10-K 1 lan_10k.txt Securities and Exchange Commission FORM 10-K Washington, DC 20549 ANNUAL REPORT PURSUANT TO SECTION 13 or 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2002 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 Securities registered pursuant to Section 12(b) of the Act: COMMON STOCK WITH PAR VALUE OF $.10 NEW YORK STOCK EXCHANGE ----------------------------------- ----------------------- (Title of each class) (Name of exchange on which registered) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes [ ] No [ X ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ X ] No [ ] As of March 28, 2002, the aggregate market value of the voting and nonvoting common equities (based upon the closing price on the New York Stock Exchange) held by non-affiliates was approximately $319,000,000 Certain portions of the Registrant's definitive Proxy Statement in connection with the February 5, 2003 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated by reference into Part III of this Annual Report on Form 10-K. 1 INDEX Item Page ---- ---- PART I 1. Business General Description. . . . . . . . . . . . . . . . . 3 Marketing and Sales. . . . . . . . . . . . . . . . . 4 Patents. . . . . . . . . . . . . . . . . . . . . . . 4 Raw Materials. . . . . . . . . . . . . . . . . . . . 5 Competition. . . . . . . . . . . . . . . . . . . . . 5 Research and Development . . . . . . . . . . . . . . 5 Environmental and Other Governmental Regulations . . 6 Employees and Labor Relations. . . . . . . . . . . . 6 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 6 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 6 4. Submission of Matters to a Vote of Security Holders. . . 6 4A. Executive Officers of the Registrant . . . . . . . . . . 7 PART II 5. Market for Registrant's Common Stock and Related Stockholder Matters. . . . . . . . . . . . . . . 7 6. Selected Financial Data. . . . . . . . . . . . . . . . . 8 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . 8 8. Consolidated Financial Statements and Supplementary Data Consolidated Balance Sheets. . . . . . . . . . . . . 14 Consolidated Statements of Income. . . . . . . . . . 16 Consolidated Statements of Stockholders' Investment and Comprehensive Income. . . . . . . . 17 Consolidated Statements of Cash Flows. . . . . . . . 19 Notes to Consolidated Financial Statements . . . . . 20 Reports of Independent Accountants . . . . . . . . . 32 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . 34 PART III 10. Directors and Executive Officers of the Registrant . . . 34 11. Executive Compensation . . . . . . . . . . . . . . . . . 34 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . 34 13. Certain Relationships and Related Transactions . . . . . 34 14. Controls and Procedures. . . . . . . . . . . . . . . . . 34 PART IV 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Financial Statements . . . . . . . . . . . . . . . . 35 Financial Statement Schedules. . . . . . . . . . . . 35 List of Exhibits . . . . . . . . . . . . . . . . . . 35 Reports on Form 8-K. . . . . . . . . . . . . . . . . 36 Signatures of Registrant and Directors . . . . . . . 37 Certifications . . . . . . . . . . . . . . . . . . . 38 Quarterly Financial Data (Unaudited) . . . . . . . . 40 2 PART I ITEM 1. BUSINESS GENERAL DESCRIPTION Landauer, Inc. is a Delaware corporation organized on December 22, 1987 to carry on the radiation monitoring business previously established by Tech/Ops, Inc. (Tech/Ops). On February 6, 1991, the Company changed its name from Tech/Ops Landauer, Inc. to Landauer, Inc. As used herein, the "Company" or "Landauer" refers to Landauer, Inc. and its subsidiaries. The Company offers a service for measuring, primarily through optically stimulated luminescent (OSL) badges worn by client personnel, the dosages of x-ray, gamma radiation and other penetrating ionizing radiations to which the wearer has been exposed. This technology is marketed under the trade name Luxel. While most of the Company's revenues are domestic, these services are also marketed by Landauer in Canada and by its subsidiaries and investments in other parts of the world. As of October 1, 1998, the Company acquired a 75% interest in SAPRA- Landauer, Ltda., which provides radiation dosimetry services in Brazil. As of December 28, 1998, SAPRA-Landauer acquired the radiation dosimetry service business formerly conducted by REM in Sao Paulo, Brazil. During July 1999, the Chinese government approved the Company's joint venture agreement with China National Nuclear Corporation to form Beijing-Landauer, Ltd., which provides radiation monitoring services in China. Landauer, Inc. owns a 70% interest in Beijing-Landauer. On April 2, 2002, the Company completed an agreement to merge its European operations with the radiation monitoring business operated by Laboratoire Central des Industries Electriques (LCIE), a wholly-owned subsidiary of Bureau Veritas, a professional services company involved in quality, health and safety, and environmental management. Under the agreement, Landauer exchanged its United Kingdom radiation monitoring business and its technologies for a 51% controlling interest in the new company named LCIE-Landauer. LCIE contributed its radiation monitoring business, all of which is located in France. LCIE-Landauer has its headquarters and laboratory at the current LCIE location in Fontenay-aux- Roses, a Paris suburb, and will continue to serve the United Kingdom customers from Oxford, England. Additionally, as part of the formation of the new entity on April 2, 2002, LCIE-Landauer purchased the Philips France radiation monitoring business. Landauer's activities also include the operations of Nagase-Landauer, Ltd., a 50%-owned joint venture in Japan involved in radiation monitoring in that country. The Company's AurionTM service offering provides operational radiation dose monitoring and allows users immediate information about their radiation exposure. Based on direct ion storage (DISTM) technology, calibration of devices and data management are provided as part of the service. Smart card technology coupled with radio-frequency identification provides users with the ability to assign devices to multiple users with minimal administrative overhead. Dose management is provided by Landauer via the Internet and radiation safety personnel can access a variety of reports when and where they are needed. Landauer's InLightTM dosimetry system provides smaller in-house and commercial laboratories with the ability to offer a complete radiation monitoring service using OSL technology. The system is based on the Company's propriety technology and instruments and dosimetry devices developed by Mitsushita Industrial Equipment Company and allows customers the flexibility to tailor their precise dosimetry needs. Landauer's operations include services for detecting radon gas. This service makes up a small part of revenues. 3 Landauer's wholly-owned subsidiary, HomeBuyer's Preferred, Inc., offers a radon monitoring service and, when necessary, remediation to purchasers of personal residences. The service is targeted to corporate employee relocation programs that have generally regarded radon as a serious environmental hazard. Landauer operates a crystal manufacturing facility in Stillwater, Oklahoma that it acquired in August 1998. Crystal material is a component in the Company's OSL technology. The Company's shares are listed on the New York Stock Exchange. As of September 30, 2002, there were 8,775,337 shares outstanding. The trading symbol is LDR. MARKETING AND SALES Landauer's dosimetry services are marketed primarily by full-time Company personnel located in Illinois, California, Connecticut, Georgia, and Texas. The Company's services are marketed through ventures in Japan, Brazil, China, the United Kingdom and France. In addition, U.S. sales personnel market these services in Canada. Other firms and individuals market the Company's services on a commission basis, primarily to small customers. Worldwide, the Company and its affiliates serve more than 60,000 customers representing more than 1.3 million individuals. Typically, a client will contract for a year's service in advance, representing monthly, bimonthly or quarterly badges, readings, and reports. Sales are made principally on a subscription basis. Customer relationships in the radiation monitoring market served by the Company are generally stable and recurring. Deferred contract revenue, as shown on the consolidated balance sheet, represents advance payment for services to be rendered. At September 30, 2002 and 2001, deferred contract revenue was $11,885,000 and $10,890,000, respectively. Radon gas detection kits are marketed primarily to institutional customers and government agencies. The HomeBuyer's Preferred Radon Protection Plan service agreement is marketed to companies and to their corporate relocation service providers for the benefit of purchasers of residences incident to transfers of personnel. PATENTS The Company holds exclusive worldwide licenses to patent rights for certain technologies that measure and image radiation exposure to crystalline materials when stimulated with light. These licenses were acquired by the Company from Battelle Memorial Institute and Oklahoma State University as part of collaborative efforts to develop and commercialize a new generation of radiation dosimetry technology. These licenses expire from the years 2011 through 2015. As of September 30, 2002, the Company is using OSL technology to provide dosimetry services to essentially its entire domestic and many of its international customers. These licenses and systems represent an important proprietary component of the OSL commercial service known as Luxel. Additionally, the Company holds certain patents that relate to various dosimeter designs. These patents expire in 2017. The Company believes that its business is primarily dependent upon the Company's technical competence, the quality and reliability of its services, and its prompt and responsive performance. Rights to inventions of employees working for Landauer are assigned to the Company. 4 RAW MATERIALS The Company has many sources for most of its materials and supplies, and believes that the number of sources and availability of items are adequate. Landauer internally produces certain of its requirements, such as OSL detector materials and plastic badge holders. COMPETITION Landauer has one major competitor in the United States as well as a number of smaller competitors that operate in the United States. In much of the world, radiation monitoring activities are conducted by a combination of private entities and government agencies. The Japanese market is served by the Company through its 50%-owned joint venture, Nagase-Landauer, Ltd. In early 1995, the Company began offering radiation monitoring services to customers in Canada following approval of the Company's devices by Canadian authorities. The Company began offering service to customers in China during fiscal 2000. Customers in Brazil are served through the Company's joint venture, SAPRA-Landauer, Ltda., while customers in the United Kingdom and France are served through the Company's joint venture LCIE-Landauer by its headquarters in suburban Paris, France and sales office in Oxford, England. In the United States, most government agencies, such as the Department of Energy and Department of Defense, have their own in-house radiation monitoring services. Additionally, many large private nuclear power plants also have their own in-house radiation monitoring services. The Company competes on the basis of advanced technologies, competent execution of these technologies, the quality and reliability of its services, and its prompt and responsive performance. The Company's InLightTM dosimetry system, while competitive with a number of systems offered by other companies, provides the only OSL-based radiation protection monitoring system available. The AurionTM operational radiation monitoring service competes with several electronic devices available throughout the world. Landauer has focused its marketing efforts for Aurion to include value added services for calibration, data management and administrative ease in assignment of devices to multiple users. Radon gas detection services represent a market where Landauer has many large and small competitors, many of whom use short-term charcoal detectors rather than the Company's alpha-track detectors. The HomeBuyer's Preferred Radon Protection Plan represents a product sold exclusively to the corporate relocation market through firms providing relocation services and directly to corporate customers. RESEARCH AND DEVELOPMENT Present research seeks to expand the use of OSL, particularly as it applies to radiation measurements in therapeutic and diagnostic radiology and nuclear medicine as well as environmental radiation dosimetry. The InLightTM dosimeter system recently released for commercial application will enable the Company's subsidiaries and other small dosimetry laboratories an economical approach to practice the OSL technology. The Company's technological expertise has been an important factor in its growth. The Company regularly pursues product improvements to maintain its technical position. The development of OSL dosimetry, announced in 1994, was funded by the Company in its collaborative effort with Battelle Memorial Institute and Oklahoma State University. The Company commercialized this technology over the past three years and has converted nearly all of its customers to the new technology. 5 The Company also participates regularly in several technical professional societies, both domestic and international, that are active in the fields of health physics and radiation detection and monitoring. ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS The Company believes that it complies with federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment or otherwise protecting the environment. This compliance has not had, nor is it expected to have, a material effect on the capital expenditures, financial condition, liquidity, results of operation, or competitive position of Landauer. The U.S. Postal Service has studied the feasibility of irradiating letters and packages to protect the public from exposure to certain biological compounds and determined that there are other more practical methods available to achieve the desired result. Accordingly, it is not currently expected that use of irradiation in connection with the mails will become widespread to the extent that it impacts the Company's ability to continue providing its service to customers that use the U.S. mails. EMPLOYEES AND LABOR RELATIONS As of September 30, 2002, the Company employed approximately 425 full- time employees worldwide. Landauer believes its relations with its employees are good. ITEM 2. PROPERTIES Landauer owns three adjacent buildings totaling approximately 60,000 square feet in Glenwood, Illinois, about 30 miles south of Chicago. The properties house the Company's administrative offices, laboratory, assembly and reading operations and warehouse. The properties and equipment of the Company are in good condition and, in the opinion of management, are suitable and adequate for the Company's operations. The Company maintains a crystal growth facility in Stillwater, Oklahoma and maintains small offices and/or locations in Japan, the United Kingdom, Brazil, China, and France. ITEM 3. LEGAL PROCEEDINGS At September 30, 2002, Landauer was involved in various legal proceedings, but believes that these matters will be resolved without a material effect on its liquidity, results of operation, or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 6 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are as follows: Name of Officer Age Position Brent A. Latta 59 President and Chief Executive Officer James M. O'Connell 55 Vice President, Finance, Treasurer, Secretary, and Chief Financial Officer R. Craig Yoder 50 Senior Vice President, Marketing and Technology Joseph M. Zlotnicki 46 Vice President - International Robert M. Greaney 49 Vice President - Operations All of the Company's executive officers have been employed by the Company for more than ten years. Mr. Latta, who joined the Company in April 1987 as Vice President, had for more than five years previously been Vice President, Marketing of Sherwood Medical Company, a manufacturer and distributor of medical products. Prior to being elected President and Chief Executive Officer in 1998, Mr. Latta served as the Vice President Marketing of the Company. Mr. O'Connell, prior to joining the Company in September 1990, served in various financial capacities in the telecommunications, manufacturing and financial services industries. Dr. Yoder was elected to his position after serving as the Company's Vice President of Operations since 1994 and Technology Manager since joining in 1983. Prior to joining the Company, he was a member of the senior technical staff at Pennsylvania Power and Light, and at Battelle Pacific Northwest Laboratory. Mr. Zlotnicki was elected to his position in 2000 and has served Landauer for more than ten years, most recently as Manager of Corporate Development. Prior to joining Landauer, Mr. Zlotnicki worked ten years for Amersham International. Mr. Greaney was elected to his position in February 2001. He has held positions of increasing responsibility involving operations and project management since joining the Company in 1973. There are no family relationships between any director or executive officer and any other director or executive officer of the Company. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock was traded on the American Stock Exchange from 1988 through January 14, 2002. The Company's Common Stock began trading on the New York Stock Exchange on January 15, 2002. A summary of market prices of the Company's Common Stock is set forth in the table on page 40 of this Annual Report on Form 10-K. On December 20, 2002, there were approximately 600 shareholders of record. The Company believes that there are approximately 2,000 beneficial owners of its Common Stock. There were no sales of unregistered securities during fiscal 2002. The Company has paid regular quarterly cash dividends since January 1990. The Company has also paid special cash dividends in 1990 and 1992. On November 6, 2002, the Company announced that it had increased the regular quarterly cash dividend by 7% to $0.375 per share for the first quarter of fiscal 2003. This increase represents an annual rate of $1.50 per share compared with $1.40 paid in fiscal 2002. A summary of cash dividends paid for the last two years is set forth in the table on page 40 of this Annual Report on Form 10-K. 7 ITEM 6. SELECTED FINANCIAL DATA A summary of selected financial data for the last six years is set forth on page 41 of the Company's Annual Report to Stockholders accompanying this Annual Report on Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FISCAL 2002 COMPARED TO FISCAL 2001 Net revenues for fiscal 2002 were $58,608,000 compared with revenues of $53,028,000 reported for fiscal 2001, a gain of 10.5%. Revenue growth for fiscal 2002 reflected higher pricing for dosimetry services, increased demand for ancillary products and the services this technology offers to our customers, and account gains in key market segments. Also contributing to revenue growth, beginning in the second half of the fiscal year was the consolidation of the operations of LCIE-Landauer, the Company's 51%-owned operating unit in France and the United Kingdom. Costs and expenses in fiscal 2002 grew at a slightly lower rate than revenues despite costs associated with the formation of LCIE-Landauer, moving the Company's listing to the New York Stock Exchange, and ongoing investment in the development of new products and markets. Gross margins increased moderately from 64.7% in fiscal 2001 to 65.1% in fiscal 2002. Net other income was more than $1,100,000 greater than in fiscal 2001 reflecting the recognition of a $786,000 gain arising from the exchange of a portion of the Company's United Kingdom business for a controlling interest in LCIE-Landauer. Higher investment and joint venture income also contributed to the increase. The Company's effective tax rate was 37.3% for fiscal 2002, slightly higher than a year ago at 36.5%. As a result, net income for fiscal 2002 increased $1,856,000 or 13%, to $16,180,000. Diluted earnings per share increased from $1.64 in fiscal 2001 to $1.83 in fiscal 2002. Excluding the gain on the formation of LCIE- Landauer, net income for fiscal 2002 was $15,669,000 or $1.77 per diluted share, an increase of 9.4% compared with fiscal 2001. Certain reclassifications have been made in the financial statements for comparative purposes. These reclassifications have no effect on the results of operation or financial position. FISCAL 2001 COMPARED TO FISCAL 2000 Net revenues for fiscal 2001 were $53,028,000 compared with revenues of $47,174,000 reported for fiscal 2000, a gain of 12.4%. Revenue growth for fiscal 2001 reflected improved pricing for the value provided by Luxel, stronger demand for the ancillary products and services this technology offers to our customers and account gains in key market segments. Also contributing to revenue growth was the acquisition of a small dosimetry service provider early in the year. Costs and expenses in fiscal 2001 grew at a slightly lower rate than revenues. Gross margins increased moderately and operating expense increased, primarily the result of our ongoing investment in the development of new products, markets and technologies. Net other income was almost 25% lower than in fiscal 2000 reflecting lower investment income and lower venture income. Although income taxes were higher, the Company's effective tax rate was lower than a year ago at 36.5%. 8 As a result, net income for fiscal 2001 increased $1,562,000 or 12.2%, to $14,324,000. Diluted earnings per share increased from $1.47 in fiscal 2000 to $1.64 in fiscal 2001. Certain reclassifications have been made in the financial statements for comparative purposes. These reclassifications have no effect on the results of operation or financial position. FOURTH QUARTER RESULTS OF OPERATIONS Revenues in the fourth quarter of fiscal 2002 were 13.3% higher than reported in the same period in fiscal 2001. Revenue growth for the quarter reflected improved pricing as well as incremental volume, and includes the impact of the consolidation of the operations of LCIE-Landauer, the Company's 51%-owned operating unit in France and the United Kingdom. Net income for the quarter of $4,173,000 represented a 9.8% increase compared with the same period in 2001. Diluted income per share for the fourth quarters of 2002 and 2001 was $.47 and $.43, respectively. Revenues in the fourth quarter of fiscal 2001 were 10.4% higher than reported in the same period in fiscal 2000. Revenue growth for the quarter reflected improved pricing as well as incremental volume, primarily achieved through the acquisition of a small dosimetry service provider early in fiscal 2001. Net income for the quarter of $3,799,000 represented a 12% increase compared with the same period in 2000. Diluted income per share for the fourth quarters of 2001 and 2000 was $.43 and $.39, respectively. LIQUIDITY AND CAPITAL RESOURCES Landauer's cash flows, as shown in the statement of cash flows, can differ from year to year as a result of the Company's operating, investing, and financing activities. Investments in short-term instruments with maturity of greater than three months are classified separately from cash and equivalents, and investments with maturities of greater than one year are classified as noncurrent assets. Investing activities included acquisitions of property, plant and equipment (including amortizable dosimetry device components) and amounted to $4,656,000 and $3,219,000, respectively, in fiscal 2002 and 2001. In September 2000, the Company invested $2,550,000 to acquire certain assets of the Eberline Analytical Corporation. Cash paid for income taxes was $10,096,000 in 2002 and $7,127,000 in fiscal 2001. At September 30, 2002, the Company had no significant long-term liabilities and its requirement for cash flow to support investing activities is generally limited. Capital expenditures for fiscal 2003 are expected to amount to $8,200,000, principally for equipment and information technology infrastructure. The Company anticipates that funds for these capital improvements will be provided from operations. The Company presently maintains bank lines of credit totaling $5,000,000. In the opinion of management, resources are adequate for projected operations and capital spending programs, as well as continuation of the regular cash dividend program. Landauer requires limited working capital for its operations since many of its customers pay for annual services in advance. Such advance payments amounted to $11,885,000 and $10,890,000, respectively, as of September 30, 2002 and 2001, and are included in deferred contract revenue. While these amounts represent approximately one-half of current liabilities, such amounts generally do not represent a cash requirement. Landauer offers radiation monitoring services in the United Kingdom, Canada, Japan, Brazil, China, and France. The Company's operations in these markets do not depend on significant capital resources. 9 The Company is exposed to market risk, including changes in foreign currency exchange rates and interest rates. As discussed in Note 1, "Summary of Significant Accounting Policies" to the consolidated financial statements, the financial statements of the Company's non-U.S. subsidiaries are remeasured into U.S. dollars using the U.S. dollar as the functional currency. The market risk associated with foreign currency exchange rates is not material in relation to the Company's financial position, results of operations, or cash flows. The Company does not have any significant trade accounts receivable, trade accounts payable, commitments or borrowings in a currency other than that of the reporting units functional currency. As such, the Company does not use derivative financial instruments to manage the exposure in its non-U.S. operations. NEW ACCOUNTING PRONOUNCEMENTS On October 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142 that requires that goodwill and certain intangible assets no longer be amortized to earnings, but be reviewed periodically for impairment. For acquisitions completed prior to June 30, 2001, the amortization of goodwill and certain intangible assets has ceased beginning in fiscal year 2002. The Company did not recognize goodwill amortization expense in fiscal 2002. Goodwill amortization expense aggregated $190,000 in fiscal 2001 and $197,000 in fiscal 2000. Diluted EPS increased by approximately $0.02 in 2002 due to the reduction in amortization expense. The provisions of SFAS No. 142 that pertain to impairment of goodwill and certain intangible assets have superseded the impairment related provisions included in SFAS No. 121. As a result of applying the new impairment provisions of SFAS No. 142, no impairment loss was indicated. Goodwill and other intangible assets at September 30, 2002 consisted of the following: ACCUMU- LATED GROSS AMORTI- NET (DOLLARS IN THOUSANDS) AMOUNT ZATION AMOUNT ---------------------- ------ ------- ------ Intangible Assets Continuing to be Amortized: Customer Lists. . . . . . . . . . . . . $2,681 $ 300 $2,381 (Useful Life of 10 Years) Licenses & Patents. . . . . . . . . . . 811 218 593 (useful Life of 10-15 Years) Other Intangibles . . . . . . . . . . . 669 223 446 ------ ----- ------ Total . . . . . . . . . . . . . . . $4,161 $ 741 $3,420 ====== ===== ====== Goodwill No Longer Being Amortized. . . $5,181 ------ Total Goodwill & Other Intangible Assets. . . . . . . . . . . . . . . . $8,601 ====== Estimated annual aggregate amortization expense related to these intangible assets will be approximately $355,000 for each of the next five years. 10 In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations." The provisions of this statement are required to be applied starting with fiscal years beginning after June 15, 2002. This statement addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of SFAS No. 143 has no impact on the Company's financial statements. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 defines impairment for long-lived assets and provides guidance on the measurement of asset impairments. The adoption of SFAS No. 144 has no impact on the Company's financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No., 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 eliminates the exception to applying APB Opinion 30 to all gains and losses related to extinguishments of debt. The adoption of SFAS No. 145 has no impact on the Company's financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement requires that a liability for costs associated with an exit or disposal activity be recognized when the costs are incurred rather than at the date of a commitment to the exit or disposal plan. This statement will be applied prospectively to exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 has no impact on the Company's financial statements. INFLATION From time to time, the Company tries to reflect the inflationary impact of materials, labor and other operating costs and expenses in its prices. The market for the services that the Company offers, however, is highly competitive, and in some cases has limited the ability of the Company to offset inflationary cost increases. COMPUTER SOFTWARE MODIFICATIONS During 1996, the Company established an internal task force to review the extent to which the Company's computer software, computer hardware and non-information technology system were year 2000 compliant. This task force, assisted in certain instances by outside consultants, completed an internal assessment of the systems with a view to determining whether any remediation or replacement was necessary for the continued operation of such systems. The Company focused its compliance efforts on software, hardware and non-information technology systems. The Company completed remediation, installation and compliance testing of all of its mission critical software and hardware systems. The Company experienced no significant adverse consequences as a result of year 2000 compliance issues. The total cost of remediation and replacement of its non-compliant systems amounted to $2,069,000, of which $606,000 was capitalized. 11 FORWARD LOOKING STATEMENTS Certain matters contained in this report are forward-looking statements, including, without limitation, statements concerning the development and introduction of new technologies, the adaptability of OSL to new platforms and new formats, the usefulness of older technologies, the cost associated with the Company's business development and research efforts, the Company's business plans, foreign exchange risks, government regulations, changes in postal and delivery practices, the Company's market position, the risks of conducting business internationally, the effects of changing economic and competitive conditions, and pending accounting announcements. The words "believe", "expect", anticipate", and "estimate" and other similar expressions generally identify forward-looking statements. All forward-looking statements contained herein are based largely on the Company's current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. CRITICAL ACCOUNTING POLICIES The Securities and Exchange Commission (SEC) issued statements regarding disclosure by companies within their management's discussion and analysis of financial condition and results of operations. In those statements, the SEC encouraged companies to identify critical accounting policies. Critical accounting policies are those that are most important to the portrayal of a company's financial condition and results, and that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. In response to the SEC statements, management has identified the following critical accounting policies used in the preparation of our financial statements and accompanying notes. REVENUE RECOGNITION AND DEFERRED CONTRACT REVENUE The Company recognizes revenues and the related costs for its services in the periods for which such services are provided. Many customers pay for these services in advance. The amounts recorded as deferred contract revenue in the consolidated balance sheet represent customer deposits invoiced in advance during the preceding twelve months for services rendered over the succeeding twelve months, and are net of services rendered through the respective consolidated balance sheet date. Such advance billings amounted to $11,885,000 and $10,890,000, respectively, as of September 30, 2002 and September 30, 2001, are included in deferred contract revenue, and are stated net of services rendered through the respective consolidated balance sheet dates. Management believes that the amount of deferred revenue shown at the respective consolidated balance sheet dates fairly represents the level of business activity it expects to conduct with customers invoiced under this arrangement. ALLOWANCE FOR DOUBTFUL ACCOUNTS Management judgments and estimates are utilized in connection with establishing an allowance for the possibility that portions of the Company's accounts receivable balances may become uncollectable. Specifically, management analyzes accounts in relation to receivable aging trends, economic factors, and changes in customer payment history in establishing this allowance. Accounts receivable are reduced by this allowance of $482,000 as of September 30, 2002 and $368,000 as of September 30, 2001, amounted to $13,620,000 and $11,713,000, respectively, as of September 30, 2002 and September 30, 2001. 12 PROPERTY, PLANT & EQUIPMENT Plant and equipment are recorded at cost and are depreciated on a straight-line basis over the estimated useful lives, which are primarily thirty years for buildings and three to eight years for equipment. Landauer assesses the carrying value of its property plant and equipment and the remaining useful lives whenever events or circumstances indicate the carrying value may not be recoverable or the estimated useful life may no longer be appropriate. Factors considered important which could trigger this review included competitive conditions, government regulations and technological changes. Maintenance and repairs are charged to expense, and renewals and betterments are capitalized. GOODWILL AND OTHER INTANGIBLE ASSETS The Company's intangible assets are comprised of goodwill, purchased customer lists, licenses and patents. On October 1, 2001, the Company adopted SFAS No. 142 which requires that goodwill and certain intangible assets no longer be amortized to earnings, but be reviewed periodically for impairment. For acquisitions completed prior to June 30, 2001, the amortization of goodwill and certain intangible assets has ceased beginning in fiscal year 2002. The provisions of SFAS No. 142 that pertain to impairment of intangible assets have superseded the impairment related provisions included in SFAS No. 121, beginning in fiscal year 2002. Under SFAS No. 142, the impairment review of goodwill and other intangible assets that are not being amortized must be based generally on fair values, instead of projected future undiscounted cash flows. The fair values of these assets were calculated based on discounted cash flow analyses. As a result of initially applying the new impairment provisions of SFAS No. 142, no impairment loss was required. Purchased customer lists are recorded at cost and are amortized on a straight-line basis over the estimated useful lives, which are primarily ten years. Patents and licenses are also recorded at cost and are amortized on a straight-line basis over their useful lives, which range from 10 to 15 years. 13 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS LANDAUER, INC. AND SUBSIDIARIES (Dollars in Thousands) As of September 30, Notes 2002 2001 ------------------- ----- ------- ------- ASSETS Current assets: Cash and cash equivalents . . . . . 1 $ 7,627 $ 7,055 Short-term investments. . . . . . . 1 317 387 Receivables, net of allowance for doubtful accounts of $482 in 2002 and $368 in 2001 . . . . . . 13,620 11,713 Inventories . . . . . . . . . . . . 1 2,135 1,693 Prepaid expenses. . . . . . . . . . 773 707 Prepaid income taxes. . . . . . . . 1 & 5 2,358 -- ------- ------- Total current assets. . . . . . . . . 26,830 21,555 ------- ------- Property, plant and equipment, at cost: . . . . . . . . . . . . . . 1 Land and improvements . . . . . . . 538 538 Buildings and improvements. . . . . 3,768 3,519 Equipment . . . . . . . . . . . . . 33,198 31,360 ------- ------- 37,504 35,417 Less: accumulated depreciation and amortization. . . . . . . . . 19,325 18,917 ------- ------- Net property, plant and equipment . . 18,179 16,500 ------- ------- Equity in joint venture . . . . . . . 3 2,806 2,331 Goodwill and other intangible assets, net of amortization . . . . 1 & 4 8,601 7,216 Dosimetry devices, net of amortization. . . . . . . . . . . . 3,546 2,585 Other assets. . . . . . . . . . . . . 295 363 ------- ------- TOTAL ASSETS. . . . . . . . . . . . . $60,257 $50,550 ======= ======= 14 CONSOLIDATED BALANCE SHEETS - CONTINUED LANDAUER, INC. AND SUBSIDIARIES (Dollars in Thousands) As of September 30, Notes 2002 2001 ------------------- ----- ------- ------- LIABILITIES AND STOCKHOLDERS' INVESTMENT Current liabilities: Accounts payable. . . . . . . . . . $ 1,789 $ 627 Dividends payable . . . . . . . . . 3,071 3,055 Deferred contract revenue . . . . . 1 11,885 10,890 Accrued compensation and related costs . . . . . . . . . . 2,505 2,242 Accrued pension costs . . . . . . . 8 1,922 1,831 Accrued taxes on income . . . . . . 1 & 5 1,753 306 Other accrued expenses. . . . . . . 2,264 1,842 ------- ------- Total current liabilities . . . . . . 25,189 20,793 ------- ------- Minority interest . . . . . . . . . . 462 114 Commitments and contingencies . . . . 6 & 9 -- -- STOCKHOLDERS' INVESTMENT. . . . . . . 7 & 10 Preferred stock . . . . . . . . . . . -- -- Common stock. . . . . . . . . . . . . 878 873 Premium paid in on common stock . . . 10,946 9,876 Cumulative translation adjustments. . (855) (826) Retained earnings . . . . . . . . . . 23,637 19,720 ------- ------- Total stockholders' investment. . . . 34,606 29,643 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT. . . . . . $60,257 $50,550 ======= ======= The accompanying notes are an integral part of these financial statements. 15 CONSOLIDATED STATEMENTS OF INCOME LANDAUER, INC. AND SUBSIDIARIES (Dollars in Thousands, Except per Share) For the years ended September 30, Notes 2002 2001 2000 ------------------- ----- -------- -------- -------- Net revenues. . . . . . . $ 58,608 $ 53,028 $ 47,174 Costs and expenses: Cost of sales . . . . . 20,462 18,716 16,959 Selling, general, and administrative. . . . 1 13,747 12,438 10,379 Impairment in value of assets . . . . . . 11 -- -- 520 -------- -------- -------- 34,209 31,154 27,858 Operating income. . . . . 24,399 21,874 19,316 Equity in income of joint venture . . . . . 3 735 502 759 Other income. . . . . . . 1,137 256 240 -------- -------- -------- Income before taxes . . . 26,271 22,632 20,315 Income taxes. . . . . . . 1 & 5 (9,811) (8,269) (7,519) -------- -------- -------- Income before minority interest. . . . . . . . 16,460 14,363 12,796 Minority interest . . . . (280) (39) (34) -------- -------- -------- Net income. . . . . . . . $ 16,180 $ 14,324 $ 12,762 ======== ======== ======== Net income per share: . . 2 Basic . . . . . . . . . . $ 1.85 $ 1.65 $ 1.47 Diluted . . . . . . . . . $ 1.83 $ 1.64 $ 1.47 ======== ======== ======== 16 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT AND COMPREHENSIVE INCOME LANDAUER, INC. AND SUBSIDIARIES (Dollars in Thousands)
Premium Paid in on Cumulative Total Compre- Common Common Translation Retained Stockholders' hensive Stock Stock Adjustments Earnings Investment Income ------ ---------- ----------- -------- ------------- -------- Balance September 30, 1999 $ 866 $ 8,711 $ (265) $ 16,926 $ 26,238 Options exercised, net of repurchases -- 41 -- -- 41 Net income -- -- -- 12,762 12,762 $ 12,762 Foreign currency translation adjustment -- -- (107) -- (107) (107) Dividends -- -- -- (12,116) (12,116) -- ------ ------- ------ -------- -------- -------- Comprehensive income $ 12,655 ======== Balance September 30, 2000 $ 866 $ 8,752 $ (372) $ 17,572 $ 26,818 Options exercised, net of repurchases 7 1,124 -- -- 1,131 Net income -- -- -- 14,324 14,324 $ 14,324 Foreign currency translation adjustment -- -- (454) -- (454) (454) Dividends -- -- -- (12,176) (12,176) -- ------ ------- ------ -------- -------- -------- Comprehensive income $ 13,870 ======== 17 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT AND COMPREHENSIVE INCOME - CONTINUED LANDAUER, INC. AND SUBSIDIARIES (Dollars in Thousands) Premium Paid in on Cumulative Total Compre- Common Common Translation Retained Stockholders' hensive Stock Stock Adjustments Earnings Investment Income ------ ---------- ----------- -------- ------------- -------- Balance September 30, 2001 $ 873 $ 9,876 $ (826) $ 19,720 $ 29,643 Options exercised, net of repurchases 5 1,070 -- -- 1,075 Net income -- -- -- 16,180 16,180 $ 16,180 Foreign currency translation adjustment -- -- (29) -- (29) (29) Dividends -- -- -- (12,263) (12,263) -- ------ ------- ------ -------- -------- -------- Comprehensive income $ 16,151 ======== Balance September 30, 2002 $ 878 $ 10,946 $ (855) $ 23,637 $ 34,606 ====== ======== ====== ======== ======== The accompanying notes are an integral part of these financial statements.
18 CONSOLIDATED STATEMENTS OF CASH FLOWS LANDAUER, INC. AND SUBSIDIARIES (Dollars in Thousands) For the years ended September 30, 2002 2001 2000 ------------------- -------- -------- -------- Cash flow from operating activities: Net income. . . . . . . . . . . . .$ 16,180 $ 14,324 $ 12,762 Non-cash expenses, revenues, and gains reported in income: Non-cash gain from exchange of assets . . . . . . . . . . . (786) -- -- Depreciation and amortization . . 4,370 4,475 4,025 Equity in income of joint venture . . . . . . . . . . . . (735) (502) (759) Compensatory effect of stock options . . . . . . . . . . . . 1,075 1,130 41 Deferred income taxes . . . . . . 1,216 (291) 1,139 -------- -------- -------- 5,140 4,812 4,446 -------- -------- -------- Net increase in other current assets. (4,703) (529) (1,535) Net increase in current liabilities . 2,660 853 2,519 Net increase in net long-term assets. (1,763) (1,680) (1,650) -------- -------- -------- (3,806) (1,356) (666) -------- -------- -------- Net cash generated from operating activities. . . . . . . . 17,514 17,780 16,542 Cash flow from investing activities: Acquisition of investments. . . . . (877) -- (2,550) Acquisition of property, plant and equipment . . . . . . . . . . (4,656) (3,219) (3,799) -------- -------- -------- Net cash used by investing activities. . . . . . . . . . . . . (5,533) (3,219) (6,349) Cash flow from financing activities: Dividend received from foreign affiliate . . . . . . . . . . . . 334 1,645 400 Advance from joint venture partner. 504 -- -- Dividends paid. . . . . . . . . . . (12,247) (12,152) (12,116) -------- -------- -------- Net cash used by financing activities (11,409) (10,507) (11,716) -------- -------- -------- Net increase (decrease) in cash . . . 572 4,054 (1,523) Opening balance - cash and cash equivalents. . . . . . . . . . 7,055 3,001 4,524 -------- -------- -------- Ending balance - cash and cash equivalents. . . . . . . . . .$ 7,627 $ 7,055 $ 3,001 ======== ======== ======== Supplemental Disclosure of Cash Flow Information: Cash paid for income taxes. . . . .$ 10,096 $ 7,127 $ 5,302 ======== ======== ======== Supplemental Non-cash Investing and Financing Information: Dividend declared . . . . . . . . .$ 3,071 $ 3,055 $ 3,031 Foreign currency translation adjustment. . . . . . . . . . . . (29) (454) (107) ======== ======== ======== The accompanying notes are an integral part of these financial statements. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LANDAUER, INC. AND SUBSIDIARIES 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Landauer, Inc.; HomeBuyer's Preferred, Inc., its wholly-owned subsidiary; SAPRA-Landauer, Ltda., its 75%-owned subsidiary; Beijing- Landauer, Ltd., its 70%-owned subsidiary; and LCIE-Landauer, its 51%-owned subsidiary, ("Landauer" or the "Company"). Nagase-Landauer, Ltd. (50%- owned) is a Japanese corporation that is accounted for on the equity basis. All material intercompany transactions have been eliminated. The cost of purchased businesses included in the accompanying consolidated financial statements exceeded the fair value of net identifiable tangible and intangible assets at the date of acquisition in the amount of $8,430,000. As of September 30, 2002 and 2001, accumulated amortization was $3,249,000 and $3,084,000, respectively. On October 1, 2001, the Company adopted SFAS No. 142 that requires the goodwill and certain intangible assets no longer be amortized to earnings, but be reviewed periodically for impairment. For acquisitions completed before June 30, 2001, the amortization of goodwill and certain intangible assets has ceased beginning in fiscal year 2002. The Company did not recognize goodwill amortization expense in fiscal 2002. Goodwill amortization expense aggregated $190,000 in fiscal 2001 and $197,000 in fiscal 2000. Diluted EPS increased by approximately $0.02 in 2002 due to the reduction in amortization expense. The provisions of SFAS No. 142 that pertain to impairment of goodwill and certain intangible assets have superseded the impairment related provisions included in SFAS No. 121. As a result of applying the new impairment provisions of SFAS No. 142, no impairment loss was indicated. Please refer to footnote 4 for additional information. Certain of the Company's foreign investments, where the U.S. dollar is not the functional currency, are subject to currency translation adjustments in accordance with SFAS No. 52. CASH EQUIVALENTS Cash equivalents include investments with an original maturity of three months or less. Primarily all investments are short-term money market instruments. INVESTMENTS Investments having an original maturity of longer than three months but less than one year are classified as current assets. Those having an original maturity of longer than one year are classified as noncurrent assets. INVENTORIES Inventories of material utilized in the construction of dosimeter badges are valued at cost utilizing a first-in, first-out method. 20 REVENUES AND DEFERRED CONTRACT REVENUE The Company recognizes revenues and the related costs for its services in the periods for which such services are provided. Many customers pay for these services in advance. The amounts recorded as deferred contract revenue in the consolidated balance sheet represent customer deposits invoiced in advance during the preceding twelve months for services to be rendered over the succeeding twelve months, and are net of services rendered through the respective consolidated balance sheet date. Management believes that the amount of deferred contract revenue shown at the respective consolidated balance sheet date fairly represents the level of business activity it expects to conduct with customers invoiced under this arrangement. RESEARCH AND DEVELOPMENT The cost of research and development programs is charged to selling, general and administrative expense as incurred and amounted to approximately $941,000 in 2002, $694,000 in 2001, and $522,000 in 2000. In addition, during fiscal 2000 the Company received a $500,000 technology cost reimbursement from its 50%-owned Japanese subsidiary, Nagase-Landauer. The payment reimburses a portion of costs incurred by the parent company in developing and implementing the Luxel technology. DEPRECIATION, AMORTIZATION AND MAINTENANCE Plant and equipment are depreciated on a straight-line basis over their estimated useful lives, which are primarily thirty years for buildings and three to eight years for equipment. Dosimetry devices (principally badges) are amortized on a straight-line basis over their estimated lives, which are three to five years. Maintenance and repairs are charged to expense, and renewals and betterments are capitalized. ADVERTISING The Company expenses the costs of advertising as incurred. INCOME TAXES Landauer files income tax returns in the jurisdictions in which it operates. For financial statement purposes, provisions for federal and state income taxes have been computed in accordance with the provisions of SFAS No. 109 entitled "Accounting for Income Taxes." USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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. 2. INCOME PER COMMON SHARE Earnings per share computations have been made in accordance with the provisions of 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 year. 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 year. 21 Following is a table that shows the weighted average number of shares of common stock for the years ended September 30: (Amounts in Thousands) 2002 2001 2000 ---------------------- ------ ------ ------ Weighted Average Number of Shares of Common Stock Outstanding . . . . 8,756 8,693 8,661 Options Issued to Executives. . . . . 99 54 24 ------ ------ ------ Weighted Average Number of Shares of Common Stock Assuming Dilution . 8,855 8,747 8,685 ====== ====== ====== Following is a table that provides net income and earnings per share for the years ended September 30: (Dollars in Thousands, Except Per Share) 2002 2001 2000 ---------------------- ------- ------- ------- Net Income: . . . . . . . . . . . . . $16,180 $14,324 $12,762 Basic EPS:. . . . . . . . . . . . . . $ 1.85 $ 1.65 $ 1.47 Diluted EPS:. . . . . . . . . . . . . $ 1.83 $ 1.64 $ 1.47 ======= ======= ======= 3. EQUITY IN JOINT VENTURE The 50% interest in the common stock of Nagase-Landauer, Ltd., a Japanese corporation located in Tokyo and engaged in providing radiation monitoring services in Japan, is accounted for on the equity basis. The related equity in earnings of this joint venture is included in its own caption in the accompanying Statements of Income. Condensed unaudited results of operations for Nagase-Landauer, Ltd. for the years ended September 30, are as follows, converted into U.S. dollars at the then-current rate of exchange: (Dollars in Thousands) 2002 2001 2000 ---------------------- ------- ------- ------- Revenues. . . . . . . . . . . . . . . $12,790 $12,169 $13,509 Income Before Income Taxes. . . . . . 2,642 1,728 2,910 Net Income. . . . . . . . . . . . . . 1,470 1,005 1,519 ======= ======= ======= Average Exchange Rate (/$) . . . 125.9 119.4 106.4 ======= ======= ======= Condensed unaudited balance sheets for the years ended September 30, 2002 and 2001 are as follows: (Dollars in Thousands) 2002 2001 ---------------------- ------- ------- Current Assets. . . . . . . . . . . . $ 9,685 $ 7,949 Other Assets. . . . . . . . . . . . . 1,943 1,915 ------- ------- Total Assets. . . . . . . . . . . . . $11,628 $ 9,864 ======= ======= Liabilities . . . . . . . . . . . . . $ 6,016 $ 5,202 Stockholders' Investment. . . . . . . 5,612 4,662 ------- ------- Total liabilities and Stockholders' Investment. . . . . . $11,628 $ 9,864 ======= ======= 22 4. GOODWILL AND OTHER INTANGIBLE ASSETS On October 1, 2001, the Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill and certain intangible assets no longer be amortized to earnings, but be reviewed periodically for impairment. SFAS No. 142 requires transitional disclosure of what reported income before extraordinary items and net income would have been in all periods presented, exclusive of amortization expense recognized in those periods related to goodwill and intangible assets that are no longer being amortized. Similarly, adjusted per-share amounts also are required to be disclosed for all periods presented. The amortization expense and net income of the Company for 2002 and the prior two years are shown in the table below. (Dollars in Thousands, Except Per Share) 2002 2001 2000 ---------------------- ------- ------- ------- Reported Net Income . . . . . . . . . $16,180 $14,324 $12,762 Add Back Goodwill Amortization. . . . -- 131 135 ------- ------- ------- Adjusted Net Income . . . . . . . . . $16,180 $14,455 $12,897 ======= ======= ======= Reported EPS - Basic. . . . . . . . . $ 1.85 $ 1.65 $ 1.47 Goodwill Amortization . . . . . . . . -- 0.02 0.02 ------- ------- ------- Adjusted EPS - Basic. . . . . . . . . $ 1.85 $ 1.67 $ 1.49 ======= ======= ======= Reported EPS - Diluted. . . . . . . . $ 1.83 $ 1.64 $ 1.47 Goodwill Amortization . . . . . . . . -- 0.02 0.02 ------- ------- ------- Adjusted EPS - Diluted. . . . . . . . $ 1.83 $ 1.66 $ 1.49 ======= ======= ======= The components of goodwill and other intangible assets for the years ended September 30, 2002 and 2001 are as follows: (Dollars in Thousands) 2002 2001 ---------------------- ------- ------- Goodwill. . . . . . . . . . . . . . . $ 5,181 $ 5,298 (No Longer Amortized) Customer List, Net of Amortization. . 2,381 865 (Useful Life of 10 Years) Licenses and Patents, Net of Amortization. . . . . . . . . . . . 593 643 (Useful Life of 10-15 Years) Other Intangibles, Net of Amortization. . . . . . . . . . . . 446 410 ------- ------- Total . . . . . . . . . . . . . . . . $ 8,601 $ 7,216 ======= ======= The intangible asset amounts noted above are presented net of accumulated amortization of $3,990,000 at September 30, 2002 and $3,738,000 at September 30, 2001. Amortization of intangible assets was $271,000, $558,000, and $314,000 for the years ended September 30, 2002, 2001 and 2000, respectively. Estimated annual aggregate amortization expense related to intangible assets will be approximately $355,000 for each of the next five years. In September 2000, the Company invested $2,550,000 to acquire certain assets, including a customer list of Eberline Analytical Corporation, a division of ThermoRetec Corporation. The Company began providing dosimetry services to the former Eberline customers in October 2000. The acquisition was accounted for as a purchase, and the customer list is amortized over a ten-year period. 23 On April 2, 2002, the Company completed an agreement to merge its European operations with Laboratoire Central des Industries Electriques (LCIE), a wholly-owned subsidiary of Bureau Veritas, a professional services company involved in quality, health and safety, and environmental management. Under the agreement, Landauer exchanged its United Kingdom radiation monitoring business with annual revenues of approximately $1,500,000 and its technologies for a 51% controlling interest in the new company named LCIE-Landauer. LCIE contributed its radiation monitoring business that has current annual revenues of more than $3,000,000, all of which is located in France. The Company recognized a gain of $786,000 arising from this transaction. LCIE-Landauer has its headquarters and laboratory at the current LCIE location in Fontenay-aux-Roses, a Paris suburb, and will continue to serve United Kingdom customers from Oxford, England. Additionally, as part of the formation of the new entity on April 2, 2002, LCIE-Landauer purchased the Philips France radiation monitoring business for $877,000. This Philips business unit had annual revenues of approximately $800,000 in 2001. Results of operations related to the acquisitions had no significant effect on the financial statements for the year ended September 30, 2002. Total consideration for these acquisitions aggregated approximately $2,000,000, which was allocated principally to working capital and customer lists. The $1,681,000 allocated to customer list is amortized over 10 years. As of September 30, 2002, the Company has a $504,000 payable due to Bureau Veritas. 5. INCOME TAXES The components of the provision for income taxes for the years ended September 30, 2002, 2001 and 2000 are as follows: 2002 ------------------------------- (Dollars in Thousands) Current Deferred Total ---------------------- ------- -------- ------- Federal . . . . . . . . . . . . . . . $ 7,014 $ 992 $ 8,006 State . . . . . . . . . . . . . . . . 1,581 224 1,805 ------- ------- ------- Total . . . . . . . . . . . . . . $ 8,595 $ 1,216 $ 9,811 ======= ======= ======= 2001 ------------------------------- (Dollars in Thousands) Current Deferred Total ---------------------- ------- -------- ------- Federal . . . . . . . . . . . . . . . $ 6,766 $ (230) $ 6,536 State . . . . . . . . . . . . . . . . 1,794 (61) 1,733 ------- ------- ------- Total . . . . . . . . . . . . . . $ 8,560 $ (291) $ 8,269 ======= ======= ======= 2000 ------------------------------- (Dollars in Thousands) Current Deferred Total ---------------------- ------- -------- ------- Federal . . . . . . . . . . . . . . . $ 5,132 $ 915 $ 6,047 State . . . . . . . . . . . . . . . . 1,249 223 1,472 ------- ------- ------- Total . . . . . . . . . . . . . . $ 6,381 $ 1,138 $ 7,519 ======= ======= ======= 24 The provision for taxes on income in each period differs from that which would be computed by applying the statutory U.S. federal income tax rate to the income before taxes. The following is a summary of the major items affecting the provision: (Dollars in Thousands) 2002 2001 2000 ---------------------- ------- ------- ------- Statutory Federal Income Tax Rate . . 35% 35% 35% Computed Tax Provision at Statutory Rate. . . . . . . . . . . $ 9,195 $ 7,921 $ 7,110 Increases (Decreases) Resulting From: State Income Tax Provision, Net of Federal Benefit. . . . . . 1,173 1,126 957 Other . . . . . . . . . . . . . . . (557) (778) (548) ------- ------- ------- Income Tax Provision in the Statement of Income . . . . . . . . $ 9,811 $ 8,269 $ 7,519 ======= ======= ======= The Company recognizes certain income and expense items in different years for financial and tax reporting purposes. Temporary differences are primarily attributable to (a) utilization of accelerated depreciation methods for tax purposes, (b) amortization of badge holder and software development costs, (c) limitations on deductibility of pension costs, (d) accrued benefit claims, vacation pay, and other compensation-related costs, and (e) reserves for obsolete inventory. Significant components of deferred taxes are as follows: (Dollars in Thousands) 2002 2001 ---------------------- ------- ------- Deferred Tax Assets: Badge Holder Amortization . . . . . $ 667 $ 660 Pension Accrual . . . . . . . . . . 896 882 Compensation Expense. . . . . . . . 459 379 Inventory Reserve . . . . . . . . . 209 204 Other . . . . . . . . . . . . . . . 485 530 ------- ------- $ 2,716 $ 2,655 ======= ======= Deferred Tax Liabilities: Depreciation. . . . . . . . . . . . $ 964 $ 194 Software Development. . . . . . . . 3,212 2,705 ------- ------- $ 4,176 $ 2,899 ======= ======= Management does not believe that a valuation allowance is required for the net deferred tax asset. 6. LINE OF CREDIT The Company maintains an external source of liquidity in the form of a $5,000,000 unsecured line of credit maturing September 30, 2003. The credit facility contains covenants for net worth and debt to equity ratios. Draws thereunder bear interest at the prime rate in effect from time-to-time at the lending bank. There is no outstanding liability as of the balance sheet dates, and the Company is in compliance with these covenants. 25 7. CAPITAL STOCK Landauer has two classes of capital stock, preferred and common, with a par value of $.10 per share for each class. As of September 30, 2002 and 2001, there were 8,775,337 and 8,729,031 shares of common stock issued and outstanding (20,000,000 shares are authorized), respectively. There are no shares of preferred stock issued (1,000,000 shares are authorized). Cash dividends of $1.40 per share were paid in fiscal 2002. At September 30, 2002, there were accrued and unpaid dividends of $3,071,000. Landauer has reserved 1,450,000 shares of common stock for grants under its stock bonus and option plans. Recipients of grants or options must execute a standard form of noncompetition agreement. As of September 30, 2002, there have been no bonus shares issued. 8. EMPLOYEE BENEFIT PLANS Landauer maintains a noncontributory defined benefit pension and retirement plan covering substantially all full-time employees. The Company also maintains a Supplemental Key Executive Retirement Plan that provides for certain retirement benefits payable to key officers and managers. While charges for the supplemental plan are expensed annually, the plan is not separately funded. The Company maintains a directors' retirement plan that provides for certain retirement benefits payable to non-employee directors. The directors' plan was terminated in 1997. The following table sets forth the status of these plans at September 30, 2002 and 2001 in accordance with SFAS Nos. 87 and 132: Other Retirement Pension Benefits ---------------- --------------- (Dollars in thousands) 2002 2001 2002 2001 ---------------------- ------- ------ ------ ------ Change in Benefit Obligation: Benefit obligation at beginning of year . . . . . $ 9,410 $8,447 $ 813 $ 594 Service Cost. . . . . . . . . 564 499 72 64 Interest Cost . . . . . . . . 702 630 60 53 Amendments. . . . . . . . . . -- -- -- 103 Actuarial Loss. . . . . . . . 1,511 103 77 27 Benefits Paid . . . . . . . . (270) (269) (38) (28) ------- ------ ------ ------ Benefit Obligation at End of Period . . . . . . . $11,917 $9,410 $ 984 $ 813 ======= ====== ====== ====== Change in Plan Assets: Fair Value of Assets at Beginning of Year . . . . . $ 7,185 $7,966 $ -- $ -- Actual Return on Plan Assets. (447) (553) -- -- Employer Contribution . . . . 491 41 39 28 Benefits Paid . . . . . . . . (270) (269) (39) (28) ------- ------ ------ ------ Fair Value of Assets at End of Period . . . . . . . $ 6,959 $7,185 $ -- $ -- ======= ====== ====== ====== 26 Other Retirement Pension Benefits ---------------- --------------- (Dollars in thousands) 2002 2001 2002 2001 ---------------------- ------- ------- ------ ------ Reconciliation of Funded Status: Funded Status . . . . . . . . $(4,958) $(2,225) $ (984) $ (813) Unrecognized Transition Obligation (Asset). . . . . (31) (37) 227 250 Unrecognized Prior Service Cost. . . . . . . . . . . . 132 150 69 86 Unrecognized Net Actuarial (Gain) Loss . . . . . . . . . 2,832 302 (31) (112) ------- ------- ------ ------ Accrued Benefit Cost. . . . . . $(2,025) $(1,810) $ (719) $ (589) ======= ======= ====== ====== Components of Net Periodic Benefit Cost: Service Cost. . . . . . . . . $ 564 $ 499 $ 72 $ 64 Interest Cost . . . . . . . . 702 630 60 53 Expected Return on Plan Assets. . . . . . . . . . . (575) (627) -- -- Amortization of Transition Obligation (Asset). . . . . (6) (6) 22 23 Amortization of Prior Service Cost. . . . . 18 18 17 17 Recognized Net Actuarial (Gain) Loss . . . . . . . . 4 (7) (3) (8) ------- ------- ------ ------ Net Periodic Benefit Cost . . $ 707 $ 507 $ 168 $ 149 ======= ======= ====== ====== Weighted average assumptions as of September 30: Other Retirement Pension Benefits ---------------- --------------- (Dollars in thousands) 2002 2001 2002 2001 ---------------------- ------- ------- ------ ------ Discount Rate at Beginning of Year . . . . . . . . . . . 7.50% 7.50% 7.50% 7.50% Discount Rate at End of Year. . 6.75% 7.50% 6.75% 7.50% Expected Return on Plan Assets. 8.00% 8.00% 0.00% 0.00% Rate of Compensation Increase . 5.50% 5.50% 6.00% 6.00% Plan assets for the defined benefit pension plan include marketable equity securities, corporate and government debt securities, and cash and short-term investments. The Supplemental Key Executive Retirement Plan and the directors' retirement plan are not separately funded. 27 Landauer maintains a 401(k) savings plan covering substantially all full-time employees. Qualified contributions made by employees to the plan are partially matched by the Company. $130,000, $127,000, and $91,000 was provided to expense for the years ended September 30, 2002, 2001, and 2000, respectively, under this plan. Landauer has adopted SFAS No. 106, "Accounting for Postretirement Benefits Other than Pensions" to account for the Company's unfunded retiree medical expense reimbursement plan. Under the terms of the plan that covers retirees with ten or more years of service, the Company will reimburse retirees to age 70 for (i) a portion of the cost of coverage under the then-current medical and dental insurance plans if the retiree is under age 65, or (ii) all or a portion of the cost of Medicare and supplemental coverage if the retiree is over age 64. The assumption for health-care cost trend rates was 6% for those younger than 65, and 5% for those 65 and older. The effect of a one percent increase on service and interest costs and postretirement benefit obligation would be $15,000 and $98,000, respectively. For a one percent decrease, the effect would be a reduction to service and interest costs and postretirement benefit obligation of $13,000 and $86,000, respectively. 9. COMMITMENTS AND CONTINGENCIES The Company is involved in various legal proceedings, but believes that the outcome of these proceedings will not have a materially adverse effect on its financial condition.proceedings will not have a materially adverse effect on its financial condition. On April 2, 2002, the Company completed an agreement to merge its European operations with the radiation monitoring business operated by Laboratoire Central des Industries Electriques (LCIE). Under the terms of the acquisition agreements, LCIE may, in the fifth and sixth year of the venture, require Landauer to purchase its interest in LCIE-Landauer at estimated fair value based on a multiple of EBITDA for the trailing four quarters. Additionally, Landauer shall have the option to purchase LCIE's interest in the seventh year of the venture on the same terms as LCIE's "Put" option. A change in control provision, as defined, may accelerate the respective Put and Call options and provides for premiums and discounts in the event such options are exercised as the result of a change in control. 10. 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. Had compensation cost for these plans been determined consistent with FASB Statements No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been as follows. (Dollars in thousands, except per share) 2002 2001 2000 ----------------------- ------- ------- ------- Net Income: As Reported. $16,180 $14,324 $12,762 Pro Forma. . 16,072 14,292 12,660 Basic EPS: As Reported. $ 1.85 $ 1.65 $ 1.47 Pro forma. . 1.84 1.64 1.46 Diluted EPS: As Reported. $ 1.83 $ 1.64 $ 1.47 Pro forma. . 1.82 1.63 1.46 Because the FASB Statement No. 123 method of accounting has not been applied to options granted prior to October 1, 1996, the resulting pro forma compensation cost may not be representative of that to be expected in future years. 28 The Company may grant options for up to 1,350,000 shares under the Employees' Plan. The Company may grant options for up to 100,000 shares under the Directors' Plan. The Company has granted options on 1,012,000 and 52,000 shares, respectively, under these plans through September 30, 2002. Under each plan, the option exercise price equals the stock's fair market value on the date of grant. Options granted under the Employees' Plan vest ratably over four years. The initial grant of options in 1997 under the Directors' Plan vest ratably over ten years and subsequent grants vest ratably over four years. The term of all options granted is for a period of 10 years. Options granted under these plans may be either incentive stock options or non-qualified options. Options granted through fiscal 2002 become exercisable over a four-year period, ten years for options granted to directors, at a price not less than fair market value on the date of grant. The options expire ten years from the date of grant. During fiscal 2002, options for 55,000 shares were granted and 73,250 options were exercised. As of September 30, 2002, non-qualified options for 435,250 shares had been granted at prices from $16.50 - $37.15 per share. At year-end, 230,750 shares were exercisable. This plan also provides for the grant of restricted shares or the grant of stock appreciation rights, either separately or in relation to options granted. During fiscal 2002, 348 shares vested under previous grants were issued to key employees. As of September 30, 2002, no stock appreciation rights had been granted. See note 7 for additional information on stock options. A summary of the status of these plans at September 30, 2002, 2001, and 2000 and changes for the years then ended is presented in the following table and narrative: 2002 ------------------- Weighted (Amounts in Thousands, Average Except Per Share) Shares Price ---------------------- ------ -------- Outstanding at Beginning of Year. . . . . . . 454 $ 22.15 Granted . . . . . . . . . . . . . . . . . . . 55 33.21 Exercised . . . . . . . . . . . . . . . . . . (73) 22.05 ---- ------- Outstanding at End of Year. . . . . . . . . . 436 $ 23.63 ==== ======= Exercisable at End of Year. . . . . . . . . . 231 $ 22.36 ==== ======= Weighted Average Fair Value of Options Granted $ 6.64 2001 ------------------- Weighted (Amounts in Thousands, Average Except Per Share) Shares Price ---------------------- ------ -------- Outstanding at Beginning of Year. . . . . . . 474 $ 21.11 Granted . . . . . . . . . . . . . . . . . . . 106 19.43 Exercised . . . . . . . . . . . . . . . . . . (111) 15.71 Forfeited . . . . . . . . . . . . . . . . . . (15) 18.34 ---- ------- Outstanding at End of Year. . . . . . . . . . 454 $ 22.15 ==== ======= Exercisable at End of Year. . . . . . . . . . 218 $ 21.64 ==== ======= Weighted Average Fair Value of Options Granted $ 2.13 29 2000 ------------------- Weighted (Amounts in Thousands, Average Except Per Share) Shares Price ---------------------- ------ -------- Outstanding at Beginning of Year. . . . . . . 419 $ 21.10 Granted . . . . . . . . . . . . . . . . . . . 55 21.16 ---- ------- Outstanding at End of Year. . . . . . . . . . 474 $ 21.11 ==== ======= Exercisable at End of Year. . . . . . . . . . 285 $ 18.44 ==== ======= Weighted Average Fair Value of Options Granted $ 2.91 Following is a table that summarizes information about options outstanding as of September 30, 2002: Options Outstanding Options Exercisable --------------------------------- -------------------- Average Weighted Weighted Remaining Average Average Range of Contractual Exercise Exercise Exercise Prices Shares Life Price Shares Price --------------- ------- ----------- -------- ------- -------- $ 16.50-$ 19.00 81,500 3 $ 16.57 75,000 $ 16.50 $ 19.01-$ 22.00 92,000 8 $ 19.35 15,500 $ 19.33 $ 22.01-$ 25.00 41,500 5 $ 23.21 29,000 $ 23.51 $ 25.01-$ 28.00 165,250 6 $ 26.40 111,250 $ 26.43 $ 28.01-$ 31.00 -- -- -- -- -- $ 31.01-$ 34.00 43,000 9 $ 32.11 -- -- $ 34.01+ 12,000 9 $ 37.15 -- -- ------- --- ------- ------- ------- 435,250 6 $ 23.63 230,750 $ 23.36 ======= === ======= ======= ======= The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in fiscal 2002, 2001, and 2000: 2002 2001 2000 ------ ------ ------ Risk Free Interest Rates. . . . . . . 4.65% 5.85% 6.00% Expected Dividend Yield . . . . . . . 4.22% 7.21% 6.74% Expected Life (Years) . . . . . . . . 10 9 9 Expected Volatility . . . . . . . . . 23.30% 22.10% 21.60% 11. IMPAIRMENT IN VALUE OF ASSETS The Company recognized a non-cash pre-tax charge of $520,000 during fiscal year 2000, or $0.04 per diluted share, and $2,957,000 during fiscal 1999, or $0.25 per diluted share, for the discontinuation of older technologies as the Company transitioned customers to Luxel, a superior radiation measurement technology. Included in the non-cash charge is $1,000,000 related to accelerated goodwill amortization and $2,211,000 of additional depreciation and amortization charges resulting from the change in estimated useful lives of certain fixed assets. In addition, a $266,000 reserve was applied against certain inventories. 30 12. NEW ACCOUNTING PRONOUNCEMENTS In June 2002, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." The provisions of this statement are required to be applied starting with fiscal years beginning after June 15, 2002. This Statement addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of SFAS No. 143 has no impact on the Company's financial statements. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 defines impairment for long-lived assets and provides guidance on the measurement of asset impairments. The adoption of SFAS No. 144 has no impact on the Company's financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No., 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 eliminates the exception to applying APB Opinion 30 to all gains and losses related to extinguishments of debt. The adoption of SFAS No. 145 has no impact on the Company's financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement requires that a liability for costs associated with an exit or disposal activity be recognized when the costs are incurred rather than at the date of a commitment to the exit or disposal plan. This statement will be applied prospectively to exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 has no impact on the Company's financial statements. 31 REPORTS OF INDEPENDENT ACCOUNTANTS TO STOCKHOLDERS AND DIRECTORS OF LANDAUER, INC.: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, stockholder's investment and comprehensive income and cash flows for the year ended September 30, 2002 present fairly, in all material respects, the financial position of Landauer, Inc. and Subsidiaries at September 30, 2002, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The financial statements of Landauer, Inc. as of September 30, 2001, and for each of the two years in the period ended September 30, 2001, were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those financial statements, before the revision described in Note 4, in their report dated November 6, 2001. As discussed above, the financial statements of Landauer, Inc. as of September 30, 2001, and for each of the two years in the period ended September 30, 2001, were audited by other independent accountants who have ceased operations. As described in Note 4, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which was adopted by the Company as of October 1, 2001. We audited the transitional disclosures described in Note 4. In our opinion, the transitional disclosures for 2001 and 2000 in Note 4 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 or 2000 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 or 2000 financial statements taken as a whole. PricewaterhouseCoopers LLP Chicago, Illinois November 6, 2002 Arthur Andersen LLP originally issued this report on November 6, 2001. These independent accountants have ceased operations.They have not reissued their report in conjunction with this filing. 32 REPORTS OF INDEPENDENT ACCOUNTANTS - CONTINUED TO THE STOCKHOLDERS AND DIRECTORS OF LANDAUER, INC.: We have audited the consolidated balance sheets of Landauer, Inc. and Subsidiaries, a Delaware corporation (see Note 1), as of September 30, 2001 and 2000 and the related consolidated statements of income, stockholders' investment and comprehensive income, and cash flows for each of the three years in the period ended September 30, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Landauer, Inc. and Subsidiaries as of September 30, 2001 and 2000, and the consolidated results of its operations, and the changes in stockholders' investment and cash flows for each of the three years in the period ended September 30, 2001 in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Chicago, Illinois November 6, 2001 33 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained under the headings Election of Directors and Beneficial Ownership of Certain Voting Securities in the Proxy Statement relating to the directors of the Company is incorporated herein by reference. The information contained in Item 4A hereof relating to the executive officers of the Registrant is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Except for the information relating to Item 13 hereof and except for information referred to in Item 402(a)(8) of Regulation S-K, the information contained under the headings Executive Compensation and Compensation Committee Report in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information contained under the headings Executive Compensation- Equity Compensation Plan Information and Beneficial Ownership of Certain Voting Securities in the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Except for the information relating to Item 11 hereof and except for information referred to in Item 402(a)(8) of Regulation S-K, the information contained under the headings Election of Directors, and Certain Relationships and Related Transactions in the Proxy Statement is incorporated herein by reference. ITEM 14. CONTROLS AND PROCEDURES Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company's periodic filings with the Securities and Exchange Commission. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these internal controls subsequent to the date of our most recent evaluation. 34 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K A-1. FINANCIAL STATEMENTS The financial statements of Landauer, Inc. filed as part of this Annual Report on Form 10-K are indexed at page 7. A-3. LIST OF EXHIBITS (3)(a) Certificate of Incorporation of the Registrant, as amended through February 4, 1993, is incorporated by reference to Exhibit (3)(a) to the Annual Report on Form 10-K for the fiscal year ended September 30, 1993. (3)(b) By-laws of the Registrant are incorporated by reference to Exhibit (3)(b) to the Annual Report on Form 10-K for the fiscal year ended September 30, 1992. (4)(a) Specimen common stock certificate of the Registrant incorporated by reference to Exhibit (4)(a) to the Annual Report on Form 10-K for the fiscal year ended September 30, 1997. (10)(a) The Landauer, Inc. 1996 Equity Plan, as amended and restated through November 8, 2001, is attached hereto as Exhibit (10)(a). (10)(b) Liability Assumption and Sharing Agreement among Tech/Ops, Inc., Tech/Ops Sevcon, Inc., and the Registrant is incorporated by reference to Exhibit (10)(d) to the Annual Report on Form 10-K for the fiscal year ended September 30, 1993. (10)(c) Form of Indemnification Agreement between the Registrant and each of its directors is incorporated by reference to Exhibit (10)(e) to the Annual Report on Form 10-K for the fiscal year ended September 30, 1993. (10)(d) Landauer, Inc. Directors' Retirement Plan dated March 21, 1990, is incorporated by reference to Exhibit (10)(f) to the Annual Report on Form 10-K for the fiscal year ended September 30, 1996. (10)(e) Form of Supplemental Key Executive Retirement Plan of Landauer, Inc., as amended and restated effective October 1, 2002, is attached hereto as Exhibit (10)(e). (10)(f) The Landauer, Inc. Incentive Compensation Plan for Executive Officers is incorporated by reference to Exhibit 10(h) to the Annual Report on Form 10-K for the fiscal year ended September 30, 2000. (10)(g) The Landauer, Inc. 1997 Non-Employee Director's Stock Option Plan, as amended and restated through November 8, 2001, is attached hereto as Exhibit (10)(g). (10)(h) Employment agreements dated February 29, 1996 between the Registrant and Brent A. Latta, James M. O'Connell and R. Craig Yoder are incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended September 30, 1998. 35 (10)(i) Employment agreements dated November 9, 2001 between the Registrant and Joseph M. Zlotnicki and Robert M. Greaney are attached hereto as Exhibit (10)(i). (10)(j) The Landauer, Inc. Executive Special Severance Plan dated May 22, 2002 is attached hereto as Exhibit (10)(j). (21) Subsidiaries of the registrant are: Beijing-Landauer, Ltd. (70%) Beijing, P.R. China HomeBuyer's Preferred, Inc. (100%) 2 Science Road Glenwood, IL 60425-1586 Nagase-Landauer, Ltd. (50%) Tokyo, Japan SAPRA-Landauer, Ltda. (75%) Sao Carlos - SP - Brazil LCIE-Landauer (51%) Paris, France 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibits 10(a), 10(d), 10(f), 10(g), 10(h), 10(i) and 10(j) listed above are the management contracts and compensatory plans or arrangements required to be filed as exhibits hereto pursuant to the requirements of Item 601 of Regulation S-K. B. REPORTS ON FORM 8-K On May 22, 2002, Landauer filed a Form 8-K, Item 4, "Changes in Registrant's Certifying Accountant." On June 26, 2002, Landauer filed a Form 8-K/a, Item 4, "Changes in Registrant's Certifying Accountant." 36 SIGNATURES OF REGISTRANT AND DIRECTORS Pursuant to the requirements of Section 13 or 15(d) 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. By: /s/ Brent A. Latta December 17, 2002 -------------------- Brent A. Latta President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: SIGNATURE TITLE DATE --------- ----- ---- /s/ Brent A. Latta President and Director December 17, 2002 ----------------------- (Principal Executive Brent A. Latta Officer) /s/ James M. O'Connell Vice President, Finance, December 17, 2002 ----------------------- Treasurer and Secretary James M. O'Connell (Principal Financial and Accounting Officer) /s/ Robert J. Cronin Director December 17, 2002 ----------------------- Robert J. Cronin /s/ E. Gail de Planque Director December 17, 2002 ----------------------- E. Gail de Planque /s/ Gary D. Eppen Director December 17, 2002 ----------------------- Gary D. Eppen /s/ Thomas M. Fulton Director December 17, 2002 ----------------------- Thomas M. Fulton /s/ M. Christine Jacobs Director December 17, 2002 ----------------------- M. Christine Jacobs /s/ Richard R. Risk Director December 17, 2002 ----------------------- Richard R. Risk /s/ Paul B. Rosenberg Director December 17, 2002 ----------------------- Paul B. Rosenberg /s/ Michael D. Winfield Director December 17, 2002 ----------------------- Michael D. Winfield 37 CERTIFICATIONS I, Brent A. Latta, certify that: 1. I have reviewed this annual report on Form 10-K of Landauer, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. December 17, 2002 /s/ Brent A. Latta ----------------------------------- President & Chief Executive Officer 38 CERTIFICATIONS I, James M. O'Connell, certify that: 1. I have reviewed this annual report on Form 10-K of Landauer, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. December 17, 2002 /s/ James M. O'Connell ----------------------------------- Chief Financial Officer 39 QUARTERLY FINANCIAL DATA (UNAUDITED)
(Amount in Thousands, Except per Share) First Second Third Fourth Total Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- --------- Net revenues 2002 $13,741 $14,704 $14,844 $15,319 $58,608 2001 $12,729 $13,833 $12,941 $13,525 $53,028 Operating income 2002 $ 5,776 $ 6,263 $ 5,829 $ 6,531 $24,399 2001 $ 5,039 $ 5,679 $ 5,326 $ 5,830 $21,874 (1) Net income 2002 $ 3,736 $ 4,037 $ 4,234 $ 4,173 $16,180 2001 $ 3,312 $ 3,734 $ 3,479 $ 3,799 $14,324 Diluted net income per share 2002 $ .42 $ .46 $ .48 $ .47 $ 1.83 2001 $ .38 $ .43 $ .40 $ .43 $ 1.64 Cash dividends per share 2002 $ .35 $ .35 $ .35 $ .35 $ 1.40 2001 $ .35 $ .35 $ .35 $ .35 $ 1.40 Common stock price per share 2002 high $ 36.70 $ 38.40 $ 41.91 $ 39.39 $ 41.91 low 29.99 32.60 37.60 30.65 29.99 2001 high $ 20.35 $ 24.40 $ 30.50 $ 35.20 $ 35.20 low 17.50 17.90 20.91 30.10 17.50 Weighted Average Diluted Shares Outstanding 2002 8,829 8,857 8,882 8,855 8,855 2001 8,678 8,708 8,780 8,822 8,747 (1) Includes a one time gain of $511 (net of income taxes) relating to the formation of LCIE-Landauer.
40 SIX YEAR SELECTED FINANCIAL DATA LANDAUER, INC. AND SUBSIDIARIES (Dollars in Thousands, Except Per Share) For the years ended September 30, 1997 1998 1999 2000 2001 2002 ------------------- ------- ------- ------- ------- ------- ------- OPERATING RESULTS Net revenues. . . $39,914 $42,692 $43,800 $47,174 $53,028 $58,608 Operating income. 17,455 18,732 14,756 19,316 21,874 24,399 Net income. . . . 12,019 12,759 9,489 12,762 14,324 16,180 As a percent of net revenues . . . 30.1% 29.9% 21.7% 27.1% 27.0% 27.6% Diluted net income per share . . . . . $ 1.39 $ 1.47 $ 1.09 $ 1.47 $ 1.64 $ 1.83 Cash dividends per share . . . $ 1.20 $ 1.30 $ 1.40 $ 1.40 $ 1.40 $ 1.40 Total assets. . . $43,735 $46,337 $44,624 $47,061 $50,550 $60,257 41