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, 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 January 31, 2008
---------------------------- -------------------------------
Common stock, $.10 par value 9,262,061
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,
2007 2007
------------ -------------
ASSETS
- ------
Current assets:
Cash and cash equivalents. . . . . . . $ 23,764 $ 21,069
Receivables, net of allowances of
$525 and $531, respectively. . . . 21,686 19,750
Inventories. . . . . . . . . . . . . . 2,621 2,729
Prepaid expenses and other
current assets . . . . . . . . . . 1,342 1,112
Prepaid income taxes . . . . . . . . . - 1,767
Deferred income taxes. . . . . . . . . 3,898 4,078
---------- ----------
Current assets . . . . . . . . . 53,311 50,505
Property, plant and equipment, at cost . . 52,188 50,738
Less: Accumulated depreciation
and amortization . . . . . . . . . (35,151) (34,084)
---------- ----------
Net property, plant and equipment. . . . . 17,037 16,654
Equity in joint venture. . . . . . . . . . 4,619 4,978
Goodwill . . . . . . . . . . . . . . . . . 13,381 13,364
Other intangible assets, net of
amortization of $3,682 and $3,521,
respectively . . . . . . . . . . . . . 4,824 4,963
Dosimetry devices, net of amortization
of $9,878 and $9,392, respectively . . 5,036 5,345
Deferred income taxes. . . . . . . . . . . 544 333
Other assets . . . . . . . . . . . . . . . 1,267 1,198
---------- ----------
$ 100,019 $ 97,340
========== ==========
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,
2007 2007
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable . . . . . . . . . . . $ 1,851 $ 1,682
Dividends payable. . . . . . . . . . . 4,612 4,375
Deferred contract revenue. . . . . . . 14,484 13,832
Accrued compensation and related
costs. . . . . . . . . . . . . . . 2,509 3,725
Accrued pension and postretirement
costs. . . . . . . . . . . . . . . 306 306
Other accrued expenses . . . . . . . . 4,791 4,047
---------- ----------
Current liabilities. . . . . . . 28,553 27,967
Non-current liabilities:
Pension and postretirement
obligations. . . . . . . . . . . . 9,918 9,575
Other non-current liabilities. . . . . 792 -
---------- ----------
Non-current liabilities. . . . . 10,710 9,575
Minority interest in subsidiary. . . . 198 288
Stockholders' equity:
Preferred stock, $.10 par value
per share, authorized 1,000,000
shares; none issue . . . . . . . . - -
Common stock, $.10 par value
per share, authorized 20,000,000
shares; 9,243,562 and 9,210,861
shares issued and outstanding
at December 31, 2007 and
September 30, 2007,
respectively . . . . . . . . . . . 924 921
Additional paid in capital . . . . . . 24,203 23,581
Accumulated other comprehensive
loss . . . . . . . . . . . . . . . (318) (509)
Retained earnings. . . . . . . . . . . 35,749 35,517
---------- ----------
Stockholders' equity . . . . . . 60,558 59,510
---------- ----------
$ 100,019 $ 97,340
========== ==========
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,
2007 2006
------------ ------------
Revenues, net of sales allowances. . . . . $ 21,809 $ 20,160
Costs and expenses:
Cost of sales. . . . . . . . . . . . . 7,201 7,091
Selling, general and administrative. . 6,600 5,769
Accelerated depreciation charges . . . 188 -
---------- ----------
13,989 12,860
---------- ----------
Operating income . . . . . . . . . . . . . 7,820 7,300
Equity in income of joint venture. . . . . 386 348
Other income, net. . . . . . . . . . . . . 318 197
---------- ----------
Income before taxes. . . . . . . . . . . . 8,524 7,845
Income taxes . . . . . . . . . . . . . . . 3,179 2,930
---------- ----------
Income before minority interest. . . . . . 5,345 4,915
Minority interest. . . . . . . . . . . . . 69 56
---------- ----------
Net income . . . . . . . . . . . . . . . . $ 5,276 $ 4,859
========== ==========
Net income per share:
Basic. . . . . . . . . . . . . . . . . $ 0.58 $ 0.53
========== ==========
Weighted average basic shares
outstanding. . . . . . . . . . . . . 9,160 9,113
========== ==========
Diluted. . . . . . . . . . . . . . . . $ 0.57 $ 0.53
========== ==========
Weighted average diluted shares
outstanding. . . . . . . . . . . . . 9,227 9,195
========== ==========
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,
2007 2006
------------ ------------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . $ 5,276 $ 4,859
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . 1,723 1,850
Amortization . . . . . . . . . . . . . . 161 158
Equity in net income of joint venture. . (386) (348)
Dividends from joint venture . . . . . . 894 532
Stock-based compensation . . . . . . . . 387 225
Tax benefit from stock-based
compensation arrangements. . . . . . 63 573
Excess tax benefit from stock-based
compensation arrangements. . . . . . (50) (529)
Increase in accounts receivable, net . . (1,822) (621)
Decrease in prepaid taxes. . . . . . . . 1,767 -
Increase in other current assets . . . . (107) (437)
Increase in dosimetry devices at cost. . (209) (351)
Increase in accounts payable and
other current liabilities. . . . . . 307 848
Increase in taxes payable. . . . . . . . 699 1,506
Decrease in accrued compensation and
related costs. . . . . . . . . . . . (1,293) (1,473)
Increase in deferred contract revenue. . 622 711
Increase in long-term liabilities. . . . 477 48
Other operating activities, net. . . . . (10) 33
---------- ----------
Net cash provided by
operating activities . . . . . . . . 8,499 7,584
Cash flows used by investing activities:
Acquisition of property, plant
and equipment. . . . . . . . . . . . (1,556) (770)
---------- ----------
Net cash used by investing activities. . (1,556) (770)
Cash flows used by financing activities:
Payments on revolving credit
facilities . . . . . . . . . . . . . - (1,375)
Dividends paid to minority interest. . . (167) (117)
Dividends paid to stockholders . . . . . (4,375) (4,094)
Proceeds from the exercise of
stock options. . . . . . . . . . . . 245 1,525
Excess tax benefit from stock-based
compensation arrangements. . . . . . 50 529
---------- ----------
Net cash used by financing activities. . (4,247) (3,532)
Effects of foreign currency
translation. . . . . . . . . . . . . (1) 157
---------- ----------
Net increase in cash and cash equivalents. . 2,695 3,439
Opening balance -
cash and cash equivalents. . . . . . . . 21,069 15,420
---------- ----------
Ending balance -
cash and cash equivalents. . . . . . . . $ 23,764 $ 18,859
========== ==========
The accompanying notes are an integral part of these financial statements.
5
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
December 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 December 31, 2007 and September 30, 2007, and the
consolidated results of operations and cash flows for the three month
period ended December 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 month period ended
December 31, 2007 and 2006 are not necessarily indicative of the results to
be expected for the full year. The September 30, 2007 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
2007 Landauer Annual Report on Form 10-K. On October 1, 2007, the Company
adopted the provisions of FASB Interpretation No. 48, ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES ("FIN 48"). Refer to Note 2, "Income Taxes",
of the consolidated financial statements for additional information.
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.
6
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2007
(2) INCOME TAXES
Effective October 1, 2007, the Company adopted the provisions of FASB
Interpretation No. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES ("FIN
No. 48"). FIN No. 48 clarifies the accounting for uncertainty in income
taxes by prescribing 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.
As a result of the adoption of FIN No. 48, the Company recognized
$792,000 in gross unrecognized tax benefits. Of this amount, $593,000, net
of federal benefits, represents the portion that, if recognized, would
impact the Company's effective tax rate. The Company recognized
approximately a $432,000 decrease to the October 1, 2007, balance of
retained earnings for the adoption of FIN No. 48. The Company currently
does not believe that any material change in the balance of unrecognized
tax benefits will occur during the next twelve months.
The Company recognizes accrued interest and penalties related to
unrecognized tax benefits in income tax expense. As of October 1, 2007,
the Company had a gross amount of $78,000 accrued for potential payment of
interest and $118,000 accrued for potential payment of penalties. The
accrued interest and penalties are included in the unrecognized tax
benefits.
As of October 1, 2007, the Company's U.S. income tax returns for 2004
and subsequent years remain subject to examination by the Internal Revenue
Service. The Company has no current on-going examination of any tax year
by the Internal Revenue Service. State income tax returns generally have
statute of limitations for periods between three and five years from the
date of filing. For the Company's major foreign jurisdictions, its tax
returns in the UK and France for fiscal years 2005, 2006 and 2007 remain
open and subject to examination by taxing officials.
(3) IMPAIRMENT AND ACCELERATED DEPRECIATION CHARGES
As part of the IT initiative begun in fiscal 2007, management
completed an evaluation of the usefulness of investments made in legacy
information systems' hardware and software. During the third quarter of
fiscal 2007, approximately $2,185,000 was determined to be impaired and
approximately $690,000 of assets was subject to accelerated depreciation.
Management currently anticipates that the assets subject to retirement will
be utilized through March 31, 2008, and therefore, the Company will record
accelerated depreciation through the newly determined remaining useful
lives.
(4) CASH DIVIDENDS
On November 30, 2007, the Company declared a regular quarterly cash
dividend in the amount of $0.50 per share for the first quarter of fiscal
2008. The dividends were paid on January 4, 2008, to shareholders of
record on December 14, 2007. At December 31, 2007, there were accrued and
unpaid dividends of $4,612,000. Regular quarterly cash dividends of $0.475
per share, or $1.90 annually, were paid during fiscal 2007.
7
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2007
(5) COMPREHENSIVE INCOME
The components of accumulated other comprehensive loss included in
the accompanying unaudited consolidated balance sheets at December 31, 2007
and September 30, 2007 consist of net minimum pension liability
adjustments, impact of the adoption of SFAS No. 158 and adjustments for net
losses and prior service cost, and cumulative foreign currency translation
adjustments. The following table sets forth the Company's comprehensive
income and its components for the three month period ended December 31,
2007 and 2006 (000's):
Three Months Ended
December 31,
------------------------
2007 2006
-------- --------
Net income . . . . . . . . . . . . . . . $ 5,276 $ 4,859
Other comprehensive income:
Foreign currency translation
adjustments. . . . . . . . . . . 170 105
Defined benefit pension and
postretirement plans:
Amortization of prior
service cost . . . . . . . . 9 -
Amortization of net loss . . . . 13 -
-------- --------
Comprehensive income . . . . . . . . . . $ 5,468 $ 4,964
======== ========
(6) 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 during each period. The following table
presents the weighted average number of shares of common stock for the
three month period ended December 31, 2007 and 2006 (000's):
Three Months Ended
December 31,
------------------------
2007 2006
-------- --------
Weighted average number of shares
of common stock outstanding. . . . . 9,160 9,113
Effect of dilutive securities:
stock-based compensation awards. . . 67 82
-------- --------
Weighted average number of shares
of common stock assuming dilution. . 9,227 9,195
======== ========
8
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2007
(7) STOCK-BASED COMPENSATION
Stock-based compensation expense, primarily for grants of restricted
stock, totaled approximately $387,000 and $225,000 for the three months
ended December 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 $156,000 and $89,000
during the first quarter of fiscal 2008 and 2007, respectively.
STOCK OPTIONS
No stock options have been granted in fiscal 2008 or 2007. 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 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, 2007 is presented
below:
Weighted-
Average
Weighted- Remaining
Number Average Contractual Aggregate
of Exercise Term Intrinsic
Options Price (Years) Value
------- --------- ----------- ----------
Outstanding at
October 1, 2007. . . 314,000 $ 43.07
Exercised. . . . . . . (8,000) 41.29
-------- --------
Outstanding at
December 31, 2007. . 306,000 $ 43.10 6.3 $2,680,000
======== ======== ==== ==========
Exercisable at
December 31, 2007. . 306,000 $ 43.10 6.3 $2,680,000
======== ======== ==== ==========
At December 31, 2007, all outstanding stock options were vested and
compensation expense related to stock options was recognized. The
intrinsic value of options exercised totaled approximately $71,000 and
$1,400,000 during the first quarter of fiscal 2008 and 2007, respectively.
The total income tax benefit recognized in the consolidated statements of
income related to the exercise of stock options was approximately $29,000
and $556,000 during the three month period ending December 31, 2007 and
2006, respectively.
RESTRICTED SHARE AWARDS
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. Restricted stock represents a right to receive shares of common
stock upon the passage of a specified period of time. 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. 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, 2007 and 2006 was $51.05 and $52.09,
respectively.
9
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2007
Restricted stock issued to eligible employees under the 2005 Long-
Term Incentive Compensation 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. Restricted share
transactions during the three months ended December 31, 2007 were as
follows:
Number of Weighted-
Restricted Average
Share Fair
Awards Value
---------- ---------
Outstanding at October 1, 2007 . . . . . 42,000 $ 48.41
Granted. . . . . . . . . . . . . . . . . 27,000 51.05
Vested . . . . . . . . . . . . . . . . . (2,000) 49.70
-------- --------
Outstanding at December 31, 2007 . . . . 67,000 $ 49.42
======== ========
At December 31, 2007, unrecognized compensation expense related to
restricted share awards totaled approximately $2.2 million and is expected
to be recognized over a weighted average period of 1.4 years. The total
fair value of shares vested during the three month period ended
December 31, 2007 was $83,000. No shares vested during the three month
period ended December 31, 2006.
(8) CREDIT FACILITY
In October 2007, the Company negotiated a new credit facility, which
expires on October 31, 2009. The new credit facility permits borrowing up
to $15,000,000. To date, no borrowings have been made under this facility.
The Company's previous line of credit was repaid in the second quarter of
fiscal 2007 and was not renewed.
(9) PENSION AND POSTRETIREMENT MEDICAL BENEFIT EXPENSES
The components of net periodic benefit cost for pension and retiree
medical plans were as follows (000's):
Pension Other
Benefits Benefits
-------------- -------------
Three Months Ended
December 31,
------------------------------
2007 2006 2007 2006
------ ------ ------ ------
Service cost . . . . . . . . . . . . . $ 279 $ 312 $ 15 $ 5
Interest cost. . . . . . . . . . . . . 332 288 21 21
Expected return on plan assets . . . . (213) (193) - -
Amortization of transition asset . . . - (2) - -
Amortization of prior service cost
(credit) . . . . . . . . . . . . . 37 39 (28) (28)
Amortization of net loss . . . . . . . 2 28 11 27
------ ------ ------ ------
Net periodic benefit cost. . . . . . . $ 437 $ 472 $ 19 $ 25
====== ====== ====== ======
10
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2007
Landauer was not required to make a contribution to its pension plan,
for the 2008 plan year, in the quarter ended December 31, 2007. In October
2007, the Company contributed $124,000 to the pension plan to fulfill
funding requirements for the 2007 plan year.
(10) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements." SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements.
SFAS No. 157 applies under other accounting pronouncements that require or
permit fair value measurements. SFAS No. 157 is effective for the Company
for fiscal year 2009. The Company is currently evaluating the impact of
SFAS No. 157 to its financial position, results of operations and financial
disclosures.
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 the Company for fiscal year 2009. The
Company is currently evaluating the impact of SFAS No. 159 to its financial
position, results of operations and financial disclosures.
In March 2007, the FASB ratified the Emerging Issues Task Force
(EITF) Issue No. 06-10, "Accounting for the Deferred Compensation and
Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life
Insurance Arrangements." The EITF 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 No. 06-
10 applies only when the arrangement is determined to provide a
postretirement benefit. The final consensus on Issue No. 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
Issue is effective for the Company for fiscal year 2009, including interim
periods within the fiscal year. The Company is currently evaluating the
impact of Issue No. 06-10 to its financial position, results of operations
and financial disclosures.
In December 2007, the FASB issued SFAS No. 141R, "Business
Combinations," and SFAS No. 160 "Noncontrolling Interests in Consolidated
Financial Statements." These standards aim to improve, simplify, and
converge internationally the accounting for and reporting of business
combinations and noncontrolling interests in consolidated financial
statements. The provisions of SFAS No. 141R and SFAS No. 160 are
effective, and should be applied prospectively, for the Company beginning
in fiscal 2010. The Company is currently evaluating the impact of SFAS
No. 141R and SFAS No. 160 to its financial position, results of operations
and financial disclosures.
11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
- --------
Landauer is a leading provider of analytical services to determine
occupational and environmental radiation exposure. For over 50 years, the
Company has provided complete radiation dosimetry services to hospitals,
medical and dental offices, universities, national laboratories, nuclear
facilities 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 69,000 customers
representing approximately 1.5 million individuals in the U.S., Japan,
France, the United Kingdom, Brazil, Canada, China, Australia and other
countries. In addition to providing analytical services, the Company may
lease or sell dosimetry detectors and reading equipment to large customers
that want to manage their own dosimetry programs, or into smaller
international markets in which it is not economical to establish a direct
service.
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 developed 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 more competitive and opportunities to continue
to obtain regular price increases from its customers may be more limited in
the future.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED DECEMBER 31, 2007
- -------------------------------------------------------------
Revenues for the first quarter of fiscal 2008 were $21,809,000, an
8.2% increase compared to revenues of $20,160,000 for the same quarter in
fiscal 2007. Domestic revenue growth for the first quarter was $573,000,
or 3.7%, from moderate gains in the core radiation monitoring business and
increases in domestic InLight equipment revenue. International revenue
increased $1,076,000, or 23.6%, supported by growth in volume in most
regions, lead by InLight badges and equipment, and favorable currency
exchange rates.
Total cost of revenues for the first quarter of fiscal 2008 were
$7,201,000, an increase of $110,000 or 1.6%, compared with cost of revenue
of $7,091,000 for the same quarter in fiscal 2007. Gross margins were
67.0% of revenues for the first quarter of fiscal 2008, compared with the
64.8% reported for the same period in fiscal 2007. The improvement is
primarily a result of a reduction in overhead driven by lower depreciation
and employee benefits costs. Selling, general and administrative expenses
for the first quarter of fiscal 2008 were $6,600,000, an increase of
$831,000, or 14.4%, compared with expense of $5,769,000 for the first
quarter of fiscal 2007. Factors contributing to the increase in selling,
general and administrative costs include: $384,000 in spending to
reengineer business processes and to replace the Company's information
technology systems that support improved business relationship management
and the order-to-cash cycle; $317,000 for sales and marketing resources;
and $153,000 increased cost of foreign operations, primarily relating to
increased foreign exchange rates.
12
As part of the IT initiative begun in fiscal 2007, management
completed an evaluation of the usefulness of investments made in legacy
information systems' hardware and software. During the third quarter of
fiscal 2007, approximately $2,185,000 was determined to be impaired and
approximately $690,000 of assets was subject to accelerated depreciation.
During the quarter the Company recorded $188,000 of accelerated
depreciation relating to these assets.
Resulting operating income for the quarter ended December 31, 2007
was $7,820,000, an increase of 7.1% compared with $7,300,000 reported in
the same quarter a year ago.
Net other income, including equity in income of joint venture, for
the quarter was $159,000 higher than a year ago, reflecting higher net
interest income. The effective income tax rate for the first quarter of
fiscal 2008 and 2007 was 37.3%. Resulting net income for the quarter ended
December 31, 2007 amounted to $5,276,000, or $0.57 per diluted share,
compared with $4,859,000, or $0.53 per diluted share, for the same quarter
in fiscal 2007.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Landauer generated $2,695,000 in cash during the quarter ended
December 31, 2007, resulting in cash on hand of $23,764,000.
Cash flows provided by operating activities for the first fiscal
quarter of 2008 were $8,499,000, an increase of $915,000, or 12.1%, from
fiscal 2007. The increase is due primarily to an increase in net income,
and dividends received from Nagase-Landauer, Ltd., supplemented by the
contribution from the change in the components of working capital.
Investing activities included acquisitions of property, plant and
equipment in the amounts of $1,556,000 and $770,000 for the three months
ended December 31, 2007 and 2006, respectively. Capital expenditures for
the remainder of fiscal 2008 are expected to be approximately $3,500,000 to
$4,500,000, 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 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 2008 and 2007, the Company paid cash dividends of $4,375,000 or
$0.475 per share, and $4,094,000, or $0.45 per share for the forth quarter
of the prior fiscal year, respectively, and such amounts have been provided
from operations.
As described in Note 8 to the financial statements, the Company
maintained a credit facility, which expired in March 2007. The Company did
not renew the line upon its maturity in March 2007. In October 2007, the
Company negotiated a new credit facility, which expires on October 31,
2009. The new credit facility permits borrowing up to $15,000,000.
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
$14,484,000 and $13,832,000, respectively, as of December 31, 2007 and
September 30, 2007. While these amounts represent approximately 51% and
49% of current liabilities, respectively as of December 31, 2007 and
September 30, 2007, such amounts do not represent a cash obligation.
All customers are invoiced in accordance with the Company's standard
terms, with payment generally due thirty days from date of invoice.
Reflecting the Company's invoicing practices and that a significant portion
of the Company's revenues are subject to health care industry reimbursement
cycles, the days of sales outstanding for the Company averaged
approximately 75 and 123 days over the course of the first quarter of
fiscal 2008 and fiscal 2007, respectively.
13
Landauer also 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 2008
- ----------------------------------
Landauer's business plan for fiscal 2008 currently anticipates
aggregate revenue growth for the year to be in the range of 4 - 5%. The
Company anticipates a net income increase in the range of 6 - 8% excluding
the $2,875,000 ($1,725,000, after tax at a marginal rate of 40%) impact of
the fiscal 2007 accelerated depreciation and impairment charges.
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<registered trademark>+; the costs associated with
the Company's research and business development efforts; the effectiveness
of changes and upgrades to the Company's information systems; 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, 2007 and other reports filed by the Company, from
time to time, with the SEC.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements." SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements.
SFAS No. 157 applies under other accounting pronouncements that require or
permit fair value measurements. SFAS No. 157 is effective for the Company
for fiscal year 2009. The Company is currently evaluating the impact of
SFAS No. 157 to its financial position, results of operations and financial
disclosures.
14
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 the Company for fiscal year 2009. The
Company is currently evaluating the impact of SFAS No. 159 to its financial
position, results of operations and financial disclosures.
In March 2007, the FASB ratified the Emerging Issues Task Force
(EITF) Issue No. 06-10, "Accounting for the Deferred Compensation and
Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life
Insurance Arrangements." The EITF 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 No. 06-
10 applies only when the arrangement is determined to provide a postre-
tirement benefit. The final consensus on Issue No. 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
Issue is effective for the Company for fiscal year 2009, including interim
periods within the fiscal year. The Company is currently evaluating the
impact of Issue No. 06-10 to its financial position, results of operations
and financial disclosures.
In December 2007, the FASB issued SFAS No. 141R, "Business
Combinations," and SFAS No. 160 "Noncontrolling Interests in Consolidated
Financial Statements." These standards aim to improve, simplify, and
converge internationally the accounting for and reporting of business
combinations and noncontrolling interests in consolidated financial
statements. The provisions of SFAS No. 141R and SFAS No. 160 are
effective, and should be applied prospectively, for the Company beginning
in fiscal 2010. The Company is currently evaluating the impact of SFAS
No. 141R and SFAS No. 160 to its financial position, results of operations
and financial disclosures.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The critical 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 2007 Landauer Annual
Report on Form 10-K. The Company believes that at December 31, 2007, there
have been no material changes to this information, except for the adoption
of the provisions of FASB Interpretation No. 48, ACCOUNTING FOR UNCERTAINTY
IN INCOME TAXES ("FIN 48"). For additional information refer to
footnote 2, "Income Taxes."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including changes in foreign
currency exchange rates. These risks are set forth in Item 7A of the 2007
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, 2007.
15
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. Based upon that evaluation, the Company's CEO and
CFO concluded that the Company's disclosure controls and procedures as of
December 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 December 31, 2007
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, 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
2007 Landauer Annual Report on Form 10-K. There have been no material
changes from the risk factors previously disclosed in the Company's fiscal
2007 Form 10-K.
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 7, 2008
/s/ Jonathon M. Singer
------------------------------
Jonathon M. Singer
Senior Vice President,
Treasurer, and Secretary
(Principal Financial and
Accounting Officer)
17