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 March 31, 2007
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 May 2, 2007
---------------------------- --------------------------
Common stock, $.10 par value 9,190,781
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(000's, except share amounts)
March 31, September 30,
2007 2006
--------- -------------
ASSETS
- ------
Current assets:
Cash and cash equivalents . . . . . . . $ 16,542 $ 15,420
Receivables, net of allowances of
$551 and $567, respectively . . . . . 21,664 20,284
Inventories . . . . . . . . . . . . . . 2,695 2,508
Prepaid expenses and other current
assets. . . . . . . . . . . . . . . . 1,320 1,499
Prepaid income taxes. . . . . . . . . . 2,113 407
Deferred income taxes . . . . . . . . . 1,859 1,859
-------- --------
Current assets. . . . . . . . . . . 46,193 41,977
Property, plant and equipment, at cost. . 47,944 46,089
Less: Accumulated depreciation
and amortization. . . . . . . . . (31,949) (29,673)
-------- --------
Net property, plant and equipment . . . . 15,995 16,416
Equity in joint venture . . . . . . . . . 4,102 3,980
Goodwill. . . . . . . . . . . . . . . . . 13,300 13,273
Other intangible assets, net of
amortization of $3,201 and $2,883,
respectively. . . . . . . . . . . . . . 6,103 6,377
Dosimetry devices, net of amortization
of $8,982 and $7,789, respectively. . . 5,989 6,502
Deferred income taxes . . . . . . . . . . 1,238 1,222
Other assets. . . . . . . . . . . . . . . 1,082 927
-------- --------
$ 94,002 $ 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)
March 31, September 30,
2007 2006
--------- -------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
Current liabilities:
Accounts payable. . . . . . . . . . . . $ 1,620 $ 1,439
Notes payable . . . . . . . . . . . . . - 1,649
Dividends payable . . . . . . . . . . . 4,360 4,092
Deferred contract revenue . . . . . . . 13,648 13,761
Accrued compensation and
related costs . . . . . . . . . . . . 2,303 2,815
Accrued pension costs . . . . . . . . . 630 923
Other accrued expenses. . . . . . . . . 4,319 3,750
-------- --------
Current liabilities . . . . . . . . 26,880 28,429
Non-current liabilities:
Pension and postretirement
obligations . . . . . . . . . . . . . 8,483 8,348
-------- --------
Non-current liabilities . . . . . . 8,483 8,348
Minority interest in subsidiary . . . . 159 198
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; 9,182,956 and 9,094,190
shares issued and outstanding at
March 31, 2007 and September 30,
2006, respectively. . . . . . . . . . 918 909
Additional paid-in capital. . . . . . . 22,072 19,641
Accumulated other comprehensive loss. . (253) (498)
Retained earnings . . . . . . . . . . . 35,743 33,647
-------- --------
Stockholders' investment. . . . . . 58,480 53,699
-------- --------
$ 94,002 $ 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 Six Months Ended
March 31, March 31,
------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
Revenues, net of sales
allowances. . . . . . . . $ 21,633 $ 20,621 $ 41,793 $ 39,268
Costs and expenses:
Cost of sales . . . . . . 7,130 7,486 14,221 14,919
Selling, general and
administrative. . . . . 5,550 4,501 11,319 9,655
Reorganization charge . . - 600 - 600
-------- -------- -------- --------
12,680 12,587 25,540 25,174
-------- -------- -------- --------
Operating income. . . . . . 8,953 8,034 16,253 14,094
Equity in income of
joint venture . . . . . . 340 360 687 726
Other income, net . . . . . 167 100 365 150
-------- -------- -------- --------
Income before taxes . . . . 9,460 8,494 17,305 14,970
Income taxes. . . . . . . . 3,529 3,203 6,459 5,633
-------- -------- -------- --------
Income before minority
interest. . . . . . . . . 5,931 5,291 10,846 9,337
Minority interest . . . . . (9) 43 47 82
-------- -------- -------- --------
Net income. . . . . . . . . $ 5,940 $ 5,248 $ 10,799 $ 9,255
======== ======== ======== ========
Net income per share:
Basic . . . . . . . . . . $ 0.65 $ 0.58 $ 1.19 $ 1.03
======== ======== ======== ========
Based on average
shares outstanding. . . 9,116 9,021 9,103 9,016
======== ======== ======== ========
Diluted . . . . . . . . . $ 0.65 $ 0.58 $ 1.18 $ 1.02
======== ======== ======== ========
Based on average
shares outstanding. . . 9,184 9,098 9,180 9,094
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
4
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(000's)
Six Months Ended
--------------------
March 31, March 31,
2007 2006
--------- ---------
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . $ 10,799 $ 9,255
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation. . . . . . . . . . . . . . . . . 3,718 3,765
Amortization. . . . . . . . . . . . . . . . . 318 323
Equity in net income of joint venture . . . . (687) (726)
Dividends from joint venture. . . . . . . . . 560 -
Stock-based compensation. . . . . . . . . . . 382 338
Tax benefit from stock-based
compensation arrangements . . . . . . . . . 757 1
Excess tax benefit from stock-based
compensation arrangements . . . . . . . . . (704) (9)
Loss on sale and disposition of assets. . . . - 7
Increase in accounts receivable, net. . . . . (1,168) (903)
Increase in other current assets. . . . . . . (1,700) (717)
Increase in dosimetry devices at cost . . . . (689) (1,570)
Increase in other long-term assets. . . . . . (239) (284)
Decrease in accounts payable and other
current liabilities . . . . . . . . . . . . (872) (501)
(Decrease) increase in deferred contract
revenue . . . . . . . . . . . . . . . . . . (165) 348
Other operating activities. . . . . . . . . . 124 154
-------- --------
Net cash provided by operating activities . . 10,434 9,481
Cash flows used by investing activities:
Acquisition of property, plant and
equipment . . . . . . . . . . . . . . . . . (1,940) (2,006)
-------- --------
Net cash used by investing activities . . . . (1,940) (2,006)
Cash flows used by financing activities:
Payments on revolving credit facilities . . . (1,717) (520)
Dividends paid to minority interest . . . . . (117) (102)
Dividends paid to stockholders. . . . . . . . (8,436) (7,881)
Proceeds from the exercise of stock
options . . . . . . . . . . . . . . . . . . 1,954 1,798
Excess tax benefit from stock-based
compensation arrangements . . . . . . . . . 704 9
-------- --------
Net cash used by financing activities . . . . (7,612) (6,696)
Effects of foreign currency translation . . . 240 4
-------- --------
Net increase in cash and cash equivalents . . 1,122 783
Opening balance - cash and cash equivalents . 15,420 9,598
-------- --------
Ending balance - cash and cash equivalents. . $ 16,542 $ 10,381
======== ========
The accompanying notes are an integral part of these financial statements.
5
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2007
(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 March 31, 2007 and September 30, 2006, and the
consolidated results of operations and cash flows for the three and six-
month periods ended March 31, 2007 and 2006. 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 and six-month periods ended
March 31, 2007 and 2006 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 for these services 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.
These 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 also sells radiation monitoring equipment 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 March 2, 2007, the Company declared a regular quarterly cash
dividend in the amount of $0.475 per share for the second quarter, payable
on April 6, 2007, to shareholders of record on March 16, 2007. At March
31, 2007, there were accrued and unpaid dividends of $4,360,000. 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.)
March 31, 2007
(3) COMPREHENSIVE INCOME
The components of accumulated other comprehensive loss included in
the accompanying unaudited consolidated balance sheets at March 31, 2007
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 (loss) and its
components for the three and six-month periods ended March 31, 2007 and
2006 (000's):
Three Months Ended Six Months Ended
March 31, March 31,
------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
Net income. . . . . . . . . $ 5,940 $ 5,248 $ 10,799 $ 9,255
Other comprehensive
income (loss):
Foreign currency trans-
lation adjustments . . 140 77 245 (246)
-------- -------- -------- --------
Comprehensive income. . . . $ 6,080 $ 5,325 $ 11,044 $ 9,009
======== ======== ======== ========
(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 compensation awards during
each period.
The following table presents the weighted average number of shares of
common stock for the three and six-month periods ended March 31, 2007 and
2006 (000's):
Three Months Ended Six Months Ended
March 31, March 31,
------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
Weighted average number of
shares of common stock
outstanding . . . . . . . 9,116 9,021 9,103 9,016
Effect of dilutive stock-
based compensation
awards. . . . . . . . . . 68 77 77 78
-------- -------- -------- --------
Weighted average number of
shares of common stock
assuming dilution . . . . 9,184 9,098 9,180 9,094
======== ======== ======== ========
7
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
March 31, 2007
(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.
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 $382,000 and $338,000 for
the six months ended March 31, 2007 and 2006, respectively. The total
income tax benefit recognized in the consolidated statements of income
related to expense for stock-based compensation was approximately $153,000
and $113,000 during the first half of fiscal 2007 and 2006, respectively.
STOCK OPTIONS
No stock options were granted in the first two quarters 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 six
months ended March 31, 2007 is presented below:
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 . . . . . . . (116,000) 36.08
------- ------
Outstanding at
March 31, 2007. . . . 352,000 $43.02 7.1 $2,626,000
======= ======
Exercisable at
March 31, 2007. . . . 351,000 $43.02 7.1 $2,620,000
======= ======
8
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
March 31, 2007
At March 31, 2007, unrecognized compensation expense related to stock
options totaled approximately $3,000 and is expected to be recognized over
a weighted-average period of 4 months. The intrinsic value of options
exercised totaled approximately $1,900,000 and $93,000 during the first
half of fiscal 2007 and 2006, respectively. The total income tax benefit
recognized in the consolidated statements of income related to the exercise
of stock options was approximately $740,000 during the six-month period
ending March 31, 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.
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 six months ended March 31, 2007 and
2006 was $49.33 and $46.34, respectively.
Restricted share transactions during the six months ended March 31,
2007 were as follows:
Number of Weighted-
Restricted Average
Share Fair
Awards Value
---------- ----------
Outstanding at October 1, 2006. . . . . . 14,000 $46.57
Granted . . . . . . . . . . . . . . . . . 26,000 49.33
Vested. . . . . . . . . . . . . . . . . . (1,000) 46.50
------ ------
Outstanding at March 31, 2007 . . . . . . 39,000 $48.41
====== ======
At March 31, 2007, unrecognized compensation expense related to
restricted share awards totaled approximately $1.5 million and is expected
to be recognized over a weighted average period of 2 years. The total fair
value of shares vested during the six-month period ended March 31, 2007 was
$65,000.
(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 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
9
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
March 31, 2007
date to March 25, 2007 and increase the minimum tangible net worth covenant
to $22.4 million. The Company did not renew the line upon its maturity in
March 2007.
At March 31, 2007 and September 30, 2006, outstanding borrowings
under the credit agreement were $0 and $1,649,000, respectively. The
Company funded euro-based debt service payments from euro-denominated cash
flows. It is expected that cash on hand and cash flow from operations will
be sufficient to fund the cash requirements of the business.
(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
March 31,
------------------------------
2007 2006 2007 2006
------ ------ ------ ------
Components of net periodic
benefit cost:
Service cost. . . . . . . . . . . . . $ 277 $ 293 $ 18 $ (3)
Interest cost . . . . . . . . . . . . 307 283 18 18
Expected return on plan assets. . . . (185) (190) - -
Amortization of transition (asset)
obligation. . . . . . . . . . . . . (1) (2) - (2)
Amortization of prior service cost. . 36 39 (28) (38)
Recognized net actuarial loss . . . . 4 23 11 32
Special termination benefits (1). . . 47 - - -
------ ------ ------ ------
Net periodic benefit cost . . . . . . $ 485 $ 446 $ 19 $ 7
====== ====== ====== ======
Pension Other
Benefits Benefits
-------------- -------------
Six Months Ended
March 31,
------------------------------
2007 2006 2007 2006
------ ------ ------ ------
Components of net periodic
benefit cost:
Service cost. . . . . . . . . . . . . $ 589 $ 661 $ 23 $ 25
Interest cost . . . . . . . . . . . . 595 587 39 47
Expected return on plan assets. . . . (378) (393) - -
Amortization of transition (asset)
obligation. . . . . . . . . . . . . (3) (4) - 4
Amortization of prior service cost. . 75 78 (56) (34)
Recognized net actuarial loss . . . . 32 66 38 44
Special termination benefits (1). . . 47 - - -
------ ------ ------ ------
Net periodic benefit cost . . . . . . $ 957 $ 995 $ 44 $ 86
====== ====== ====== ======
(1) Represents benefit costs arising from the early retirement of the
Company's former chief financial officer.
10
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
March 31, 2007
In accordance with funding requirements for the 2007 plan year,
Landauer contributed $124,000 to its pension plan in the quarter ended
December 31, 2006 and $124,000 in April 2007. 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 at the beginning of fiscal 2008. The
Company continues to evaluate 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 pre-tax charge to accumulated other comprehensive income in
the amount of approximately $2.5 million.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities, including an
Amendment of FASB Statement No. 115." SFAS No. 159 permits entities to
choose to measure many financial instruments and certain other items at
fair value on an instrument-by-instrument basis, with unrealized gains and
losses related to these financial instruments reported in earnings at each
subsequent reporting date. SFAS No. 159 also establishes presentation and
disclosure requirements to facilitate comparisons between companies that
choose different measurement attributes for similar assets and liabilities.
SFAS No. 159 is effective for fiscal years beginning after November 15,
2007. The Company is currently evaluating the impact to its financial
position, results of operations and financial disclosures.
11
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
March 31, 2007
In March 2007, the FASB ratified the Emerging Issues Task Force final
consensus on Issue 06-10, "Accounting for the Deferred Compensation and
Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life
Insurance Arrangements." The Task Force affirmed as a final consensus that
an employer should recognize a liability for the postretirement benefit
related to a collateral assignment split-dollar life insurance arrangement
in accordance with either SFAS No. 106 or APB Opinion No. 12. Issue 06-10
applies only when the arrangement is determined to provide a postretirement
benefit. The final consensus on Issue 06-10 will also require an employer
to recognize and measure the asset under a collateral assignment
arrangement based on the substance of the arrangement. The consensus is
effective for fiscal years beginning after December 15, 2007, including
interim periods within those fiscal years. The Company is currently
evaluating the impact to its financial position, results of operations and
financial disclosures.
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,
office-based physicians, universities, national laboratories, nuclear power
facilities and other industries in which radiation poses a potential threat
to employees or other individuals. 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; 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.
12
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. InLight 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 has positioned the
InLight system as both a product line and a radiation monitoring service in
ways that others can directly benefit form the technical and operational
advantage of OSL technology.
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. These services are provided by the Company's wholly-
owned subsidiary, HomeBuyer's Preferred, Inc.
Landauer operates a mature business, and growth in numbers of
domestic 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 and nuclear power facilities. 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 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.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2007
- ----------------------------------------------------------
Revenues for the second quarter of fiscal 2007 were $21,633,000, a
4.9% increase compared to revenues of $20,621,000 for the same quarter in
fiscal 2006. Domestic revenue growth for the second quarter was $220,000,
or 1.3%, from volume gains in the core radiation monitoring business and
the Homebuyer's Preferred Subsidiary. International revenue increased
$792,000, or 21.6%, supported by growth in volume in most regions, led by
InLight services, the addition of a new 51% owned joint venture in
Australia and favorable currency exchange rates.
The cost of revenues for the second quarter of fiscal 2007 were
$7,130,000, a decrease of $356,000 or 4.8%, compared with cost of revenue
of $7,486,000 for the same quarter in fiscal 2006. Gross margins were
67.0% of revenues for the second quarter of fiscal 2007, compared with the
63.7% 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.
13
Selling, general and administrative expenses for the second quarter
of fiscal 2007 were $5,550,000 an increase of $449,000, or 8.8%, compared
with expense of $5,101,000, including $600,000 of reorganization expense,
for the second quarter of fiscal 2006. Factors contributing to the
increase in selling, general and administrative costs include: $520,000 in
spending to re-engineer business processes and to replace the Company's
information technology systems that support improved customer relationship
management and the order-to-cash cycle; $86,000 incremental operating
expenses from the addition of the new 51% owned Joint venture in Australia;
$231,000 of increased cost in other foreign operations, primarily relating
to increased foreign exchange rates; and $232,000 higher spending for
salaries and benefits. These increases were partially offset by the prior
year's quarter inclusion of a $600,000 reorganization charge relating to
the profit improvement plan completed last year. Resulting operating
income for the quarter ended March 31, 2007 was $8,953,000, an increase of
11.4% compared with $8,034,000 reported in the same quarter a year ago.
Net other income, including equity in income of joint venture, for
the quarter was $47,000 higher than a year ago, reflecting higher net
interest income. The effective income tax rate for the second quarter of
fiscal 2007 was 37.3% compared with the prior year at 37.7%. Resulting net
income for the quarter ended March 31, 2007 amounted to $5,940,000, or
$0.65 per diluted share, compared with $5,248,000, or $0.58 per diluted
share, for the same quarter in fiscal 2006.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2007
- -------------------------------------------------------------
Revenues for the first six months of the fiscal year were
$41,793,000, a 6.4% increase compared to revenues of $39,268,000 for the
same period in fiscal 2006. Domestic revenue growth was $649,000 or 2.0%,
from gains in the core radiation monitoring business and the Homebuyer's
Preferred Subsidiary, and increases in the domestic InLight services
revenue. International revenue increased $1,876,000, or 26.3%, 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.
The cost of revenues for the first six months of fiscal 2007 were
$14,221,000, a decrease of $698,000 or 4.7%, compared with cost of revenue
of $14,919,000 for the same period in fiscal 2006. Gross margins were
66.0% of revenues for the first half of fiscal 2007, compared with the
62.0% 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 six months
of fiscal 2007 were $11,319,000 an increase of $1,064,000, or 10.4%,
compared with expense of $10,255,000, including $600,000 of reorganization
expense, for the first half of fiscal 2006. Factors contributing to the
increase in selling, general and administrative costs include: $630,000 in
spending to re-engineer business processes and to replace the Company's
information technology systems that support improved customer relationship
management and the order-to-cash cycle; $274,000 incremental operating
expenses from the addition of the new 51% owned Joint venture in Australia;
$360,000 of increased cost in other foreign operations, primarily relating
to increased foreign exchange rates; and $449,000 higher spending for
salaries and benefits. These increases were partially offset by the prior
year's inclusion of $600,000 in reorganization charges primarily relating
to the profit improvement plan completed last year. Resulting operating
income for the six months ended March 31, 2007 was $16,253,000, an increase
of 15.3% compared with $14,094,000 reported in the same period a year ago.
14
Net other income, including equity in income of joint venture, for
the first six months was $176,000 higher than a year ago, reflecting higher
net interest income. The effective income tax rate for the first half of
fiscal 2007 was 37.3% compared with the prior year at 37.6%. Resulting net
income for the six months ended March 31, 2007 amounted to $10,799,000 or
$1.18 per diluted share, compared with $9,255,000, or $1.02 per diluted
share, for the same period in fiscal 2006.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Landauer generated $1,122,000 in cash during the six months ended
March 31, 2007, resulting in cash on hand of $16,542,000. The Company made
payments of $1,717,000 on its line of credit, ending the period with no
borrowing outstanding.
Cash flows provided by operating activities for the first six months
of fiscal 2007 were $10,434,000, an increase of $953,000, or 10.0%, 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 $1,940,000 and $2,006,000 for the six months
ended March 31, 2007 and 2006, respectively. During the quarter,
Landauer's board of directors approved a program to re-engineer business
processes and replace the Company's information technology systems that
support customer relationship management and the order-to-cash cycle. The
total cost of the program is estimated to be $9,000,000 to $10,000,000 of
which approximately $6,600,000 will be capitalized. Capital expenditures
for the remainder of fiscal 2007 are expected to be in the range of
$5,500,000 to $6,500,000, 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 six months of fiscal 2007 and 2006, the Company paid cash
dividends of $8,436,000, or $0.475 per share, and $7,881,000, 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
maintained a credit facility, which expired in March 2007. As amended, the
credit facility permitted 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 March 31, 2007 and September 30, 2006, outstanding
borrowings under the credit agreement were $0 and $1,649,000, respectively.
The borrowings were classified as current liabilities and were denominated
in euros, which is the functional currency of Landauer-Europe. It is
expected that cash on hand and cash flow from operations will be sufficient
to fund the cash requirements of the business. In the opinion of
management, cash flow from operations are adequate for projected operations
and capital spending programs, as well as continuation of the regular cash
dividend program.
Landauer requires limited working capital for its operations since
many of its customers pay for services in advance. Such advance payments,
reflected on the balance sheet as "Deferred Contract Revenue", amounted to
$13,648,00 and $13,761,000, respectively, as of March 31, 2007 and
September 30, 2006. While these amounts represent approximately 50% and
48% of current liabilities, respectively as of March 31, 2007 and
September 30, 2006, such amounts do not represent a cash requirement.
15
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.
OUTLOOK FOR BALANCE OF FISCAL 2007
- ----------------------------------
The Company anticipates 2007 aggregate revenue growth to be in the
range of 4-5 percent. Investments in sales and marketing and our
information systems initiative will accelerate in the second half. This,
combined with the anniversary of our cost improvement program, is likely to
make comparisons with last year more difficult. However, expenses were
lower in the first half, and systems expenses are expected to be at the low
end of the range. As a result, we believe earnings for fiscal 2007 will
grow by 4-5 percent (In fiscal 2006, Landauer reported revenues of $79.0
million, net income of $19.0 million, and diluted earnings per share of
$2.09. These results included $1.0 million in after-tax reorganization and
management transition charges).
In addition, as part of the information technology initiative,
management is evaluating the usefulness of investments made in legacy
information systems' hardware and software, which have a net book value of
approximately $4.6 million. Although the software vender has been
selected, we have not completed the evaluation of how the solution will be
integrated into our existing infrastructure. Management anticipates that a
significant portion of these assets will be subject to accelerated
depreciation or impairment once the full implementation plan has been
finalized. The Company expects to complete this evaluation in the second
half of the year. As a result, the impact has not been considered in the
earnings guidance.
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
16
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
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 at the beginning of fiscal 2008. The
Company continues to evaluate 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 pre-tax charge to accumulated other comprehensive income in
the amount of approximately $2.5 million.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities, including an
Amendment of FASB Statement No. 115." SFAS No. 159 permits entities to
choose to measure many financial instruments and certain other items at
fair value on an instrument-by-instrument basis, with unrealized gains and
losses related to these financial instruments reported in earnings at each
subsequent reporting date. SFAS No. 159 also establishes presentation and
disclosure requirements to facilitate comparisons between companies that
choose different measurement attributes for similar assets and liabilities.
SFAS No. 159 is effective for fiscal years beginning after November 15,
2007. The Company is currently evaluating the impact to its financial
position, results of operations and financial disclosures.
In March 2007, the FASB ratified the Emerging Issues Task Force final
consensus on Issue 06-10, "Accounting for the Deferred Compensation and
Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life
Insurance Arrangements." The Task Force affirmed as a final consensus that
an employer should recognize a liability for the postretirement benefit
related to a collateral assignment split-dollar life insurance arrangement
in accordance with either SFAS No. 106 or APB Opinion No. 12. Issue 06-10
applies only when the arrangement is determined to provide a postretirement
17
benefit. The final consensus on Issue 06-10 will also require an employer
to recognize and measure the asset under a collateral assignment
arrangement based on the substance of the arrangement. The consensus is
effective for fiscal years beginning after December 15, 2007, including
interim periods within those fiscal years. The Company is currently
evaluating the impact to its financial position, results of operations and
financial disclosures.
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 March 31, 2007, 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 March 31, 2007.
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 March 31, 2007 were
effective.
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 March 31, 2007
that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party, 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 March 31, 2007, 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
At its Annual Meeting held on February 8, 2007, the shareholders
voted to re-elect E. Gail de Planque and Michael D. Winfield as directors,
each for a term of three years. The voting for each of the nominees was as
follows:
For Withheld
--------- --------
Dr. de Planque 8,097,680 73,760
Mr. Winfield 8,110,959 60,481
The shareholders voted to reappoint PricewaterhouseCoopers LLP as the
Company's auditors for the fiscal year ending September 30, 2007, with
8,142,700 shares voting for, 19,041 shares voting against and 9,699 shares
abstaining.
The additional directors for the current year are Robert J. Cronin,
Stephen C. Mitchell, Richard R. Risk, William E. Saxelby, and Thomas M.
White.
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
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LANDAUER, INC.
Date: May 9, 2007 /s/ Jonathon M. Singer
---------------------------------
Jonathon M. Singer
Senior Vice President, Treasurer,
and Secretary
(Principal Financial and
Accounting Officer)
20