UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 2006 or
/ / TRANSITION REPORT pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission File Number 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 August 1, 2006
---------------------------- -----------------------------
Common stock, $.10 par value 9,085,831
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(000's, except share amounts)
June 30, September 30,
2006 2005
------------ -------------
ASSETS
- ------
Current assets:
Cash and cash equivalents. . . . . . $ 15,288 $ 9,598
Receivables, net of allowances
of $569 and $408, respectively . . 20,081 17,987
Inventories. . . . . . . . . . . . . 2,437 2,634
Prepaid expenses and other
current assets . . . . . . . . . . 1,126 2,703
Prepaid income taxes . . . . . . . . 1,388 1,153
Deferred income taxes. . . . . . . . 1,568 1,514
-------- --------
Current assets . . . . . . . 41,888 35,589
Property, plant and equipment,
at cost. . . . . . . . . . . . . . . 45,659 43,401
Less: Accumulated depreciation
and amortization . . . . . . . . 28,572 25,494
-------- --------
Net property, plant and equipment. . . 17,087 17,907
Equity in joint venture. . . . . . . . 4,057 4,467
Goodwill . . . . . . . . . . . . . . . 13,275 13,261
Other intangible assets, net of
amortization of $2,717 and $2,233,
respectively . . . . . . . . . . . . 6,506 6,926
Dosimetry devices, net of amorti-
zation of $7,716 and $5,911,
respectively . . . . . . . . . . . . 6,729 6,537
Other assets . . . . . . . . . . . . . 922 1,172
-------- --------
$ 90,464 $ 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)
June 30, September 30,
2006 2005
------------ -------------
LIABILITIES AND
SHAREHOLDERS' INVESTMENT
- ------------------------
Current liabilities:
Accounts payable . . . . . . . . . . $ 1,030 $ 1,595
Notes payable. . . . . . . . . . . . 3,749 4,048
Dividends payable. . . . . . . . . . 4,085 3,815
Deferred contract revenue. . . . . . 14,456 12,702
Accrued compensation and related
costs. . . . . . . . . . . . . . . 2,466 2,329
Accrued pension costs. . . . . . . . 873 864
Accrued taxes on income. . . . . . . 253 444
Other accrued expenses . . . . . . . 3,179 4,036
-------- --------
Current liabilities. . . . . 30,091 29,833
Non-current liabilities:
Pension and postretirement
obligations. . . . . . . . . . . . 7,793 7,062
Deferred income taxes. . . . . . . . 166 238
-------- --------
Non-current liabilities. . . 7,959 7,300
Minority interest in subsidiary. . . . 162 128
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 -
9,077,606 shares at 6/30/06 and
9,029,793 shares at 9/30/05. . . . 907 903
Premium paid in on common stock. . . 18,643 17,147
Accumulated other comprehensive
loss . . . . . . . . . . . . . . . (369) (375)
Retained earnings. . . . . . . . . . 33,071 30,923
-------- --------
Shareholders' investment . . 52,252 48,598
-------- --------
$ 90,464 $ 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 Nine Months
Ended Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
-------- -------- -------- --------
Revenues, net of sales
allowances . . . . . . . . . $ 19,591 $ 18,200 $ 58,859 $ 56,231
Costs and expenses:
Cost of sales. . . . . . . . 7,142 7,071 22,061 21,427
Selling, general and
administrative . . . . . . 4,687 4,487 14,342 13,538
Reorganization charge. . . . -- -- 600 --
-------- -------- -------- --------
11,829 11,558 37,003 34,965
-------- -------- -------- --------
Operating income . . . . . . . 7,762 6,642 21,856 21,266
Equity in income of joint
venture. . . . . . . . . . . 373 355 1,099 1,037
Other income (expense),
net. . . . . . . . . . . . . 55 28 205 (10)
-------- -------- -------- --------
Income before taxes. . . . . . 8,190 7,025 23,160 22,293
Income taxes . . . . . . . . . 3,019 2,475 8,652 8,133
-------- -------- -------- --------
Income before minority
interest . . . . . . . . . . 5,171 4,550 14,508 14,160
Minority interest. . . . . . . 50 19 132 56
-------- -------- -------- --------
Net income . . . . . . . . . . $ 5,121 $ 4,531 $ 14,376 $ 14,104
======== ======== ======== ========
Net income per share:
Basic. . . . . . . . . . . . $ 0.57 $ 0.50 $ 1.59 $ 1.57
======== ======== ======== ========
Based on average shares
outstanding. . . . . . . . 9,048 8,964 9,025 8,956
======== ======== ======== ========
Diluted. . . . . . . . . . . $ 0.56 $ 0.50 $ 1.58 $ 1.56
======== ======== ======== ========
Based on average shares
outstanding. . . . . . . . 9,104 9,039 9,098 9,028
======== ======== ======== ========
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)
Nine Months Ended
--------------------
June 30, June 30,
2006 2005
-------- --------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . $ 14,376 $ 14,104
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . 5,644 4,918
Amortization . . . . . . . . . . . . . . . . . . 485 481
Equity in net income of foreign affiliate. . . . (1,099) (1,037)
Dividends from foreign affiliate . . . . . . . . 1,967 --
Non-cash equity award compensation . . . . . . . 581 --
Income tax benefit from the exercise of
stock options. . . . . . . . . . . . . . . . . 1 389
Excess income tax benefit from the
exercise of stock options. . . . . . . . . . . (9) --
Loss on sale and disposition of assets . . . . . 100 20
Increase in accounts receivable, net . . . . . . (1,878) (3,126)
Increase in other current assets . . . . . . . . (261) (440)
Increase in dosimetry devices at cost. . . . . . (2,044) (2,880)
Increase in other long-term assets . . . . . . . (399) (201)
(Decrease) increase in accounts payable
and other current liabilities. . . . . . . . . (1,869) 170
Increase in deferred contract revenue. . . . . . 1,696 993
Increase in long-term liabilities. . . . . . . . 479 1,070
Increase in minority interest. . . . . . . . . . 131 56
-------- --------
Net cash provided by operating activities. . . . 17,901 14,517
Cash flows used by investing activities:
Acquisition of property, plant and
equipment. . . . . . . . . . . . . . . . . . . (2,860) (3,096)
-------- --------
Net cash used by investing activities. . . . . . (2,860) (3,096)
Cash flows used by financing activities:
Proceeds from revolving credit facilities. . . . -- 1,500
Payments on revolving credit facilities. . . . . (520) (2,360)
Dividends paid to minority interest. . . . . . . (102) (85)
Dividends paid to stockholders . . . . . . . . . (11,958) (11,189)
Proceeds from the exercise of stock options. . . 2,916 324
Excess income tax benefit from the exercise
of stock options . . . . . . . . . . . . . . . 9 --
-------- --------
Net cash used by financing activities. . . . . . (9,655) (11,810)
Effects of foreign currency translation. . . . . 304 (4)
-------- --------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . 5,690 (393)
Opening balance - cash and cash equivalents. . . . 9,598 8,595
-------- --------
Ending balance - cash and cash equivalents . . . . $ 15,288 $ 8,202
======== ========
The accompanying notes are an integral part of these financial statements.
5
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2006
(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 June 30, 2006 and September 30, 2005, and the
consolidated results of operations and cash flows for the three and nine-
month periods ended June 30, 2006 and 2005. 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
previously reported net income or financial position.
The results of operations for the three and nine-month periods ended
June 30, 2006 and 2005 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 June 2, 2006, the Company declared a regular quarterly cash
dividend in the amount of $0.45 per share for the third quarter, payable on
July 7, 2006, to shareholders of record on June 16, 2006. The Company
declared regular quarterly cash dividends in the amount of $0.45 per share
for the first and second quarters of fiscal 2006. Regular quarterly cash
dividends of $0.425 per share, or $1.70 annually, were declared during
fiscal 2005.
6
(3) COMPREHENSIVE INCOME
The components of accumulated other comprehensive loss included in
the accompanying unaudited consolidated balance sheets at June 30, 2006
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 and nine-month
periods ended June 30, 2006 and 2005 (000's):
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- --------------------
2006 2005 2006 2005
-------- -------- -------- --------
Net income . . . . . . . . $ 5,121 $ 4,531 $ 14,376 $ 14,104
Other comprehensive
income (loss):
Foreign currency
translation
adjustments. . . . . 252 (79) 6 41
-------- -------- -------- --------
Comprehensive income . . . $ 5,373 $ 4,452 $ 14,382 $ 14,145
======== ======== ======== ========
(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 equity-based awards 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, 2006 and
2005 (000's):
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- --------------------
2006 2005 2006 2005
-------- -------- -------- --------
Weighted average number
of shares of common
stock outstanding. . . . 9,048 8,964 9,025 8,956
Dilutive equity awards . . 56 75 73 72
-------- -------- -------- --------
Weighted average number
of shares of common
stock assuming dilution. 9,104 9,039 9,098 9,028
======== ======== ======== ========
(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 June 30,
2006, the following types of share-based awards were outstanding under
these plans: stock options, restricted stock awards, and performance share
awards.
7
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 periods. 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 $581,000 of non-cash compensation expense thus
far in fiscal 2006, including $243,000 recorded in the third fiscal
quarter. This expense has been included in general and administrative
expenses. The total income tax benefit recognized related to share-based
compensation for the nine months ended June 30, 2006 was $203,000,
including $90,000 recorded for the three months ended June 30, 2006. As of
June 30, 2006, total unrecognized compensation costs related to non-vested
awards was approximately $788,000, net of estimated forfeitures, which is
expected to be recognized over a weighted average period of approximately
1.1 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, performance shares and 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.
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 June 30, 2005: risk
free interest rate of 4.19%; 10 years expected life; expected stock
volatility of 23.67%; and expected dividend yield of 3.70%. No grants of
stock options were awarded in the third quarter of fiscal 2006.
8
A summary of stock option activity during the three months ended
June 30, 2006 is presented below:
Weighted-
Average
Weighted- Remaining Aggregate
Average Contractual Intrinsic
Shares Exercise Term Value
(000s) Price (years) (000s)
------ --------- ------------- ----------
Outstanding at
March 31, 2006 . . . . 526 $40.99
Exercised. . . . . . . . (37) 39.74
Forfeited or expired . . (4) 46.80
------ ------
Outstanding at
June 30, 2006. . . . . 485 $41.04 7.3 $3,327
====== ======
Exercisable at
June 30, 2006. . . . . 465 $41.31 7.4 $3,062
====== ======
As of June 30, 2006, there were nonvested stock options for 20,000
shares at a weighted-average grant date fair value of $6.40. There were no
changes in nonvested stock options during the quarter ended June 30, 2006.
RESTRICTED STOCK AWARDS
Under the 2005 LTI Plan, the Company awarded 8,225 restricted shares
during fiscal 2005 and 7,500 restricted shares during fiscal 2006 year-to-
date, including 1,500 during the quarter ended June 30, 2006. The
restricted shares vest over a period of three years, with the exception of
1,100 of the shares vesting over a period of five years. The weighted
average fair value of the stock awarded in fiscal 2005 on the grant date
was $47.57. The weighted average fair value of the stock awarded thus far
in fiscal 2006 was $45.80. Stock awarded during the quarter ended June 30,
2006 had a weighted average fair value of $44.71. There was no additional
activity related to restricted stock during the quarter ended June 30,
2006.
PERFORMANCE SHARE AWARDS
Pursuant to the terms of his employment agreement with the Company,
as amended in February 2006, 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 3,500 shares beginning with the 2006 fiscal
year. Five other executives were also awarded 5,100 performance shares in
February 2006, and an additional 500 performance shares were awarded in
June 2006 under the 2005 LTI Plan. Vesting of these awards and the
issuance of additional shares related to these awards are subject to
financial performance criteria for fiscal 2006 measured in terms of actual
net income compared with planned net income. The Company has expensed
$270,000 in the first three quarters of fiscal 2006 related to the
obligation to issue the performance share awards. The fair values of the
awards were $46.53 and $46.50 for the awards granted in February 2006 and
June 2006, respectively. The fair values were based on the average price
of the Company's stock on the date of grant and are amortized to expense
over its vesting period, assuming that achievement of performance goals is
deemed probable.
9
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 Nine Months
Ended Ended
June 30, June 30,
2005 2005
------------ -----------
Net income, as reported. . . . . . . . . . . . $ 4,531 $ 14,104
Deduct: Total share-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects . . . . . . . . . 62 1,411
-------- --------
Pro forma net income . . . . . . . . . . . . . $ 4,469 $ 12,693
======== ========
Earnings per share:
Basic - as reported. . . . . . . . . . . . . $ 0.50 $ 1.57
======== ========
Basic - pro forma. . . . . . . . . . . . . . $ 0.50 $ 1.42
======== ========
Diluted - as reported. . . . . . . . . . . . $ 0.50 $ 1.56
======== ========
Diluted - pro forma. . . . . . . . . . . . . $ 0.49 $ 1.41
======== ========
The weighted average grant date fair value of options granted during
the three months ended June 30, 2005 was $9.80.
(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. A second amendment was made effective March 25,
2006, to extend the maturity date to March 25, 2007 and increase the
minimum tangible net worth covenant to $22.4 million. The remaining terms
of the amended credit facility are consistent with the original credit
facility. As of June 30, 2006, the Company was in compliance with all of
the covenants contained in the credit agreement.
10
The outstanding balance under the line of credit of $3,749,000 at
June 30, 2006, is denominated in euros and bears interest at 4.23% until
September 26, 2006, at which time the Company may execute a new EURIBOR
election notice for an additional interest period and rate for the
remaining balance, 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 in March
2007.
(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,
--------------------------------------------
2006 2005 2006 2005
-------- -------- -------- --------
Components of net
periodic benefit cost:
Service cost . . . . . . $ 293 $ 259 $ (3) $ 25
Interest cost. . . . . . 283 273 18 27
Expected return on
plan assets. . . . . . (190) (181) -- --
Amortization of
transition (asset)
obligation . . . . . . (2) (2) (2) 6
Amortization of prior
service cost . . . . . 39 68 (38) 4
Recognized net
actuarial loss . . . . 23 26 32 11
-------- -------- -------- --------
Net periodic benefit
cost . . . . . . . . . $ 446 $ 443 $ 7 $ 73
======== ======== ======== ========
Pension Benefits Other Benefits
-------------------- --------------------
Nine Months Ended June 30,
--------------------------------------------
2006 2005 2006 2005
-------- -------- -------- --------
Components of net
periodic benefit cost:
Service cost . . . . . . $ 954 $ 777 $ 22 $ 76
Interest cost. . . . . . 870 820 65 81
Expected return on
plan assets. . . . . . (583) (543) -- --
Amortization of
transition (asset)
obligation . . . . . . (6) (5) 2 17
Amortization of prior
service cost . . . . . 117 204 (72) 13
Recognized net
actuarial loss . . . . 89 77 76 34
-------- -------- -------- --------
Net periodic benefit
cost . . . . . . . . . $ 1,441 $ 1,330 $ 93 $ 221
======== ======== ======== ========
11
Landauer contributed $804,000 to its pension plan in the quarter
ended March 31, 2006, the maximum amount permitted under U.S. tax law. At
the beginning of fiscal 2006, the Company had expected to contribute
$835,000 in fiscal 2006.
(8) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes" ("FIN No. 48"). FIN No. 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements in
accordance with FASB Statement No. 109, "Accounting for Income Taxes."
This interpretation prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN No. 48 also
provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. FIN
No. 48 is effective for fiscal years beginning after December 15, 2006.
The Company is currently evaluating the impact of FIN No. 48 to its
financial position and results of operations.
(9) PROFIT IMPROVEMENT PLAN
In the second fiscal quarter of 2006, the Company initiated programs
to improve efficiencies, reorganize several departments and functions to
eliminate redundant positions, require employees to meet established
performance criteria, and significantly alter some benefit programs. The
implementation of these programs resulted in a pre-tax charge, reported on
the income statement as a reorganization charge, in the amount of
approximately $600,000 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 ("the 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.
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.
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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 June 30, 2006 remains strong with
consolidated cash and equivalents at $15,288,000. Landauer's cash provided
from operating activities for the nine months ended June 30, 2006 and 2005
amounted to $17,901,000 and $14,517,000, respectively. The increase in
cash continues to be primarily attributable to improved collection of
accounts receivable as well as increased customer advance payments reported
in deferred contract revenues and the receipt of dividends from the
Company's joint venture in Japan. The increase is partially offset by
decreased accounts payable and current liabilities balances, including
accrued severance payments as part of the Company's profit improvement
plan. Investing activities included acquisitions of property, plant and
equipment in the amount of $2,860,000 and $3,096,000, respectively for the
nine months ended June 30, 2006 and 2005. 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 and, in fiscal 2005, borrowing
from the credit facility.
The Company has long-term liabilities in the amount of $7,959,000 and
$7,300,000 at June 30, 2006 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 $1,250,000, 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 2007. 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 June 30, 2006 and September 30, 2005,
outstanding borrowings under the credit agreement were $3,749,000 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
$14,456,000 and $12,702,000, respectively, as of June 30, 2006 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 generally due thirty days from date of invoice. Net
accounts receivable at June 30, 2006 were $20,081,000 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 83 days over the
course of fiscal 2005 and 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 JUNE 30, 2006
Revenues for the third quarter of fiscal 2006 were $19,591,000, a
7.6% increase compared to revenues of $18,200,000 for the same quarter in
fiscal 2005. Domestic radiation monitoring activities represented
approximately $650,000 of revenue growth for the quarter, primarily as a
result of higher pricing and increased ancillary services revenues.
International radiation monitoring revenue growth of almost $500,000
resulted from a combination of increased business activity in Europe, Asia,
Canada and Brazil. Sales of InLight products and services in the U.S. and
abroad attributed to the remaining increase in the quarter.
Gross margins were 63.5% of revenues for the third quarter of fiscal
2006, higher than 61.1% reported for the same period in fiscal 2005.
Aggregate costs and expenses for the quarter ended June 30, 2006, were
$271,000 higher than a year ago. As a percentage of revenues, aggregate
costs and expenses for the quarter ended June 30, 2006, were 3.1% lower
than in fiscal 2005, primarily as a result of the implementation of a
profit improvement plan in the second fiscal quarter of 2006. Resulting
operating income for the third quarter of fiscal 2006 was $7,762,000
compared with $6,642,000 for the same period a year ago.
The effective income tax rate for the third quarter of fiscal 2006
was 36.9% compared to the prior year at 35.2%. Resulting net income for
the quarter ended June 30, 2006 amounted to $5,121,000, or $0.56 per
diluted share, compared with $4,531,000, or $0.50 per diluted share, for
the same quarter in fiscal 2005.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 2006
Revenues for the nine months ended June 30, 2006 were $58,859,000, or
4.7% higher than $56,231,000 reported for the same period in fiscal 2005.
Domestic revenue growth, representing more than $1,650,000 of the increase,
resulted from improved pricing and modestly higher volume for radiation
measurement and ancillary services, primarily from traditional customers,
as well as from nuclear power and emergency response customers.
International radiation monitoring revenues were more than $1,150,000
higher, as a result of higher pricing and increased international business
activity. Sales of InLight products and services thus far in fiscal 2006
were $175,000 lower than a year ago due to a large institutional sale in
France during the first half of 2005.
Gross margins for the nine months ended June 30, 2006 were 62.5% of
revenues, compared with 61.9% reported for the same period in fiscal 2005.
Fiscal 2006 year-to-date aggregate costs and expenses were $2,038,000
higher than a year ago. In addition to the reorganization charge of
$600,000 related to the Company's profit improvement plan, higher expenses
included incentive compensation expense, depreciation, employee benefits
costs, professional fees, and research expenses. Resulting year-to-date
operating income was $21,856,000 compared with $21,266,000 a year ago.
Excluding the reorganization charge of $600,000, operating income for the
nine months ended June 30, 2006 would have been $1,190,000, or 5.6%, higher
than for the same period in fiscal 2005.
15
Year-to-date net other income was $277,000 higher than a year ago
primarily as a result of higher net interest income augmented by increased
earnings from Nagase-Landauer, Ltd., the Company's joint venture in Japan.
Operations growth and higher income in Brazil and China drove higher
minority interest expense proportionately compared to the prior year.
Income taxes for the first nine months of fiscal 2006 were higher than
year-ago levels, reflecting an effective tax rate for the current year of
37.4% compared with 36.5% for the first nine months of fiscal 2005.
Resulting net income for the nine months ended June 30, 2006 was
$14,376,000, or $1.58 per diluted share, compared with $14,104,000, or
$1.56 per diluted share, for the same period in fiscal 2005.
OUTLOOK FOR BALANCE OF FISCAL 2006
The Company anticipates 2006 aggregate revenue growth to be in the
range of 4.5 - 5 percent. 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 1 - 2 percent
reflecting the positive impact of the profit improvement plan. 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 percent. Resulting net
income for 2006 is anticipated to be higher by 12 - 14 percent compared
with last fiscal year. These comparisons reflect the 2005 pre-tax
reorganization charge of $2.3 million and the 2006 pre-tax reorganization
charge of $600,000. Exclusive of the reorganization charges in both years,
fiscal 2006 net income is expected to be higher by 5 - 7 percent 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.
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RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes" ("FIN No. 48"). FIN No. 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements in
accordance with FASB Statement No. 109, "Accounting for Income Taxes."
This interpretation prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN No. 48 also
provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. FIN
No. 48 is effective for fiscal years beginning after December 15, 2006.
The Company is currently evaluating the impact of FIN No. 48 to its
financial position and results of operations.
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 June 30, 2006, 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. The Company
believes there has been no material change in the information provided from
the end of the preceding fiscal year through June 30, 2006.
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 June 30, 2006 were
effective.
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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 June 30, 2006
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 June 30, 2006, 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 10.1 Amendment, dated May 2, 2006, to the Employment
Agreement, dated February 29, 1996, between
R. Craig Yoder and Landauer, Inc.
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
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LANDAUER, INC.
Date: August 8, 2006
/s/ James M. O'Connell
------------------------------
James M. O'Connell
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
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