UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended December 31, 2008
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, a non-accelerated filer or a smaller reporting
company. See the definition of "large accelerated filer", "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ X ]
Non-accelerated filer [ ] Smaller reporting Company [ ]
(Do not check if a smaller
reporting company)
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 29, 2009
---------------------------- -------------------------------
Common stock, $.10 par value 9,317,139
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,
2008 2008
------------ -------------
ASSETS
- ------
Current assets:
Cash and cash equivalents. . . . . . . . . $ 23,562 $ 33,938
Receivables, net of allowances of
$618 and $609, respectively. . . . . . . 23,099 19,738
Inventories. . . . . . . . . . . . . . . . 4,376 3,550
Prepaid expenses and
other current assets . . . . . . . . . . 1,496 1,227
Prepaid income taxes . . . . . . . . . . . 7,964 7,964
Deferred income taxes. . . . . . . . . . . 2,312 2,312
---------- ----------
Current assets . . . . . . . . . . . 62,809 68,729
Property, plant and equipment, at cost . . . 58,749 57,595
Less: Accumulated depreciation
and amortization . . . . . . . . . . . (38,052) (37,410)
---------- ----------
Net property, plant and equipment. . . . . . 20,697 20,185
Equity in joint venture. . . . . . . . . . . 6,158 5,796
Goodwill . . . . . . . . . . . . . . . . . . 13,244 13,343
Other intangible assets, net of
amortization of $4,219 and $4,065,
respectively . . . . . . . . . . . . . . . 4,674 4,759
Dosimetry devices, net of amortization of
$10,993 and $10,632, respectively. . . . . 4,310 4,454
Other assets . . . . . . . . . . . . . . . . 1,127 1,424
---------- ----------
$ 113,019 $ 118,690
========== ==========
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,
2008 2008
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable . . . . . . . . . . . . . $ 2,521 $ 981
Dividends payable. . . . . . . . . . . . . 37 4,686
Deferred contract revenue. . . . . . . . . 14,466 15,626
Accrued compensation and
related costs. . . . . . . . . . . . . . 2,676 5,368
Accrued pension and postretirement
costs. . . . . . . . . . . . . . . . . . 366 366
Other accrued expenses . . . . . . . . . . 8,649 7,197
---------- ----------
Current liabilities. . . . . . . . . 28,715 34,224
Non-current liabilities:
Pension and postretirement
obligations. . . . . . . . . . . . . . . 6,792 8,609
Deferred income taxes. . . . . . . . . . . 4,666 4,622
Other non-current liabilities. . . . . . . 1,462 935
---------- ----------
Non-current liabilities. . . . . . . 12,920 14,166
Minority interest in subsidiary. . . . . . 413 545
Stockholders' equity:
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;
9,334,748 and 9,332,508 shares
issued and outstanding at
December 31, 2008 and September 30,
2008, respectively . . . . . . . . . . . 933 933
Additional paid in capital . . . . . . . . 29,405 28,826
Accumulated other comprehensive income . . 585 289
Retained earnings. . . . . . . . . . . . . 40,048 39,707
---------- ----------
Stockholders' equity . . . . . . . . 70,971 69,755
---------- ----------
$ 113,019 $ 118,690
========== ==========
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,
2008 2007
------------ ------------
Net Revenues . . . . . . . . . . . . . . . . $ 22,438 $ 21,809
Costs and expenses:
Cost of sales. . . . . . . . . . . . . . 7,140 7,201
Selling, general and administrative. . . 6,493 6,788
---------- ----------
13,633 13,989
---------- ----------
Operating income . . . . . . . . . . . . . . 8,805 7,820
Equity in income of joint venture. . . . . . 420 386
Other income, net. . . . . . . . . . . . . . 149 318
---------- ----------
Income before taxes. . . . . . . . . . . . . 9,374 8,524
Income taxes . . . . . . . . . . . . . . . . 3,147 3,179
---------- ----------
Income before minority interest. . . . . . . 6,227 5,345
Minority interest. . . . . . . . . . . . . . 85 69
---------- ----------
Net income . . . . . . . . . . . . . . . . . $ 6,142 $ 5,276
========== ==========
Net income per share:
Basic. . . . . . . . . . . . . . . . . . $ 0.66 $ 0.58
========== ==========
Weighted average basic shares
outstanding. . . . . . . . . . . . . . 9,280 9,160
========== ==========
Diluted. . . . . . . . . . . . . . . . . $ 0.66 $ 0.57
========== ==========
Weighted average diluted shares
outstanding. . . . . . . . . . . . . . 9,310 9,227
========== ==========
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,
2008 2007
------------ ------------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . $ 6,142 $ 5,276
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . 1,260 1,723
Amortization . . . . . . . . . . . . . . 154 161
Equity in net income of joint
venture. . . . . . . . . . . . . . . . (420) (386)
Dividends from joint venture . . . . . . 1,062 894
Stock-based compensation . . . . . . . . 452 387
Tax benefit from stock-based
compensation arrangements. . . . . . . 103 63
Excess tax benefit from stock-based
compensation arrangements. . . . . . . (11) (50)
Increase in accounts receivable, net . . (3,521) (1,822)
Decrease in prepaid taxes. . . . . . . . -- 1,767
(Increase) decrease in inventory . . . . (846) 114
Increase in dosimetry devices
at cost. . . . . . . . . . . . . . . . (343) (209)
Increase in accounts payable and
other current liabilities. . . . . . . 570 307
Increase in taxes payable. . . . . . . . 2,430 699
Decrease in accrued compensation
and related costs. . . . . . . . . . . (2,760) (1,293)
(Decrease) increase in deferred
contract revenue . . . . . . . . . . . (1,038) 622
(Decrease) increase in long-term
pension and postretirement
obligations. . . . . . . . . . . . . . (1,816) 340
Other operating activities, net. . . . . (343) (94)
---------- ----------
Net cash provided by operating
activities . . . . . . . . . . . . . . 1,075 8,499
Cash flows used by investing activities:
Acquisition of property, plant
and equipment. . . . . . . . . . . . . (1,343) (1,556)
---------- ----------
Net cash used by investing
activities . . . . . . . . . . . . . . (1,343) (1,556)
Cash flows used by financing activities:
Dividends paid to minority interest. . . (151) (167)
Dividends paid to stockholders . . . . . (9,549) (4,375)
Proceeds from the exercise of
stock options. . . . . . . . . . . . . 135 245
Excess tax benefit from stock-based
compensation arrangements. . . . . . . 11 50
---------- ----------
5
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) (Cont'd.)
(000's)
Three Months Ended
-----------------------------
December 31, December 31,
2008 2007
------------ ------------
Net cash used by financing activities. . (9,554) (4,247)
Effects of foreign currency
translation. . . . . . . . . . . . . . (554) (1)
---------- ----------
Net (decrease) increase in
cash and cash equivalents. . . . . . . (10,376) 2,695
Opening balance -
cash and cash equivalents. . . . . . . 33,938 21,069
---------- ----------
Ending balance -
cash and cash equivalents. . . . . . . $ 23,562 $ 23,764
========== ==========
The accompanying notes are an integral part of these financial statements.
6
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
December 31, 2008
(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, 2008 and September 30, 2008, and the
consolidated results of operations and cash flows for the three month
periods ended December 31, 2008 and 2007. 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.
These unaudited interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Form 10-K for the year ended
September 30, 2008 and other financial information filed with the
Securities and Exchange Commission.
Certain prior year amounts have been reclassified to conform to
current year presentation. These reclassifications have no effect on the
results of operations or financial position.
The results of operations for the three month periods ended
December 31, 2008 and 2007 are not necessarily indicative of the results to
be expected for the full year. The September 30, 2008 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
2008 Landauer Annual Report on Form 10-K.
The primary 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.
7
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2008
(2) INCOME TAXES
The fiscal year 2009 effective tax rate decreased primarily due to a
reduction in Illinois state income taxes, the primary state in which the
Company operates. Effective with the Company's fiscal year 2009 Illinois
income tax return, the apportionment method used to calculate the income
tax has changed from a cost of performance method to a market based
approach, resulting in a decline in the Company's Illinois apportionment
factor directly reducing Illinois taxable income and income tax.
Additionally during the first quarter of fiscal 2009, the Company
benefitted from the recognition of certain tax credits for qualified
research and development activities as a result of Federal tax law changes
allowing for the retroactive reinstatement of the credits.
As of December 31, 2008, the Company's U.S. income tax returns for
2005 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 2006,
2007 and 2008 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. Based on the evaluation,
approximately $2,185,000 was determined to be impaired and approximately
$690,000 of assets was subject to accelerated depreciation. In the first
quarter of fiscal 2008, the Company recognized a non-cash charge of
$188,000 for accelerated depreciation on the assets to be retired. The
assets were fully depreciated in fiscal 2008.
(4) CASH DIVIDENDS
On November 26, 2008, the Company declared a regular quarterly cash
dividend in the amount of $0.525 per share for the first quarter of fiscal
2009. The dividend was paid at the end of the first quarter to
shareholders of record on December 12, 2008. As of December 31, 2008,
there were accrued and unpaid dividends of $37,000, which will be paid upon
the vesting of the related restricted performance stock awards at
September 30, 2009, assuming the performance criteria is met. Regular
quarterly cash dividends of $0.50 per share, or $2.00 annually, were paid
during fiscal 2008.
(5) COMPREHENSIVE INCOME
The components of accumulated other comprehensive income included in
the accompanying unaudited consolidated balance sheets at December 31, 2008
and September 30, 2008 consist of net minimum pension liability
adjustments, impact of the adoption of SFAS No. 158 and adjustments for net
gains, losses and prior service costs, and cumulative foreign currency
translation adjustments. The following table sets forth the Company's
comprehensive income and its components for the three month periods ended
December 31, 2008 and 2007 (000's):
8
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2008
Three Months Ended
December 31,
---------------------
2008 2007
-------- --------
Net income . . . . . . . . . . . . . . . . . . . . $ 6,142 $ 5,276
Other comprehensive income:
Foreign currency translation adjustments . . . 282 170
Defined benefit pension and postretirement
plans:
Amortization of prior service cost . . . . . 9 9
Amortization of net loss . . . . . . . . . . 5 13
-------- --------
Comprehensive income . . . . . . . . . . . . . . . $ 6,438 $ 5,468
======== ========
(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 periods ended December 31, 2008 and 2007 (000's):
Three Months Ended
December 31,
---------------------
2008 2007
-------- --------
Weighted average number of shares
of common stock outstanding. . . . . . . . . . . 9,280 9,160
Effect of dilutive securities:
Stock-based compensation awards. . . . . . . . 30 67
-------- --------
Weighted average number of shares of
common stock assuming dilution . . . . . . . . . 9,310 9,227
======== ========
(7) STOCK-BASED COMPENSATION
Stock-based compensation expense totaled $452,000 and $387,000 for
the three months ended December 31, 2008 and 2007, respectively. The total
income tax benefit recognized in the consolidated statements of income
related to expense for stock-based compensation was $182,000 and $156,000
during the first quarter of fiscal 2009 and 2008, respectively.
STOCK OPTIONS
The Company has not granted stock options subsequent to fiscal 2005.
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 and directors 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,
2008 is presented below:
9
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2008
Weighted-
Average
Weighted- Remaining
Number Average Contractual Aggregate
of Exercise Term Intrinsic
Options Price (Years) Value
------- --------- ----------- ----------
Outstanding at
October 1, 2008. . . . 163,000 $44.94
Exercised. . . . . . . . (8,000) 43.93
------- ------
Outstanding at
December 31, 2008. . . 155,000 $44.99 5.8 $4,391,000
======= ======
Exercisable at
December 31, 2008. . . 155,000 $44.99 5.8 $4,391,000
======= ======
As of December 31, 2008, all outstanding stock options were vested
and compensation expense related to stock options was recognized in prior
fiscal years. The intrinsic value of options exercised totaled $201,000
and $71,000 during the first quarter of fiscal 2009 and 2008, respectively.
The total income tax benefit recognized in the consolidated statements of
income related to the exercise of stock options was $81,000 and $29,000
during the three month periods ending December 31, 2008 and 2007,
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 granted under the Company's 2005
Long-Term Incentive Plan was based on the average of the Company's high and
low stock prices on the date of grant. Upon the adoption of the Company's
Incentive Compensation Plan in February 2008, the fair value of performance
shares and restricted stock granted under the new plan is based on the
Company's closing stock price on the grant date. 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 per share weighted average fair value of restricted shares, including
restricted stock and performance shares, granted during the three months
ended December 31, 2008 and 2007 was $51.15 and $51.05, respectively.
Restricted stock issued to eligible employees and directors 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, 2008 were as follows:
Number of Weighted-
Restricted Average
Share Fair
Awards Value
---------- ---------
Outstanding at October 1, 2008 . . . . . . 47,000 $ 50.41
Granted. . . . . . . . . . . . . . . . . . 10,000 51.15
Vested . . . . . . . . . . . . . . . . . . (1,000) 50.70
Forfeited. . . . . . . . . . . . . . . . . (2,000) 49.21
------- --------
Outstanding at December 31, 2008 . . . . . 54,000 $ 50.60
======= ========
10
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2008
As of December 31, 2008, unrecognized compensation expense related to
restricted share awards totaled approximately $1,300,000 and is expected to
be recognized over a weighted average period of 0.9 years. The total fair
value of shares vested during the three month periods ended December 31,
2008 and 2007 were $77,000 and $83,000, respectively.
(8) CREDIT FACILITY
In October 2007, the Company negotiated a credit facility, which
expires on October 31, 2009. The credit facility permits borrowing up to
$15,000,000. To date, no borrowings have been made under this facility.
The Company is evaluating a new credit facility that would extend the
expiration date of the Company's credit facility and increase permitted
borrowing.
(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,
------------------------------
2008 2007 2008 2007
------ ------ ------ ------
Service cost . . . . . . . . . . . . . . $ 268 $ 279 $ 10 $ 15
Interest cost. . . . . . . . . . . . . . 337 332 17 21
Expected return on plan assets . . . . . (213) (213) - -
Amortization of prior service cost
(credit) . . . . . . . . . . . . . . . 37 37 (28) (28)
Amortization of net loss . . . . . . . . 2 2 3 11
------ ------ ------ ------
Net periodic benefit cost. . . . . . . . $ 431 $ 437 $ 2 $ 19
====== ====== ====== ======
In October 2008, the Company contributed $148,000 to the pension plan
to fulfill funding requirements for the 2008 plan year. In the first
quarter of fiscal 2009, the Company contributed $2,000,000 to the plan,
fulfilling its funding requirements for fiscal 2009 and offsetting the loss
on plan assets that occurred during fiscal 2008.
(10) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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 will apply SFAS No. 141R for any business
combinations beginning in fiscal 2010. The Company is currently evaluating
the impact of SFAS No. 160 to its financial position, results of operations
and financial disclosures.
11
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2008
(11) RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Effective October 1, 2008, the Company adopted the guidance of 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. As a result of the implementation of EITF No. 06-
10, the Company recognized a decrease of $362,000 in its long-term asset
recorded for its collateral assignment split-dollar life insurance
arrangement and recorded a liability of $538,000 for premiums payable under
the arrangement. The October 1, 2008 balance of retained earnings was
reduced by $900,000. The Company's liability for this arrangement is
expected to be settled in fiscal 2014.
Effective October 1, 2008, the Company adopted 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. The adoption of SFAS
No. 157 did not impact the Company's unaudited consolidated financial
statements for the quarter ended December 31, 2008.
Effective October 1, 2008, the Company adopted 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.
The adoption of SFAS No. 159 did not impact the Company's financial
position, results of operations and financial disclosures for the quarter
ended December 31, 2008.
(12) SUBSEQUENT EVENT
On February 5, 2009, the Board of Directors approved changes to the
Company's retirement benefit plans. The objective of the changes is to
transition from a defined benefit philosophy for retirement benefits to a
defined contribution approach. These changes include the following
actions:
. cease all accruals for future years of service in the Company's
defined benefit retirement plans and supplemental retirement
plans and to freeze the plans effective March 31, 2009;
. provide supplemental transition benefits to participants who
satisfy certain age and service requirements;
. provide enhanced benefits in the existing 401(k) retirement
savings plan; and
. adopt a new nonqualified deferred compensation plan for the
benefit of certain executives.
12
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2008
The Company anticipates that the re-design of its retirement plans
will result in future cost savings while offering market based retirement
benefits to its employees. As a result of the changes, the Company expects
to recognize a non-recurring curtailment loss, in accordance with the
guidance of SFAS No. 88, EMPLOYERS' ACCOUNTING FOR SETTLEMENTS AND
CURTAILMENTS OF DEFINED BENEFIT PENSION PLANS AND FOR TERMINATION BENEFITS,
currently estimated in the range of $1.0 to $2.5 million during its second
fiscal quarter. The Company also anticipates that it will increase the
funding of the defined benefit pension plan with a contribution currently
estimated in the range of $4.0 to $5.0 million during fiscal 2009.
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 1.6 million individuals in the U.S., Japan,
France, the United Kingdom, Brazil, Canada, China, Australia, Mexico 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 entry into new markets through joint ventures and acquisitions,
modest unit growth, sale of InLight equipment and badges, 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, 2008
- -------------------------------------------------------------
Revenues for the first quarter of fiscal 2009 were $22,438,000, a
2.9% increase compared to revenues of $21,809,000 for the same quarter in
fiscal 2008. Domestic revenue growth for the first quarter was $886,000,
or 5.5%, resulting from gains in the core radiation monitoring business
driven by increased prices for certain services and increases in domestic
InLight equipment revenue. International revenue declined $257,000, or
4.6%. Growth in volume in most regions was offset by the impact of the
strengthening of the dollar against most foreign currencies which reduced
revenue by approximately $700,000.
13
The domestic InLight equipment sales increase was driven primarily by
a sale to the Canadian government agency responsible for occupational
monitoring and radiation emergency preparedness for the citizens of Canada.
The Company completed a $2,000,000 contract during the quarter ended March
31, 2008 with the agency, under which $1,850,000 of product was delivered.
Approximately $1,100,000 of the product delivered required additional
processing by Landauer to be fully utilized for its intended purpose. Per
the terms of the agreement, the Canadian agency has the option to obtain
additional processing of the dosimetry materials from the Company or to
exchange the materials for finished product. Consistent with the Staff
Accounting Bulletin No. 104 "Revenue Recognition," the Company recorded
$1,100,000 of deferred revenue in fiscal 2008, related to the portion of
the sale that required additional performance by the Company. During the
first quarter of fiscal 2009, the Company recognized $556,000 of revenue
for InLight equipment delivered under the exchange provisions of the
agreement. As of December 31, 2008, $544,000 of the $1,100,000 product
delivered in fiscal 2008 remains in deferred revenue and requires
additional processing by the Company to be fully utilized for its intended
purpose.
Total cost of sales for the first quarter of fiscal 2009 was
$7,140,000, a decrease of $61,000, or 0.8%, compared with cost of sales of
$7,201,000 for the same quarter in fiscal 2008. Gross margins were 68.2%
of revenues for the first quarter of fiscal 2009, compared with the 67.0%
reported for the same period in fiscal 2008. The improvement is primarily
a result of a reduction in overhead driven by lower depreciation and
employee benefits costs. Selling, general and administrative expense for
the first quarter of fiscal 2009 was $6,493,000, a decrease of $295,000, or
4.3%, compared with expense of $6,788,000 for the first quarter of fiscal
2008, which included accelerated depreciation charges of $188,000. The
primary factor contributing to the decrease in selling, general and
administrative expense is a $319,000 reduction, due to timing, in expense
spending to reengineer business processes and the replacement of the
Company's information technology systems that support improved business
relationship management and the order-to-cash cycle.
During the 2007 fiscal year, the Company initiated a project to
replace its information technology system. The project has extended beyond
its initial timeline due to increased customization of the software to
capture the unique business requirements of the Company. Due to the
timeline extension, the Company has commenced a comprehensive evaluation of
the scope, cost and timing of the information systems initiative. At the
end of the 2008 fiscal year, the project was expected to cost $14.5 to
$16.5 million. Although the evaluation is on-going, the Company currently
believes the cost will be above this range.
As part of the IT initiative discussed above, management completed an
evaluation of the usefulness of investments made in legacy information
systems' hardware and software. Based on the evaluation, approximately
$2,185,000 was determined to be impaired and approximately $690,000 of
assets was subject to accelerated depreciation. During the fiscal first
quarter of 2008 the Company recorded $188,000 of accelerated depreciation
relating to these assets.
Resulting operating income for the quarter ended December 31, 2008
was $8,805,000, an increase of 12.6% compared with $7,820,000 reported in
the same quarter a year ago.
Net other income, including equity in income of joint venture, for
the quarter was $135,000 lower than a year ago, reflecting lower net
interest income. The effective income tax rate for the first quarter of
fiscal 2009 and 2008 were 33.6% and 37.3%, respectively. The reduction is
due primarily to a change in the state tax rate driven by changes in the
Illinois state tax laws as well as the benefit of certain credits realized
during the quarter. Resulting net income for the quarter ended
December 31, 2008 amounted to $6,142,000, or $0.66 per diluted share,
compared with $5,276,000 or $0.57 per diluted share, for the same quarter
in fiscal 2008.
14
LIQUIDITY AND CAPITAL RESOURCES
Landauer used $10,376,000 in cash during the quarter ended
December 31, 2008, resulting in cash on hand of $23,562,000.
Cash flows provided by operating activities for the first fiscal
quarter of 2009 were $1,075,000, a decrease of $7,424,000, or 87.4%, from
fiscal 2008. The decrease is due primarily to a payment to the Company's
defined benefit pension plan to increase funding, an increase over prior
year in employee performance compensation, a decrease in deferred contract
revenue and changes in the other components of working capital.
Investing activities included acquisitions of property, plant and
equipment in the amounts of $1,343,000 and $1,556,000 for the three months
ended December 31, 2008 and 2007, respectively. Capital expenditures for
the remainder of fiscal 2009 are expected to be approximately $6.0 to $7.0
million, prior to any increase in the cost of the Company's systems
initiative noted above. The Company anticipates that funds for these
capital improvements will be provided from operations.
The Company's financing activities were comprised primarily of
payments of cash dividends to shareholders. During the first quarter of
fiscal 2009, the Company funded cash dividends of $9,549,000, or $0.525 per
share for the first quarter of fiscal 2009 and $0.50 per share for the
fourth quarter of fiscal 2008. During the first quarter of fiscal 2008,
the Company paid cash dividends of $4,375,000, or $0.475 per share for the
fourth quarter of the prior fiscal year. Such amounts have been provided
from operations.
As described in Note 8 to the financial statements, the Company
negotiated a credit facility in October 2007, which expires on October 31,
2009. The credit facility permits borrowing up to $15,000,000. To date,
no borrowings have been made under this facility. The Company is
evaluating a new credit facility that would extend the expiration date of
the Company's credit facility and increase permitted borrowing.
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
$14,466,000 and $15,626,000, respectively, as of December 31, 2008 and
September 30, 2008. While these amounts represent approximately 50% and
46% of current liabilities, respectively as of December 31, 2008 and
September 30, 2008, 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 90 days over the course of the first quarter for both fiscal
2009 and fiscal 2008.
Landauer also offers radiation monitoring services in the United
Kingdom, Canada, Japan, Brazil, China, Australia, France and Mexico. The
Company's operations in these markets generally do not depend on
significant capital resources.
OUTLOOK FOR BALANCE OF FISCAL 2009
- ----------------------------------
Landauer's business plan for fiscal 2009 currently anticipates
aggregate revenue growth for the year to be in the range of 3 - 5%. The
Company currently anticipates a net income increase in the range of 6 - 8%,
exclusive of the expected curtailment loss from changes to the Company's
retirement programs as described in footnote 12 and additional costs
associated with the extension of its systems initiative.
15
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; continued
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 and costs associated with 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; costs incurred for potential acquisitions or similar
transactions; other anticipated financial events; the effects of changing
economic and competitive conditions; foreign exchange rates; government
regulations; accreditation requirements; changes in the trading market that
affect the cost of obligations under the Company's benefit plans; 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, 2008 and other
reports filed by the Company, from time to time, with the SEC.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
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 will apply SFAS No. 141R for any business
combinations beginning in fiscal 2010. The Company is currently evaluating
the impact of SFAS No. 160 to its financial position, results of operations
and financial disclosures.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
- ------------------------------------------
Effective October 1, 2008, the Company adopted the guidance of 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. As a result of the implementation of EITF No. 06-
10, the Company recognized a decrease of $362,000 in its long-term asset
recorded for its collateral assignment split-dollar life insurance
arrangement and recorded a liability of $538,000 for premiums payable under
the arrangement. The October 1, 2008 balance of retained earnings was
reduced by $900,000. The Company's liability for this arrangement is
expected to be settled in fiscal 2014.
16
Effective October 1, 2008, the Company adopted 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. The adoption of SFAS No.
157 did not impact the Company's unaudited consolidated financial
statements for the quarter ended December 31, 2008.
Effective October 1, 2008, the Company adopted 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.
The adoption of SFAS No. 159 did not impact the Company's financial
position, results of operations and financial disclosures for the quarter
ended December 31, 2008.
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 2008 Landauer Annual
Report on Form 10-K. The Company believes that at December 31, 2008, 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. These risks are set forth in Item 7A of the 2008
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, 2008.
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, 2008 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 quarterly period ended
December 31, 2008 that have materially affected, or are reasonably likely
to materially affect, the Company's internal control over financial
reporting.
17
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, 2008, 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
2008 Landauer Annual Report on Form 10-K. The Company believes there have
been no material changes from the risk factors previously disclosed in the
Company's fiscal 2008 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
18
SIGNATURE
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 6, 2009 /s/ Jonathon M. Singer
------------------------------
Jonathon M. Singer
Senior Vice President,
Treasurer, and Secretary
(Principal Financial and
Accounting Officer)
19