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, 2006
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 31, 2007
---------------------------- -------------------------------
Common stock, $.10 par value 9,146,093
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,
2006 2006
------------ -------------
ASSETS
- ------
Current assets:
Cash and cash equivalents . . . . . . $ 18,859 $ 15,420
Receivables, net of allowances
of $547 and $567, respectively. . . 21,066 20,284
Inventories . . . . . . . . . . . . . 2,604 2,508
Prepaid expenses and
other current assets. . . . . . . . 1,848 1,499
Prepaid income taxes. . . . . . . . . 134 407
Deferred income taxes . . . . . . . . 1,859 1,859
-------- --------
Current assets. . . . . . . . . 46,370 41,977
Property, plant and equipment,
at cost . . . . . . . . . . . . . . . . 46,809 46,089
Less: Accumulated depreciation
and amortization. . . . . . . . . . (30,808) (29,673)
-------- --------
Net property, plant and equipment . . . . 16,001 16,416
Equity in joint venture . . . . . . . . . 3,763 3,980
Goodwill. . . . . . . . . . . . . . . . . 13,282 13,273
Other intangible assets, net of
amortization of $3,041 and $2,883,
respectively. . . . . . . . . . . . . . 6,241 6,377
Dosimetry devices, net of
amortization of $8,386 and $7,789,
respectively. . . . . . . . . . . . . . 6,231 6,502
Deferred income taxes . . . . . . . . . . 1,198 1,222
Other assets. . . . . . . . . . . . . . . 953 927
-------- --------
$ 94,039 $ 90,674
======== ========
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,
2006 2006
------------ -------------
LIABILITIES AND
STOCKHOLDERS' INVESTMENT
- ------------------------
Current liabilities:
Accounts payable. . . . . . . . . . . $ 2,143 $ 1,439
Notes payable . . . . . . . . . . . . 341 1,649
Dividends payable . . . . . . . . . . 4,342 4,092
Deferred contract revenue . . . . . . 14,501 13,761
Accrued compensation and
related costs . . . . . . . . . . . 1,948 2,815
Accrued pension costs . . . . . . . . 499 923
Accrued taxes on income . . . . . . . 1,425 160
Other accrued expenses. . . . . . . . 4,256 3,590
-------- --------
Current liabilities . . . . . . 29,455 28,429
Non-current liabilities:
Pension and postretirement
obligations . . . . . . . . . . . . 8,405 8,348
-------- --------
Non-current liabilities . . . . 8,405 8,348
Minority interest in subsidiary . . . 141 198
Stockholders' investment:
Preferred stock, $.10 par value
per share, authorized
1,000,000 shares; none issued . . . - -
Common stock, $.10 par value
per share, authorized
20,000,000 shares; 9,142,517
and 9,094,190 shares issued and
outstanding at December 31, 2006
and September 30, 2006,
respectively. . . . . . . . . . . . 914 909
Premium paid in on common stock . . . 21,354 19,641
Accumulated other comprehensive
loss. . . . . . . . . . . . . . . . (393) (498)
Retained earnings . . . . . . . . . . 34,163 33,647
-------- --------
Stockholders' investment. . . . 56,038 53,699
-------- --------
$ 94,039 $ 90,674
======== ========
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,
2006 2005
------------ ------------
Revenues, net of sales allowances . . . . $ 20,160 $ 18,647
Costs and expenses:
Cost of sales . . . . . . . . . . . . 7,091 7,433
Selling, general and
administrative. . . . . . . . . . . 5,769 5,154
-------- --------
12,860 12,587
-------- --------
Operating income. . . . . . . . . . . . . 7,300 6,060
Equity in income of joint venture . . . . 348 366
Other income, net . . . . . . . . . . . . 197 50
-------- --------
Income before taxes . . . . . . . . . . . 7,845 6,476
Income taxes. . . . . . . . . . . . . . . 2,930 2,430
-------- --------
Income before minority interest . . . . . 4,915 4,046
Minority interest . . . . . . . . . . . . 56 39
-------- --------
Net income. . . . . . . . . . . . . . . . $ 4,859 $ 4,007
======== ========
Net income per share:
Basic . . . . . . . . . . . . . . . . $ 0.53 $ 0.44
======== ========
Based on average shares
outstanding . . . . . . . . . . . . 9,113 9,025
======== ========
Diluted . . . . . . . . . . . . . . . $ 0.53 $ 0.44
======== ========
Based on average shares
outstanding . . . . . . . . . . . . 9,195 9,104
======== ========
The accompanying notes are an integral part of these financial statements.
4
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(000's)
Three Months Ended
--------------------------
December 31, December 31,
2006 2005
------------ ------------
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . $ 4,859 $ 4,007
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation. . . . . . . . . . . . . . 1,850 1,849
Amortization. . . . . . . . . . . . . . 158 161
Equity in net income of foreign
affiliate . . . . . . . . . . . . . . (348) (366)
Dividends from foreign affiliate. . . . 532 -
Stock-based compensation. . . . . . . . 225 135
Tax benefit from stock-based
compensation arrangements . . . . . . 573 -
Excess tax benefit from stock-
based compensation arrangements . . . (529) -
Loss on sale and disposition
of assets . . . . . . . . . . . . . . - 4
Increase in accounts receivable, net. . (621) (76)
(Increase) decrease in other
current assets. . . . . . . . . . . . (437) 1,072
Increase in dosimetry devices
at cost . . . . . . . . . . . . . . . (351) (1,014)
Increase in accounts payable
and other current liabilities . . . . 881 185
Increase in deferred contract revenue . 711 742
Other operating activities. . . . . . . 81 408
-------- --------
Net cash provided by operating
activities. . . . . . . . . . . . . . 7,584 7,107
Cash flows used by investing activities:
Acquisition of property, plant
and equipment . . . . . . . . . . . . (770) (1,122)
-------- --------
Net cash used by investing
activities. . . . . . . . . . . . . . (770) (1,122)
Cash flows used by financing activities:
Payments on revolving credit
facilities. . . . . . . . . . . . . . (1,375) (180)
Dividends paid to minority
interest. . . . . . . . . . . . . . . (117) (102)
Dividends paid to stockholders. . . . . (4,094) (3,816)
Proceeds from the exercise of
stock options . . . . . . . . . . . . 1,525 1,756
Excess tax benefit from stock-
based compensation arrangements . . . 529 -
-------- --------
Net cash used by financing activities . (3,532) (2,342)
Effects of foreign currency
translation . . . . . . . . . . . . . 157 (112)
-------- --------
Net increase in cash and
cash equivalents. . . . . . . . . . . 3,439 3,531
Opening balance - cash and
cash equivalents. . . . . . . . . . . 15,420 9,598
-------- --------
Ending balance - cash and
cash equivalents. . . . . . . . . . . $ 18,859 $ 13,129
======== ========
The accompanying notes are an integral part of these financial statements.
5
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
December 31, 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 December 31, 2006 and September 30, 2006, and the
consolidated results of operations and cash flows for the three-month
periods ended December 31, 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 the
results of operations or financial position.
The results of operations for the three-month period ended
December 31, 2006 and 2005 are not necessarily indicative of the results to
be expected for the full year. The year-end 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
2006 Landauer Annual Report on Form 10-K. The source of revenues for the
Company is radiation measuring and monitoring services including other
services incidental to measuring and monitoring. The measuring and
monitoring services provided by the Company to its customers are of a
subscription nature and are continuous. The Company views its business as
services provided to customers over a period of time and the wear period is
the period over which those services are provided. Badge production,
wearing of badges, badge analysis, and report preparation are integral to
the benefit that the Company provides to its customers. These services are
provided to customers on an agreed-upon recurring basis (monthly, bi-
monthly or quarterly) that the customer chooses for the wear period.
Revenue is recognized on a straight-line basis, adjusted for changes in
pricing and volume, over the wear period as the service is continuous and
no other discernible pattern of recognition is evident. Revenues are
recognized over the periods in which the customers wear the badges
irrespective of whether invoiced in advance or in arrears.
Other services incidental to measuring and monitoring augment the
basic radiation measurement services that the Company offers, providing
administrative and informational tools to customers for the management of
their radiation detection programs. Other service revenues are recognized
upon delivery of the reports to customers or as other such services are
provided.
The Company sells radiation monitoring products to its customers,
principally InLightTM products, for their use in conducting radiation
measurements or managing radiation detection programs. Revenues from
product sales are recognized when shipped.
(2) CASH DIVIDENDS
On November 9, 2006, the Company declared a regular quarterly cash
dividend in the amount of $0.475 per share for the first quarter, payable
on January 5, 2007, to shareholders of record on December 15, 2006. At
December 31, 2006, there were accrued and unpaid dividends of $4,342,000.
Regular quarterly cash dividends of $0.45 per share, or $1.80 annually,
were paid during fiscal 2006.
6
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2006
(3) COMPREHENSIVE INCOME
The components of accumulated other comprehensive loss included in
the accompanying unaudited consolidated balance sheets at December 31, 2006
and September 30, 2006 consist of net minimum pension liability adjustments
and cumulative foreign currency translation adjustments. The following
table sets forth the Company's comprehensive income and its components for
the three-month periods ended December 31, 2006 and 2005 (000's):
Three Months Ended
December 31,
------------------------
2006 2005
-------- --------
Net income. . . . . . . . . . . . . . . . $ 4,859 $ 4,007
Other comprehensive income (loss):
Foreign currency translation
adjustments . . . . . . . . . . . . 105 (322)
-------- --------
Comprehensive income. . . . . . . . . . . $ 4,964 $ 3,685
======== ========
(4) INCOME PER COMMON SHARE
Basic earnings per share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during each
period. Diluted earnings per share were computed by dividing net income by
the weighted average number of shares of common stock that would have been
outstanding assuming dilution from stock-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, 2006 and 2005
(000's):
Three Months Ended
December 31,
------------------------
2006 2005
-------- --------
Weighted average number of shares
of common stock outstanding . . . . . . 9,113 9,025
Effect of dilutive stock-based awards . . 82 79
-------- --------
Weighted average number of shares
of common stock assuming dilution . . . 9,195 9,104
======== ========
(5) STOCK-BASED COMPENSATION
The Company maintains three stock-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"). For future grants, the 2005 LTI Plan replaced
the 1996 Equity Plan and the 1997 Director's Plan. The Company reserved
500,000 shares of its common stock for grant under the 2005 LTI Plan, and
any shares reserved for award and unused under the previous two plans were
cancelled. The Plans provide for grants of options to purchase the
Company's common stock, restricted stock, restricted stock units,
performance shares and units, and stock appreciation rights.
7
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2006
Effective October 1, 2005, the Company adopted SFAS No. 123 (Revised
2004), "Share-Based Payment," ("SFAS 123R"), which requires the measurement
and recognition of compensation cost at fair value for all share-based
payments, including stock options. Stock-based compensation includes
compensation expense, recognized over the applicable vesting periods, for
new share-based awards granted after September 30, 2005 and for share-based
awards granted prior to, but not yet vested, as of September 30, 2005.
Stock-based compensation totaled approximately $225,000 and $135,000 for
the three months ended December 31, 2006 and 2005, respectively. The total
income tax benefit recognized in the consolidated statements of income
related to expense for stock-based compensation was approximately $89,000
and $54,000 during the first quarter of fiscal 2007 and 2006, respectively.
STOCK OPTIONS
No stock options were granted in the first quarter of fiscal 2007 or
2006. Grants of stock options in prior fiscal years were granted with an
exercise price equal to the market value of the stock on the date of grant.
Expense related to stock options issued to eligible employees under the
Plans is recognized ratably over the vesting period. Stock options
generally vest over a period of 0 to 4 years and have 10-year contractual
terms. A summary of stock option activity during the three months ended
December 31, 2006 is presented below (in thousands, except option prices
and number of options):
Weighted-
Average
Weighted- Remaining
Number Average Contractual Aggregate
of Exercise Term Intrinsic
Options Price (Years) Value
------- --------- ----------- ---------
Outstanding at
October 1, 2006 . . . 468,000 $41.29
Exercised . . . . . . . (95,000) 37.62
------- ------
Outstanding at
December 31, 2006 . . 373,000 $42.23 7.1 $3,816
======= ======
Exercisable at
December 31, 2006 . . 367,000 $42.33 7.1 $3,723
======= ====== ===== ======
At December 31, 2006, unrecognized compensation expense related to
stock options totaled approximately $6,000 and is expected to be recognized
over a weighted-average period of 2 months. The intrinsic value of options
exercised totaled approximately $1,400,000 during the first quarter of
fiscal 2007 and no options were exercised in the first quarter of fiscal
2006. The total income tax benefit recognized in the consolidated
statements of income related to the exercise of stock options was
approximately $556,000 during the first quarter of fiscal 2007.
RESTRICTED SHARE AWARDS
In addition to stock options, key employees and/or non-employee
directors are eligible to receive performance shares and restricted stock,
under the Company's 2005 Long-Term Incentive Plan. Restricted share awards
consist of performance shares and time vested restricted stock.
Performance shares represent a right to receive shares of common stock upon
satisfaction of performance goals or other specified metrics. Performance
shares are paid out in common stock and will be fully vested upon issuance.
The fair value of performance shares and restricted stock is based on the
average of the Company's high and low stock prices on the date of grant.
8
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2006
Restricted stock issued to eligible employees under the 2005 LTI plan
vests, to date, over a period from 6 months to 5 years, and performance
shares contingently vest over various periods, depending on the nature of
the performance goal. Compensation expense for performance shares is
recorded ratably over the vesting period, assuming that achievement of
performance goals is deemed probable. Compensation expense for restricted
stock is recognized ratably over the vesting period. The weighted average
fair value of restricted share grants, including restricted stock and
performance shares, granted during the three months ended December 31, 2006
was $52.09. There were no restricted shares granted during the three
months ended December 31, 2005.
Restricted share transactions during the three months ended
December 31, 2006 were as follows:
Number of Weighted-
Restricted Average
Share Fair
Awards Value
---------- ----------
Outstanding at October 1, 2006. . . . . . 14,000 $46.57
Granted . . . . . . . . . . . . . . . . . 3,000 52.09
------ ------
Outstanding at December 31, 2006. . . . . 17,000 $47.34
====== ======
At December 31, 2006, unrecognized compensation expense related to
restricted share awards totaled approximately $542,000 and is expected to
be recognized over a weighted average period of 2 years.
(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 Landauer-Europe. 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 December 31, 2006, the Company was in compliance with all
of the covenants contained in the credit agreement.
The outstanding balance under the line of credit of $341,000 at
December 31, 2006 is denominated in euros and bears interest at 4.81% until
March 25, 2007, the maturity date of the line of credit. In the event the
credit facility is not renewed at maturity, it is expected that cash on
hand and cash flow from operations will be sufficient to fund the cash
requirements of the business. The Company funds euro-based debt service
payments from euro-denominated cash flows. The Company currently intends
to renew the credit facility prior to its expiration in March 2007.
9
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2006
(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,
------------------------------
2006 2005 2006 2005
------ ------ ------ ------
Components of net periodic
benefit cost:
Service cost. . . . . . . . . . . . $ 312 $ 368 $ 5 $ 28
Interest cost . . . . . . . . . . . 288 304 21 29
Expected return on plan assets. . . (193) (203) - -
Amortization of transition
(asset) obligation. . . . . . . . (2) (2) - 6
Amortization of prior service
cost. . . . . . . . . . . . . . . 39 39 (28) 4
Recognized net actuarial loss . . . 28 43 27 12
------ ------ ------ ------
Net periodic benefit cost . . . $ 472 $ 549 $ 25 $ 79
====== ====== ====== ======
Landauer contributed $124,000 to its pension plan in the quarter
ended December 31, 2006, in accordance with 2007 funding requirements. In
January 2007, the Company contributed an additional $792,000 to the pension
plan to fulfill funding requirements for the 2006 plan year.
(8) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 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, and
will become effective for the Company in fiscal 2008. The Company is
currently evaluating the impact to its financial position, results of
operations and financial disclosures.
10
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2006
In September 2006, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 158, "Employers' Accounting for Defined Benefit
Pension and Other Postretirement Plans - an amendment of FASB Statements
No. 87, 88, 106, and 132(R)." The Statement requires companies to
recognize on their balance sheet the funded status of their defined benefit
pension and other postretirement benefit plans and to recognize changes in
the funded status of these plans through comprehensive income in the year
in which the changes occur. The Statement also requires companies to
measure the plan assets and its obligations as of the end of the employer's
fiscal year. The provisions of SFAS No. 158 will be effective for the
Company at the end of fiscal 2007. The effect on the Company's financial
statements is dependent upon assumptions used and actual returns on assets
at the time of adoption. The Company currently estimates that the adoption
of this statement will result in the recognition of an additional liability
with a related charge to accumulated other comprehensive income in the
amount of approximately $3.0 million.
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 incidental to radiation
dose measurement. The Company enters into agreements with customers to
provide them with radiation monitoring services, generally for a twelve-
month period, and such agreements 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 radiation detection badges, which are
produced and owned by the Company, to its customers. The badges are worn
for a period selected by the customers ("wear period"), which is primarily
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 their radiation exposures. The Company recycles certain badge
components for reuse, while also producing replacement badges on a
continual basis.
The Company offers its service for measuring the dosages of x-ray,
gamma radiation and other penetrating ionizing radiations to which the
wearer has been exposed, primarily through optically stimulated luminescent
("OSL") badges worn by client personnel. This technology is marketed under
the trade name Luxel<registered trademark>+ and InLight.
11
Landauer's InLight dosimetry system, introduced in 2003, provides
small and mid-sized in-house and commercial laboratories with the ability
to provide in-house radiation monitoring services using OSL technology.
InLight services may involve a customer acquiring or leasing dosimetry
devices as well as analytical reading equipment from the Company. The
system is based on the Company's proprietary technology and instruments,
and dosimetry devices developed by Matsushita Industrial Equipment Company
and allows customers the flexibility to tailor their precise dosimetry
needs.
Landauer's operations include services for the measurement and
monitoring of radon gas (referred to as "sales of radon kits"). Its
wholly-owned subsidiary, HomeBuyer's Preferred, Inc., offers a service,
targeted to corporate employee relocation programs, which provides radon
monitoring and, when necessary, remediation to purchasers of personal
residences. Testing requires the customer to deploy a radon detector and
return the detector to the Company's laboratories for dose determination
and reporting. The Company assists with remediation services on properties
where radon measurements exceed a specified threshold.
Other radiation measurement-related services (ancillary services)
augment the basic radiation measurement services that the Company offers,
providing administrative and informational tools to customers for the
management of their radiation safety programs.
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. The Company believes pricing in
the domestic market has become highly competitive and opportunities to
obtain price increases from its customers in the future may be limited.
The services provided by the Company to its customers are ongoing and
are of a subscription nature. As such, revenues are recognized in the
periods in which such services are rendered, irrespective of whether
invoiced in advance or in arrears. Given the subscription nature of
Landauer's services, quarterly revenues are fairly consistent. During the
second quarter of each fiscal year, however, the Company provides
additional services for 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.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED DECEMBER 31, 2006
- -------------------------------------------------------------
Revenues for the first quarter of fiscal 2007 were $20,160,000, an
8.1% increase compared to revenues of $18,647,000 for the same quarter in
fiscal 2006. Domestic revenue growth for the first quarter was $430,000,
or 2.8%, from gains in the core radiation monitoring business, strong
performance for the Homebuyer's Preferred Subsidiary, and increases in the
domestic InLight services revenue. International revenue increased
$1,083,000, or 31.2%, supported by growth in volume in most regions, lead
by InLight services, the addition of a new 51% owned joint venture in
Australia and favorable currency exchange rates.
12
Total cost of revenues for the first quarter of fiscal 2007 were
$7,091,000, a decrease of $342,000 or 4.6%, compared with cost of revenue
of $7,433,000 for the same quarter in fiscal 2006. Gross margins were
64.8% of revenues for the first quarter of fiscal 2007, compared with the
60.1% reported for the same period in fiscal 2006. The improvement is a
result of the profit improvement plan initiated in the second quarter of
fiscal 2006 and reflects a reduction in labor and related expenses and
postage costs. Selling, general and administrative expenses for the first
quarter of fiscal 2007 were $5,769,000, an increase of $615,000, or 12%,
compared with expense of $5,154,000 for the first quarter of fiscal 2006.
Factors contributing to the increase in selling, general and administrative
costs include: $335,000 for professional services primarily for assistance
with strategy development and the initiation of a project to reengineer
business processes to improve productivity; $189,000 incremental operating
expenses from the addition of the new 51% owned Joint venture in Australia;
$99,000 of increased cost in other foreign operations, primarily relating
to increased foreign exchange rates. Resulting operating income for the
quarter ended December 31, 2006 was $7,300,000, an increase of 20.5%
compared with $6,060,000 reported in the same quarter a year ago.
Net other income, including equity in income of joint venture, for
the quarter was $129,000 higher than a year ago, reflecting higher net
interest income. The effective income tax rate for the first quarter of
fiscal 2007 was 37.3% compared with the prior year at 37.5%. Resulting net
income for the quarter ended December 31, 2006 amounted to $4,859,000, or
$0.53 per diluted share, compared with $4,007,000, or $0.44 per diluted
share, for the same quarter in fiscal 2006.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Landauer generated $3,439,000 in cash during the quarter ended
December 31, 2006, resulting in cash on hand of $18,859,000. The Company
made payments of $1,375,000 on its line of credit, ending the quarter with
a balance of $341,000.
Cash flows provided by operating activities for the first fiscal
quarter of 2007 were $7,584,000, an increase of $477,000, or 6.7%, from
fiscal 2006. The increase is due primarily to an increase in net income,
and dividends received from Nagase-Landauer, Ltd., partially offset by a
decline in the contribution from the change in the components of working
capital.
Investing activities included acquisitions of property, plant and
equipment in the amounts of $770,000 and $1,122,000 for the three months
ended December 31, 2006 and 2005, respectively. Capital expenditures for
the remainder of fiscal 2007 are expected to be approximately $8,400,000,
principally for the development and implementation of supporting software
systems. The Company anticipates that funds for these capital improvements
will be provided from operations.
The Company's financing activities were comprised of credit facility
activities and payments of cash dividends to shareholders and minority
partners, offset partially by proceeds from the exercise of stock options.
During the first quarter of fiscal 2007 and 2006, the Company paid cash
dividends of $4,094,000, or $0.475 per share, and $3,816,000, or $0.45 per
share, respectively, and such amounts have been provided from operations.
As described in Note 6 to the financial statements, the Company
maintains a credit facility, which expires in March 2007. As amended, the
credit facility permits borrowing up to $15,000,000, with an option for the
Company to increase to $25,000,000. In April 2004, the Company borrowed
$7,724,000 to acquire the remaining 49% minority interest in Landauer-
Europe. At December 31, 2006 and September 30, 2006, outstanding
borrowings under the credit agreement were $341,000 and $1,649,000,
respectively. The borrowings are classified as current liabilities and are
denominated in euros, which is the functional currency of Landauer-Europe.
In the event the credit facility is not renewed at maturity, it is expected
that cash on hand, cash flows from operations, and the Company's borrowing
13
capacity will be sufficient to satisfy the obligation. In the opinion of
management, cash flows from operations 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 current 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
$14,501,000 and $13,761,000, respectively, as of December 31, 2006 and
September 30, 2006. While these amounts represent approximately 49% and
48% of current liabilities, respectively as of December 31, 2006 and
September 30, 2006, such amounts do not represent a cash requirement.
All customers are invoiced in accordance with the Company's standard
terms, with payment generally due thirty days from date of invoice.
Considering the Company's invoicing practices and that a significant
portion of the Company's revenues are subject to health care industry
reimbursement cycles, particularly hospitals, the average days of sales
outstanding for the Company have ranged from 45 to 85 days over the course
of fiscal 2007 and fiscal 2006.
Landauer offers radiation monitoring services in the United Kingdom,
Canada, Japan, Brazil, China, Australia and France. The Company's
operations in these markets generally do not depend on significant capital
resources.
FORWARD LOOKING STATEMENTS
- --------------------------
Certain of the statements made herein constitute forward-looking
statements that are based on certain assumptions and involve certain risks
and uncertainties. These include the following, without limitation:
assumptions, risks and uncertainties associated with the company's
development and introduction of new technologies in general; introduction
and customer acceptance of the InLight technology; the adaptability of
optically stimulated luminescence (OSL) technology to new platforms and
formats, such as Luxel+; the costs associated with the company's research
and business development efforts; the usefulness of older technologies; the
anticipated results of operations of the company and its subsidiaries or
ventures; valuation of the company's long-lived assets or business units
relative to future cash flows; changes in pricing of products and services;
changes in postal and delivery practices; the company's business plans;
anticipated revenue and cost growth; the risks associated with conducting
business internationally; other anticipated financial events; the effects
of changing economic and competitive conditions; foreign exchange rates;
government regulations; accreditation requirements; and pending accounting
pronouncements. These assumptions may not materialize to the extent
assumed, and risks and uncertainties may cause actual results to be
different from anticipated results. These risks and uncertainties also may
result in changes to the company's business plans and prospects, and could
create the need from time to time to write down the value of assets or
otherwise cause the company to incur unanticipated expenses. Additional
information may be obtained by reviewing the 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, 2006 and other reports filed
by the Company, from time to time, with the SEC.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In June 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
14
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, and
will become effective for the Company in fiscal 2008. The Company is
currently evaluating the impact to its financial position, results of
operations and financial disclosures.
In September 2006, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 158, "Employers' Accounting for Defined Benefit
Pension and Other Postretirement Plans - an amendment of FASB Statements
No. 87, 88, 106, and 132(R)." The Statement requires companies to
recognize on their balance sheet the funded status of their defined benefit
pension and other postretirement benefit plans and to recognize changes in
the funded status of these plans through comprehensive income in the year
in which the changes occur. The Statement also requires companies to
measure the plan assets and its obligations as of the end of the employer's
fiscal year. The provisions of SFAS No. 158 will be effective for the
Company at the end of fiscal 2007. The effect on the Company's financial
statements is dependent upon assumptions used and actual returns on assets
at the time of adoption. The Company currently estimates that the adoption
of this statement will result in the recognition of an additional liability
with a related charge to accumulated other comprehensive income in the
amount of approximately $3.0 million.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The accounting policies followed by the Company are set forth in
Item 7 and "Summary of Significant Accounting Policies" in the Notes to
Consolidated Financial Statements of the 2006 Landauer Annual Report on
Form 10-K. The Company believes that at December 31, 2006, there have been
no material changes to this information.
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 2006 Landauer Annual Report on Form 10-K. The Company
believes there have been no material changes in the information provided
from the end of the preceding fiscal year through December 31, 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 December 31, 2006 were
effective.
15
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, 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 December 31, 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
2006 Landauer Annual Report on Form 10-K. There have been no material
changes from the risk factors previously disclosed in the Company's fiscal
2006 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 Jonathon M. Singer, 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 Jonathon M. Singer, Chief
Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
16
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 8, 2007
/s/ Jonathon M. Singer
------------------------------
Jonathon M. Singer
Senior Vice President,
Treasurer, and Secretary
(Principal Financial and
Accounting Officer)
17