher pricing, increased international business
activity, and a continued weak U.S. dollar. The balance of revenue growth
for the first nine months of fiscal 2005, or approximately $1,000,000, was
attributable to sales of InLight products and services in the U.S. and
abroad.
Gross margins for the first nine months of fiscal 2005 were 61.9% of
revenues, lower than the 63.7% reported for the same period in fiscal 2004.
Cost of revenues increased $2,489,000 or 13.1% from the same period in the
prior year. Direct labor costs exceeded the prior year by $186,000 as a
result of increased business activity and currency impact, particularly in
14
relation to the euro. Direct materials were $415,000 higher attributable
to InLight sales activity as well as currency translation. Overhead costs
rose both domestically and internationally primarily due to increases in
outside services related to information technology projects, $484,000;
depreciation expense, $495,000; postage, $177,000; and higher international
costs, $606,000, impacted by the consolidation of two laboratories in
France, a weakened U.S. dollar particularly in relation to the euro, and
conversion of French customers to InLight technology.
Selling, general and administrative expenses for the first nine
months of fiscal 2005 were $977,000 higher, or 7.8% higher than a year ago.
The year to date increase in selling, general, and administrative expenses
relates to increased employment fees, $113,000; outside services fees for
market analysis, $221,000; professional fees including Sarbanes Oxley
Section 404 compliance, $297,000; amortization, $133,000; and international
expenses, $384,000, primarily due to the conversion of French customers to
InLight, the consolidation of two laboratories in France, and currency
translation. Resulting operating income for the first nine months of
fiscal 2005 was $21,266,000 compared with $20,743,000 for the same period
in fiscal 2004.
Year to date net other income was $145,000 higher than a year ago,
reflecting higher earnings of the Company's joint venture in Japan,
$219,000, offset $74,000 by higher net interest and other costs.
The effective tax rate of 36.5% for the nine-month period reflects
higher Nagase-Landauer income as well as certain non-taxable items, and
compares with 37.5% for the first nine months of fiscal 2004. Minority
interest was $216,000 lower than prior year, reflecting the acquisition of
the remaining interest in LCIE-Landauer in April 2004. Resulting net
income for the nine months ended June 30, 2005 was $14,104,000, or $1.56
per diluted share, compared with $13,238,000, or $1.48 per diluted share,
for the same period in fiscal 2004.
OUTLOOK FOR BALANCE OF FISCAL 2005
Management's review of the first nine months of fiscal 2005 and
expected business activity for the fourth quarter indicate that aggregate
revenue growth for the year is anticipated to be 7 - 8%. Fiscal 2005
revenues from traditional domestic and international radiation monitoring
services are expected to grow by approximately 5.5% compared with fiscal
2004. Revenues from sales for the InLight product line will contribute to
the balance of revenue growth. Domestic revenue growth drivers include
pricing, moderate unit growth and increased sales of ancillary services.
Pricing and increased unit volume are expected to contribute to
international revenue growth in fiscal 2005, although currency exchange
rates may impact results reported in U.S. dollars. Based on the Company's
current operating plan, costs and operating expenses for fiscal 2005 are
expected to grow at an aggregate rate of 10 - 10.5% compared with fiscal
2004. Net other income in fiscal 2005 is anticipated to be approximately
$200,000 higher than in fiscal 2004 and minority interest should be
$200,000 lower, as a result of the elimination of the minority interest in
LCIE- Landauer. The effective income tax rate for fiscal 2005 is expected
to be 36.5 - 37.0%, compared with 37.4% in fiscal 2004. Based on these
estimates, resulting net income for fiscal 2005 is currently anticipated to
be higher by 5 - 6% compared with fiscal 2004.
FORWARD LOOKING STATEMENTS
Certain of the statements made herein (including, in particular, the
statements made under the caption "Outlook for Balance of Fiscal 2005"
above) constitute forward looking statements that are based on certain
assumptions and involve certain risks and uncertainties, including,
introduction and customer acceptance of the InLight technology, the
adaptability of optically stimulated luminescence ("OSL") technology to new
15
platforms and formats, the cost associated with the Company's research and
business development efforts, the usefulness of older technologies, the
anticipated results of operations of the Company and its subsidiaries or
ventures, the valuation of the Company's long lived assets or business
units relative to future cash flows, changes in pricing for the Company's
services, changes in postal and delivery costs and practices, the
Company's business plans, anticipated revenue and cost growth, the risks
associated with conducting business internationally, other anticipated
financial events, the effects of changing economic and competitive
conditions, foreign exchange rates and currency translations, government
regulations, accreditation requirements, and pending accounting
pronouncements. Such assumptions may not materialize to the extent assumed
and such risks and uncertainties may cause actual results to differ from
anticipated results. Such risks and uncertainties may also result in
changes to the Company's business plans and prospects and could create the
need from time to time to write down the value of assets or otherwise cause
the Company to incur unanticipated expenses. Additional information may be
obtained by reviewing the Company's Annual Report on Form 10-K for the year
ended September 30, 2004 and other reports filed by the Company from time
to time with the Securities and Exchange Commission.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections." SFAS No. 154 replaces APB Opinion No. 20, "Accounting
Changes." SFAS No. 154 requires that voluntary changes in accounting
principle be applied retrospectively to prior periods' financial
statements, unless it is impracticable to do so. SFAS No. 154 also
provides that a change in method of depreciating or amortizing long-lived
nonfinancial assets be accounted for as a change in accounting estimate.
SFAS No. 154 is effective for accounting changes and correction of errors
made in fiscal years beginning after December 15, 2005. The Company does
not believe that implementing SFAS No. 154 will have a material impact on
its financial position and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SIGNIFICANT RISK FACTORS
The Company's business and operations are subject to certain risks
and uncertainties, including:
FOREIGN CURRENCY EXCHANGE AND INTEREST RATE RISKS
The Company is exposed to market risk, including changes in foreign
currency exchange rates and interest rates. As discussed in Note 1 to the
financial statements in the Company's Annual Report on Form 10-K, "Summary
of Significant Accounting Policies" to the consolidated financial
statements, the financial statements of the Company's non-U.S. subsidiaries
are remeasured into U.S. dollars using the U.S. dollar as the functional
currency. To date, the market risk associated with foreign currency
exchange rates has not been material in relation to the Company's financial
position, results of operations, or cash flows. These risks could increase,
however, as the Company expands in international markets. The Company does
not have any significant trade accounts receivable, trade accounts payable,
or commitments in a currency other than that of the reporting unit's
functional currency. As such, the Company does not currently use derivative
financial instruments to manage the exposure in its non-U.S. operations.
16
RELIANCE UPON SINGLE MANUFACTURING FACILITY
Landauer, Inc. conducts its primary manufacturing and laboratory
processing operations from a single facility in Glenwood, Illinois. In
addition, the Company performs significant functions for some of its
international operations from the Glenwood facility. If the Company were to
lose availability of its primary facility due to fire, natural disaster or
other disruptions, the Company's operations could be significantly
impaired. Although the Company maintains business interruption insurance,
there can be no assurance that the proceeds of such insurance would be
sufficient to offset any loss the Company might incur or that the Company
would be able to retain its customer base if operations were so disrupted.
SINGLE SOURCE FOR CRYSTAL MATERIALS
Crystal material is a key component in Landauer's OSL technology. The
Company operates a single crystal manufacturing facility in Stillwater,
Oklahoma that currently supplies all OSL crystal radiation measurement
material used by the Company. If the Company were to lose availability of
its Stillwater facility due to a fire, natural disaster or other
disruptions, such loss could have a material adverse effect on the Company
and its operations. Although multiple sources for raw crystal material
exists, there can be no assurance that the Company could secure another
source to produce finished crystal materials to Landauer's specification in
the event of a disruption at the Stillwater facility.
TECHNOLOGY
Landauer's technological expertise has been an important factor in
its growth. The Company regularly pursues product improvements to maintain
its technical position. The development and introduction of new
technologies, the adaptability of OSL to new platforms and new formats, the
usefulness of older technologies as well as the introduction of new
technologies by the competition present various risks to the Company's
business. The failure or lack of market acceptance of a new technology or
the inability to respond to market requirements for new technology could
adversely affect the Company's operations or reputation with customers. The
cancellation of technology projects or the cessation of use of an existing
technology can result in write-downs and charges to the Company's earnings.
In the normal course of its business, Landauer must record and process
significant amounts of data quickly and accurately and relies on various
computer and telecommunications equipment and software systems. Any failure
of such equipment or systems could adversely affect the Company's
operations.
INTERNATIONAL OPERATIONS POSE RISKS
Landauer conducts business in numerous international markets such as
Japan, France, the United Kingdom, Brazil, Canada and China. Foreign
operations are subject to a number of special risks, including among
others, currency exchange rate fluctuations; disruption in relations;
political and economic unrest; trade barriers; exchange controls;
expropriation; and changes in laws and policies, including those governing
foreign owned operations.
GOVERNMENT REGULATIONS
Regulation, present and future, is a constant factor affecting the
Company's business. The radiation monitoring industry is subject to federal
and state governmental regulation. Unknown matters, new laws and
regulations, or stricter interpretations of existing laws or regulations
may materially affect Landauer's business or operations in the future
and/or could increase the cost of compliance.
17
Many of the Company's technology based services must comply with
various national and international standards that are used by regulatory
and accreditation bodies for approving such services and products. Changes
in these standards and accreditation requirements can result in the Company
having to incur costs to adapt its offerings and procedures. Such
adaptations may introduce quality assurance issues during transition that
need to be addressed to ensure timely and accurate analyses and data
reporting. Additionally, changes affecting radiation protection practices,
including new understandings of the hazards of radiation exposure and
amended regulations, may impact how the Company's services are used by its
customers and may in some circumstances cause the Company to alter its
products and delivery of its services.
COMPETITION
The Company competes on the basis of advanced technologies, competent
execution of these technologies, the quality, reliability and price of its
services and its prompt and responsive performance. In much of the world,
radiation monitoring activities are conducted by a combination of private
entities and governmental agencies. The Company's primary competitor in the
United States is large and has substantial resources. The Company also
faces competitive pressures from a number of smaller competitors.
COMPLIANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACT
The Company is in the process of documenting and testing its internal
control procedures in order to satisfy the requirements of Section 404 of
the Sarbanes-Oxley Act, that requires annual management assessments of the
effectiveness of internal controls over financial reporting and an
attestation report by its independent registered public accounting firm.
At this time, due to the ongoing evaluation and testing, no assurance can
be given that there may not be internal control deficiencies that would be
required to be reported. Compliance with the requirements of Section 404
of the Sarbanes-Oxley Act will also increase the Company's overhead costs
in 2005 and future years.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was
performed under the supervision and with the participation of the Company's
management, including the Chief Executive Officer ("CEO") and the Chief
Financial Officer ("CFO"), of the effectiveness of the design and operation
of the Company's disclosure controls and procedures as defined in Rule 13a-
15(e) under the Securities and Exchange Act of 1934, as amended. Based on
that evaluation, the Company's management, including the CEO and CFO,
concluded that the Company's disclosure controls and procedures as of
June 30, 2005 were effective. There have been no changes in the Company's
internal control over financial reporting that occurred during the period
ended June 30, 2005 that have materially affected, or are reasonably likely
to materially affect, the Company's internal control over financial
reporting.
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings, lawsuits and
other claims arising in the ordinary course of its business. The Company
does not believe that such litigation, if adversely determined, would have
a material effect on its business, financial position, results of
operations, or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On May 4, 2005, Landauer filed a report on Form 8-K related to the
election of a new Director to its Board.
On June 6, 2005, Landauer filed a report on Form 8-K related to a
news release announcing the declaration of a regular quarterly cash
dividend of $0.425 per share for the third quarter of fiscal 2005.
On July 26, 2005, Landauer filed a report on Form 8-K related to its
earnings for the third fiscal quarter ended June 30, 2005.
Exhibit 31.1 Rule 13a-14(a)/15d-14(a), Certification
of Chief Executive Officer
Exhibit 31.2 Rule 13a-14(a)/15d-14(a), Certification
of Chief Financial Officer
Exhibit 32.1 Section 1350 Certification of
Chief Executive Officer
Exhibit 32.2 Section 1350 Certification of
Chief Financial Officer
19
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.
LANDAUER, INC.
Date: August 8, 2005
/s/ James M. O'Connell
------------------------------
James M. O'Connell
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
20