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 December 31, 2005 or
[ ] TRANSITION REPORT pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition from ____________ to ___________
Commission File Number 1-9788
LANDAUER, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
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 a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exchange Act. Large accelerated filer [ ] Accelerated filer [ X ]
Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes [ ] No [ X ]
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 January 30, 2006
---------------------------- ------------------------------
Common stock, $.10 par value 9,041,918
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(000's, except share amounts)
December 31, September 30,
2005 2005
------------ -------------
ASSETS
- ------
Current assets:
Cash and cash equivalents . . . . . . $ 13,129 $ 9,598
Receivables, net of allowances of
$466 and $408, respectively . . . . 17,994 17,987
Inventories . . . . . . . . . . . . . 2,345 2,634
Prepaid expenses and other
current assets. . . . . . . . . . . 3,226 2,703
Prepaid income taxes. . . . . . . . . - 1,153
Deferred income taxes . . . . . . . . 1,568 1,514
-------- --------
Current assets. . . . . . . . . 38,262 35,589
Property, plant and equipment,
at cost . . . . . . . . . . . . . . . 44,431 43,401
Less: Accumulated depreciation
and amortization. . . . . . . . . 26,667 25,494
-------- --------
Net property, plant and equipment . . . 17,764 17,907
Equity in joint venture . . . . . . . . 3,219 4,467
Goodwill. . . . . . . . . . . . . . . . 13,239 13,261
Other intangible assets,
net of amortization . . . . . . . . . 6,791 6,926
Dosimetry devices, net of amortization
of $6,508 and $5,911, respectively. . 6,946 6,537
Other assets. . . . . . . . . . . . . . 711 1,172
-------- --------
$ 86,932 $ 85,859
======== ========
The accompanying notes are an integral part of these financial statements.
2
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited) (Cont'd.)
(000's, except share amounts)
December 31, September 30,
2005 2005
------------ -------------
LIABILITIES AND
SHAREHOLDERS' INVESTMENT
- ------------------------
Current liabilities:
Accounts payable. . . . . . . . . . . $ 1,474 $ 1,595
Notes payable . . . . . . . . . . . . 3,807 4,048
Dividends payable . . . . . . . . . . 4,065 3,815
Deferred contract revenue . . . . . . 13,426 12,702
Accrued compensation and
related costs . . . . . . . . . . . 1,734 2,329
Accrued pension costs . . . . . . . . 907 864
Accrued taxes on income . . . . . . . 895 444
Other accrued expenses. . . . . . . . 4,388 4,036
-------- --------
Current liabilities . . . . . . 30,696 29,833
Non-current liabilities:
Pension and postretirement
obligations . . . . . . . . . . . . 7,770 7,062
Deferred income taxes . . . . . . . . 213 238
-------- --------
Non-current liabilities . . . . 7,983 7,300
Minority interest in subsidiary . . . 61 128
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 -
9,033,293 shares at 12/31/05
and 9,029,793 shares at 09/30/05. . 903 903
Premium paid in on common stock . . . 17,122 17,147
Accumulated other comprehensive
loss. . . . . . . . . . . . . . . . (697) (375)
Retained earnings . . . . . . . . . . 30,864 30,923
-------- --------
Shareholders' investment. . . . 48,192 48,598
-------- --------
$ 86,932 $ 85,859
======== ========
The accompanying notes are an integral part of these financial statements.
3
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(000's, except per share amounts)
Three Months Ended
----------------------------
December 31, December 31,
2005 2004
------------ ------------
Revenues, net of sales allowances . . . $ 18,647 $ 18,325
Costs and expenses:
Cost of sales . . . . . . . . . . . . 7,433 7,094
Selling, general and
administrative. . . . . . . . . . . 5,154 4,511
-------- --------
12,587 11,605
-------- --------
Operating income. . . . . . . . . . . . 6,060 6,720
Equity in income of joint venture . . . 366 357
Other income (expense), net . . . . . . 50 (45)
-------- --------
Income before taxes . . . . . . . . . . 6,476 7,032
Income taxes. . . . . . . . . . . . . . 2,430 2,586
-------- --------
Income before minority interest . . . . 4,046 4,446
Minority interest . . . . . . . . . . . 39 16
-------- --------
Net income. . . . . . . . . . . . . . . $ 4,007 $ 4,430
======== ========
Net income per share:
Basic . . . . . . . . . . . . . . . $ 0.44 $ 0.50
======== ========
Based on average shares
outstanding . . . . . . . . . . . 9,025 8,949
======== ========
Diluted . . . . . . . . . . . . . . $ 0.44 $ 0.49
======== ========
Based on average shares
outstanding . . . . . . . . . . . 9,104 9,019
======== ========
The accompanying notes are an integral part of these financial statements.
4
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(000's, except per share amounts)
Three Months Ended
----------------------------
December 31, December 31,
2005 2004
------------ ------------
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . $ 4,007 $ 4,430
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation. . . . . . . . . . . . . . 1,849 1,524
Amortization. . . . . . . . . . . . . . 161 159
Equity in net income of foreign
affiliate . . . . . . . . . . . . . . (366) (357)
Non-cash compensation . . . . . . . . . 135 -
Tax effect of stock options . . . . . . - 121
Loss on sale and disposition
of assets . . . . . . . . . . . . . . 4 -
Increase in accounts receivable, net. . (76) (1,862)
Decrease in other current assets. . . . 1,072 331
Increase in dosimetry devices
at cost . . . . . . . . . . . . . . . (1,014) (938)
Increase in other long-term assets. . . (147) -
Increase in accounts payable and
other current liabilities . . . . . . 185 2,040
Increase in deferred contract
revenue . . . . . . . . . . . . . . . 742 425
Increase in long-term liabilities . . . 516 493
Increase in minority interest . . . . . 39 26
-------- --------
Net cash provided by operating
activities. . . . . . . . . . . . . . 7,107 6,392
Cash flows used by investing activities:
Acquisition of property, plant
and equipment . . . . . . . . . . . . (1,122) (895)
-------- --------
Net cash used by investing activities . (1,122) (895)
Cash flows used by financing activities:
Payments on revolving credit
facilities. . . . . . . . . . . . . . (180) (71)
Dividends paid to minority interest . . (102) (85)
Dividends paid to stockholders. . . . . (3,816) (3,577)
Proceeds from the exercise of
stock options . . . . . . . . . . . . 1,756 21
-------- --------
Net cash used by financing
activities. . . . . . . . . . . . . . (2,342) (3,712)
Effects of foreign currency
translation . . . . . . . . . . . . . (112) (34)
Net increase in cash
and cash equivalents. . . . . . . . . 3,531 1,751
Opening balance -
cash and cash equivalents . . . . . . 9,598 8,595
-------- --------
Ending balance -
cash and cash equivalents . . . . . . $ 13,129 $ 10,346
======== ========
The accompanying notes are an integral part of these financial statements.
5
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
December 31, 2005
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements reflect
the financial position of Landauer, Inc. and subsidiaries ("Landauer" or
"the Company") as of December 31, 2005 and September 30, 2005, and the
consolidated results of operations and cash flows for the three-month
periods ended December 31, 2005 and 2004. In the opinion of management,
the accompanying unaudited consolidated financial statements contain all
adjustments necessary to present fairly the consolidated financial position
of the Company and its consolidated results of operations and cash flows.
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.
The results of operations for the three-month periods ended
December 31, 2005 and 2004 are not necessarily indicative of the results to
be expected for the full year. The year-end condensed balance sheet data
was derived from audited financial statements, but does not include all
disclosures required by accounting principles generally accepted in the
United States of America.
The accounting policies followed by the Company are set forth in the
2005 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 (generally 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 November 28, 2005, the Company declared a regular quarterly cash
dividend in the amount of $0.45 per share payable on January 6, 2006, to
shareholders of record on December 16, 2005. Regular quarterly cash
dividends of $0.425 per share, or $1.70 annually, were declared during
fiscal 2005.
6
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2005
(3) COMPREHENSIVE INCOME
The components of accumulated other comprehensive loss included in
the accompanying consolidated balance sheet at December 31, 2005 consist of
net minimum pension liability adjustments and cumulative translation
adjustments. The following table sets forth the Company's comprehensive
income and its components for the three-month periods ended December 31,
2005 and 2004 (000's):
Three Months Ended
December 31,
------------------------
2005 2004
-------- --------
Net income. . . . . . . . . . . . . . . . $ 4,007 $ 4,430
Other comprehensive loss:
Foreign currency translation
adjustments . . . . . . . . . . . . . (322) (516)
-------- --------
Comprehensive income. . . . . . . . . . . $ 3,685 $ 3,914
======== ========
(4) EARNINGS PER SHARE
Basic earnings per share were computed by dividing net income by the
weighted average number of common shares 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 from share-based awards during each period.
The following table presents the weighted average number of shares of
common stock for the three-month periods ended December 31, 2005 and 2004
(000's):
Three Months Ended
December 31,
------------------------
2005 2004
-------- --------
Weighted average number of shares
of common stock outstanding . . . . . 9,025 8,949
Dilutive equity awards. . . . . . . . . . 79 70
-------- --------
Weighted average number of shares
of common stock assuming dilution . . . 9,104 9,019
======== ========
(5) SHARE-BASED COMPENSATION
The Company maintains three share-based compensation plans for key
employees and/or non-employee directors: (i) the Landauer, Inc. 1996 Equity
Plan, as amended and restated through November 8, 2001 (the "1996 Equity
Plan"); (ii) the Landauer, Inc. 1997 Non-Employee Director's Stock Option
Plan, as amended and restated through November 8, 2001 (the "1997
Director's Plan"); and (iii) the Landauer, Inc. 2005 Long-Term Incentive
Plan (the "2005 LTI Plan"). As of February 3, 2005, the 2005 LTI Plan
replaced the 1996 Equity Plan and the 1997 Director's Plan. As of
December 31, 2005, the following types of share-based awards were
outstanding under these plans: stock options and restricted stock awards.
7
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2005
Effective October 1, 2005, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123R, "Share-Based Payment", which
requires all share-based payments to employees, including grants of
employee stock options, to be recognized as compensation expense in the
consolidated financial statements, based on their fair values and over the
requisite service period. The Company elected to utilize the modified-
prospective application method as permitted by SFAS 123R and the Black-
Scholes option pricing model to determine the fair value for stock options
issued prior to September 30, 2005. Under this method, share-based
compensation expense includes: (a) compensation expense for all share-based
compensation awards granted prior to, but not yet vested as of
September 30, 2005, using the grant-date fair value estimated in accordance
with the original provisions of SFAS 123, "Accounting for Stock-Based
Compensation"; and (b) compensation expense for all share-based
compensation awards granted subsequent to September 30, 2005, using the
grant-date fair value estimated in accordance with the provisions of
SFAS 123R.
The Company recorded $135,000 of non-cash compensation expense,
including $92,000 for share-based awards, for the quarter ended
December 31, 2005. This expense has been included in general and
administrative expenses. The total income tax benefit recognized related
to share-based compensation for the three months ended December 31, 2005
was $37,000. As of December 31, 2005, total unrecognized compensation
costs related to non-vested stock options and restricted stock awards
granted prior to fiscal 2006 was approximately $484,000, net of estimated
forfeitures, which is expected to be recognized over a weighted average
period of approximately 1.2 years.
STOCK OPTIONS
Under the 1996 Equity Plan the Company may grant stock options, as
well as other equity awards, for up to 1,350,000 shares. Under the 1997
Director's Plan, the Company may grant stock options for up to 100,000
shares. Under each plan, the option exercise price equals the stock's fair
market value on the date of the grant. Options granted under the 1996
Equity Plan vest over varying periods of time and may include sale
restrictions. Options granted during fiscal 2005 under the 1996 Equity Plan
vested immediately and sale of shares realized through exercise of such
options was prohibited for three years from the date of grant. The initial
grant of options in 1997 under the 1997 Director' Plan vests ratably over
ten years and subsequent grants vest ratably over three years. The term of
all options granted under these two plans is for a period of ten years. All
options granted under these two plans have been non-qualified options.
Grants of any awards under the 1996 Equity Plan and the 1997 Director's
Plan were terminated on February 3, 2005, and any shares reserved for award
and unused were cancelled.
In February 2005, the Company adopted the 2005 LTI Plan, following
shareholder approval, and reserved 500,000 shares of its common stock for
grant under the plan. Eligible participants include key employees and
officers of the Company and non-employee directors. This plan provides for
the grant of stock options (incentive or non-qualified), stock shares
(restricted, restricted stock units and performance shares or performance
share units), performance units, and stock appreciation rights, either
separately or in relation to options granted. Options granted during
fiscal 2005 under this plan vested immediately and sales of shares realized
through exercise of such options were prohibited for three years from the
date of grant. The term of all options granted under this plan is for a
period of ten years.
8
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2005
The fair value of each option award was estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions used for awards issued in the three-month period ended
December 31, 2004: risk free interest rate of 4.27%; 10 years expected
life; expected stock volatility of 23.66%; and expected dividend yield of
3.42%. No grants of stock options were awarded in the first quarter of
fiscal 2006.
A summary of stock option activity during the three months ended
December 31, 2005 is presented below:
Weighted-
Average
Weighted- Remaining Aggregate
Average Contractual Intrinsic
Shares Exercise Term Value
(000s) Price (years) (000s)
-------- --------- ----------- ---------
Outstanding at
September 30, 2005. . 534 $40.88
Forfeited or expired. . (1) 34.50
------ ------
Outstanding at
December 31, 2005 . . 533 $40.88 7.8 $2,781
====== ======
Exercisable at
December 31, 2005 . . 504 $41.24 6.9 $2,448
====== ======
A summary of the status of the Company's nonvested shares as of
December 31, 2005, and changes during the quarter then ended, are as
follows:
Shares Weighted-Average
(000s) Grant Date Fair Value
------ ---------------------
Nonvested at September 30, 2005 . . 53 $6.33
Vested. . . . . . . . . . . . . . . (23) 6.32
Forfeited . . . . . . . . . . . . . (1) 6.20
---- -----
Nonvested at December 31, 2005. . . 29 $6.35
==== =====
RESTRICTED STOCK AWARDS
During fiscal 2005, the Company awarded 8,225 restricted shares under
the 2005 LTI Plan. The restricted shares vest over a period of three years.
The weighted average fair value of the stock on the grant date was $47.48.
There was no activity related to restricted stock during the quarter ended
December 31, 2005.
9
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2005
PERFORMANCE SHARE AWARDS
Pursuant to the terms of his employment agreement with the Company
and the terms of the 2005 LTI Plan, the President and Chief Executive
Officer will participate in a performance share award in the amount of
10,500 shares beginning with the 2006 fiscal year. Vesting of the award is
subject to financial performance criteria for fiscal 2006, 2007 and 2008
measured in terms of actual net income compared with planned net income
over the combined three-year period. The Company has expensed $43,000 in
the quarter related to this obligation to issue the performance share
awards. The fair value of the award of $48.68 was based on the average
price of the Company's stock on the date of grant and is amortized to
expense over its vesting period, assuming that performance goals will be
achieved.
PRIOR YEAR PRO FORMA EXPENSE
Prior to the start of fiscal 2006, the Company accounted for its
share-based award 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. The following table illustrates the effect on net income and
earnings per share as if the fair value based method provided by SFAS
No. 123, "Accounting for Stock-Based Compensation", had been applied for
all outstanding and unvested awards for periods prior to the adoption of
SFAS No. 123R (000's, except per share data):
Three Months
Ended
December 31,
------------
2004
------------
Net income, as reported . . . . . . . . . . . . . . . . . . $ 4,430
Deduct: Total share-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects . . . . 1,292
--------
Pro forma net income. . . . . . . . . . . . . . . . . . . . $ 3,138
========
Earnings per share:
Basic - as reported . . . . . . . . . . . . . . . . . . $ 0.50
========
Basic - pro forma . . . . . . . . . . . . . . . . . . . $ 0.35
========
Diluted - as reported . . . . . . . . . . . . . . . . . $ 0.49
========
Diluted - pro forma . . . . . . . . . . . . . . . . . . $ 0.35
========
The weighted average grant date fair value of options granted during
the three months ended December 31, 2004, was $10.69.
10
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2005
(6) NOTES PAYABLE
In April 2004, the Company negotiated a $25 million line of credit
provided by LaSalle Bank, N.A. and 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. The credit facility provides
funds that are to be used for working capital and other general corporate
purposes. The credit agreement is annually renewable upon agreement of the
parties and provides the Company with the option of electing to borrow
funds denominated in U.S. dollars or Euros that bear interest rates based
on the federal funds rate, prime rate, EURIBOR or LIBOR. It also contains
certain covenants, including a covenant for minimum tangible net worth.
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. As of
December 31, 2005, the Company was in compliance with all of the covenants
contained in the credit agreement.
The outstanding balance under the line of credit of $3,807,000 at
December 31, 2005, is denominated in euros and bears interest at 3.37%
until January 25, 2006, at which time the Company executed a new EURIBOR
election notice for an additional interest period of 30 days at a rate of
3.64% for the remaining balance of the advance, as permitted under the
terms of the credit agreement. In the event the credit facility is not
renewed at maturity, it is expected that cash on hand, cash flow from
operations, and the Company's borrowing capacity will be sufficient to
satisfy the obligation. The Company funds euro-based debt service payments
from euro-denominated cash flows. The Company intends to renew the credit
facility prior to expiration.
(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 Other
Benefits Benefits
-------------- -------------
Three Months Ended
December 31,
------------------------------
2005 2004 2005 2004
------ ------ ------ ------
Components of net periodic
benefit cost:
Service cost. . . . . . . . . . . . . $ 368 $ 250 $ 28 $ 25
Interest cost . . . . . . . . . . . . 304 247 29 20
Expected return on plan assets. . . . (203) (162) - -
Amortization of transition (asset)
obligation. . . . . . . . . . . . . (2) (2) 6 6
Amortization of prior service cost. . 39 39 4 4
Recognized net actuarial loss . . . . 43 30 12 3
------ ------ ------ ------
Net periodic benefit cost . . . . . . $ 549 $ 402 $ 79 $ 58
====== ====== ====== ======
Landauer expects to contribute $835,000 to its pension plan in fiscal
2006, the maximum amount permitted under U.S. tax law.
11
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2005
(8) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 2004, the American Jobs Creation Act (the "Act") was
signed into law. The Act includes a temporary incentive for U.S.
corporations to repatriate accumulated income earned abroad by providing an
85 percent dividends-received deduction for certain qualifying cash
dividends received from controlled foreign corporations. The Act also
includes a deduction related to U.S. manufacturing income of 3% of eligible
income in 2005 and 2006. These deductions are subject to certain
limitations. In addition, the Financial Accounting Standards Board
("FASB") released FASB Staff Position No. FAS 109-1 (FSP 109-1),
"Application of FASB Statement No. 109, 'Accounting for Income Taxes', for
the Tax Deduction Provided to U.S.-Based Manufacturers by the American Jobs
Creation Act of 2004." This FSP clarifies that the tax deduction for
domestic manufacturers under the American Jobs Creation Act of 2004 should
be accounted for as a special deduction in accordance with FASB Statement
No. 109, "Accounting for Income Taxes" (FAS 109). In December 2004, the
FASB released FSP 109-2, "Accounting and Disclosure Guidance for the
Foreign Earnings Repatriation Provision within the American Jobs Creation
Act of 2004", which provides enterprises more time (beyond the financial-
reporting period during which the Act took effect) to evaluate the Act's
impact on the enterprise's plan for reinvestment or repatriation of certain
foreign earnings for purposes of applying FASB Statement No. 109,
"Accounting for Income Taxes" (FAS 109). The Company has determined that
the standard and the Staff Positions do not have a material benefit or
effect on the Company's results of operations and financial statements.
(9) SUBSEQUENT EVENT
In the second fiscal quarter of 2006, the Company has initiated
programs to reorganize several departments and functions to eliminate
redundant positions, require employees to meet established performance
criteria, and significantly alter or eliminate some benefit programs.
Additionally, cost reduction opportunities unrelated to staffing and
benefits have been identified and specific programs to meet these lower
expense targets are being executed. The implementation of these programs
is expected to result in a pre-tax charge in the amount of approximately
$600,000 to be recognized in the second fiscal quarter of 2006, primarily
related to severance payments, extended employee benefits and related
separation costs.
12
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. These
services are provided to approximately 1.5 million individuals in the U.S.,
Japan, France, the United Kingdom, Brazil, Canada, China, Australia and
other countries.
Substantially all of the Company's revenues are realized from
radiation monitoring services and other services incident 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 generally have a high degree of renewal.
Relationships with customers are generally stable and recurring, and the
Company provides customers with on-going services. As part of its
services, the Company provides its customers with radiation detection
badges that are produced and owned by the Company. The badges are worn for
a period selected by the customers ("wear period"), generally 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 certain badge components for
reuse, while also producing replacement badges on a continual basis.
Additional reporting and other radiation measurement and management
services ("ancillary services") are provided to customers at their option.
Landauer's InLight dosimetry system, introduced in late fiscal 2003,
provides smaller in-house and commercial laboratories the ability to offer
a complete radiation monitoring service. The system is based on the
Company's propriety OSL 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 detectors and 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.
Combined InLight and radon related products and services currently
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
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. 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 and products.
13
The services provided by the Company to its customers are ongoing and
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 additional
services of reporting annual radiation dose summaries that generate
increased revenues. The introduction of the Company's InLight product line
may result in 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 balance sheet at December 31, 2005 remains strong with
consolidated cash and equivalents at $13,129,000. Landauer's cash provided
from operating activities for the three-month periods ended December 31,
2005 and 2004 amounted to $7,107,000 and $6,392,000, respectively. The
increase in cash was primarily attributable to the timing of tax payments,
where a U.S. tax payment was not required during the fiscal quarter just
ended, and the proceeds of stock option exercises. Investing activities
included acquisitions of property, plant and equipment in the amount of
$1,122,000 and $895,000, respectively for the three months December 31,
2005 and 2004. The Company's financing activities were comprised of credit
facility payments and payments of cash dividends to shareholders and
minority partners, offset partially by proceeds from the exercise of stock
options.
The Company has long-term liabilities in the amount of $7,983,000 and
$7,300,000 at December 31, 2005 and September 30, 2005, respectively, and
its requirement for cash flows to support investing activities is generally
limited. Capital expenditures for the balance of fiscal 2006 are expected
to be approximately $6,300,000, principally for the acquisition of
equipment to support the Company's InLight service line, introduction of
new products, 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
maintains a credit facility, which expires in March 2006. The credit
facility permits borrowing up to a maximum of $15,000,000. In April 2004,
the Company borrowed $7,724,000 to acquire the remaining 49% minority
interest in LCIE-Landauer, Ltd. At December 31, 2005 and September 30,
2005, outstanding borrowings under the credit agreement were $3,807,000 and
$4,048,000, respectively. The borrowings are classified as current
liabilities and are denominated in euros, which is the functional currency
of LCIE-Landauer, Ltd. In the event the credit facility is not renewed at
maturity, it is expected that cash on hand, cash flow from operations, and
the Company's borrowing capacity will be sufficient to satisfy the
obligation. 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. The Company intends to renew the credit facility prior to
expiration.
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
$13,426,000 and $12,702,000, respectively, as of December 31, 2005 and
September 30, 2005. Such amounts generally do not represent a cash
requirement.
14
All customers are invoiced in accordance with the Company's standard
terms, with payment due thirty days from date of invoice. Net accounts
receivable at December 31, 2005 were $17,994,000 compared with $17,987,000
at September 30, 2005. 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
2005 and fiscal 2006 year to date.
The Company offers radiation monitoring services in the United
Kingdom, Canada, Japan, Brazil, China, and France. The Company's
operations in these markets generally do not depend on significant capital
resources.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED DECEMBER 31, 2005
- -------------------------------------------------------------
Revenues for the first quarter of fiscal 2006 were $18,647,000, a
1.8% increase compared to revenues of $18,325,000 for the same quarter in
fiscal 2005. Although revenues for the quarter were in line with
expectations, aggregate revenue growth was impacted by the non-recurrence
of a significant sale of InLight equipment in France that occurred only in
the first quarter of last fiscal year. The introduction of InLight
equipment sales has resulted in some variability in comparing quarterly
revenues. Revenue growth was also impacted by the relative strength of the
dollar in the first quarter of fiscal 2006 as compared with the same period
a year ago, particularly in Europe. Since the first quarter of fiscal
2005, the British Pound and the Euro have weakened against the dollar by 8%
and 10%, respectively. Domestic radiation measurement revenues and
ancillary service fees were approximately $400,000 higher than in the first
quarter of fiscal 2005 and resulted from increased pricing and moderately
higher unit volume. International revenues were approximately $200,000
lower than for the first quarter of fiscal 2005 reflecting the InLight and
foreign currency translation factors noted above. Domestic sales of
InLight products and services for the first quarter of fiscal 2006 were
approximately $100,000 higher than a year ago.
Gross margins were 60.1% of revenues for the first quarter of fiscal
2006, lower than the 61.3% reported for the same period in fiscal 2005.
Cost of revenues and operating expenses for the first quarter of fiscal
2006 were approximately $975,000 higher than for the same period in fiscal
2005. Factors primarily contributing to higher costs and expenses include
increased spending for professional fees primarily associated with
Sarbanes-Oxley compliance activities, $253,000; higher depreciation and
amortization expense, $263,000; increased employee benefits costs for
pension and health care, $133,000; international travel expenses, $70,000;
postage, $73,000; and outside research, $75,000. Resulting operating
income for the quarter ended December 31, 2005 was $6,060,000, a decrease
of 9.8% compared with $6,720,000 reported in the same quarter a year ago.
Net other income for the quarter was $104,000 higher than a year ago,
reflecting higher net interest income augmented by a moderate income
increase from Nagase-Landauer, our joint venture in Japan. The effective
income tax rate for the first quarter of fiscal 2006 was higher at 37.5%
than the prior year at 36.8%. Resulting net income for the quarter ended
December 31, 2005 amounted to $4,007,000, or $0.44 per diluted share,
compared with $4,430,000, or $0.49 per diluted share, for the same quarter
in fiscal 2005.
15
OUTLOOK FOR BALANCE OF FISCAL 2006
- ----------------------------------
A review of Landauer's business plan for fiscal 2006 suggests that
aggregate revenue growth for the year is anticipated to be in the range of
5 - 5.5% with revenues from the Company's traditional domestic and
international radiation monitoring business expected to grow at a slightly
lower rate. Sales for the InLight product line are expected to comprise
the balance of revenue growth. Both domestic and international revenue
growth are expected to result from a mix of higher pricing, moderate unit
growth and increased sales of ancillary services. Costs and operating
expenses for fiscal 2006 are expected to grow at an aggregate rate of 5 -
6%, excluding the effect of reorganization. Net other income in fiscal
2006 is anticipated to be moderately higher than the year just ended and
minority interest should be somewhat higher than fiscal 2005 levels. The
effective income tax rate for fiscal 2006 is expected to be comparable to
2005 at approximately 37.5 - 38%. Resulting net income for 2006 is
anticipated to be higher by 12 - 14% compared with last fiscal year and
reflects that 2005 results were negatively impacted by a pre-tax charge in
the amount of $2.3 million and that 2006 results are expected to be reduced
by a pre-tax charge of approximately $600,000. Exclusive of the
reorganization charges in both years, fiscal 2006 net income is expected to
be higher by 6 - 8% compared with fiscal 2005.
FORWARD LOOKING STATEMENTS
- --------------------------
Certain of the statements made herein are forward-looking statements,
including, without limitation, the information contained under the heading
"Outlook for Balance of Fiscal 2006" and statements concerning the
development and introduction of new technologies, the adaptability of OSL
to new platforms and new formats (such as InLight), the usefulness of older
technologies, the cost associated with the Company's business development
and research efforts, the valuation of the Company's long-lived assets or
business units relative to future cash flows, the anticipated results of
the operations of the Company and its subsidiaries or ventures, the
Company's business plans, reorganization plans and anticipated cost and
expense savings, foreign exchange risks, government regulations, changes in
pricing of products and services, changes in postal and delivery practices,
the Company's market position, anticipated revenue and cost growth, the
risks of conducting business internationally, other anticipated financial
events, the effects of changing economic and competitive conditions,
government regulations, accreditation requirements, assumptions used for
management's estimates, and pending accounting announcements. 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 plan and prospects and could create the need, from time to time,
to write down the value of the assets or otherwise cause the Company to
incur unanticipated expenses. Additional information may be obtained by
reviewing the information set forth in Item 1A "Risk Factors" and Item 7A
"Quantitative and Qualitative Disclosures About Market Risk" and
information contained in the Company's Annual Report on Form 10-K for the
year ended September 30, 2005 and other reports filed by the Company, from
time to time, with the SEC.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In October 2004, the American Jobs Creation Act (the "Act") was
signed into law. The Act includes a temporary incentive for U.S.
corporations to repatriate accumulated income earned abroad by providing an
85 percent dividends-received deduction for certain qualifying cash
dividends received from controlled foreign corporations. The Act also
includes a deduction related to U.S. manufacturing income of 3% of eligible
16
income in 2005 and 2006. These deductions are subject to certain
limitations. In addition, the Financial Accounting Standards Board
("FASB") released FASB Staff Position No. FAS 109-1 (FSP 109-1),
"Application of FASB Statement No. 109, 'Accounting for Income Taxes', for
the Tax Deduction Provided to U.S.-Based Manufacturers by the American Jobs
Creation Act of 2004." This FSP clarifies that the tax deduction for
domestic manufacturers under the American Jobs Creation Act of 2004 should
be accounted for as a special deduction in accordance with FASB Statement
No. 109, "Accounting for Income Taxes" (FAS 109). In December 2004, the
FASB released FSP 109-2, "Accounting and Disclosure Guidance for the
Foreign Earnings Repatriation Provision within the American Jobs Creation
Act of 2004", which provides enterprises more time (beyond the financial-
reporting period during which the Act took effect) to evaluate the Act's
impact on the enterprise's plan for reinvestment or repatriation of certain
foreign earnings for purposes of applying FASB Statement No. 109,
"Accounting for Income Taxes" (FAS 109). The Company has determined that
the standard and the Staff Positions do not have a material benefit or
effect on the Company's results of operations and financial statements.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The accounting policies followed by the Company are set forth in
Item 7 of the 2005 Landauer Annual Report on Form 10-K. The Company
believes that at December 31, 2005, there has been no material change to
this information, except as follows:
The Company adopted SFAS 123R, "Share-Based Payment", in the first
quarter of fiscal 2006, using the modified-prospective application method
and the Black-Scholes option pricing model to determine the fair value for
stock options issued prior to September 30, 2005. The Black-Scholes option
pricing model incorporates certain assumptions, such as risk-free interest
rate, expected volatility, expected dividend yield and expected life of
options, in order to arrive at a fair value estimate. While the risk-free
interest rate and dividend yield are less subjective assumptions, typically
based on factual data derived from public sources, the expected stock-price
volatility and option life assumptions require a greater level of judgment.
While the Company believes that its estimates are based on outcomes that
are reasonably likely to occur, if actual results significantly differ from
those estimated or if future changes are made to the Company's assumptions,
the amount of recognized compensation expense could change significantly.
For additional information refer to footnote 5.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including changes in foreign
currency exchange rates and interest rates. These risks are set forth in
Item 7A of the 2005 Landauer Annual Report on Form 10-K. There has been no
material change in the information provided from the end of the preceding
fiscal year through December 31, 2005.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE 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") (the Company's principal executive officer and
principal financial officer, respectively), of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as
defined in Rule 13(a)-15(e) and 15d-15(e) under the Securities and Exchange
Act of 1934, as amended (the "Exchange Act"). Based upon that evaluation,
the Company's management, including the CEO and CFO, concluded that the
Company's disclosure controls and procedures as of December 31, 2005 were
effective.
17
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
- ----------------------------------------------------
There have been no changes in the Company's internal control over
financial reporting that occurred during the period ended December 31, 2005
that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party, from time to time, to various legal
proceedings, lawsuits and other claims arising in the ordinary course of
its business. The Company does not believe that any such litigation
pending as of December 31, 2005, if adversely determined, would have a
material effect on its business, financial position, results of operations,
or cash flows.
ITEM 1A. RISK FACTORS
Information regarding risk factors are set forth in Item 1A of the
2005 Landauer Annual Report on Form 10-K. There have been no material
changes from the risk factors previously disclosed in the Company's fiscal
2005 Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS
Exhibit 31.1 Certification of William E. Saxelby,
President and Chief Executive Officer, as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification of James M. O'Connell,
Chief Financial Officer, as adopted
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification of William E. Saxelby,
President and Chief Executive Officer,
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification of James M. O'Connell,
Chief Financial Officer, pursuant to
18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
18
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: February 7, 2006
/s/ James M. O'Connell
------------------------------
James M. O'Connell
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
19