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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended December 31, 2004 or
[ ] TRANSITION REPORT pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition from ____ to ____
LANDAUER, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Commission File Number 1-9788
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 checkmark whether the registrant is an accelerated filer as
defined in Rule 12.b.2 of the Exchange Act
Yes [ X ] No [ ].
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class February 8, 2005
------------------------------ ----------------
Common stock, $.10 par value 8,952,278
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LANDAUER, INC. AND SUBSIDIARIES
Condensed Consolidated Unaudited Balance Sheets
(000's, except share amounts)
ASSETS
------
December 31, September 30,
2004 2004
------------ -------------
Current assets:
Cash and cash equivalents. . . . . . $ 9,884 $ 7,979
Short-term investments . . . . . . . 462 616
Accounts receivable, less
allowances of $465 at 12/31/04
and $460 at 9/30/04. . . . . . . . 16,921 15,060
Inventories. . . . . . . . . . . . . 3,251 3,206
Prepaid expenses . . . . . . . . . . 1,200 1,116
Prepaid income taxes . . . . . . . . 2,153 2,292
Deferred income taxes. . . . . . . . 21 21
-------- --------
Current assets . . . . . . . . 33,892 30,290
Property, plant and equipment,
at cost . . . . . . . . . . . . . . 41,916 41,021
Less: Accumulated depreciation
and amortization . . . . . . . . (23,521) (22,481)
-------- --------
Net property, plant
and equipment. . . . . . . . 18,395 18,540
Goodwill & other intangible
assets net of amortization . . . . 19,383 19,493
Equity in joint venture. . . . . . . 3,904 3,916
Dosimetry devices, net of
amortization . . . . . . . . . . . 5,247 4,791
Other assets . . . . . . . . . . . . 487 488
-------- --------
$ 81,308 $ 77,518
======== ========
The accompanying notes are an integral part of these financial statements.
2
LANDAUER, INC. AND SUBSIDIARIES
Condensed Consolidated Unaudited Balance Sheets (Continued)
(000's, except share amounts)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------
December 31, September 30,
2004 2004
------------ -------------
Current liabilities:
Accounts payable . . . . . . . . . . $ 1,410 $ 1,306
Notes payable. . . . . . . . . . . . 5,673 5,262
Deferred contract revenue. . . . . . 12,979 12,554
Dividend payable . . . . . . . . . . 3,804 3,577
Accrued compensation and
related costs. . . . . . . . . . . 2,084 2,230
Accrued pension costs. . . . . . . . 584 834
Accrued taxes on income. . . . . . . 2,489 20
Deferred taxes . . . . . . . . . . . 94 94
Accrued expenses . . . . . . . . . . 2,263 2,399
-------- --------
Current liabilities. . . . . . 31,380 28,276
Non-current liabilities:
Pension and postretirement
obligation . . . . . . . . . . . . 4,338 3,845
Deferred income taxes. . . . . . . . 1,317 1,317
-------- --------
Non-current liabilities. . . . 5,655 5,162
Minority interest in subsidiary. . . . 24 83
-------- --------
Stockholders' investment:
Preferred stock, $.10 par value
per share -
Authorized - 1,000,000 shares
Outstanding - None . . . . . . . . -- --
Common stock, $.10 par value
per share -
Authorized - 20,000,000 shares
Outstanding - 8,952,278 shares
at 12/31/04 and 8,945,665
shares at 9/30/04. . . . . . . . 895 895
Premium paid in on common stock. . . 14,542 14,400
Cumulative translation
adjustments. . . . . . . . . . . . (767) (251)
Retained earnings. . . . . . . . . . 29,579 28,953
-------- --------
Total stockholders'
investment . . . . . . . . . 44,249 43,997
-------- --------
$ 81,308 $ 77,518
======== ========
The accompanying notes are an integral part of these financial statements.
3
LANDAUER, INC. AND SUBSIDIARIES
Condensed Consolidated Unaudited Statements of Income
(000's, except per share amounts)
Three Months Ended
-----------------------------
December 31, December 31,
2004 2003
------------ -------------
Net revenues . . . . . . . . . . . . . $ 18,325 $ 16,778
Costs and expenses:
Cost of revenues . . . . . . . . . . 7,094 6,138
Selling, general and
administrative . . . . . . . . . . 4,511 4,281
-------- --------
11,605 10,419
-------- --------
Operating income . . . . . . . . . . . 6,720 6,359
Equity in income of joint venture. . . 357 232
Other (expense) income, net. . . . . . (45) 35
-------- --------
Income before income taxes and
minority interest. . . . . . . . . . 7,032 6,626
Income taxes . . . . . . . . . . . . . (2,586) (2,481)
-------- --------
Income before minority interest. . . . 4,446 4,145
Minority interest therein. . . . . . . (16) (140)
-------- --------
Net income . . . . . . . . . . . . . . $ 4,430 $ 4,005
======== ========
Net Income per common share:
Basic. . . . . . . . . . . . . . . . $ 0.50 $ 0.45
======== ========
Based on average shares
outstanding. . . . . . . . . . . . 8,949 8,852
======== ========
Diluted. . . . . . . . . . . . . . . $ 0.49 $ 0.45
======== ========
Based on average shares
outstanding. . . . . . . . . . . . 9,019 8,930
======== ========
The accompanying notes are an integral part of these financial statements.
4
LANDAUER, INC. AND SUBSIDIARIES
Condensed Consolidated Unaudited Statements of Cash Flows
(000's except per share amounts)
Three Months Ended
---------------------------
December 31, December 31,
2004 2003
------------ -------------
Cash flow from operating activities:
Net Income . . . . . . . . . . . . . . . . $ 4,430 $ 4,005
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation . . . . . . . . . . . . . . . 1,524 1,251
Amortization . . . . . . . . . . . . . . . 159 90
Bad debt expense . . . . . . . . . . . . . 21 47
Equity in net income of foreign
affiliate. . . . . . . . . . . . . . . . (357) (232)
Dividends received from foreign
affiliate. . . . . . . . . . . . . . . . -- 598
Tax effect of stock options. . . . . . . . 121 65
(Increase) decrease in short-term
investments. . . . . . . . . . . . . . . 154 (1,023)
Increase in accounts receivable - net. . . (1,883) (1,830)
(Increase) decrease in inventory . . . . . (45) 291
Decrease in prepaid expenses . . . . . . . 54 22
Net increase in other assets . . . . . . . (616) (807)
(Decrease) increase in accounts payable. . 104 (24)
Increase in notes payable. . . . . . . . . 482 --
Increase in accrued liabilities. . . . . . 1,936 1,508
Increase in deferred contract revenue. . . 425 146
Increase in non-current liabilities. . . . 493 449
Increase in minority interest. . . . . . . 26 199
-------- --------
Net cash provided from
operating activities . . . . . . . . . . 7,028 4,755
Cash flows from investing activities:
Acquisition of property, plant and
equipment. . . . . . . . . . . . . . . . (895) (1,582)
Disposition of property, plant and
equipment. . . . . . . . . . . . . . . . -- 95
-------- --------
Net cash used by investing activities. . . (895) (1,487)
Cash flows from financing activities:
Dividends paid to stockholders . . . . . . (3,577) (3,316)
Dividends paid to minority interest. . . . (85) (69)
Proceeds from the exercise of stock
options. . . . . . . . . . . . . . . . . 21 --
Repayments of revolving credit
facility . . . . . . . . . . . . . . . . (71) --
-------- --------
Net cash used by financing activities. . . (3,712) (3,385)
Effects of foreign currency translation. . . (516) 208
Net increase in cash and cash equivalents. . 1,905 91
Opening balance - cash and
cash equivalents . . . . . . . . . . . . . 7,979 10,572
-------- --------
Ending balance - cash and
cash equivalents . . . . . . . . . . . . . $ 9,884 $ 10,663
======== ========
The accompanying notes are an integral part of these financial statements.
5
LANDAUER, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Unaudited Financial Statements
December 31, 2004
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial
statements reflect the financial position of Landauer, Inc. and
subsidiaries ("Landauer" or "the Company) as of December 31, 2004 and
September 30, 2004, and the condensed consolidated results of operations
and cash flows for the three-month periods ended December 31, 2004 and
2003. In the opinion of management, the accompanying consolidated
unaudited condensed financial statements contain all adjustments necessary
to present fairly the consolidated financial position of Landauer as of
December 31, 2004 and September 30, 2004, and the consolidated results of
operations and cash flows for the three-month periods ended December 31,
2004 and 2003.
The accounting policies followed by the Company are set forth in
Note 1 to the Company's financial statements in the 2004 Landauer Annual
Report on Form 10-K.
Certain prior year amounts have been reclassified to conform to
current year presentation. These reclassifications have no effect on the
results of operation or financial position.
The results of operations for the three-month periods ended
December 31, 2004 and 2003 are not necessarily indicative of the results to
be expected for the full year.
(2) CASH DIVIDENDS
On November 12, 2004, the Company declared a regular quarterly cash
dividend in the amount of $.425 per share payable on January 17, 2005, to
stockholders of record on December 17, 2004.
Regular quarterly cash dividends of $.40 per share ($1.60 annually)
were declared during fiscal 2004.
(3) COMPREHENSIVE INCOME
Comprehensive income is the total of net income and all other non-
owner changes in equity. The following table sets forth the Company's
comprehensive income for the three-month periods ended December 31, 2004
and 2003 (000's):
Three Months Ended
December 31,
--------------------
2004 2003
-------- --------
Net Income . . . . . . . . . . . . . . . . $ 4,430 $ 4,005
Other comprehensive loss - foreign
currency translation adjustment. . . . . 516 208
-------- --------
Comprehensive income . . . . . . . . . . . $ 3,914 $ 3,797
======== ========
(4) EARNINGS PER SHARE
Earnings per share computations have been made in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per 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.
6
LANDAUER, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Unaudited Financial Statements
December 31, 2004 (Continued)
The following table presents the weighted average number of shares of
common stock for the three-month periods ended December 31, 2004 and 2003
(000's):
Three Months Ended
December 31,
--------------------
2004 2003
-------- --------
Weighted average number of shares
of common stock outstanding. . . . . . . 8,949 8,852
Options issued to executives . . . . . . . 70 78
-------- --------
Weighted average number of shares
of common stock assuming dilution. . . . 9,019 8,930
======== ========
(5) STOCK-BASED COMPENSATION PLANS
The Company maintains stock option plans for key employees
("Employees' Plan"). It also maintains a stock option plan for its non-
employee directors. The Company accounts for those plans under the
recognition and measurement principles of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and
related Interpretations. Under APB Opinion No. 25 no compensation cost is
recognized except for performance based grants, whereas under FASB 123
compensation costs are recognized based on the fair-value method of the
stock options granted which is calculated using certain assumptions about
future volatility and dividend growth. In December 2002, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standard ("SFAS") No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure - An Amendment of SFAS No. 123." SFAS No. 148
requires pro-forma disclosure in both annual and quarterly financial
statements of net earnings and earnings per share as if the fair-value
method of accounting had been applied as required by SFAS 123. Had
compensation cost for these plans been determined consistent with SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company's net
income and earnings per share in each period would have been as follows
(000's except per share data):
Three Months Ended
December 31,
--------------------
2004 2003
-------- --------
Net income, as reported. . . . . . . . . . . . $ 4,430 $ 4,005
Deduct: Total stock-based employee compensa-
tion expense determined under fair value
based method for all awards, net of
related tax effects. . . . . . . . . . . . . $ 1,292 $ 183
-------- --------
Pro forma net income . . . . . . . . . . . . . $ 3,138 $ 3,822
======== ========
Earnings per share:
Basic - As Reported. . . . . . . . . . . . . $ 0.50 $ 0.45
======== ========
Basic - Pro Forma. . . . . . . . . . . . . . $ 0.35 $ 0.43
======== ========
Diluted - As Reported. . . . . . . . . . . . $ 0.49 $ 0.45
======== ========
Diluted - Pro Forma. . . . . . . . . . . . . $ 0.35 $ 0.43
======== ========
7
LANDAUER, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Unaudited Financial Statements
December 31, 2004 (Continued)
On December 16, 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-
Based Payment" ("SFAS 123R"). SFAS 123R eliminates the alternative of
applying the intrinsic value measurement provisions of Opinion 25 to stock
compensation awards issued to employees. Rather, the new standard requires
enterprises to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of
the award. That cost will be recognized over the period during which an
employee is required to provide services in exchange for the award, known
as the requisite service period (usually the vesting period).
SFAS 123R will be effective for the Company's fiscal quarter
beginning July 1, 2005, and allows for the use of the Modified Prospective
Application Method. Under this method SFAS 123R is applied to new awards
and to awards modified, repurchased, or cancelled after the effective date.
Additionally, compensation cost for the portion of awards for which the
requisite service has not been rendered (such as unvested options) that are
outstanding as of the date of adoption shall be recognized as the remaining
requisite services are rendered. The compensation cost relating to
unvested awards at the date of adoption shall be based on the grant-date
fair value of those awards as calculated for pro forma disclosures under
the original SFAS 123. The Company used the Modified Prospective
Application Method to calculate the compensation expenses noted above.
The Company has quantified the effects of the adoption of SFAS 123R
on a preliminary basis, and it is expected that the new standard will
result in approximately $262,000 of stock-based compensation expense
(before income taxes) to be recognized in fiscal 2006 and $33,000 in fiscal
2007. The pro forma effects on net income and earnings per share if the
Company had applied the fair value recognition provisions of original
SFAS 123 on stock compensation awards (rather than applying the intrinsic
value measurement provisions of Opinion 25) are disclosed above. Although
such pro forma effects of applying original SFAS 123 may be indicative of
the effects of adopting SFAS 123R, the provisions of these two statements
differ in some important respects. The actual effects of adopting SFAS
123R will be dependent on numerous factors including, but not limited to,
the valuation model chosen by the Company to value stock-based awards; the
assumed award forfeiture rate; the accounting policies adopted concerning
the method of recognizing the fair value of awards over the requisite
service period.
(6) NOTES PAYABLE
In April 2004 the Company negotiated a $25 million line of credit
provided by LaSalle Bank, ABN AMRO. The credit facility, with a maturity
date of April 12, 2005, provides funds that are to be used for working
capital and other general corporate purposes. The credit agreement is
annually renewable upon agreement of the parties and provides the Company
with the option of electing to borrow funds denominated in U.S. dollars or
euros that bear interest rates based on the federal funds denominated in US
dollars or euros that bear interest rates based on the federal funds rate,
prime rate, EURIBOR or LIBOR. It also contains certain covenants,
including a covenant for minimum tangible net worth. As of December 31,
2004 the Company was in compliance with all of the covenants contained in
the credit agreement. The Company currently expects that the credit
facility will be renewed for an additional year.
In April 2004 the Company borrowed $7,724,000 under this facility as
part of funding the acquisition of the remaining 49% minority interest in
LCIE-Landauer, Ltd. During the first quarter of fiscal 2005 the Company
made principal payments of $71,000 as well as an interest payment of
$33,000.
8
LANDAUER, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Unaudited Financial Statements
December 31, 2004 (Continued)
Current outstanding balances under the line are denominated in euros
and bear interest at the applicable rate plus 1.25% per annum. At
December 31, 2004, the loan is based upon the 181 day EURIBOR rate and is
fixed at 3.38% until February 28, 2005, at which time the Company will
execute a new EURIBOR election notice and specify the interest period and
rate for the remaining balance of the advance under the terms of the credit
agreement. In the event the credit facility is not renewed at maturity, it
is expected that cash on hand, and cash flow from operations, and the
Company's borrowing capacity will be sufficient to satisfy the obligation.
The expectation is the Company will fund euro-based debt service payments
from the euro-denominated cash flows.
(7) PENSION AND POSTRETIREMENT MEDICAL BENEFIT EXPENSES
In December 2003 the Financial Accounting Standards Board (FASB)
released revised FASB Statement No. 132 (FAS 132R), a revision to FAS 132,
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS.
The revised standard provides required disclosures for pensions and other
postretirement benefit plans and is designed to improve disclosure
transparency in financial statements. The revised standard replaces
existing pension disclosure requirements. FAS 132R requires additional
disclosure about the assets, obligations, cash flow, and net periodic
benefit costs of defined benefit pension plans and other post retirement
benefit plans. It also requires public entities to disclose (a) the amount
of net periodic benefit cost recognized and (b) the total amount of the
employer's contribution paid, in all interim financial statements beginning
after December 15, 2003.
The components of net periodic benefit cost for pension and retiree
medical plans are as follows:
Pension Other
Benefits Benefits
------------- -------------
For the three months
ended December 31,
-------------------------------
In $000's 2004 2003 2004 2003
---- ---- ---- ----
Components of net periodic cost:
Service Cost . . . . . . . . . . . $250 $215 $ 25 $ 21
Interest Cost. . . . . . . . . . . 247 226 20 16
Expected return on plan assets . . (162) (140) -- --
Amortization of transition
assets . . . . . . . . . . . . . (2) (2) 6 6
Amortization of prior service
costs. . . . . . . . . . . . . . 39 39 4 4
Recognized net actuarial loss. . . 30 23 3 --
---- ---- ---- ----
Net periodic benefit cost. . . . . $402 $361 $ 58 $ 47
==== ==== ==== ====
Landauer expects to contribute $789,000 to its pension plan in fiscal
2005, the maximum amount permitted under U.S. tax law. The Company made
$250,000 in pension contributions in the first fiscal quarter of 2005 and
expects to fund the remaining $539,000 in the second fiscal quarter.
In December 2003, the Medicare Prescription Drug, Improvement and
Modernization act of 2003 (the "Act") was signed into law. The Company has
determined the effect of the Act, if any, on the retirement medical plan
will have no material impact on its consolidated statements. Consequently,
measures of the accumulated postretirement benefit obligation or net
periodic benefit cost do not reflect any effects of the Act on the plan.
9
LANDAUER, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Unaudited Financial Statements
December 31, 2004 (Continued)
(8) ACQUISITION OF MINORITY INTEREST IN LCIE- LANDAUER, LTD.
In April 2004 Landauer, Inc. consummated an agreement with Bureau
Veritas ("BV") to acquire the 49% minority interest in LCIE-Landauer, Ltd.
owned by BV's subsidiary, Laboratoire Central Industries des Electriques
("LCIE"), for $10.4 million in cash. The purchase price was allocated to
identifiable intangible assets based on estimates of fair value as
determined by an independent third party valuation consultant.
Substantially all the purchase price, plus deferred tax liabilities
recorded, was allocated to intangible assets including $3.9 of customer
lists (amortized over the estimated useful life of 15 years) and goodwill
of $7.9 million. Had the acquisition occurred at the beginning of the
periods presented, unaudited net income of the Company on a proforma basis
would have been as follows (amounts in thousands, except per share):
For the
Three Months Ended
December 31,
--------------------
2004 2003
-------- --------
Proforma Net Income . . . . . . . . . . . $ 4,430 $ 4,069
Diluted earnings per share . . . . . . . $ 0.49 $ 0.46
The unaudited proforma net income is for illustrative purposes only
and is not necessarily indicative of the financial results had the
acquisition actually occurred at the beginning of the periods presented.
Landauer funded the purchase price from a combination of working
capital funds ($2.7 million), and $7.7 million borrowed under a credit
facility obtained in April 2004. See Note 6 for additional information on
the credit facility.
10
LANDAUER, INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
OVERVIEW
- --------
Landauer is the leading provider of analytical services to determine
occupational and environmental radiation exposure. For 50 years, the
Company has provided complete radiation dosimetry services to hospitals,
medical and dental offices, universities, national laboratories, and other
industries in which radiation poses a potential threat to employees.
Landauer's services include the manufacture of various types of radiation
detection monitors, the distribution and collection of the monitors to and
from clients, and the analysis and reporting of exposure findings. The
majority of these services are provided to customers in the U.S., Japan,
France, the United Kingdom, Brazil, Canada and China.
Landauer's InLightTM dosimetry system provides smaller in-house and
commercial laboratories with the ability to offer a complete radiation
monitoring service using optically stimulated luminescence ("OSL")
technology. The system is based on the Company's propriety technology and
instruments and dosimetry devices developed by Matsushita Industrial
Equipment Company and allows customers the flexibility to tailor their
precise dosimetry needs.
Landauer's operations include services for detecting, monitoring, and
if necessary, remediating radon gas.
Landauer operates a mature business, and growth in numbers of
customer is modest. In recent years the Company's strategy has been to
expand into new international markets, primarily by partnering with
existing dosimetry service providers with a prominent local presence. In
addition, the Company has been developing new platforms and formats for its
OSL technology such as InLight to gain access to markets where the Company
previously did not have a significant presence such as smaller in-house and
commercial laboratories.
Revenue growth in recent years has occurred as a result of increased
prices for certain services, entry into new markets through joint ventures
and acquisitions, modest unit growth and new ancillary services and
products.
The services provided by the Company to its customers are ongoing and
are of a subscription nature. As such, revenues are recognized in the
periods in which such services are rendered irrespective of whether
invoiced in advance or in arrears. Given the subscription nature of
Landauer's services, quarterly revenues are fairly consistent. During the
second quarter of each fiscal year, however, the Company provides
additional services reporting annual radiation dose summaries that generate
increased revenues. The introduction of the Company's InLight product line
may introduce some variability in quarter-to-quarter revenue comparisons
given the nature of purchase cycles associated with sales of radiation dose
measurement instruments and detectors.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Landauer's cash provided from operating activities for the three
months ended December 31, 2004 and 2003 amounted to $7,028,000 and
$4,755,000 respectively. The increase in cash provided from operating
activities is primarily a result of decreased short-term investments.
Acquisitions of property, plant and equipment were $895,000 and $1,582,000,
respectively for the quarters ended December 31, 2004 and 2003. The
Company's financing activities are primarily comprised of borrowing
activities and payments of cash dividends to shareholder and minority
partners.
11
LANDAUER, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Conditions
and Results of Operations (Continued)
The Company has long-term liabilities in the amount of $5,655,000 and
$5,162,000 at December 31, 2004 and September 30, 2004, respectively, and
its requirement for cash flow to support investing activities is generally
limited. Since the credit facility described in No. 6 to the financial
statements expires in April 2005, borrowings thereunder are classified as
current liabilities. The Company expects to execute a new credit agreement
in April 2005 with terms and conditions similar to the existing credit
facility. Capital expenditures for the balance of fiscal 2005 are expected
to amount to approximately $6,600,000 principally for the acquisition of
equipment to support the Company's introduction of the InLight product
line, introduction of new products, and the development of supporting
software systems, and computer hardware. The Company anticipates that
funds for these capital improvements will be provided from operations. In
the opinion of management, cash flow from operations and the Company's
borrowing capacity under its line of credit 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 credit facility to fund such investments.
See Note 6 to the financial statement for additional information regarding
the credit facility. The borrowings under the credit facility are
denominated in euros, which is the functional currency of LCIE-Landauer,
Ltd.
Landauer requires limited working capital for its operations since
many of its customers pay for services in advance. Such advance payments
amounted to $12,979,000 and $12,554,000, respectively, as of December 31,
2004 and September 30, 2004, and are included in the balance sheet under
the caption "Deferred Contract Revenue." While these amounts represent
approximately one-half of current liabilities, such amounts generally do
not represent a cash requirement.
All customers are invoiced in accordance with the Company's standard
terms, with payment due thirty days from date of invoice. Considering the
Company's invoicing practices and that a significant portion of the
Company's revenues are subject to health care industry reimbursement
cycles, the average days of sales outstanding range from 43 to 80 days over
the course of a fiscal quarter.
RESULTS OF OPERATIONS
- ---------------------
Revenues for the quarter just ended were $18,325,000, a 9.2% increase
compared with revenues of $16,778,000 for the same quarter in fiscal 2004.
Revenues for the quarter just ended were more than $1,500,000 higher
compared with the first quarter of fiscal 2004. Growth in domestic
radiation measurement revenues and ancillary fees resulted from higher
pricing and increased unit volume and represented approximately 40% of
revenue growth. Growth in international revenues, representing almost 30%
of revenue growth, resulted from modest pricing and unit gains, as well as
the effects of currency translation. The balance of revenue growth
represents sales of InLight products and services in the U.S. and Europe.
Gross margins were 61.3% of revenues for the first quarter of fiscal
2005, lower than the 63.4% reported for the same period in 2004. Cost of
goods sold were $950,000 or 15.6% higher than fiscal 2004. Direct labor
costs exceeded the prior year by $50,000; direct materials were $183,000
higher attributable to the incremental InLight revenues as well as currency
12
LANDAUER, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Conditions
and Results of Operations (Continued)
related cost increases. Factors contributing to higher overhead costs
include outside services $173,000, related to information technology
projects and Sarbanes-Oxley support, depreciation expense $154,000, and
higher international costs, $235,000, impacted by the weakened U.S. dollar
particularly in relation to the euro.
Selling, general and administrative expenses in the first quarter of
fiscal 2005 were $230,000 or 5.4% higher versus a year ago due to higher
international costs $79,000; professional fees, $94,000; commissions and
incentive compensation expense $75,000 and amortization of intangibles
associated with the acquisition of the balance of LCIE-Landauer, $69,000.
Resulting operating income for the quarter ended December 31, 2004 was
$6,720,000, an increase of 6% compared with $6,359,000 reported in the same
quarter a year ago.
Minority interest in net income of the Company's subsidiaries
declined by almost $125,000 compared with a year ago as a result of the
acquisition of the remaining interest in LCIE- Landauer. The effective
income tax rate for the first quarter of fiscal 2005 was slightly lower at
36.8%. Resulting net income for the first quarter amounted to $4,430,000
or $0.49 per diluted share compared with $4,005,000, or $0.45 per diluted
share, for the same quarter in fiscal 2004.
OUTLOOK
- -------
Management's 2005 business plan anticipates aggregate revenue growth
for the year in the range of 7 - 8%. The Company's traditional domestic and
international revenue sources are expected to grow at a rate of 5.5 - 6.5%
with sales for the InLight product line contributing to the balance of
revenue growth. Sources of domestic revenue growth are expected to include
pricing, moderate unit growth and increased sales of ancillary services.
Pricing and increased unit volume are expected to contribute to
international revenue growth in 2005, although currency exchange rates may
impact results reported in U.S. dollars. Costs and operating expenses for
fiscal 2005 are expected to grow at a rate slightly higher than revenues.
Net other income in fiscal 2005 is anticipated to be comparable to the year
just ended and minority interest should further decline, as a result of the
elimination of minority interest in LCIE-Landauer. The effective income
tax rate for fiscal 2005 is expected to be comparable to 2004 at 37.4%.
Based on the preceding estimates, resulting net income for 2005 is
currently anticipated to be higher by 6 - 8% compared with fiscal 2004.
FORWARD-LOOKING STATEMENTS
- --------------------------
Certain of the statements made herein (including, in particular, the
statements made under the caption "Outlook" above) constitute forward
looking statements that are based on certain assumptions and involve
certain risks and uncertainties, including, introduction and customer
acceptance of the InLight technology, the adaptability of optically
stimulated luminescence ("OSL") technology to new platforms and formats,
the cost associated with the Company's research and business development
efforts, the usefulness of older technologies, the anticipated results of
operations of the Company and its subsidiaries or ventures, the valuation
of the Company's long lived assets or business units relative to future
cash flows, changes in pricing for the Company's services, changes in
postal and delivery costs and practices, the Company's business plans,
anticipated revenue and cost growth, the risks associated with conducting
business internationally, other anticipated financial events, the effects
of changing economic and competitive conditions, foreign exchange rates and
13
LANDAUER, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Conditions
and Results of Operations (Continued)
currency translations, government regulations, accreditation requirements,
and pending accounting pronouncements. Such assumptions may not
materialize to the extent assumed and such risks and uncertainties may
cause actual results to differ from anticipated results. Such risks and
uncertainties may also 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
Company's Annual Report on Form 10-K for the year ended September 30, 2004
and other reports filed by the Company from time to time with the
Securities and Exchange Commission.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
In November 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 151,
"Inventory Cost." This Statement amends the guidance in Accounting Research
Bulletin No. 43, Chapter 4, "Inventory Pricing", to clarify the accounting
for abnormal amounts of idle facility expense, freight, handling costs, and
wasted material (scrap). SFAS No. 151 requires that those items be
recognized as current-period charges. In addition, this Statement requires
that the allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities.
The provisions of SFAS No. 151 are effective for inventory costs incurred
in fiscal years beginning after June 15, 2005. As such, the Company is
required to adopt these provisions at the beginning of fiscal year 2006.
The Company is currently evaluating the impact of SFAS No. 151 on its
consolidated financial statements.
In December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") 123R, "Share-
Based Payment." This revised standard addresses the accounting for share-
based payment transactions in which a company receives employee services in
exchange for either equity instruments of the company or liabilities that
are based on the fair value of the company's equity instruments or that may
be settled by the issuance of such equity instruments. Under the new
standard, companies will no longer be able to account for share-based
compensation transactions using the intrinsic method in accordance with APB
25. Instead, companies will be required to account for such transactions
using a fair-value method and recognize the expense in the consolidated
statement of income. SFAS 123R will be effective for all interim or annual
periods beginning after June 15, 2005. The Company is in the process of
assessing the impact of this standard that will be adopted in July 2005.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets - an amendment of APB Opinion No. 29". This standard
requires exchanges of productive assets to be accounted for at fair value,
rather than at carryover basis, unless (1) neither the asset received nor
the asset surrendered has a fair value that is determinable within
reasonable limits or (2) the transactions lack commercial substance. The
Statement is effective for non-monetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The Company is currently evaluating
the impact of SFAS No. 153 on its consolidated financial statements.
14
LANDAUER, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Conditions
and Results of Operations (Continued)
On December 21, 2004, the FASB released FASB Staff Position No. FAS
109-1 (FSP 109-1). FASB Staff Position No. 109-1, "Application of FASB
Statement No. 109, 'Accounting for Income Taxes,' for the Tax Deduction
Provided to U.S.-Based Manufacturers by the American Jobs Creation Act of
2004", clarifies that the tax deduction for domestic manufacturers under
the American Jobs Creation Act of 2004 should be accounted for as a special
deduction in accordance with FASB Statement No. 109, "Accounting for Income
Taxes" (FAS 109). The FSP went into effect upon being issued. The Company
is currently evaluating the impact, if any, of FSP-109-1 on its
consolidated financial statements.
On December 21, 2004, the FASB released FASB Staff Position No. FAS
109-2 (FSP 109-2). FASB Staff Position No. 109-2, "Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004", provides enterprises more time
(beyond the financial-reporting period during which the Act took effect) to
evaluate the Act's impact on the enterprise's plan for reinvestment or
repatriation of certain foreign earnings for purposes of applying FASB
Statement No. 109, "Accounting for Income Taxes" (FAS 109). The FSP went
into effect upon being issued. The Company is currently evaluating the
impact, if any, of FSP-109-2 on its consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
SIGNIFICANT RISK FACTORS
- ------------------------
The Company's business and operations are subject to certain risks
and uncertainties, including:
FOREIGN CURRENCY EXCHANGE AND INTEREST RATE RISKS
- -------------------------------------------------
The Company is exposed to market risk, including changes in foreign
currency exchange rates and interest rates. As discussed in Note 1 to the
financial statements in the Company's Annual Report on Form 10-K, "Summary
of Significant Accounting Policies" to the consolidated financial
statements, the financial statements of the Company's non-U.S. subsidiaries
are re-measured into U.S. dollars using the U.S. dollar as the functional
currency. To date, the market risk associated with foreign currency
exchange rates has not been material in relation to the Company's financial
position, results of operations, or cash flows. These risks could increase,
however, as the Company expands in international markets. The Company does
not have any significant trade accounts receivable, trade accounts payable,
or commitments in a currency other than that of the reporting unit's
functional currency. As such, the Company does not currently use derivative
financial instruments to manage the exposure in its non-U.S. operations.
15
LANDAUER, INC. AND SUBSIDIARIES
Qualitative and Quantitative Disclosure
About Market Risks (Continued)
RELIANCE UPON SINGLE MANUFACTURING FACILITY
- -------------------------------------------
Landauer, Inc. conducts its primary manufacturing and laboratory
processing operations from a single facility in Glenwood, Illinois. In
addition, the Company performs significant functions for some of its
international operations from the Glenwood facility. If the Company were to
lose availability of its primary facility due to fire, natural disaster or
other disruptions, the Company's operations could be significantly
impaired. Although the Company maintains business interruption insurance,
there can be no assurance that the proceeds of such insurance would be
sufficient to offset any loss the Company might incur or that the Company
would be able to retain its customer base if operations were so disrupted.
SINGLE SOURCE FOR CRYSTAL MATERIALS
- -----------------------------------
Crystal material is a key component in Landauer's OSL technology. The
Company operates a single crystal manufacturing facility in Stillwater,
Oklahoma that currently supplies all OSL crystal radiation measurement
material used by the Company. If the Company were to lose availability of
its Stillwater facility due to a fire, natural disaster or other
disruptions, such loss could have a material adverse effect on the Company
and its operations. Although multiple sources for raw crystal material
exists, there can be no assurance that the Company could secure another
source to produce finished crystal materials to Landauer's specification in
the event of a disruption at the Stillwater facility.
TECHNOLOGY
- ----------
Landauer's technological expertise has been an important factor in
its growth. The Company regularly pursues product improvements to maintain
its technical position. The development and introduction of new
technologies, the adaptability of OSL to new platforms and new formats, the
usefulness of older technologies as well as the introduction of new
technologies by the competition present various risks to the Company's
business. The failure or lack of market acceptance of a new technology or
the inability to respond to market requirements for new technology could
adversely affect the Company's operations or reputation with customers. The
cancellation of technology projects or the cessation of use of an existing
technology can result in write-downs and charges to the Company's earnings.
In the normal course of its business, Landauer must record and process
significant amounts of data quickly and accurately and relies on various
computer and telecommunications equipment and software systems. Any failure
of such equipment or systems could adversely affect the Company's
operations.
INTERNATIONAL OPERATIONS POSE RISKS
- -----------------------------------
Landauer conducts business in numerous international markets such as
Japan, France, the United Kingdom, Brazil, Canada and China. Foreign
operations are subject to a number of special risks, including among
others, currency exchange rate fluctuations; disruption in relations;
political and economic unrest; trade barriers; exchange controls;
expropriation; and changes in laws and policies, including those governing
foreign owned operations.
16
LANDAUER, INC. AND SUBSIDIARIES
Qualitative and Quantitative Disclosure
About Market Risks (Continued)
GOVERNMENT REGULATIONS
- ----------------------
Regulation, present and future, is a constant factor affecting the
Company's business. The radiation monitoring industry is subject to federal
and state governmental regulation. Unknown matters, new laws and
regulations, or stricter interpretations of existing laws or regulations
may materially affect Landauer's business or operations in the future
and/or could increase the cost of compliance.
Many of the Company's technology based services must comply with
various national and international standards that are used by regulatory
and accreditation bodies for approving such services and products. Changes
in these standards and accreditation requirements can result in the Company
having to incur costs to adapt its offerings and procedures. Such
adaptations may introduce quality assurance issues during transition that
need to be addressed to ensure timely and accurate analyses and data
reporting. Additionally, changes affecting radiation protection practices,
including new understandings of the hazards of radiation exposure and
amended regulations, may impact how the Company's services are used by its
customers and may in some circumstances cause the Company to alter its
products and delivery of its services.
COMPETITION
- -----------
The Company competes on the basis of advanced technologies, competent
execution of these technologies, the quality, reliability and price of its
services and its prompt and responsive performance. In much of the world,
radiation monitoring activities are conducted by a combination of private
entities and governmental agencies. The Company's primary competitor in the
United States is large and has substantial resources. The Company also
faces competitive pressures from a number of smaller competitors.
COMPLIANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACT
- -----------------------------------------------------
The Company is in the process of documenting and testing its internal
control procedures in order to satisfy the requirements of Section 404 of
the Sarbanes-Oxley Act, that requires annual management assessments of the
effectiveness of internal controls over financial reporting and an
attestation report by our independent registered public accounting firm. We
are in the process of documenting and testing our system of internal
controls to provide the basis for our report. However, at this time, due to
the ongoing evaluation and testing, no assurance can be given that there
may not be internal control deficiencies that would be required to be
reported. Compliance with the requirements of Section 404 of the Sarbanes-
Oxley Act will also increase the Company's overhead costs in 2005 and
future years.
17
LANDAUER, INC. AND SUBSIDIARIES
ITEM 4. 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"), of the effectiveness of the design and operation
of the Company's disclosure controls and procedures as defined in Rule 13a-
15(e) under the Securities and Exchange Act of 1934, as amended. Based on
that evaluation, the Company's management, including the CEO and CFO,
concluded that the Company's disclosure controls and procedures as of
December 31, 2004 were effective in ensuring information required to be
disclosed on this Form 10-Q was recorded, processed, summarized and
reported on a timely basis. There have been no changes in the Company's
internal control over financial reporting that occurred during the period
ended December 31, 2004 that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
18
LANDAUER, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Landauer is involved in various legal proceedings but believes that
these matters will be resolved without a material effect on its financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At its Annual Meeting held on February 3, 2005, the shareholders
voted to elect Robert J. Cronin, Brent A. Latta and Richard R. Risk as
directors for three-year terms. The voting for each of the nominees was as
follows:
For Withheld
---------- ----------
Mr. Cronin 7,776,483 270,818
Mr. Latta 7,757,200 290,101
Mr. Risk 7,804,375 242,926
The shareholders voted to reappoint PricewaterhouseCoopers LLP as the
Company's auditors for the following year, with 7,898,147 shares (88.2% of
total shares outstanding) voting for, 117,234 shares voting against and
31,918 shares abstaining.
The shareholders voted on a proposal related to the Company's 2005
Long-Term Incentive Plan ("the Plan"). The Plan was initially approved by
the Board of Directors on November 12, 2004 subject to shareholder
approval. The Plan was approved by shareholders with 5,669,843 shares
(63.3% of total shares outstanding) voting for, 935,849 shares voted
against, 68,677 shares voted to abstain, and 1,372,932 were not voted.
The additional directors for the current year are Michael D.
Winfield, Thomas M. White, E. Gail de Planque and Gary D. Eppen.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On January 26, 2005, Landauer filed a report on Form 8-K related to
its earnings press release for the same day.
Exhibit 31.1 Rule 13a-14(a)/15d-14(a), Certification
of Chief Executive Officer
Exhibit 31.2 Rule 13a-14(a)/15d-14(a), Certification
of Chief Financial Officer
Exhibit 32.1 Section 1350 Certification of
Chief Executive Officer
Exhibit 32.2 Section 1350 Certification of
Chief Financial Officer
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LANDAUER, INC.
Date: February 8, 2005
/s/ James M. O'Connell
------------------------------
James M. O'Connell
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
20