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, 2010
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 has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(Section 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post
such files). Yes [ ] 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 February 1, 2011
---------------------------- -------------------------------
Common stock, $.10 par value 9,410,930
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
December 31, September 30,
(Dollars in Thousands) 2010 2010
- ---------------------- ------------ -------------
ASSETS
- ------
Current assets:
Cash and cash equivalents. . . . . . . . $ 9,186 $ 7,659
Receivables, net of allowances
of $877 and $852, respectively . . . . 22,728 23,702
Inventories. . . . . . . . . . . . . . . 7,424 6,865
Prepaid income taxes . . . . . . . . . . 1,257 5,403
Prepaid expenses and other
current assets . . . . . . . . . . . . 2,444 2,528
-------- --------
Current assets . . . . . . . . . . . . . . . 43,039 46,157
-------- --------
Property, plant and equipment, at cost . . . 88,032 85,306
Accumulated depreciation and amortization. . (46,614) (45,491)
-------- --------
Net property, plant and equipment. . . . . . 41,418 39,815
-------- --------
Equity in joint ventures . . . . . . . . . . 8,544 8,446
Goodwill . . . . . . . . . . . . . . . . . . 39,299 39,268
Intangible assets, net of accumulated
amortization of $5,602 and $5,374,
respectively . . . . . . . . . . . . . . . 9,802 10,002
Dosimetry devices, net of accumulated
amortization of $9,194 and $8,894,
respectively . . . . . . . . . . . . . . . 5,635 5,569
Other assets . . . . . . . . . . . . . . . . 3,372 1,439
-------- --------
Assets . . . . . . . . . . . . . . . . . . . $151,109 $150,696
======== ========
The accompanying notes are an integral part of these financial statements.
2
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited) (Cont'd.)
December 31, September 30,
(Dollars in Thousands) 2010 2010
- ---------------------- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable . . . . . . . . . . . . $ 4,639 $ 7,180
Dividends payable. . . . . . . . . . . . 5,259 5,143
Deferred contract revenue. . . . . . . . 14,284 14,305
Short-term debt. . . . . . . . . . . . . 14,992 12,504
Accrued compensation and
related costs. . . . . . . . . . . . . 4,451 5,923
Other accrued expenses . . . . . . . . . 4,720 4,497
-------- --------
Current liabilities. . . . . . . . . . . . . 48,345 49,552
-------- --------
Non-current liabilities:
Pension and postretirement
obligations. . . . . . . . . . . . . . 10,285 10,089
Deferred income taxes. . . . . . . . . . 9,830 9,934
Other non-current liabilities. . . . . . 1,601 1,418
-------- --------
Non-current liabilities. . . . . . . . . . . 21,716 21,441
-------- --------
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;
9,481,043 and 9,452,765 shares issued
and outstanding at December 31, 2010
and September 30, 2010, respectively . 948 945
Additional paid in capital . . . . . . . 33,207 32,688
Accumulated other comprehensive loss . . (554) (783)
Retained earnings. . . . . . . . . . . . 46,589 45,940
-------- --------
Landauer, Inc. stockholders' equity. . . . . 80,190 78,790
Noncontrolling interest. . . . . . . . . . . 858 913
-------- --------
Stockholders' equity . . . . . . . . . . . . 81,048 79,703
-------- --------
Liabilities and Stockholders' Equity . . . . $151,109 $150,696
======== ========
The accompanying notes are an integral part of these financial statements.
3
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three Months Ended
December 31,
--------------------------
(Dollars in Thousands, Except per Share) 2010 2009
- ---------------------------------------- ------------ ------------
Net revenues . . . . . . . . . . . . . . . . . . $ 28,438 $ 27,234
Costs and expenses:
Cost of sales. . . . . . . . . . . . . . . . 11,083 10,156
Selling, general and administrative. . . . . 9,131 7,804
Acquisition and reorganization costs . . . . 97 1,517
-------- --------
Costs and expenses . . . . . . . . . . . . . . . 20,311 19,477
-------- --------
Operating income . . . . . . . . . . . . . . . . 8,127 7,757
Equity in income of joint ventures . . . . . . . 511 496
Other income, net. . . . . . . . . . . . . . . . 92 5
-------- --------
Income before taxes. . . . . . . . . . . . . . . 8,730 8,258
Income taxes . . . . . . . . . . . . . . . . . . 2,737 3,017
-------- --------
Net income . . . . . . . . . . . . . . . . . . . 5,993 5,241
Less: Net income attributed to
noncontrolling interest. . . . . . . . . . . . 174 114
-------- --------
Net income attributed to Landauer, Inc.. . . . . $ 5,819 $ 5,127
======== ========
Net income per share attributable to
Landauer, Inc. shareholders:
Basic. . . . . . . . . . . . . . . . . . . $ 0.62 $ 0.55
Weighted average basic shares
outstanding. . . . . . . . . . . . . . . 9,319 9,274
======== ========
Diluted. . . . . . . . . . . . . . . . . . $ 0.62 $ 0.55
Weighted average diluted shares
outstanding. . . . . . . . . . . . . . . 9,365 9,311
======== ========
The accompanying notes are an integral part of these financial statements.
4
<table>
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
and Comprehensive Income (Unaudited)
<caption>
Landauer, Inc. Stockholders' Equity
-----------------------------------------------------
Accumulated
Other
Compre- Total Compre-
Common Additional hensive Non- Stock- hensive
Stock Common Paid In Income Retained controlling holders' Income
(Dollars in Thousands) Shares Stock Capital (Loss) Earnings Interest Equity (Loss)
- ---------------------- ---------- -------- ---------- ----------- -------- ----------- -------- --------
<s> <c> <c> <c> <c> <c> <c> <c> <c>
BALANCE SEPTEMBER 30,
2010 . . . . . . . . . . 9,452,765 $ 945 $ 32,688 $ (783) $ 45,940 $ 913 $79,703
Stock-based compensation
arrangements . . . . . . 28,278 3 519 -- -- -- 522
Dividends. . . . . . . . . -- -- -- -- (5,170) (241) (5,411)
Net income . . . . . . . . -- -- -- -- 5,819 174 5,993 $ 5,993
Foreign currency transla-
tion adjustment. . . . . -- -- -- 231 -- 12 243 243
Defined benefit pension
and postretirement
plans activity . . . . . -- -- -- (2) -- -- (2) (2)
---------- ----- -------- ------- -------- ----- -------- -------
Comprehensive Income . . . $ 6,234
=======
BALANCE DECEMBER 31,
2010 . . . . . . . . . . 9,481,043 $ 948 $ 33,207 $ (554) $ 46,589 $ 858 $ 81,048
========== ===== ======== ======= ======== ===== ========
5
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
and Comprehensive Income (Unaudited) (Continued)
Landauer, Inc. Stockholders' Equity
-----------------------------------------------------
Accumulated
Other
Compre- Total Compre-
Common Additional hensive Non- Stock- hensive
Stock Common Paid In Income Retained controlling holders' Income
(Dollars in Thousands) Shares Stock Capital (Loss) Earnings Interest Equity (Loss)
- ---------------------- ---------- -------- ---------- ----------- -------- ----------- -------- --------
BALANCE SEPTEMBER 30,
2009 . . . . . . . . . . 9,381,098 $ 938 $ 30,834 $ (515) $ 42,504 $ 693 $ 74,454
Stock-based compensation
arrangements . . . . . . 50,856 5 299 -- -- -- 304
Dividends. . . . . . . . . -- -- -- -- (5,026) (229) (5,255)
Net income . . . . . . . . -- -- -- -- 5,127 114 5,241 $ 5,241
Foreign currency transla-
tion adjustment. . . . . -- -- -- (493) -- 7 (486) (486)
Defined benefit pension
and postretirement
plans activity . . . . . -- -- -- (16) -- -- (16) (16)
---------- ----- -------- ------- -------- ----- -------- -------
Comprehensive Income . . . $ 4,739
=======
BALANCE DECEMBER 31,
2009 . . . . . . . . . . 9,431,954 $ 943 $ 31,133 $(1,024) $ 42,605 $ 585 $ 74,242
========== ===== ======== ======= ======== ===== ========
<fn>
The accompanying notes are an integral part of these financial statements.
6
</table>
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
December 31,
--------------------------
(Dollars in Thousands) 2010 2009
- ---------------------- ------------ ------------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . $ 5,993 $ 5,241
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . 1,798 1,546
Equity in net income of joint ventures . . . (511) (496)
Dividends from joint ventures. . . . . . . . 911 1,104
Stock-based compensation and related net
tax benefits . . . . . . . . . . . . . . . 429 703
Decrease in accounts receivable, net . . . . 920 826
Decrease (increase) in prepaid taxes . . . . 4,394 (702)
Other operating assets, net. . . . . . . . . (1,316) (447)
(Decrease) increase in accounts payable
and other accrued liabilities. . . . . . . (3,954) 1,513
Decrease in deferred contract revenue. . . . (31) (1,137)
Other operating liabilities, net . . . . . . 315 337
-------- --------
Net cash provided by operating activities. . . . 8,948 8,488
-------- --------
Cash flows used by investing activities:
Acquisition of property, plant and
equipment. . . . . . . . . . . . . . . . . (2,767) (4,514)
Acquisition of joint ventures and
businesses, net of cash acquired . . . . . (245) (29,783)
Purchase of investment securities. . . . . . (1,761) --
-------- --------
Net cash used by investing activities. . . . . . (4,773) (34,297)
-------- --------
Cash flows used by financing activities:
Net borrowings on revolving credit
facility . . . . . . . . . . . . . . . . . 2,485 18,000
Dividends paid to stockholders . . . . . . . (5,052) (9,985)
Dividends paid to noncontrolling interest. . (241) (229)
Proceeds from the exercise of stock
options. . . . . . . . . . . . . . . . . . 91 --
Excess tax benefit from stock-based
compensation arrangements. . . . . . . . . 20 242
-------- --------
Net cash provided (used) by financing
activities . . . . . . . . . . . . . . . . . . (2,697) 8,028
-------- --------
Effects of foreign currency translation. . . . . 49 (199)
-------- --------
Net increase (decrease) in cash
and cash equivalents . . . . . . . . . . . . . 1,527 (17,980)
Opening balance - cash and cash equivalents. . . 7,659 36,493
-------- --------
Ending balance - cash and cash equivalents . . . $ 9,186 $ 18,513
======== ========
The accompanying notes are an integral part of these financial statements.
7
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
December 31, 2010
(Dollars in thousands)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements reflect
the financial position of Landauer, Inc. and subsidiaries ("Landauer" or
"the Company"), including businesses acquired and investments in joint
ventures as of the effective date of the transactions.
The results of operations for the three month periods ended
December 31, 2010 and 2009 are not necessarily indicative of the results to
be expected for the full year. The September 30, 2010 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.
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments necessary for a fair statement
of such financial statements. Certain reclassifications have been made in
the financial statements for comparative purposes. These reclassifications
have no effect on the results of operations or financial position.
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 Annual Report on Form 10-K for the
year ended September 30, 2010 and other financial information filed with
the Securities and Exchange Commission (the "SEC").
The accounting policies followed by the Company are set forth in the
Company's Annual Report on Form 10-K for the year ended September 30, 2010.
There have been no changes to the accounting policies for the three month
period ended December 31, 2010.
(2) BUSINESS COMBINATIONS
ACQUISITION OF GLOBAL PHYSICS SOLUTIONS, INC.
On November 9, 2009, Landauer, Inc. completed the acquisition of all
of the issued and outstanding capital stock of Global Physics Solutions,
Inc. ("GPS") for $22,000. GPS is a nationwide service provider of clinical
physics support, equipment commissioning and accreditation support, and
imaging equipment testing. The Company completed the acquisition of GPS as
a platform to expand into the medical physics services market and reports
the operating results in the Medical Physics reporting segment.
The consideration transferred included amounts applied by Landauer at
the closing to repay all of the outstanding indebtedness of GPS. Landauer
also deposited $1,000 of the consideration transferred into an escrow
account to be held for a period of 18 months and applied to the settlement
of the GPS stockholders' indemnification obligations, if any, in connection
with the transaction. The Company funded the consideration transferred
through a combination of borrowings under its credit agreement and cash on
hand.
8
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2010
The following table summarizes the $22,000 of consideration
transferred to acquire GPS and the assets acquired and liabilities assumed
based on their fair values as of the date of the acquisition.
Current assets . . . . . . . . . . . . . . . . . . $ 804
Property, plant and equipment. . . . . . . . . . . 1,040
Intangible assets. . . . . . . . . . . . . . . . . 5,300
Goodwill . . . . . . . . . . . . . . . . . . . . . 17,380
Current liabilities. . . . . . . . . . . . . . . . (918)
Other long-term liabilities. . . . . . . . . . . . (250)
Long-term deferred taxes, net. . . . . . . . . . . (1,356)
--------
Total assets acquired and liabilities assumed. . . $ 22,000
========
The excess of the consideration transferred over the fair value of
the net tangible and intangible assets acquired resulted in goodwill of
$17,380, which is attributable primarily to the value of the acquired
assembled workforce and GPS' position as a leading provider in a large
fragmented growth market. The goodwill has been assigned to the Medical
Physics reporting segment. Approximately $4,230 of goodwill is expected to
be deductible for income tax purposes. The Company acquired a tradename in
the amount of $900 which has an indefinite life, and $4,400 of customer
relationships which are being amortized over 15 years.
In accordance with the business combinations authoritative guidance
adopted by the Company effective October 1, 2009, the Company expensed
acquisition related transaction and reorganization costs of $1,343 during
the first quarter of fiscal 2010 in connection with the purchase of GPS.
The acquired business's revenues of $2,145 and loss of $119 were recognized
in the Company's consolidated financial statements for the period from
November 1, 2009 to December 31, 2009. The revenues and results of
operations of GPS from November 1 to the date of acquisition, November 9,
were not material to the consolidated financial statements.
OTHER ACQUISITIONS
During fiscal 2010, the Company completed other various acquisitions
which are presented in the aggregate as they were not individually material
to the Company's consolidated financial statements.
On November 2, 2009, Landauer completed the acquisition of all issued
and outstanding capital stock of Gammadata Matteknik AB ("GDM"), a Swedish
provider of radon measurement services. GDM is based near Stockholm,
Sweden and provides measurement services throughout the Scandinavian region
and Europe. The consideration transferred for GDM was $6,603. On
October 2, 2009, Landauer acquired the assets of a dosimetry service
provider in Sweden, now called Landauer Persondosimetri AB ("PDM"). The
consideration transferred for PDM was $1,085. These acquisitions are
consistent with the Company's strategy to expand into new international
markets, primarily by investing in or acquiring existing radiation
monitoring service providers with a prominent local presence. These
acquisitions are reported in the Radiation Monitoring reporting segment.
On June 1, 2010, Landauer acquired certain assets of Upstate Medical
Physics, Inc. ("UMP"), a New York company providing imaging medical physics
services, for consideration transferred of $2,231. This acquisition is
aligned with the Company's strategy to expand into the medical physics
services market and is reported in the Medical Physics reporting segment.
9
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2010
The aggregate consideration transferred and the identifiable assets
acquired and liabilities assumed based on their fair values as of the date
of the GDM, PDM and UMP acquisitions were as follows:
Current assets . . . . . . . . . . . . . . . . . . $ 2,088
Property, plant and equipment. . . . . . . . . . . 606
Intangible assets. . . . . . . . . . . . . . . . . 1,389
Goodwill . . . . . . . . . . . . . . . . . . . . . 8,130
Current liabilities. . . . . . . . . . . . . . . . (2,157)
Other long-term liabilities. . . . . . . . . . . . (137)
--------
Total assets acquired and liabilities assumed. . . $ 9,919
========
The excess of the consideration transferred over the fair value of
the net tangible and intangible assets acquired resulted in goodwill for
these acquisitions of $8,130, of which $6,798 and $1,332 has been assigned
to the Radiation Monitoring segment and the Medical Physics segment,
respectively. Approximately $434 of goodwill is expected to be deductible
for income tax purposes. The Company acquired customer lists, the fair
value of which was determined to be $1,389, which are being amortized over
15 years.
The Company expensed acquisition related transaction and
reorganization costs of $174 during the first quarter of fiscal 2010 for
these acquisitions. The acquired businesses contributed revenues of $1,261
and earnings of $391 to the Company for the period from their respective
dates of acquisition to December 31, 2009.
UNAUDITED PROFORMA RESULTS
The acquired businesses were recognized in the Company's unaudited
consolidated financial statements for the first quarter of fiscal 2011. The
following unaudited proforma summary presents consolidated information of
the Company as if these business combinations had occurred as of October 1,
2009.
Three Months Ended
December 31, 2009
-----------------------------
Landauer, Inc. Landauer, Inc.
Actual Proforma
-------------- --------------
Revenues . . . . . . . . . . . . . . . . . . $ 27,234 $ 30,558
Net income attributed to Landauer, Inc.. . . 5,127 6,228
The proforma results for the three months ended December 31, 2009
include: estimated interest expense in connection with debt financing of
the acquisitions; elimination of pretax acquisition and reorganization
costs of $1,517; the estimated amortization of intangibles; and the income
tax impact of these adjustments. The unaudited proforma information is not
necessarily indicative of the results of operations that would have been
achieved if the acquisitions had been effective as of the beginning of the
period presented.
10
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2010
(3) ACQUISITION AND REORGANIZATION COSTS
Acquisition and reorganization costs for the three months ended
December 31, 2010 and 2009 were $97 and $1,517, respectively. In fiscal
2011, such expenses were related to the establishment of an unconsolidated
joint venture in Turkey. In fiscal 2010, such expenses were primarily for
professional fees with accounting, financial, legal and tax advisors to
support the due diligence, transaction structure and accounting for the
acquisitions described under the footnote "Business Combinations". In
addition, the fiscal 2010 charges included $250 in reorganization costs for
severance to support changes in selected roles in the GPS organization.
(4) GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill, by reportable segment,
for the three months ended December 31, 2010 were as follows:
Radiation Medical
Monitoring Physics Total
---------- -------- --------
Goodwill at September 30, 2010 . . . . $ 20,556 $ 18,712 $ 39,268
Effects of foreign currency. . . . . . 31 -- 31
-------- -------- --------
Goodwill at December 31, 2010. . . . . $ 20,587 $ 18,712 $ 39,299
======== ======== ========
Other intangible assets consisted of the following:
December 31, 2010 September 30, 2010
---------------------- ----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
-------- ------------ -------- ------------
Customer lists . . . . . . $ 13,027 $ 4,743 $ 13,025 $ 4,523
Trademarks and
tradenames . . . . . . . 1,022 -- 1,022 --
Licenses and patents . . . 779 302 752 294
Other intangibles. . . . . 576 557 577 557
-------- -------- -------- --------
Intangible assets. . . . . $ 15,404 $ 5,602 $ 15,376 $ 5,374
======== ======== ======== ========
No impairment of goodwill or other intangible assets was recorded as
of December 31, 2010.
(5) FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date in a principal or most
advantageous market. Fair value is a market-based measurement that is
determined based on inputs, which refer broadly to assumptions that market
participants use in pricing assets or liabilities. A fair value hierarchy
with three tiers has been established to prioritize the inputs to valuation
11
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2010
techniques used to measure fair value. The hierarchy requires entities to
maximize the use of observable inputs and minimize the use of unobservable
inputs. Level 1 inputs include quoted prices in active markets for
identical assets and liabilities. Level 2 inputs consist of observable
inputs other than quoted prices in active markets or indirectly observable
through corroboration with observable market data. Level 3 inputs are not
observable in the market and include management's own judgments about the
assumptions market participants would use in pricing the asset or liability
based on the best information available in the circumstances.
As of December 31, 2010, the Company's financial assets measured and
recorded at fair value on a recurring basis were comprised of investments
in trading securities in the amount of $1,960, which are reported in other
long-term assets. The investments are held in a Rabbi trust for benefits
under the Company's deferred compensation plan. Under the plan,
participants designate investment options to serve as the basis for
measurement of the notional value of their accounts. The investments
include a money market fund and mutual funds that are publicly traded. The
fair values of the shares or underlying securities of these funds are based
on quoted market prices and, therefore, are categorized as Level 1 in the
fair value hierarchy.
Financial assets measured at fair value on a recurring basis are
summarized below:
Fair Value Measurements
at December 31, 2010 Using
-------------------------------------------
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
(Level 1) (Level 2) (Level 3)
------------- ------------- -------------
Asset Category:
Cash equivalents . . . . . $ 29 $ -- $ --
Mutual funds . . . . . . . 1,931 -- --
-------- --------- --------
Total financial assets
at fair value. . . . . . . . $ 1,960 $ -- $ --
======== ========= ========
(6) INCOME TAXES
The effective tax rate was 31.4% compared with 36.5% for the first
fiscal quarter of 2011 and 2010, respectively. The decline in effective
tax rate was due primarily to the realization of R&D tax credits in the
2011 quarter recognized with the passage of recent tax legislation and the
non-deductibility of certain acquisition related costs in fiscal 2010.
As of December 31, 2010, the Company's U.S. income tax returns for
fiscal 2007 and subsequent years remain subject to examination by the
Internal Revenue Service ("IRS"). The Company is not currently under audit
by the IRS. State income tax returns generally have statute of limitations
for periods between three and four years from the date of filing. During
December 2010, the French government completed the audit of fiscal years
2007, 2008, and 2009 without any material impact to the financial
statements. The Company's other foreign operations have statute of
limitations on the examination of tax returns for periods between two and
eight years.
12
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2010
On January 13, 2011 Illinois enacted legislation that increases the
corporate income tax rate by 2.2%, from 4.8% to 7%, effective January 1,
2011. The Company does not expect the increase to have a significant
impact on the Company's income tax liability.
(7) CASH DIVIDENDS
On November 26, 2010, the Company declared a regular quarterly cash
dividend in the amount of $0.55 per share for the first quarter of fiscal
2011. The dividends were funded on January 3, 2011 and were paid to
shareholders of record as of December 10, 2010. Regular quarterly cash
dividends of $0.5375 per share, or $2.15 annually, were declared during
fiscal 2010.
Dividends on time based restricted stock awards issued to employees
and non-employee directors are eligible for dividends at the same rate paid
to shareholders. The Company accrues for dividends on performance stock
awards, which will be paid upon the vesting, in various future periods of
the related restricted performance stock awards assuming the performance
criteria set forth in the agreements relating to such awards are met.
(8) ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss included in
the accompanying unaudited consolidated balance sheets consist of defined
benefit pension and postretirement plan adjustments for net gains, losses
and prior service costs, net defined benefit plan curtailment loss and
cumulative foreign currency translation adjustments. The following table
sets forth the balances in accumulated other comprehensive loss for the
periods ended:
December 31, September 30,
2010 2010
------------ -------------
Foreign currency translation adjustments . . $ 2,231 $ 2,000
Defined benefit pension and
postretirement plans activity. . . . . . . (2,785) (2,783)
-------- --------
Total accumulated other comprehensive
loss . . . . . . . . . . . . . . . . . . . $ (554) $ (783)
======== ========
(9) INCOME PER COMMON SHARE
Basic net income per share was computed by dividing net income
available to common stockholders for the period by the weighted average
number of shares of common stock outstanding during the period. Diluted
net income per share was computed by dividing net income available to
common stockholders for the period by the weighted average number of shares
of common stock that would have been outstanding assuming dilution from
stock-based compensation awards during the period.
13
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2010
The Company's time vested restricted stock, which is a participating
security, is included in the computation of earnings per share pursuant to
the two-class method. Undistributed net income allocated to unvested
restricted stock was not material for the three month periods ended
December 31, 2010 and 2009. The following table sets forth the computation
of net income per share:
Three Months Ended
December 31,
----------------------
2010 2009
-------- --------
Basic Net Income per Share:
Net income attributed to Landauer, Inc.. . . $ 5,819 $ 5,127
Less: Income allocated to unvested
restricted stock . . . . . . . . . . . . . 30 16
-------- --------
Net income available to common
stockholders . . . . . . . . . . . . . . . $ 5,789 $ 5,111
======== ========
Basic weighted averages shares outstanding . 9,319 9,274
-------- --------
Net income per share - Basic . . . . . . . . . . $ 0.62 $ 0.55
======== ========
Diluted Net Income per Share:
Net income attributed to Landauer, Inc.. . . $ 5,819 $ 5,127
Less: Income allocated to unvested
restricted stock . . . . . . . . . . . . . 30 16
-------- --------
Net income available to common
stockholders . . . . . . . . . . . . . . . $ 5,789 $ 5,111
======== ========
Basic weighted averages shares outstanding . 9,319 9,274
Effect of dilutive securities. . . . . . . . 46 37
-------- --------
Diluted weighted averages shares
outstanding. . . . . . . . . . . . . . . . 9,365 9,311
-------- --------
Net income per share - Diluted . . . . . . . . . $ 0.62 $ 0.55
======== ========
(10) CREDIT FACILITY
In October 2007, the Company negotiated a credit facility, which
originally had an expiration date of October 31, 2009 and permitted
borrowings up to $15,000. In June 2009, the Company executed a first
amendment to its credit agreement. The first amendment, among other
changes to the original terms, increased the aggregate amount of funds
available to $30,000 subject, with respect to amounts borrowed in excess of
$20,000, to certain criteria outlined in the credit agreement. In February
2010, the Company executed a second amendment to its credit agreement. The
second amendment, among other changes to the original terms, extended the
maturity date to February 12, 2012, added Global Physics Solutions, Inc. as
a borrower, added a prepayment penalty equal to 1.0% should the Company
voluntarily terminate the facility prior to February 12, 2011, and modified
the interest rate on outstanding amounts from either LIBOR plus 2.9% or the
bank's prime rate plus 0.47% to either LIBOR plus 2.1% or the bank's prime
rate minus 0.28%. Effective October 31, 2010, the Company executed a third
amendment to its credit agreement. The third amendment, among other
changes, increased the aggregate amount of funds available to the Company
to $50,000 subject, with respect to amounts borrowed in excess of $25,000,
14
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2010
to a borrowing base test, extended the maturity date to October 31, 2013,
modified the manner in which the interest rate on outstanding amounts would
be determined, and extended the applicable date of the prepayment penalty
such that the penalty would be due if the Company should voluntarily
terminate the facility prior to October 31, 2011.
The Company must maintain a fixed charge coverage ratio, as
calculated pursuant to the terms of the first amendment to the credit
agreement, as of the end of each calendar quarter of not less than 1.35 to
1.00, and a funded debt to earnings before interest, taxes and depreciation
and amortization ratio less than or equal to 1.5 to 1.00. As of
December 31, 2010, the fixed charge coverage ratio was approximately 19.9,
and the Company was in compliance with the covenants contained in the
credit agreement. The debt is classified as a current liability as the
agreement contains a subjective acceleration clause as well as a Company
elected arrangement which provides for automatic draws or pay downs on the
credit facility on a daily basis after taking into account operating cash
needs. Based on current business plans and projected operating cash flows,
the Company anticipates continued usage of the revolving facility beyond
the next twelve months.
In connection with its fiscal 2010 first quarter acquisitions, the
Company borrowed $18,000 under the credit agreement. As of December 31,
2010 and September 30, 2010, the balance remaining on these borrowings was
$14,992 and $12,504, respectively. Interest expense on the borrowings for
the three months ended December 31, 2010 and 2009 was $125 and $91,
respectively. The weighted average interest rate was 2.38% for the first
three months of fiscal 2011. At December 31, 2010 the applicable interest
rate was 2.357% per annum.
(11) STOCK-BASED COMPENSATION
Stock-based compensation expense for restricted share awards totaled
$427 and $251 for the three months ended December 31, 2010 and 2009,
respectively. The total income tax benefit recognized in the unaudited
consolidated statements of income related to expense for stock-based
compensation was $158 and $91 during the first three months of fiscal 2011
and 2010, respectively.
RESTRICTED SHARE AWARDS
Restricted share transactions during the three months ended
December 31, 2010 were as follows:
Number of
Restricted Weighted-
Share Average
Awards Fair
(in thousands) Value
-------------- ---------
Outstanding at October 1, 2010 . . . . . . 121 $ 60.81
Granted. . . . . . . . . . . . . . . . . . 27 65.52
Forfeited. . . . . . . . . . . . . . . . . (1) 62.36
--- -------
Outstanding at December 31, 2010 . . . . . 147 $ 61.66
=== =======
15
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2010
The per share weighted average fair value of restricted shares,
including restricted stock and performance shares, granted during the three
months ended December 31, 2010 and 2009 was $65.52 and $62.36,
respectively. As of December 31, 2010, unrecognized compensation expense
related to restricted share awards totaled $5,303 and is expected to be
recognized over a weighted average period of 1.58 years. No shares vested
during the three month period ended December 31, 2010. The total fair
value of shares vested during the three month period ended December 31,
2009 was $26.
STOCK OPTIONS
A summary of stock option activity during the three months ended
December 31, 2010 is presented below:
Weighted-
Weighted- Average Aggregate
Number of Average Remaining Intrinsic
Options (in Exercise Contractual Value (in
thousands) Price Term (Years) thousands)
------------ ---------- ------------ -----------
Outstanding at
October 1, 2010. . . 93 $ 45.10
Exercised. . . . . . . (2) 39.17
---- ---------
Outstanding at
December 31, 2010. . 91 $ 45.25 4.0 $ 1,337
==== ========= ==== =========
Exercisable at
December 31, 2010. . 91 $ 45.25 4.0 $ 1,337
==== ========= ==== =========
The Company has not granted stock options subsequent to fiscal 2005.
As of December 31, 2010, 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 $59 and
$581 during the first three months of fiscal 2011 and 2010, respectively.
The total income tax benefit recognized in the unaudited consolidated
statements of income related to the exercise of stock options was $22 and
$210 during the three month periods ended December 31, 2010 and 2009,
respectively.
(12) EMPLOYEE BENEFIT PLANS
The components of net periodic benefit cost for pension and retiree
medical plans were as follows:
Pension Other
Benefits Benefits
-------------- -------------
Three Months Ended
December 31,
-------------------------------
2010 2009 2010 2009
------ ------ ------ ------
Service cost . . . . . . . . . . . . . . $ -- $ -- $ 13 $ 13
Interest cost. . . . . . . . . . . . . . 363 359 14 16
Expected return on plan assets . . . . . (345) (321) -- --
Amortization of prior service credit . . -- -- (28) (28)
Amortization of net loss . . . . . . . . 26 12 -- --
------ ------ ------ ------
Net periodic benefit cost (credit) . . . $ 44 $ 50 $ (1) $ 1
====== ====== ====== ======
16
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2010
The Company, under IRS minimum funding standards, is not required to
make contributions to its defined benefit pension plan during fiscal 2011.
The Company maintains a 401(k) Retirement Savings Plan for certain
employees, which provides for employer matching contributions, and a
supplemental defined contribution plan for certain executives, which
provides for employer contributions at the discretion of the Company.
Amounts expensed for Company contributions under these plans during the
first quarter of fiscal 2011 and 2010 were $301 and $270, respectively.
Distribution of the chief executive officer's additional benefit of $1,324
to the supplemental plan, per his amended employment agreement, was made
during October 2010.
(13) SEGMENT INFORMATION
In connection with the acquisition of GPS, during the first quarter
of fiscal 2010, the Company began to operate in two reportable segments,
Radiation Monitoring and Medical Physics. Historically the Company
operated in the Radiation Monitoring segment exclusively. The factors for
determining the reportable segments include the products and services
offered combined with the nature of the individual business activities, as
well as key financial information reviewed by management.
The Radiation Monitoring segment provides analytical services to
determine occupational and environmental radiation exposure. These
services are provided internationally primarily to hospitals, medical and
dental offices, universities, national laboratories, and nuclear
facilities. Radiation Monitoring activities include the manufacture of
various types of radiation detection monitors, the distribution and
collection of the monitors to and from customers, and the analysis and
reporting of exposure findings. In addition to providing analytical
services, the Radiation Monitoring segment leases or sells dosimetry
detectors and reading equipment.
The Medical Physics segment provides therapeutic and imaging physics
services to domestic hospitals and radiation therapy centers. Service
offerings include clinical physics support, equipment commissioning,
accreditation support and imaging equipment testing. These professional
services are provided to customers on-site by skilled physicists. Medical
Physics services are provided through the Company's GPS subsidiary.
The Company evaluates performance of the individual segments based
upon, among other metrics, segment operating income or loss. Segment
operating income or loss is segment revenue less segment cost of sales and
segment selling, general and administrative expense. Given the recent
addition of the Medical Physics segment, the Company currently does not
perform allocations between the segments. Corporate expenses for shared
functions, including corporate management, corporate finance and human
resources, are recognized in the Radiation Monitoring segment where they
have historically been reported. In addition, acquisition and
reorganization costs are not allocated to the segments. Information about
net other income, including interest income and expense, and income taxes
is not provided at the segment level. As the operational integration
activities of the Medical Physics segment progress, including transaction
processing, human resources and benefits administration, and sales and
marketing activities, the Company expects to reevaluate the allocation of
costs if or when these costs become material.
17
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2010
The following tables summarize financial information for each
reportable segment:
Three Months Ended December 31, 2010
------------------------------------
Radiation Medical Consoli-
Monitoring Physics dated
---------- -------- --------
Revenues . . . . . . . . . . . . . . . $ 23,904 $ 4,534 $ 28,438
Operating income (loss). . . . . . . . 8,585 (458) 8,127
Depreciation and amortization. . . . . 1,584 213 1,797
Capital expenditures for property,
plant & equipment. . . . . . . . . . 2,586 182 2,768
Three Months Ended December 31, 2009
------------------------------------
Radiation Medical Consoli-
Monitoring Physics dated
---------- -------- --------
Revenues . . . . . . . . . . . . . . . $ 25,089 $ 2,145 $ 27,234
Operating income (loss). . . . . . . . 7,931 (174) 7,757
Depreciation and amortization. . . . . 1,437 109 1,546
Capital expenditures for property,
plant & equipment. . . . . . . . . . 4,470 44 4,514
December 31, September 30,
2010 2010
------------ -------------
Segment Assets:
Radiation Monitoring . . . . . . . . . $122,624 $121,908
Medical Physics. . . . . . . . . . . . 28,485 28,788
-------- --------
Consolidated assets. . . . . . . . . . . . $151,109 $150,696
======== ========
(14) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During the first fiscal quarter of 2011, there were no new accounting
pronouncements issued, which would have a material impact on the Company's
consolidated financial statements.
(15) RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In June 2009, the Financial Accounting Standards Board ("FASB")
approved amended guidance for determining whether an entity is a variable
interest entity ("VIE"). The guidance requires an enterprise to perform an
analysis to determine whether a company's variable interest gives it a
controlling financial interest in a VIE. A company is required to assess
whether it has the power to direct the activities of a VIE that most
significantly impact the entity's economic performance and the obligation
to absorb losses of the entity or the right to receive benefits from the
entity. In addition, on-going reassessments of whether an enterprise is
the primary beneficiary of a VIE and additional disclosures about an
enterprise's involvement in VIEs are required. The adoption of this
guidance in the first quarter of fiscal 2011 did not have an impact on the
Company's consolidated financial statements.
18
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (Cont'd.)
December 31, 2010
In September 2009, the FASB approved the issuance of new guidance for
arrangements with multiple deliverables and arrangements that include
software elements. By providing another alternative for determining the
selling price of deliverables, the new guidance allows companies to
allocate arrangement consideration in multiple deliverable arrangements in
a manner that better reflects the transaction's economics and often results
in earlier revenue recognition. In addition, the residual method of
allocating arrangement consideration is no longer permitted under the new
guidance. The new guidance for arrangements that include software elements
removes non-software components of tangible products and certain software
components of tangible products from the scope of existing software revenue
guidance, resulting in the recognition of revenue similar to that for other
tangible products. The new guidance requires expanded qualitative and
quantitative disclosures. The adoption of this guidance in the first
quarter of fiscal 2011 did not have an impact on the Company's consolidated
financial statements.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Landauer is a leading global provider of technical and analytical
services to determine occupational and environmental radiation exposure and
is the leading domestic provider of outsourced medical physics services.
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 customers, and the
analysis and reporting of exposure findings. These services are provided
to approximately 1.6 million individuals globally. 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's radiation monitoring business is a mature business and
growth in numbers of customers is modest. In recent years, the Company's
strategy has been to expand into new international markets, primarily by
partnering with existing dosimetry service providers with a prominent local
presence. In addition, the Company has been developing new platforms and
formats for its OSL technology, such as InLight(r), to gain access to
markets where the Company previously did not have a significant presence,
such as smaller in-house and commercial laboratories, nuclear power
facilities, tactical military monitoring and hospitals to support
monitoring of patient exposure to radiation. 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 obtain regular price increases from its customers will be
more limited in the future. The continued economic downturn and uncertain
impact of healthcare reform has resulted in increased pricing pressure with
the Company's healthcare customer base, which is expected to continue into
the future.
Through its Global Physics Solutions, Inc. ("GPS") subsidiary, which
was acquired in November 2009, the Company provides therapeutic and imaging
physics services to the medical community. GPS is the leading nationwide
provider of medical physics services to hospitals and radiation therapy
centers. Medical physics services is a large fragmented market. Market
growth is expected to be driven by: the utilization of radiation in the
provision of healthcare; trends towards outsourcing of services in
healthcare settings; and a tightening domestic supply of qualified medical
physicists.
RESULTS OF OPERATIONS
In connection with the acquisition of GPS, during the first quarter
of fiscal 2010, the Company began to operate in two reportable segments,
Radiation Monitoring and Medical Physics. Historically the Company
operated in the Radiation Monitoring segment exclusively. The Company
evaluates performance of the individual segments based upon, among other
metrics, segment operating earnings or loss. Segment operating income or
loss is segment revenue less segment cost of sales and segment selling,
general and administrative expenses. Given the recent addition of the
Medical Physics segment, the Company currently does not perform allocations
between the segments. Corporate expenses for shared functions, including
corporate management, corporate finance and human resources, are recognized
in the Radiation Monitoring segment where they have historically been
reported. The Company anticipates that, as it progresses along the
integration of transaction processing, human resources and benefits
administration and business development activities, among other areas, the
20
degree of expense allocation between the segments may change. Additional
information on the Company's reportable segments is contained under the
footnote "Segment Information" herein.
Comparability of results is impacted by the acquisition of GPS during
the second month of the first fiscal quarter of 2010 as compared to the
results for a full three month period in fiscal 2011.
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2010 AND
DECEMBER 31, 2009
Revenues for the first fiscal quarter of 2011 were $28.4 million, an
increase of $1.2 million, or 4.4% compared with revenues of $27.2 million
for the same quarter in fiscal 2010. The Medical Physics segment
contributed an increase of $2.4 million, offset by a decline in the
Radiation Monitoring segment of $1.2 million.
Cost of sales for the first fiscal quarter of 2011 was $11.1 million,
an increase of $0.9 million, or 9.1%, compared with cost of sales of $10.2
million for the same quarter in fiscal 2010. The Medical Physics segment
contributed an increase of $1.9 million, offset by a decline in the
Radiation Monitoring segment of $1.0 million. Gross margins were 61.0% for
the first fiscal quarter of 2011, compared with 62.7% for the same period
in fiscal 2010. The decline in gross margin rate was primarily due to the
increased contribution of lower margin Medical Physics revenue, which had a
gross margin of 21.7%.
Selling, general and administrative costs for the first fiscal
quarter of 2011 were $9.1 million, an increase of $1.3 million, or 17.0%
compared with the $7.8 million reported for the first fiscal quarter of
2010. The Medical Physics segment and Radiation Monitoring segment
contributed an increase of $0.7 million and $0.6 million, respectively.
In conjunction with the Company's acquisition activity, the Company
incurred $0.1 million and $1.5 million ($1.1 million, after-tax) of
acquisition related transaction and reorganization costs for the first
fiscal quarter of 2011, related to the establishment of an unconsolidated
joint venture in Turkey, and 2010, related to its acquisitions as disclosed
in the footnote "Business Combinations", respectively.
Operating income for the first fiscal quarter of 2011 was $8.1
million, an increase of $0.3 million, or 4.8% compared with operating
income of $7.8 million for the same quarter in fiscal 2010. For the first
fiscal quarter of 2011, the Medical Physics segment had an operating loss
of $0.5 million, and the Radiation Monitoring segment had operating income
of $8.6 million.
Net other income, including equity in income of joint ventures, for
the first fiscal quarter of 2011 was $0.6 million, an increase of $0.1
million, or 20.4%, from the prior year quarter.
The effective tax rate was 31.4% and 36.5% for the first fiscal
quarter of 2011 and 2010, respectively. The decline in the effective tax
rate was due primarily to the realization of R&D tax credits in the 2011
quarter recognized with the passage of recent tax legislation and the
non-deductibility of certain acquisition related costs in fiscal 2010.
Net income for the first fiscal quarter ended December 31, 2010 was
$5.8 million, an increase of $0.7 million, or 13.5% compared with $5.1
million for the first fiscal quarter of 2010. The resulting diluted
earnings per share for the first fiscal quarter of 2011 were $0.62 compared
with $0.55 for the first fiscal quarter of 2010.
21
Earnings before interest, taxes, depreciation and amortization
("EBITDA") were $10.3 million, a $0.6 million or 6.0% increase compared
with $9.7 million a year ago. The increase was due primarily to the $1.4
million reduction in acquisition related transaction and reorganization
costs for the first fiscal quarter of 2011 offset by the increased
operating loss in the Medical Physics segment and increased expense
spending for the Company's initiative to replace its information technology
systems. A reconciliation of net income to EBITDA is included under Item 2
herein.
The following is a discussion of the Company's segment operating
results.
RADIATION MONITORING
Radiation Monitoring revenue for the first fiscal quarter of 2011
declined 4.7%, or $1.2 million to $23.9 million. Of the decline, $1.4
million is due to the previously reported change in the supply relationship
between Landauer and Nagase Landauer, the Company's unconsolidated joint
venture in Japan. With the conversion of Nagase Landauer's customer base
from Luxel to the InLight technology during fiscal 2010, Nagase Landauer no
longer purchases service badges from the Company. The historical Luxel
badge revenue is partially replaced by a royalty arrangement, resulting in
no corresponding impact on net income. Without the Nagase Landauer impact,
domestic Radiation Monitoring revenue declined 1.2%, or $0.2 million, and
international Radiation Monitoring revenue increased 7.0%, or $0.5 million,
on organic growth in most regions.
Radiation Monitoring gross margin for the first fiscal quarter of
2011 increased to 68.5% from 66.0% in the year ago period, primarily due to
the decline in lower margin sales to Nagase Landauer. Selling, general and
administrative costs in the Radiation Monitoring segment for the first
fiscal quarter of 2011 increased 8.3%, or $0.6 million, to $7.7 million.
The increase is due primarily to $0.2 million in costs to replace the
Company's IT systems and $0.2 million of increased spending to support
international revenue growth. Radiation Monitoring operating income,
inclusive of the impact of acquisition related transaction and
reorganization costs, for the first fiscal quarter of 2011 increased 8.3%,
or $0.7 million, to $8.6 million compared with operating income of $7.9
million for the same period in fiscal 2010.
MEDICAL PHYSICS
Medical Physics revenue for the first fiscal quarter of 2011
increased 111.4%, or $2.4 million, to $4.5 million on $0.7 million of
organic growth and $1.7 million due to the annualized impact of acquired
companies. Medical Physics gross margin declined to 21.7% from 24.8% in
the year ago period, primarily due to the investment in additional
headcount to support future growth opportunities. Selling, general and
administrative costs in the Medical Physics segment for the first fiscal
quarter of 2011 increased 104.5%, or $0.7 million, to $1.4 million. The
increase is due to the annualized impact of acquired companies of $0.5
million and investments to support organic growth. Medical Physics
operating loss for the first fiscal quarter of 2011 was $0.5 million,
compared with an operating loss of $0.2 million for the same period in
fiscal 2010.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $1.5 million to $9.2 million
during the quarter ended December 31, 2010. The Company's primary sources
of liquidity are cash flows from operations and funds available under its
credit facility.
22
Cash provided by operating activities for the three months ended
December 31, 2010 was $8.9 million compared to $8.5 million in the first
quarter of fiscal 2010. The increase in operating cash flow was driven
primarily by increased earnings and changes in the components of working
capital.
Cash used by investing activities for the first fiscal quarter of
2011 included $0.2 million for the acquisition of businesses, compared to
$29.8 million used in fiscal 2010 for the Company's acquisitions, as
described under the footnote "Business Combinations" herein. Investing
activities during the fiscal 2011 quarter also included $1.8 million for
the purchase of trading securities, primarily related to the Company's
funding of its deferred compensation program in a Rabbi Trust arrangement.
The Company's acquisitions of property, plant and equipment during the
first quarter of fiscal 2011 and 2010 were $2.8 million and $4.5 million,
respectively. Included in the acquisitions of property, plant and
equipment were costs of $2.1 million and $2.7 million in the first quarter
of fiscal 2011 and 2010, respectively, for the Company's initiative to
replace various business processes and replace components of its
information technology systems that support customer relationship
management and the order-to-cash cycle. The total project cost is
estimated currently to be approximately $40.0 million to $44.0 million and
the first phase was implemented in the first quarter of fiscal 2011. Total
capital expenditures for fiscal 2011 are expected to be approximately $10.0
million to $12.0 million principally for the project to replace the
Company's information systems. The Company anticipates that funds for
these capital improvements will be provided from operations.
Financing activities were comprised primarily of net borrowings on
the Company's credit facility and payments of cash dividends to
shareholders. During the first quarter of fiscal 2011, the Company funded
cash dividends for the quarter of $5.1 million, or $0.55 per share. During
the first quarter of fiscal 2010, the Company paid cash dividends of
$0.5375 per share for the quarter and $0.525 per share for the fourth
quarter of fiscal 2009, due to timing, of $10.0 million. Such amounts were
provided from operations.
In connection with its fiscal 2010 first quarter acquisitions, the
Company borrowed $18.0 million under its credit agreement, originally dated
October 5, 2007. As described under the footnote, "Credit Facility"
herein, the Company executed its first amendment to the credit agreement in
June 2009 and its second amendment in February 2010. Effective October 31,
2010, the Company executed a third amendment to its loan agreement. The
third amendment, among other changes, increased the aggregate amount of
funds available to the Company to $50.0 million; subject, with respect to
amounts borrowed in excess of $25.0 million to a borrowing base test,
extended the maturity date to October 31, 2013, modified the manner in
which the interest rate on outstanding amounts would be determined, and
extended the applicable date of the prepayment penalty such that the
penalty would be due if the Company should voluntarily terminate the
facility prior to October 31, 2011. At December 31, 2010 the applicable
interest rate was 2.357% per annum.
The Company must maintain a fixed charge coverage ratio, as
calculated pursuant to the terms of the first amendment to the credit
agreement, as of the end of each calendar quarter of not less than 1.35 to
1.00, and a funded debt to EBITDA ratio less than or equal to 1.5 to 1.00.
As of December 31, 2010, the fixed charge coverage ratio was approximately
19.9, and the Company was in compliance with the covenants contained in the
credit agreement. The debt is classified as current as the agreement
contains a subjective acceleration clause as well as a Company elected
arrangement which provides for automatic draws or pay downs on the credit
facility on a daily basis after taking into account operating cash needs.
Based on current business plans and projected operating cash flows, the
Company anticipates continued usage of the revolving facility beyond the
next twelve months. As of December 31, 2010, the Company had reduced the
$18.0 million borrowed during the first quarter of fiscal 2010 by $3.0
million.
23
Landauer requires limited working capital for its operations as many
of its customers pay for services in advance. Such advance payments,
reflected on the balance sheet as "Deferred Contract Revenue", amounted to
$14.3 million for both periods ending December 31, 2010 and September 30,
2010. While these amounts represent approximately 29.5% and 28.9% of
current liabilities as of December 31, 2010 and September 30, 2010,
respectively, such amounts do not represent a cash obligation.
Landauer offers radiation monitoring services in Australia, Brazil,
Canada, China, France, Japan, Mexico, Sweden and the United Kingdom. The
Company's operations in these markets generally do not depend on
significant capital resources.
The Company is exposed to market risk, including changes in foreign
currency exchange rates. The financial statements of the Company's
non-U.S. subsidiaries are remeasured into U.S. dollars using the U.S.
dollar as the reporting currency. The market risk associated with foreign
currency exchange rates has historically been immaterial in relation to the
Company's financial position, results of operations, and cash flows.
In the opinion of management, cash flows from operations and the
Company's borrowing capacity under its credit facility are adequate for
projected operations and capital spending programs, as well as continuation
of the regular cash dividend program. From time to time, the Company may
have the opportunity to make investments for acquisitions or other
purposes, and borrowings can be made under the current credit facility to
fund such investments.
OUTLOOK FOR FISCAL 2011
Landauer's current business plan for fiscal 2011 anticipates
consolidated net revenue for the year to be in the range of $120 to $126
million, including $4 to $8 million in sales to the U.S military and first
responder markets. Military and first responder market sales are dependent
on military and other governmental appropriations and approvals which have
yet to be obtained. The business plan anticipates spending of $10 to $12
million to support the completion of the Company's systems initiative and
the related post implementation support, with $2 to $3 million being
expensed in the current fiscal year. Based upon the above assumptions, the
Company anticipates reported net income for fiscal 2011 in the range of $24
to $26 million.
USE OF NON-GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") FINANCIAL
MEASURES
In evaluating the Company's financial performance and outlook,
management uses EBITDA, which is a non-GAAP measure. Management believes
that such measure, as a supplement to net income, diluted earnings per
share and other GAAP measures, is a useful indicator for investors. This
indicator can help readers gain a meaningful understanding of the Company's
core operating results and future prospects without the effect of non-cash
items and the Company's ability to generate cash flows from operations that
are available for taxes, capital expenditures, and debt repayment.
Investors should recognize that non-GAAP measures might not be comparable
to similarly titled measures of other companies. These measures should be
considered in addition to, and not as a substitute for or superior to, any
measure of performance, cash flows or liquidity prepared in accordance with
accounting principles generally accepted in the United States.
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The following table reconciles net income to EBITDA:
Three Months Ended
December 31,
----------------------
2010 2009
-------- --------
Net income attributed to Landauer, Inc.. . . . . $ 5,819 $ 5,127
Add back:
Interest and other (income) expense. . . . . (92) (5)
Income taxes . . . . . . . . . . . . . . . . 2,737 3,017
Depreciation and amortization. . . . . . . . 1,798 1,546
-------- --------
Earnings before interest, taxes, depreciation
and amortization . . . . . . . . . . . . . . . $ 10,262 $ 9,685
======== ========
FORWARD-LOOKING STATEMENTS
Certain of the statements made herein constitute forward-looking
statements that are based on 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; the ability to
protect and utilize the Company's intellectual property; continued customer
acceptance of the InLight technology; the adaptability of optically
stimulated luminescence (OSL) technology to new platforms and formats;
military and other government funding for the purchase of certain of the
Company's equipment and services; the impact on sales and pricing of
certain customer group purchasing arrangements; the costs associated with
the Company's research and business development efforts; the usefulness of
older technologies and related licenses and intellectual property; the
effectiveness of and costs associated with the Company's IT platform
enhancements; 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 ability
to integrate the operations of acquired businesses and to realize the
expected benefits of acquisitions; 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 what is anticipated today. 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, 2010 and other reports filed by the Company, from
time to time, with the SEC.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During the first fiscal quarter of 2011, there were no new accounting
pronouncements issued, which would have a material impact on the Company's
consolidated financial statements.
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RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In June 2009, the Financial Accounting Standards Board ("FASB")
approved amended guidance for determining whether an entity is a variable
interest entity ("VIE"). The guidance requires an enterprise to perform an
analysis to determine whether a company's variable interest gives it a
controlling financial interest in a VIE. A company is required to assess
whether it has the power to direct the activities of a VIE that most
significantly impact the entity's economic performance and the obligation
to absorb losses of the entity or the right to receive benefits from the
entity. In addition, on-going reassessments of whether an enterprise is
the primary beneficiary of a VIE and additional disclosures about an
enterprise's involvement in VIEs are required. The adoption of this
guidance in the first quarter of fiscal 2011 did not have an impact on the
Company's consolidated financial statements.
In September 2009, the FASB approved the issuance of new guidance for
arrangements with multiple deliverables and arrangements that include
software elements. By providing another alternative for determining the
selling price of deliverables, the new guidance allows companies to
allocate arrangement consideration in multiple deliverable arrangements in
a manner that better reflects the transaction's economics and often results
in earlier revenue recognition. In addition, the residual method of
allocating arrangement consideration is no longer permitted under the new
guidance. The new guidance for arrangements that include software elements
removes non-software components of tangible products and certain software
components of tangible products from the scope of existing software revenue
guidance, resulting in the recognition of revenue similar to that for other
tangible products. The new guidance requires expanded qualitative and
quantitative disclosures. The adoption of this guidance in the first
quarter of fiscal 2011 did not have an impact on the Company's consolidated
financial statements.
CRITICAL ACCOUNTING POLICIES
The critical accounting policies followed by the Company are set
forth in Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in "Summary of Significant
Accounting Policies" in the Notes to Consolidated Financial Statements of
the Company's Annual Report on Form 10-K for the year ended September 30,
2010. The Company believes that at December 31, 2010, there have been no
material changes to this information.
26
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
"Quantitative and Qualitative Disclosures about Market Risk" of the
Company's Annual Report on Form 10-K for the year ended September 30, 2010.
The Company believes there have been no material changes in the information
provided from the end of the preceding fiscal year through December 31,
2010.
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, 2010 were effective.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the first fiscal quarter of 2011, the Company implemented the
first phase of its systems initiative which supports the procure to pay
cycle, inventory and general ledger systems. Although management believes
that the new system has maintained or enhanced the Company's internal
controls over financial reporting, management has yet to complete
documenting and testing the effectiveness of the new system's impact on the
internal control environment for fiscal 2011. As such, there is the risk
that the new system and/or new internal controls have yet unidentified
deficiencies that could constitute significant deficiencies, material
weaknesses or aggregate to material weaknesses in the Company's internal
control over financial reporting. Management anticipates testing the new
system and the new internal controls during fiscal 2011 as part of its
ongoing testing of the Company's internal controls. There were no other
changes in the Company's internal control over financial reporting that
occurred during the quarterly period ended December 31, 2010 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
27
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, 2010, 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 "Risk
Factors" of the Company's Annual Report on Form 10-K for the year ended
September 30, 2010. The Company believes there have been no material
changes in the information provided from the end of the preceding fiscal
year through December 31, 2010.
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
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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 8, 2011
/s/ Jonathon M. Singer
--------------------------------------
Jonathon M. Singer
Senior Vice President, Treasurer,
Secretary and Chief Financial Officer
(Principal Financial and
Accounting Officer)
29