-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cx/7S7UwmB3zWR97l+eVcRczMwRtAOQ/LjgGC/kfgW0/tY6ms9P0Bn7ZEn66Owho hFGgDf05Lk1qwXwfAvjp8A== 0000892626-03-000443.txt : 20031230 0000892626-03-000443.hdr.sgml : 20031230 20031230154843 ACCESSION NUMBER: 0000892626-03-000443 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANDAUER INC CENTRAL INDEX KEY: 0000825410 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 061218089 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09788 FILM NUMBER: 031077841 BUSINESS ADDRESS: STREET 1: TWO SCIENCE RD CITY: GLENWOOD STATE: IL ZIP: 60425 BUSINESS PHONE: 7087557000 MAIL ADDRESS: STREET 1: 2 SCIENCE ROAD CITY: GLENWOOD STATE: IL ZIP: 60425 FORMER COMPANY: FORMER CONFORMED NAME: TECH OPS LANDAUER INC DATE OF NAME CHANGE: 19910521 10-K 1 lan_k03.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, 2003 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 AMERICAN 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 31, 2003 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 $312,000,000. Certain portions of the Registrant's definitive Proxy Statement in connection with the February 4, 2004 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated by reference into Part III of this Annual Report on Form 10-K. INDEX Item Page - ---- ---- Part I 1. Business General Description. . . . . . . . . . . . . . 1 Marketing and Sales. . . . . . . . . . . . . . 2 Patents. . . . . . . . . . . . . . . . . . . . 2 Raw Materials. . . . . . . . . . . . . . . . . 3 Competition. . . . . . . . . . . . . . . . . . 3 Research and Development . . . . . . . . . . . 4 Environmental Regulations. . . . . . . . . . . 4 Employees and Labor Relations. . . . . . . . . 4 2. Properties . . . . . . . . . . . . . . . . . . . 4 3. Legal Proceedings. . . . . . . . . . . . . . . . 5 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . 5 4A. Executive Officers of the Registrant . . . . . . 5 Part II 5. Market for Registrant's Common Stock and Related Stockholder Matters. . . . . . . . . . . 6 6. Selected Financial Data. . . . . . . . . . . . . 6 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . 7 7A. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . 13 8. Consolidated Financial Statements and Supplementary Data Consolidated Balance Sheets. . . . . . . . . . 15 Consolidated Statements of Income. . . . . . . 17 Consolidated Statements of Stockholders' Investment and Comprehensive Income. . . . . 18 Consolidated Statements of Cash Flows. . . . . 19 Notes to Consolidated Financial Statements . . 21 Report of Independent Public Auditors. . . . . 32 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . 34 9A. Controls and Procedures. . . . . . . . . . . . . 34 i Item Page - ---- ---- Part III 10. Directors and Executive Officers of the Registrant 35 11. Executive Compensation . . . . . . . . . . . . . 35 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . 35 13. Certain Relationships and Related Transactions . 35 14. Principal Accountant Fees and Services . . . . . 35 Part IV 15. Exhibits, Financial Statements Schedules, and Reports on Form 8-K Financial Statements . . . . . . . . . . . . . 36 List of Exhibits . . . . . . . . . . . . . . . 36 Reports on Form 8-K. . . . . . . . . . . . . . 37 Signatures of Registrant and Directors . . . . 38 Quarterly Financial Data (Unaudited) . . . . . 39 ii 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 dose 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[registered trademark]. While most of the Company's revenues are domestic, these services are also marketed by Landauer in Canada and by its subsidiaries 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 Radiation Monitoring Technology Co., 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 certain 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. LCIE-Landauer serves France-based customers from this location 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. Nagase-Landauer commenced operations in 1974. Landauer's InLight[trademark] 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 proprietary technology and instruments and dosimetry devices developed by Matsushita Industrial Equipment Company, and allows customers the flexibility to tailor their precise dosimetry needs. Landauer's operations include services for detecting radon gas. This service makes up a small part of revenues. 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. 1 Landauer operates a crystal manufacturing facility in Stillwater, Oklahoma that it acquired in August 1998. Specially formulated crystalline 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, 2003, there were 8,843,723 shares outstanding. The trading symbol is LDR. As a reporting company, Landauer is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and accordingly files its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). The public may read and copy any materials filed with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at (800) SEC-0330 for further information on the Public Reference Room. As an electronic filer, Landauer's public filings are maintained on the SEC's Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is http://www.sec.gov. In addition, Landauer's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act may be accessed free of charge through Landauer's website as soon as reasonably practicable after Landauer has electronically filed such material with, or furnished it to, the SEC. The address of Landauer's website is http://www.landauerinc.com. MARKETING AND SALES Landauer's dosimetry services are marketed in North America primarily by full-time Company personnel located in Illinois, California, Connecticut, Georgia, and Texas. The Company's services are marketed abroad through ventures in Japan, Brazil, China, the United Kingdom, and France. 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 approximately 1.4 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, 2003 and 2002, deferred contract revenue was $12,464,000 and $11,885,000, respectively. Radon gas detection kits are marketed primarily to institutional customers and government agencies. The HomeBuyer's Preferred[registered trademark] 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. 2 As of September 30, 2003, the Company is using OSL technology to provide dosimetry services to essentially all of its domestic and many of its international customers. These licenses and systems represent an important proprietary component of the OSL commercial service known as Luxel[registered trademark]. 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, reliability and price of its services, and its prompt and responsive performance. Rights to inventions of employees working for Landauer are assigned to the Company. RAW MATERIALS The Company has multiple sources for many 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. All crystal materials used in the Company's OSL technology are currently being developed at the Company's crystal manufacturing facility in Stillwater, Oklahoma. The InLight[trademark] dosimetry system and its components are manufactured by Matsushita Industrial Equipment Company under an exclusive agreement. COMPETITION In the United States, Landauer competes against a number of dosimetry service providers. One of these providers, Global Dosimetry Solutions, Inc. (formerly ICN Worldwide Dosimetry Service), is a significant competitor with substantial resources. Other competitors tend to be smaller companies, many of which operate on a regional basis. Outside of the United States, 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 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, reliability and price of its services, and its prompt and responsive performance. The Company's InLight[trademark] dosimetry system, while competitive with a number of systems offered by other companies, provides the only OSL-based radiation protection monitoring system available. 3 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[registered trademark] 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 InLight dosimetry system recently released for commercial application will enable the Company's subsidiaries and other small and mid-sized 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 five years and has converted nearly all of its customers to the new technology. 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. Irradiation would have an adverse affect on dosimeters sent through the U.S. mail. 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, 2003, 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. 4 ITEM 3. LEGAL PROCEEDINGS At September 30, 2003, 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. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are as follows: Name of Officer Age Position - --------------- --- -------- Brent A. Latta 60 President and Chief Executive Officer James M. O'Connell 56 Vice President, Finance, Treasurer, Secretary, and Chief Financial Officer R. Craig Yoder 51 Senior Vice President, Marketing and Technology Joseph M. Zlotnicki(1) 47 Vice President - International Robert M. Greaney 50 Vice President - Operations (1) Resigned effective December 31, 2003. 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 of Marketing for 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 in such position until December 2003. For the previous ten years, Mr. Zlotnicki held various positions in Technology and 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. 5 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 39 of this Annual Report on Form 10-K. On December 15, 2003, 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 2003. 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 14, 2003, the Company announced that it had increased the regular quarterly cash dividend by 7% to $0.40 per share for the first quarter of fiscal 2004. This increase represents an annual rate of $1.60 per share compared with $1.50 paid in fiscal 2003. A summary of cash dividends paid for the last two years is set forth in the table on page 39 of this Annual Report on Form 10-K. ITEM 6. SELECTED FINANCIAL DATA SIX YEAR SELECTED FINANCIAL DATA LANDAUER, INC. AND SUBSIDIARIES For the (Dollars in Thousands, Except Per Share Data) years ended September 30, 1998 1999 2000 2001 2002 2003 - -------------------------- ------- ------- ------- ------- ------- Operating Results Net revenues. . .$42,692 $43,800 $47,174 $53,028 $58,608 $64,818 Operating income. . . . . 18,732 14,756 19,316 21,874 24,399 23,857 Net income. . . . 12,759 9,489 12,762 14,324 16,180 15,019 Percent of net revenues. . 29.9% 21.7% 27.1% 27.0% 27.6% 23.2% Diluted net income per share . . . . .$ 1.47 $ 1.09 $ 1.47 $ 1.64 $ 1.83 $ 1.69 Cash dividends per share . . .$ 1.30 $ 1.40 $ 1.40 $ 1.40 $ 1.40 $ 1.50 Total assets. . .$46,337 $44,624 $47,061 $50,550 $60,257 $64,515 6 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FISCAL 2003 COMPARED TO FISCAL 2002 Net revenues for fiscal 2003 were $64,818,000, an increase of 10.6% compared with revenues of $58,608,000 reported for fiscal 2002. Revenue growth during fiscal 2003 was attributable to gains in pricing, unit volume and ancillary service fees for the Company's core domestic radiation monitoring business. Additionally, full-year consolidation of the operations of LCIE-Landauer, the Company's 51%-owned operating unit in France and the United Kingdom, and a weak U.S. dollar contributed to reported growth. LCIE-Landauer was included in consolidated operations for only the second half of 2002. Consolidated revenues, excluding LCIE-Landauer in 2003 and 2002, increased by $2.9 million, or 5.2%. The remaining growth for fiscal 2003 was primarily attributable to price as well as other factors including currency, volume, ancillary services, and product mix. During the second quarter of fiscal 2003, the Company reported a non-cash charge in the amount of $2,750,000, or $0.19 per diluted share (after income tax benefit of $1,092,000) to record the impairment in value of assets related to Landauer's Aurion service. Excluding the impairment charge, costs and expenses for fiscal 2003 grew at a slightly higher rate than revenues reflecting higher expenses for insurance and employee benefits, $1,138,000; full-year LCIE-Landauer operations, $2,185,000; a weaker U.S. dollar and higher research costs, $878,000; partially offset by lower incentive compensation costs, $1,303,000. Gross margins decreased from 65.1% in fiscal 2002 to 63.9% in fiscal 2003. Net other income was lower in fiscal 2002, a result of lower net investment income offset by improved earnings from Nagase-Landauer, Ltd., the Company's joint venture in Japan. Fiscal 2002 results reflect the recognition of a $786,000 gain, or $0.06 per diluted share (after income tax expense of $275,000) arising from the exchange of a portion of the U.K. business for controlling interest in LCIE-Landauer, the Company's operating unit in France and the United Kingdom. The effective tax rate for 2003 was 36.9% compared with 37.3% for 2002. As a result, net income for fiscal 2003 was $15,019,000 compared with $16,180,000 reported for fiscal 2002. Diluted earnings per share for fiscal 2003 were $1.69 compared with $1.83 reported a year ago. 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 primarily higher pricing for dosimetry services, increased demand for ancillary products and the services this technology offers to 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. Consolidated revenues excluding LCIE-Landauer in 2002 increased by $3.4 million. 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. 7 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 the fiscal 2001 rate of 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 $786,000 gain recognized 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. FOURTH QUARTER RESULTS OF OPERATIONS Revenues in the fourth quarter of fiscal 2003 were 8.7% higher than reported in the same period in fiscal 2002. Revenue growth during the fourth quarter of fiscal 2003 was attributable to gains in pricing, unit volume and ancillary service fees for the Company's core domestic radiation monitoring business. A weak U.S. dollar also contributed to reported growth, particularly in France, the United Kingdom and Canada. Costs and expenses for the fourth quarter of fiscal 2003 were 11% higher than for the same period in fiscal 2002, primarily related to foreign currency, increased research activity, $505,000, and higher employee benefit costs, $364,000, offset by reduced incentive compensation expense, $575,000. The Company reported earnings of $4,352,000 compared with earnings of $4,173,000 in the fourth quarter of fiscal 2002. Earnings per diluted share for the quarter were $0.49 compared with $0.47 in the fourth quarter of fiscal 2002. 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. 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. Investing activities included acquisitions of property, plant and equipment (including amortizable dosimetry device components) and amounted to $4,715,000 and $4,656,000, respectively, in fiscal 2003 and 2002. Cash paid for income taxes was $8,501,000 in 2003 and $10,096,000 in fiscal 2002. At September 30, 2003, the Company had no significant long-term liabilities or future cash commitments, and its requirement for cash flow to support investing activities is generally limited. Capital expenditures for fiscal 2004 are expected to amount to $7,000,000, principally for equipment and information technology infrastructure. The Company anticipates that funds for these capital improvements will be provided from operations. 8 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 has 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. The Company anticipates that the commitment to purchase the 49% minority interest position in LCIE- Landauer will be funded from operations and/or available credit facilities. 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 $12,464,000 and $11,885,000, respectively, as of September 30, 2003 and 2002, 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. 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 currencies. 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 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 Company did not recognize goodwill amortization expense in fiscal 2003 or 2002. Goodwill amortization expense aggregated $190,000 in fiscal 2001. Diluted EPS increased by approximately $0.02 in both fiscal 2003 and 2002 due to the reduction in amortization expense. As a result of applying the impairment provisions of SFAS No. 142, no impairment loss was indicated. Goodwill and other intangible assets at September 30, 2003 consisted of the following: 9 Accmu- lated Gross Amorti- Net (Dollars in Thousands) Amount zation Amount - ---------------------- ------- ------- ------- Intangible assets continuing to be amortized: Customer lists. . . . . . . . . . . $ 2,682 $ 564 $ 2,118 (useful life of 10 years) Licenses & patents. . . . . . . . . 508 254 254 (useful life of 10-15 years) Other intangibles . . . . . . . . . 706 279 427 ------- ------- ------- Total . . . . . . . . . . . . . $ 3,896 $ 1,097 $ 2,799 ======= ======= ======= Goodwill no longer being amortized. $ 5,257 Total goodwill & other intangible assets. . . . . . . . . . . . . . $ 8,056 ======= Estimated annual aggregate amortization expense related to these intangible assets will be approximately $355,000 for each of the next five years. In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires a company, at the time it issues a guarantee, to recognize an initial liability for the fair value of obligations assumed under the guarantee and elaborates on existing disclosure requirements related to guarantees and warranties. The initial recognition requirements of FIN 45 are effective for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of periods ending after December 15, 2002. The adoption of FIN 45 did not have a material affect on the financial position or the results of operations. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - An Amendment of FASB Statement No. 123." This statement provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation. The statement amends the disclosure requirements of FASB Statement No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The Company accounts for stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of SFAS No. 123. The transition provisions are effective for fiscal years ending after December 15, 2002. The disclosure provisions are effective for interim periods beginning after December 15, 2002. The Company implemented the required disclosure provisions in the quarter ended March 31, 2003. The adoption of this statement did not have a material impact on the Company's consolidated financial position, results of operations or cash flows as the Company did not make the voluntary change to the fair value method of accounting for stock-based compensation. 10 In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, and Interpretation of Accounting Research Bulletin ("ARB") No. 51," ("FIN 46"). FIN 46 clarifies the application of ARB No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003, and to existing variable interest entities in the interim period beginning after June 15, 2003. The Company believes it has no material interests in variable interest entities that will require disclosure or consolidation under FIN 46. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under Statement 133. The implementation of SFAS No. 149 is effective (1) for contracts entered into or modified after June 30, 2003, with certain exceptions, and (2) for hedging relationships designated after June 30. The Company has reviewed SFAS No. 149 and believes that the adoption of SFAS No. 149 did not have a material impact on our financial position or results of operations. In May 2003, SFAS issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity," which changes the accounting for mandatorily redeemable shares, put options, forward purchase contracts and obligations that have a specific expiration or settlement date and that can be settled with shares. SFAS No. 150 is generally effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. As the Company does not have any interest in such instruments, the adoption of this statement did not have a material impact upon its consolidated financial statements. INFLATION The Company strives 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. 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 (such as InLight[trademark]), the usefulness of older technologies, the cost associated with the Company's business development and research efforts, the anticipated results of the Company, 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, other anticipated financial events, the effects of changing economic and competitive conditions, and pending accounting announcements. Such assumptions may not materialize to the extent assumed, and such risks and uncertainties may cause actual results to differ from anticipated results. Such risks and uncertainties may also result in changes to the Company's business plan and prospects and could create the need from time to time to write down the value of the assets or otherwise cause the Company to incur unanticipated expenses. Additional information may be obtained by reviewing the information set forth below under "Significant Risk Factors" and information contained in the Company's reports filed from time to time with the Securities and Exchange Commission ("SEC"). 11 CRITICAL ACCOUNTING POLICIES The 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 $12,464,000 and $11,885,000, respectively, as of September 30, 2003 and September 30, 2002, 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 uncollectible. Specifically, management analyzes accounts in relation to receivable aging trends, economic factors, and changes in customer payment history in establishing this allowance. Accounts receivable reduced by this allowance of $583,000 as of September 30, 2003 and $482,000 as of September 30, 2002, amounted to $13,770,000 and $13,620,000, respectively, as of September 30, 2003 and September 30, 2002. PROPERTY, PLANT & EQUIPMENT Plant and equipment (including dosimetry badges and software) are recorded at cost and are depreciated/amortized 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. Landauer capitalizes internal software costs in accordance with SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." 12 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. 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. As a result of applying the 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. Other assets are reviewed for impairment whenever circumstances indicate that an impairment may exist. Such review is based on estimates of future undiscounted cash flows and an assessment of fair value based on discounted cash flows or other indicators of fair market value. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK SIGNIFICANT RISK FACTORS The Company's business and operations are subject to certain risks and uncertainties, including: FOREIGN CURRENCY EXCHANGE AND INTEREST RATE RISKS The Company is exposed to market risk, including changes in foreign currency exchange rates and interest rates. As discussed in Note 1 to the financial statements in this Annual Report on Form 10-K, "Summary of Significant Accounting Policies" to the consolidated financial statements, the financial statements of the Company's non-U.S. subsidiaries are remeasured into U.S. dollars using the U.S. dollar as the functional currency. To date, the market risk associated with foreign currency exchange rates has not been material in relation to the Company's financial position, results of operations, or cash flows. These risks could increase, however, as the Company expands in international markets. The Company does not have any significant trade accounts receivable, trade accounts payable, commitments or borrowings in a currency other than that of the reporting units' functional currencies. As such, the Company does not currently use derivative financial instruments to manage the exposure in its non-U.S. operations. RELIANCE UPON SINGLE MANUFACTURING FACILITY Landauer, Inc. conducts its primary manufacturing and laboratory processing operations from a single facility in Glenwood, IL. In addition, the Company performs significant functions for some of its international joint ventures from the Glenwood facility. If the Company were to lose availability of its primary facility due to fire, natural disaster or other disruptions, the Company's operations could be significantly impaired. Although the Company maintains business interruption insurance, there can be no assurance that the proceeds of such insurance would be sufficient to offset any loss the Company might incur or that the Company would be able to retain its customer base if operations were so disrupted. 13 SINGLE SOURCE FOR CRYSTAL MATERIALS Crystal material is a key component in Landauer's OSL technology. The Company operates a single crystal manufacturing facility in Stillwater, Oklahoma that currently supplies all crystal material used by the Company. If the Company were to lose availability of its Stillwater facility due to a fire, natural disaster or other disruptions, such loss could have a material adverse effect on the Company and its operations. Prior to acquiring the Stillwater facility, the Company purchased the majority of its raw crystal material from one external source. There can be no assurance that the Company could secure additional crystal raw materials from external sources in the event of a disruption at the Stillwater facility. TECHNOLOGY Landauer's technological expertise has been an important factor in its growth. The Company regularly pursues product improvements to maintain its technical position. The development and introduction of new technologies, the adaptability of OSL to new platforms and new formats, the usefulness of older technologies as well as the introduction of new technologies by the competition present various risks to the Company's business. The failure or lack of market acceptance of a new technology or the inability to respond to market requirements for new technology could adversely affect the Company's operations or reputation with customers. The cancellation of technology projects or the cessation of use of an existing technology can result in impairments and charges to the Company's earnings. In the normal course of its business, Landauer must record and process significant amounts of data quickly and accurately and relies on various computer and telecommunications equipment and software systems. Any failure of such equipment or systems could adversely affect the Company's operations. INTERNATIONAL OPERATIONS POSE RISKS Landauer conducts business in numerous international markets such as Japan, France, the United Kingdom, Brazil, Canada, China, and others. Foreign operations are subject to a number of special risks, including among others, currency exchange rate fluctuations; disruption in relations; political and economic unrest; trade barriers; exchange controls; expropriation; and changes in laws and policies, including those governing foreign owned operations. GOVERNMENT REGULATIONS Regulation, present and future, is a constant factor affecting the Company's business. The radiation monitoring industry is subject to federal and state governmental regulation. Unknown matters, new laws and regulations, or stricter interpretations of existing law or regulations may materially affect Landauer's business or operations in the future and/or could increase the cost of compliance. COMPETITION The Company competes on the basis of advanced technologies, competent execution of these technologies, the quality, reliability and price of its services and its prompt and responsive performance. In much of the world, radiation monitoring activities are conducted by a combination of private entities and governmental agencies. The Company's primary competitor in the United States is large and has substantial resources. This entity recently came under new ownership and the Company is currently evaluating the impact, if any, of the change in ownership on this competitor. The Company also faces competitive pressures from a number of smaller competitors. 14 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS LANDAUER, INC. & SUBSIDIARIES (Dollars in Thousands) As of September 30, Notes 2003 2002 - ------------------- ----- -------- -------- ASSETS Current assets: Cash and cash equivalents . . . . 1 $ 10,572 $ 7,627 Short-term investments. . . . . . 1 440 317 Receivables, net of allowance for doubtful accounts of $583 in 2003 and $482 in 2002. . . . 13,770 13,620 Inventories . . . . . . . . . . . 1 3,513 2,135 Prepaid expenses. . . . . . . . . 967 773 Prepaid income taxes. . . . . . . 1 & 5 1,687 2,358 Deferred income taxes . . . . . . 289 -- -------- -------- Current assets. . . . . . . . . . . 31,238 26,830 -------- -------- Property, plant and equipment, at cost: 1 Land and improvements . . . . . . 634 538 Buildings and improvements. . . . 4,082 3,768 Equipment . . . . . . . . . . . . 34,221 33,198 -------- -------- 38,937 37,504 Less: accumulated depreciation and amortization. . . . . . . 21,711 19,325 -------- -------- Net property, plant and equipment . 17,226 18,179 -------- -------- Equity in joint venture . . . . . . 3 3,402 2,806 Goodwill and other intangible assets, net of amortization . . . . . . . 1 & 4 8,056 8,601 Dosimetry devices, net of amortization. . . . . . . . . . . 4,121 3,546 Other assets. . . . . . . . . . . . 195 295 -------- -------- ASSETS. . . . . . . . . . . . . . . $ 64,238 $ 60,257 ======== ======== 15 CONSOLIDATED BALANCE SHEETS - CONTINUED LANDAUER, INC. & SUBSIDIARIES (Dollars in Thousands) As of September 30, Notes 2003 2002 - ------------------- ----- -------- -------- LIABILITIES AND STOCKHOLDERS' INVESTMENT Current liabilities: Accounts payable. . . . . . . . . $ 1,548 $ 1,789 Dividends payable . . . . . . . . 3,316 3,071 Deferred contract revenue . . . . 1 12,464 11,885 Accrued compensation and related costs . . . . . . . . . 1,459 2,505 Accrued pension costs . . . . . . 8 2,675 1,922 Accrued taxes on income . . . . . 1 & 5 507 1,753 Other accrued expenses. . . . . . 2,860 2,264 -------- -------- Current liabilities . . . . . . . . 24,829 25,189 -------- -------- Minority interest . . . . . . . . . 984 462 Commitments and contingencies . . . 6 & 9 -- -- STOCKHOLDERS' INVESTMENT. . . . . . 7 & 10 Preferred stock, $.10 par value, authorized 1,000,000 shares; none issued . . . . . . . . . . . -- -- Common stock, $.10 par value authorized 20,000,000 shares; 8,843,723 and 8,755,337 issued and outstanding, respectively in 2003 and 2002. . . . . . . . . 884 878 Premium paid in on common stock . . 12,207 10,946 Cumulative translation adjustments. (100) (855) Retained earnings . . . . . . . . . 25,434 23,637 -------- -------- Stockholders' investment. . . . . . 38,425 34,606 -------- -------- LIABILITIES AND STOCKHOLDERS' INVESTMENT. . . . . $ 64,238 $ 60,257 ======== ======== The accompanying notes are an integral part of these financial statements. 16 CONSOLIDATED STATEMENTS OF INCOME LANDAUER, INC. & SUBSIDIARIES (Dollars in thousands, For the years ended except per share) September 30, Notes 2003 2002 2001 - ------------------- ----- -------- -------- -------- Net revenues. . . . . . . . . $ 64,818 $ 58,608 $ 53,028 Costs and expenses Cost of sales . . . . . . . 23,403 20,462 18,716 Selling, general, and administrative. . . . . . 1 14,808 13,747 12,438 Impairment in value of assets . . . . . . . . 11 2,750 -- -- -------- -------- -------- 40,961 34,209 31,154 -------- -------- -------- Operating income. . . . . . . 23,857 24,399 21,874 Equity in income of joint venture . . . . . . . 3 867 735 502 Other income. . . . . . . . . 176 1,137 256 -------- -------- -------- Income before taxes . . . . . 24,900 26,271 22,632 Income taxes. . . . . . . . . 1 & 5 (9,193) (9,811) (8,269) -------- -------- -------- Income before minority interest. . . . . . . . . . 15,707 16,460 14,363 Minority interest . . . . . . (688) (280) (39) -------- -------- -------- Net income. . . . . . . . . . $ 15,019 $ 16,180 $ 14,324 ======== ======== ======== Net income per share: 2 Basic . . . . . . . . . . . $ 1.71 $ 1.85 $ 1.65 Diluted . . . . . . . . . . $ 1.69 $ 1.83 $ 1.64 ======== ======== ======== The accompanying notes are an integral part of these financial statements. 17 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT AND COMPREHENSIVE INCOME LANDAUER, INC. & SUBSIDIARIES
(Dollars in Thousands) Premium Paid Total in on Cumulative Stock- Compre- Common Common Translation Retained holders' hensive Stock Stock Adjustments Earnings Investment Income -------- -------- ----------- -------- ---------- -------- Balance September 30, 2000. . . . $ 866 $ 8,752 $ (372) $ 17,572 $ 26,818 Options exercised . . . . . . . . 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 ======== Balance September 30, 2001. . . . $ 873 $ 9,876 $ (826) $ 19,720 $ 29,643 Options exercised . . . . . . . . 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 Options exercised . . . . . . . . 6 1,261 -- -- 1,267 Net income. . . . . . . . . . . . -- -- -- 15,019 15,019 $ 15,019 Foreign currency translation adjustment. . . . . . . . . . . -- -- 755 -- 755 755 Dividends . . . . . . . . . . . . -- -- -- (13,222) (13,222) -- -------- -------- -------- -------- -------- -------- Comprehensive income. . . . . . . $ 15,774 ======== Balance September 30, 2003. . . . $ 884 $ 12,207 $ (100) $ 25,434 $ 38,425 ======== ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. 18
CONSOLIDATED STATEMENTS OF CASH FLOWS LANDAUER, INC. & SUBSIDIARIES (dollars in thousands) For the years ended September 30, 2003 2002 2001 - --------------------------------- -------- -------- -------- Cash flow from operating activities: Net income. . . . . . . . . . . . . $ 15,019 $ 16,180 $ 14,324 Non-cash expenses, revenues, and gains reported in income: Asset impairment charge . . . . . 2,750 -- -- Non-cash gain from exchange of assets . . . . . . . . . . . -- (786) -- Depreciation and amortization . . 5,057 4,370 4,475 Equity in income of joint venture . . . . . . . . . . . . (867) (735) (502) Compensatory effect of stock options . . . . . . . . . . . . 1,267 1,075 1,130 Deferred income taxes . . . . . . (1,748) 1,216 (291) -------- -------- -------- 6,459 5,140 4,812 -------- -------- -------- Net increase in other current assets. . . . . . . . . (1,420) (4,703) (529) Net increase in current liabilities . . . . . . 721 2,660 853 Net increase in net long-term assets. . . . . . . . . . . . . (677) (1,763) (1,680) -------- -------- -------- (1,376) (3,806) (1,356) -------- -------- -------- Net cash generated from operating activities. . . . . . 20,102 17,514 17,780 Cash flow from investing activities: Investment in subsidiary. . . . . . -- (877) -- Acquisition of property, plant and equipment. . . . . . . . . . . (4,715) (4,656) (3,219) -------- -------- -------- Net cash used by investing activities. . . . . . (4,715) (5,533) (3,219) -------- -------- -------- Cash flow from financing activities: Dividend received from foreign affiliate. . . . . . . . . . . . . 535 334 1,645 Advance from joint venture partner. . . . . . . . . . . . . . -- 504 -- Dividends paid. . . . . . . . . . . (12,977) (12,247) (12,152) -------- -------- -------- Net cash used by financing activities. . . . . . (12,442) (11,409) (10,507) -------- -------- -------- Net increase in cash. . . . . . . . . 2,945 572 4,054 Opening balance - cash and cash equivalents . . . . . 7,627 7,055 3,001 -------- -------- -------- Ending balance - cash and cash equivalents . . . . . $ 10,572 $ 7,627 $ 7,055 ======== ======== ======== 19 CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED LANDAUER, INC. & SUBSIDIARIES (dollars in thousands) For the years ended September 30, 2003 2002 2001 - --------------------------------- -------- -------- -------- Supplemental Disclosure of Cash Flow Information: Cash paid for income taxes. . . . . $ 8,501 $ 10,096 $ 7,127 ======== ======== ======== Supplemental Non-cash Investing and Financing Information: Dividend declared . . . . . . . . . $ 3,316 $ 3,071 $ 3,055 ======== ======== ======== The accompanying notes are an integral part of these financial statements. 20 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 Radiation Monitoring Technology Co., Ltd., its 70%-owned subsidiary; and LCIE-Landauer, Ltd., 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 tangible and identifiable intangible assets at the date of acquisition in the amount of $8,519,000. As of September 30, 2003 and 2002, accumulated amortization was $3,263,000 and $3,249,000, respectively. 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 before June 30, 2001, the amortization of goodwill and certain intangible assets has ceased beginning in fiscal year 2002. Accordingly, the Company did not recognize goodwill amortization expense in fiscal 2003 or fiscal 2002. Goodwill amortization expense aggregated $190,000 in fiscal 2001. Diluted earnings per share (EPS) increased by approximately $0.02 in 2003 and 2002 due to the reduction in amortization expense. As a result of applying the impairment provisions of SFAS No. 142, no impairment loss was indicated in the value of goodwill. 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 non-current assets. INVENTORIES Inventories of material utilized in the construction of dosimeter badges are valued at cost utilizing a first-in, first-out method. 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. 21 RESEARCH AND DEVELOPMENT The cost of research and development programs is charged to selling, general and administrative expense as incurred and amounted to approximately $1,819,000 in 2003, $941,000 in 2002 and $694,000 in 2001. Research and development costs include salaries and allocated employee benefits, third party research contracts, depreciation and supplies. 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. Maintenance and repairs are charged to expense, and renewals and betterments are capitalized. Dosimetry devices (principally badges) and software are amortized on a straight-line basis over their estimated lives, which are three to five years. ADVERTISING The Company expenses the costs of advertising as incurred. Advertising expense amounted to $345,000 in fiscal 2003, $473,000 in fiscal 2002 and $441,000 in fiscal 2001. 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, "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 statement for comparative purposes. These reclassifications have no effect on the results of operations or financial position. 2. INCOME PER COMMON SHARE Earnings per share (EPS) 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. Following is a table that shows the weighted average number of shares of common stock for the years ended September 30: (Amounts in Thousands) 2003 2002 2001 ---------------------- -------- -------- -------- Weighted average number of shares of common stock outstanding. . . . . . . 8,808 8,756 8,693 Options issued to executive. . . 83 99 54 -------- -------- -------- Weighted average number of shares of common stock assuming dilution. . . . 8,891 8,855 8,747 ======== ======== ======== 22 Following is a table that provides net income and earnings per share for the years ended September 30: (Dollars in Thousands, Except Per Share) 2003 2002 2001 ---------------------- -------- -------- -------- Net income . . . . . . . . . . . $ 15,019 $ 16,180 $ 14,324 Basic EPS. . . . . . . . . . . . $ 1.71 $ 1.85 $ 1.65 Diluted EPS. . . . . . . . . . . $ 1.69 $ 1.83 $ 1.64 ======== ======== ======== 3. EQUITY IN JOINT VENTURE Landauer's 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) 2003 2002 2001 ---------------------- -------- -------- -------- Revenues . . . . . . . . . . . . $ 14,227 $ 12,790 $ 12,169 Income before income taxes . . . 3,218 2,642 1,728 Net Income . . . . . . . . . . . 1,734 1,470 1,005 -------- -------- -------- Average exchange rate (Yen/$). . 118.9 125.9 119.4 ======== ======== ======== Condensed unaudited balance sheets for the years ended September 30, 2003 and 2002 are as follows: (Dollars in Thousands) 2003 2002 ---------------------- -------- -------- Current assets . . . . . . . . . $ 11,179 $ 9,685 Other assets . . . . . . . . . . 1,806 1,943 -------- -------- Total assets . . . . . . . . . . $ 12,985 $ 11,628 ======== ======== Liabilities. . . . . . . . . . . $ 6,181 $ 6,016 Stockholders' investment . . . . 6,804 5,612 -------- -------- Total liabilities and stockholders' investment . . . $ 12,985 $ 11,628 ======== ======== 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. 23 The amortization expense and net income of the Company for 2003 and the prior two years are shown in the table below. (Dollars in Thousands) 2003 2002 2001 ---------------------- -------- -------- -------- Reported net income. . . . . . . $ 15,019 $ 16,180 $ 14,324 Add goodwill amortization. . . . -- -- 131 -------- -------- -------- Adjusted net income. . . . . . . $ 15,019 $ 16,180 $ 14,455 ======== ======== ======== Reported EPS - basic . . . . . . $ 1.71 $ 1.85 $ 1.65 Add goodwill amortization. . . . -- -- 0.02 -------- -------- -------- Adjusted EPS - basic . . . . . . $ 1.71 $ 1.85 $ 1.67 ======== ======== ======== Reported EPS - diluted . . . . . $ 1.69 $ 1.83 $ 1.64 Add goodwill amortization. . . . -- -- 0.02 -------- -------- -------- Adjusted EPS - diluted . . . . . $ 1.69 $ 1.83 $ 1.66 ======== ======== ======== The components of goodwill and other intangible assets for the years ended September 30, 2003 and 2002 are as follows: (Dollars in Thousands) 2003 2002 ---------------------- -------- -------- Goodwill (No longer amortized) . $ 5,257 $ 5,181 Customer list, net of amortization (Useful life of 10 years) . . . . . . . . . 2,118 2,381 Licenses and patents, net of amortization (Useful life of 10-15 years). . . . . . . . 254 593 Other intangibles, net of amortization (Useful life of 10 years). . . . . . . . . . . 427 446 -------- -------- Total. . . . . . . . . . . . $ 8,056 $ 8,601 ======== ======== The intangible asset amounts noted above are presented net of accumulated amortization of $4,359,000 at September 30, 2003 and $3,990,000 at September 30, 2002. Amortization of intangible assets was $384,000, $271,000, and $558,000 for the years ended September 30, 2003, 2002 and 2001, respectively. Estimated annual aggregate amortization expense related to intangible assets will be approximately $355,000 for each of the next five years. 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, Ltd. LCIE contributed its radiation monitoring business that has current annual revenues of more than $3,000,000, in France. The Company recognized a gain of $786,000 in fiscal 2002 arising from this transaction. LCIE-Landauer has its headquarters and laboratory at 24 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, 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. Total consideration for these acquisitions aggregated approximately $2,000,000, which was allocated principally to working capital and customer list. The $1,681,000 allocated to customer list is amortized over 10 years. The Company had payables due to Bureau Veritas in the amounts of $387,000 and $504,000 for years ended September 30, 2003 and 2002, respectively. 5. INCOME TAXES The components of the provision for income taxes for the years ended September 30, 2003, 2002 and 2001 are as follows: 2003 ------------------------------ (Dollars in Thousands) Current Deferred Total ---------------------- -------- -------- -------- Federal. . . . . . . . . . . . . $ 9,120 $ (1,457) $ 7,663 State. . . . . . . . . . . . . . 1,821 (291) 1,530 -------- -------- -------- Total. . . . . . . . . . . . . . $ 10,941 $ (1,748) $ 9,193 ======== ======== ======== 2002 ------------------------------ Current Deferred Total -------- -------- -------- Federal. . . . . . . . . . . . . $ 7,014 $ 992 $ 8,006 State. . . . . . . . . . . . . . 1,581 224 1,805 -------- -------- -------- Total. . . . . . . . . . . . . . $ 8,595 $ 1,216 $ 9,811 ======== ======== ======== 2001 ------------------------------ Current Deferred Total -------- -------- -------- Federal. . . . . . . . . . . . . $ 6,766 $ (230) $ 6,536 State. . . . . . . . . . . . . . 1,794 (61) 1,733 -------- -------- -------- Total. . . . . . . . . . . . . . $ 8,560 $ (291) $ 8,269 ======== ======== ======== 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) 2003 2002 2001 ---------------------- -------- -------- -------- Statutory federal income tax rate . . . . . . . . . . . 35% 35% 35% Computed tax provision statutory rate . . . . . . . . $ 8,715 $ 9,195 $ 7,921 Increases (decreases) Resulting from: State income tax provision, Net of federal benefit . . . 959 1,173 1,126 Other. . . . . . . . . . . . (481) (557) (778) -------- -------- -------- Income tax provision in the statement of income . . $ 9,193 $ 9,811 $ 8,269 ======== ======== ======== 25 The Company has adopted SFAS No. 109, "Accounting For Income Taxes." Accordingly, the Company recognizes certain income and expense items in different years for financial and tax reporting purposes. These 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) 2003 2002 ---------------------- -------- -------- Deferred tax assets: Badge holder amortization. . . $ 1,421 $ 667 Pension accrual. . . . . . . . 1,273 896 Compensation expense . . . . . 455 459 Inventory reserve. . . . . . . 146 209 Other. . . . . . . . . . . . . 1,192 485 -------- -------- Total. . . . . . . . . . . $ 4,487 $ 2,716 ======== ======== Deferred tax liabilities: Depreciation . . . . . . . . . $ 320 $ 964 Software development . . . . . 3,878 3,212 -------- -------- Total . . . . . . . . . . . $ 4,198 $ 4,176 ======== ======== 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, 2004. The credit facility contains covenants for net worth and debt to equity ratios. Draws hereunder bear interest at the one-month LIBOR rate plus 2%. There was no outstanding liability as of the balance sheet dates, and the Company is in compliance with these covenants. 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, 2003 and 2002 there were 8,843,723 and 8,775,337 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 $1.50 per share were paid in fiscal 2003. At September 30, 2003, there were accrued and unpaid dividends of $3,316,000. 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, 2003, 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. 26 The following table sets forth the status of these plans at September 30, 2003 and 2002 in accordance with SFAS Nos. 87 and 132: Other Retirements Pension Benefits ------------------- ------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Change in benefit obligation: Benefit obligation at beginning of year . . $ 11,917 $ 9,410 $ 984 $ 813 Service cost. . . . . . 862 564 85 72 Interest cost . . . . . 904 702 65 60 Amendments. . . . . . . 1,567 -- -- -- Actuarial loss. . . . . 1,415 1,511 46 77 Benefits paid . . . . . (275) (270) (32) (38) -------- -------- -------- -------- Benefit obligation at end of period . . . . . $ 16,390 $ 11,917 $ 1,148 $ 984 ======== ======== ======== ======== Change in plan assets: Fair value of assets at beginning of year . . $ 6,959 $ 7,185 $ -- $ -- Actual return on plan assets . . . . . 677 (447) -- -- Employer contribution . 664 491 32 39 Benefits paid . . . . . (275) (270) (32) (39) -------- -------- -------- -------- Fair value of assets at end of period . . . . $ 8,025 $ 6,959 $ -- $ -- ======== ======== ======== ======== Reconciliation of funded status: Funded status . . . . . $ (8,365) $ (4,958) $ (1,148) $ (984) Unrecognized transition obligation (asset). . (25) (31) 204 227 Unrecognized prior service cost. . . . . 1,544 132 51 69 Unrecognized net actuarial (gain) loss 4,039 2,832 16 (31) -------- -------- -------- -------- Accrued benefit cost. . . $ (2,807) $ (2,025) $ (877) $ (719) ======== ======== ======== ======== Components of net periodic benefit cost: Service cost. . . . . . $ 862 $ 564 $ 85 $ 72 Interest cost . . . . . 904 702 65 60 Expected return on plan assets . . . . . (560) (575) -- -- Amortization of transition obligation (asset). . (6) (6) 23 22 Amortization of prior service cost. . . . . 155 18 17 17 Recognized net actuarial (gain) loss . . . . . 92 4 (3) -------- -------- -------- -------- Net periodic benefit cost $ 1,447 $ 707 $ 190 $ 168 ======== ======== ======== ======== Weighted average rate assumptions as of September 30: Discount rate at beginning of year . . 6.75% 7.50% 6.75% 7.50% Discount rate at end of year . . . . . 6.25% 6.75% 6.25% 6.75% Expected return on plan assets . . . . . 8.00% 8.00% 0.00% 0.00% Rate of compensation increase. . . . . . . 5.17% 5.50% 6.00% 6.00% 27 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 director's retirement plan are not separately funded. 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. $124,000, $130,000, and $127,000 was provided to expense for the years ended September 30, 2003, 2002 and 2001, 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 which 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 were 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 $17,000 and $132,000, respectively. For a one percent decrease, the effect would be a reduction to service and interest costs and postretirement benefit obligation of $15,000 and $113,000, respectively. The amount of the Company's unrecognized transition obligation resulting from the adoption of SFAS No. 106 is $204,000 as of September 30, 2003. This liability is included in "Other accrued expenses." 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. 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 has 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. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. In December 2002, the Financial Accounting Standards Board issued ("SFAS") No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - An Amendment of SFAS No. 123." SFAS No. 148 requires disclosure in both annual and quarterly financial statements about the method of accounting for stock-based compensation, and the effect of the method used on reported results. Had compensation cost for these plans been determined consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share in each period would have been as follows: 28 (Amounts in Thousands, Except Per Share) 2003 2002 2001 ---------------------- -------- -------- -------- Net income, as reported. . . . . $ 15,019 $ 16,180 $ 14,324 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects . . 243 108 32 Pro forma net income . . . . . . $ 14,776 $ 16,072 $ 14,292 Earnings per share: Basic - As reported. . . . . . $ 1.71 $ 1.85 $ 1.65 Basic - Pro forma. . . . . . . $ 1.68 $ 1.84 $ 1.64 Diluted - As reported. . . . . $ 1.69 $ 1.83 $ 1.64 Diluted - Pro forma. . . . . . $ 1.66 $ 1.82 $ 1.63 Because the SFAS 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. 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 of 1,143,750 and 62,500 shares, respectively, under these plans through September 30, 2003. Under each plan, the option exercise price equals the stock's fair market value on the date of the grant. Options granted under the Employees' Plan vest ratably over four years. The initial grant of options in 1997 under the Directors' Plan vests ratable over ten years and subsequent grants vest ratably over three 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 2003 become exercisable as described above, ten years for options granted to directors, at a price not less than fair market value on the date of the grant. The options expire ten years from the date of grant. As of September 30, 2003, no incentive stock options had been granted. During fiscal 2003, options for 142,250 shares were granted and 123,050 options were exercised. As of September 30, 2003, non-qualified options for 444,950 shares had been granted at prices from $16.50 - $40.46 per share. At year-end, 192,950 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. As of September 30, 2003, no stock appreciation rights had been granted. See Note 7 for additional information on stock options. The summary of the status of these plans at September 30, 2003, 2002 and 2001 and changes for the years then ended is presented in the following table and narrative: 29 2003 ----------------- Weighted (Amounts in Thousands, Average Except per Share) Shares Price ---------------------- ------ -------- Outstanding at beginning of year . . . . . 436 $ 23.63 Granted. . . . . . . . . . . . . . . . . . 142 34.54 Exercised. . . . . . . . . . . . . . . . . (123) 20.16 Forfeited. . . . . . . . . . . . . . . . . (10) 25.18 ----- -------- Outstanding at end of year . . . . . . . . 445 $ 28.05 ----- -------- Exercisable at end of year . . . . . . . . 193 $ 25.12 ===== ======== Weighted average fair value of options granted. . . . . . . . . . . . . $ 6.24 ======== 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 ======== 30 Following is a table that summarizes information about options outstanding as of September 30, 2003: Options Options Outstanding Exercisable -------------------------------- ------------------ Average Weighted Weighted Range of Remaining Average Average Exercise Contractual Exercise Exercise Prices Shares Life Price Shares Price - -------- -------- ----------- -------- -------- -------- $16.50-$19.00 23,500 2 $ 16.64 20,000 $ 16.50 $19.01-$22.00 62,750 7 19.35 11,750 19.32 $22.01-$25.00 28,000 4 23.20 19,000 23.53 $25.01-$28.00 138,950 5 26.41 130,450 26.43 $28.01-$31.00 - - - - - $31.01-$34.00 40,500 8 32.11 8,250 32.13 $34.01-$37.00 139,500 9 34.50 - - $37.01+ 11,750 9 37.35 3,500 37.15 -------- ---- -------- -------- -------- 444,950 6 $ 28.05 192,950 $ 25.12 ======== ==== ======== ======== ======== 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 2003, 2002 and 2001: 2003 2002 2001 -------- -------- -------- Risk free interest rates . . . . 4.13% 4.65% 5.85% Expected dividend yield. . . . . 4.35% 4.22% 7.21% Expected life (years). . . . . . 10 10 9 Expected volatility. . . . . . . 23.13% 23.30% 22.10% 11. IMPAIRMENT IN VALUE OF ASSETS Following a period of product introduction, marketing efforts and an analysis of second quarter fiscal 2003 results, it was determined that spending constraints placed on targeted customers by health care cost pressures and state and local government budget deficits had significantly reduced the future net cash flows expected to be realized from Landauer's Aurion product offering. Accordingly, the Company recorded a non-cash pre-tax charge of $2,750,000, or $0.19 per diluted share for the fiscal quarter ended March 31, 2003, to recognize an impairment in the value of assets for the Aurion product line. The operating results for Aurion were not significant for any period presented. Based on the estimated identifiable cash flows from this service offering, the impairment charge represents the Company's entire investment in the Aurion-related assets and includes fixed assets, licenses, software and badge components. 12. GEOGRAPHIC INFORMATION The Company operates in a single business segment - radiation monitoring services. The Company provides these services primarily to customers in the United States and to customers in other geographic markets. The following table shows the geographical distribution of revenues for the fiscal years ended September 30, 2003 and 2002: (Dollars in Thousands) 2003 2002 ---------------------- -------- -------- Domestic . . . . . . . . . . . . $ 54,618 $ 52,144 Europe . . . . . . . . . . . . . 6,891 3,555 Other countries. . . . . . . . . 3,309 2,909 -------- -------- $ 64,818 $ 58,608 ======== ======== 31 REPORT OF INDEPENDENT AUDITORS TO STOCKHOLDERS AND DIRECTORS OF LANDAUER, INC.: In our opinion, the accompanying consolidated balance sheets as of September 30, 2003 and September 30, 2002 and the related consolidated statements of income, stockholder's investment and comprehensive income and cash flows for the years then ended present fairly, in all material respects, the financial position of Landauer, Inc. and Subsidiaries at September 30, 2003 and September 30, 2002, and the results of its operations and its cash flows for the years 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 audits. We conducted our audits 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 audits provide a reasonable basis for our opinion. The financial statements of Landauer, Inc. as of and for the year 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 and for the year 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 in Note 4 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 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 financial statements taken as a whole. PricewaterhouseCoopers LLP Chicago, Illinois November 14, 2003 32 REPORT OF INDEPENDENT AUDITORS 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. 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. ITEM 9A. CONTROLS AND PROCEDURES As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO, concluded the Company's disclosure controls and procedures as of September 30, 2003 were effective in ensuring information required to be disclosed in this Annual Report on Form 10-K was recorded, processed, summarized and reported on a timely basis. There have been no changes in the Company's internal control over financial reporting that occurred during the period ended September 30, 2003 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 34 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained under the headings "Election of Directors" and "Beneficial Ownership of Common Stock" 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. AUDIT COMMITTEE FINANCIAL EXPERT The Company has determined that Mr. Robert J. Cronin, chairman of the Audit Committee of the Board of Directors, qualifies as an "audit committee financial expert" as defined in Item 401(h) of Regulation S-K, and that Mr. Cronin is "independent" as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act. CODE OF ETHICS The Company has adopted a Code of Business Ethics applicable to all employees. The Company has also adopted a Code of Conduct for Senior Financial Executives including the principal executive officer, principal financial officer and principal accounting officer of the Company. Copies of these documents are available on the Company's Web site at www.landauerinc.com. The Company intends to post on its web site any amendments to, or waivers from, its Code of Business Ethics or Code of Conduct for Senior Financial Officers applicable to such senior officers. 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 "Compensation of Directors," "Executive Compensation," "Option Grants in Last Fiscal Year," "Aggregated Option Exercises in Last Year and Fiscal Year-End Option Values," "Equity Compensation Plan Information" and "Executive Employment Agreements and Retirement Plans" in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained under the heading "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. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information contained under the heading "Fees Billed by Independent Auditors" in the Proxy Statement is incorporated herein by reference. 35 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 i. 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 incorporated by reference to Exhibit (10)(a) to the Annual Report or Form 10-K for the fiscal year ended September 30, 2002. (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 incorporated by reference to Exhibit (10)(e) to the Annual Report or Form 10-K for the fiscal year ended September 30, 2002. (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 incorporated by reference to Exhibit (10)(g) to the Annual Report or Form 10-K for the fiscal year ended September 30, 2002. (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. (10)(i) Employment agreements dated November 9, 2001 between the Registrant and Joseph M. Zlotnicki and Robert M. Greaney are incorporated by reference to Exhibit (10)(i) to the Annual Report or Form 10-K for the fiscal year ended September 30, 2002. 36 (10)(j) The Landauer, Inc. Executive Special Severance Plan dated May 22, 2002 is incorporated by reference to Exhibit (10)(j) to the Annual Report or Form 10-K for the fiscal year ended September 30, 2002. (14)(a) The Landauer, Inc. Code of Business Ethics is attached hereto as Exhibit 14(a). (14)(b) The Landauer, Inc. Code of Conduct for Senior Financial Executives is attached hereto as Exhibit 14(b). (21) Subsidiaries of the registrant are: Beijing Landauer Radiation Monitoring Technology Co., 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, Ltd. and subsidiary (51%) Paris, France; Oxford, United Kingdom (31.1) Certification of Brent A. Latta, President and Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith. (31.2) Certification of James M. O'Connell, Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith. (32.1) Certification of Brent A. Latta, President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 furnished herewith. (32.2) Certification of James M. O'Connell, Chief Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 furnished herewith. Exhibits 10(a), 10(d), 10(e), 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 April 28, 2003, Landauer filed a report on form 8-K related to its earnings press release for the same day. On July 24, 2003, Landauer filed a report on form 8-K related to its earnings press release for the same day. On November 10, 2003, Landauer filed a report on form 8-K related to its earnings press release for the same day. 37 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 19, 2003 ------------------------ 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 19, 2003 - ------------------------ (Principal Executive Brent A. Latta Officer) /s/ James M. O'Connell Vice President, Finance, December 19, 2003 - ------------------------ Treasurer and Secretary James M. O'Connell (Principal Financial and Accounting Officer) /s/ Robert J. Cronin Director December 19, 2003 - ------------------------ Robert J. Cronin /s/ E. Gail de Planque Director December 19, 2003 - ------------------------ E. Gail de Planque /s/ Gary D. Eppen Director December 19, 2003 - ------------------------ Gary D. Eppen /s/ M. Christine Jacobs Director December 19, 2003 - ------------------------ M. Christine Jacobs /s/ Richard R. Risk Director December 19, 2003 - ------------------------ Richard R. Risk /s/ Michael D. Winfield Director December 19, 2003 - ------------------------ Michael D. Winfield 38 QUARTERLY FINANCIAL DATA (UNAUDITED)
(Amounts in Thousands, Except Per Share) ------------------------------------------------------- First Second Third Fourth Total Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ------- Net revenues 2003 $15,392 $16,846 $15,925 $16,655 $64,818 2002 $13,741 $14,704 $14,844 $15,319 $58,608 Operating income 2003 $ 6,065 $ 4,792 $ 6,138 $ 6,862 $23,857 2002 $ 5,776 $ 6,263 $ 5,829 $ 6,531 $24,399 Net income 2003 $ 3,809 $ 3,030 (1)$ 3,828 $ 4,352 $15,019 2002 $ 3,736 $ 4,037 $ 4,234 (2)$ 4,173 $16,180 Diluted net income per share 2003 $ .43 $ .34 $ .43 $ .49 $ 1.69 2002 $ .42 $ .46 $ .48 $ .47 $ 1.83 Cash dividends per share 2003 $ 0.375 $ 0.375 $ 0.375 $ 0.375 $ 1.50 2002 $ .35 $ .35 $ .35 $ .35 $ 1.40 Common stock price per share 2003 high $ 37.30 $ 38.95 $ 42.70 $ 42.65 $ 42.70 low 32.70 33.40 36.40 35.08 32.70 2002 high $ 36.70 $ 38.40 $ 41.91 $ 39.39 $ 41.91 low 29.99 32.60 37.60 30.65 29.99 Weighted average diluted shares outstanding 2003 8,863 8,871 8,910 8,885 8,891 2002 8,829 8,857 8,882 8,855 8,855 (1) Includes asset impairment charge of $2,750 related to the Aurion product line. (2) Includes a one-time gain of $786 relating to the formation of LCIE-Landauer, Ltd. 39
EX-14.A 3 exh_14a.txt EXHIBIT 14(a) - ------------- LANDAUER, INC CODE OF BUSINESS CONDUCT AND ETHICS PREAMBLE Landauer's corporate goals are, in essence, to be a substantial growing Company with increasing resources and earning power and enough diversification to: (1) weather any reasonable economic, political, sociological, product and market storms while adjusting to the new conditions; (2) take advantage of opportunities arising from within or without to strengthen the Company or accelerate growth; (3) provide a work atmosphere that is clean, safe, pleasant and fosters a cooperative effort among all employees; (4) provide work satisfaction, financial rewards, opportunities and challenges to all employees; and (5) do these by fulfilling real economic and human needs while exercising high standards of corporate behavior in matters of environment, equal employment opportunity and citizenship. In order to achieve these objectives, our operations must be based on a solid foundation. It is our policy to (1) obey the laws of every land in which we operate, (2) conduct our business in such a manner that our personnel, our customers, our suppliers, and the public will look at us with respect and (3) provide an operating climate conducive to high employee morale at all levels. Our aim is to compete aggressively: to apply all available resources, determination and intelligence to the development of a successful business while doing so in an honest, fair and legal manner. Though the mode of operation from one country to another may vary somewhat, it is our intention that each of our businesses be operated throughout the world on a single high ethical standard. To achieve these goals it is important for all Landauer personnel to remain aware of our policies and to set a proper example for all those who view their performance. Record keeping requires scrupulous integrity. A clear system of accountability must be maintained. Our reporting relationships are to be clearly designated. Authority levels are to be well established. Every Landauer employee, officer and director has the responsibility to obey the law and act ethically. To that end, this Code of Business Conduct and Ethics is a guide that is intended to sensitize employees, officers and directors to significant legal and ethical issues that arise frequently and to the mechanisms available to report illegal or unethical conduct. It is not, however, a comprehensive document that addresses every legal or ethical issue that an employee, officer or director may confront, nor is it a summary of all laws and policies that apply to the Company's business. For additional information regarding Company policies, you should refer to the Company's confidential and proprietary Landauer, Inc. Corporate Policies (the "Policy Manual"). Ultimately, no code of business conduct and ethics can replace the thoughtful behavior of an ethical employee, officer or director. If you have any questions about or the interpretation of any provision of this Code of Business Conduct and Ethics, you should consult with the Vice President of Finance and Administration ("Corporate Compliance Officer") at (708) 755-7000 or (800) 323-8830. No one at the Company has the authority to make exceptions to these policies, other than our Board of Directors or a committee of our Board of Directors. If you want to report any conduct that you believe violates this Code of Business Conduct and Ethics, you should follow the procedures set forth below under the caption "Reporting Illegal or Unethical Behavior". 1 COMPLIANCE WITH LAWS, RULES AND REGULATIONS Employees, officers and directors must comply fully with all applicable foreign, federal, state and local laws, rules and regulations that govern the Company's business conduct, including, without limitation, antitrust laws, employee health and safety laws, environmental laws, insider trading laws and the Foreign Corrupt Practices Act. PROHIBITION AGAINST INSIDER TRADING In general, employees, officers and directors who have access to, or knowledge of, material nonpublic information from or about the Company are prohibited from buying, selling or otherwise trading in the Company's stock or other securities. "Material nonpublic" information includes any information, positive or negative, that has not yet been made available or disclosed to the public and that might be of significance to an investor, as part of the total mix of information, in deciding whether to buy or sell stock or other securities. Such insiders also are prohibited from giving "tips" on material nonpublic information, that is directly or indirectly disclosing such information to any other person, including family members, other relatives and friends, so that they may trade in the Company's stock or other securities. Furthermore, if, during the course of your service with the Company, you acquire material nonpublic information about another company, such as one of our customers or suppliers, or you learn that the Company is planning a major transaction with another company (such as an acquisition), you are restricted from trading in the securities of the other company. Such "insider trading" is both unethical and illegal, with criminal penalties of up to $5 million and a jail term of up to 20 years and civil penalties of up to three times the illegal profit gained or loss avoided. The Company's policies regarding insider trading and confidentiality are set forth more completely in our Policy Manual. CONFLICTS OF INTEREST The Company recognizes each employee's right to have privacy outside of the workplace. The Company does not intend to restrict the right of its employees, officers or directors to invest in non-Company business enterprises that do not conflict with the Company's welfare or interest or the individual's job responsibilities. However, the best interest of the Company should be the primary consideration of every employee, and the personal interests of any individual employee should never influence a decision relating to the choice of persons or business concerns with which the Company has transactions. As a matter of Company policy, all employees, officers and directors must avoid any actual or perceived conflict of interest. A "conflict of interest" occurs when an individual's personal interests interfere or conflict in any way (or even appear to interfere or conflict) with the interests of the Company. A conflict of interest situation can arise when an employee, officer or director takes actions or has interests (financial or other) that may make it difficult to perform his or her company work objectively and effectively. Conflicts of interest also may arise when an employee, officer or director, or a member of his or her family, receives improper personal benefits as a result of his or her position in the Company, regardless of whether such benefits are received from the Company or a third party. Loans to, or guarantees of obligations of, employees, officers and directors and their respective family members are of special concern. Federal law currently prohibits the Company from making loans to directors and executive officers. 2 It is difficult to identify exhaustively what constitutes a conflict of interest. For this reason, employees, officers and directors must avoid any situation in which their independent business judgment might appear to be compromised. Questions about potential conflicts of interest situations, and disclosure of these situations as they arise, should be addressed and reported to the Corporate Compliance Officer at (708) 755- 7000 or (800) 323-8830. Set forth below are some guidelines to avoid conflicts of interest: . Do not perform any outside work that interferes with your job performance at Landauer. . Avoid activities that could be construed as hostile or adverse to Company business. . Neither you nor your immediate family members should accept valuable gifts or free or reimbursed lodging or travel from a customer/vendor, unless the Company has negotiated such arrangements as part of the business arrangement. Please consult the Corporate Compliance Officer if you have any questions. . Do not accept a retainer, commission, consulting fee or other arrangement as part of any outside work that is related or similar to your work at Landauer, unless you notify the Company and receive prior authorization. . Neither you nor anyone in your immediate family, should inappropriately borrow from, lend to, invest in or engage in any financial transaction that may result in a conflict of interest with the Company's customers, competitors, prospects, vendors or suppliers. Report to the Corporate Compliance Officer immediately if someone in your immediate family is engaged in a business similar to the Company. . If you do any outside work, tell your clients that your work is in no way connected to or authorized by the Company. . You cannot use confidential information or knowledge for any personal gain or advantage against Landauer. . Customer data of any type, whether information about customers or their employees, is confidential information. Such information may not be disclosed by any employee or otherwise used to the detriment of Landauer, the customer or employees of either. . Failure to disclose information about conflicts of interest or failure to adhere to these policies may lead to corrective action up to and including immediate discharge. Any questions about possible conflicts of interest regarding financial investments or outside work or confidential information should be discussed with the Corporate Compliance Officer. CORPORATE OPPORTUNITIES Employees, officers and directors are prohibited from: (1) taking for themselves personally opportunities that properly belong to the Company or are discovered through the use of corporate property, information or position; (2) using corporate property, information or position for personal gain; and (3) competing with the Company. Employees, officers and directors owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises. 3 CONFIDENTIALITY Employees, officers and directors must maintain the confidentiality of all confidential information entrusted to them by the Company, our customers or suppliers, or others with whom we may conduct business, except when disclosure of such information is specifically authorized by the Corporate Compliance Officer or required as a matter of law. Confidential information includes any information that has not been made available to the public that provides insight into our current or anticipated business activities. It also includes important nonpublic information about firms with which we have dealings, including customers and suppliers. You should not share confidential information with friends, relatives or other non-employees, or discuss confidential matters in public places, such as elevators, public transportation (including airplanes) or restaurants. Records containing personal data about employees or private information about customers and their employees are confidential. They are to be carefully safeguarded, kept current, relevant and accurate. They should be disclosed only to authorized personnel or as required by law. All inquiries regarding the Company from non-employees, such as financial analysts and journalists, should be directed to the President or the Vice President of Finance and Administration. The Company's policy is to cooperate with every reasonable request of government investigators for information. At the same time, the Company is entitled to all the safeguards provided by law for the benefit of persons under investigation or accused of wrongdoing, including legal representation. If a representative of any government or government agency seeks an interview with you or requests access to data or documents for the purposes of an investigation, you should refer the representative to the President or Vice President of Finance and Administration. You also should preserve all materials, including documents and e-mails, that might relate to any pending or reasonably possible investigation. QUALITY ASSURANCE All employees are expected to act with personal integrity, perform their duties to the highest quality standards, and to follow the Company's written procedures for quality assurance. Quality and integrity are attitudes that should be present in everything we do. In each case there is a person who depends upon Landauer performing its service well. Employees are also expected to inform management when the systems in place are not producing quality results. RECORD KEEPING As a result of our status as a public company, Landauer is required to file periodic and other reports with the Securities and Exchange Commission. The Company takes its public disclosure responsibility seriously to ensure that these reports furnish the marketplace with full, fair, accurate, timely and understandable disclosure regarding the financial and business condition of the Company. All entries in corporate books are to be accurate and consistent with the highest accounting standards with no false or misleading entries. All payments in whole or in part are to be solely for purposes described in supporting documents. No funds or assets may be concealed. Employees are individually responsible for notifying the Controller of any discrepancies. Auditors must be accurately informed. The auditing process is to be independent. All transactions must be recorded properly. 4 All entries in laboratory and processing records are to be held to the highest standards. Test conclusions and raw data are to be carefully recorded in laboratory notebooks. Employees who knowingly falsify lab data are immediately dismissed. Discrepancies should be reported to an appropriate manager. As part of its regular auditing procedures, the Company's internal audit staff will audit the records to determine compliance with this Code. The Company's independent outside auditors are also required to state whether any apparent violations of this Code have come to their attention. FAIR DEALING Each employee, officer and director must endeavor to deal fairly and in good faith with the Company's customers, suppliers, competitors, shareholders and employees. No employee, officer or director shall take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair dealing practices. The Company's policy is to select, place and work with all our employees and officers without discrimination based on race, color, national origin, gender, age, religion, disability, veteran's status, or actual or perceived sexual orientation. Equal opportunity is one of the Company's firmest and most basic beliefs. Further, it is the responsibility of each of us to help the Company provide a work atmosphere free of harassing, abusive, disrespectful, disorderly, disruptive or other nonprofessional conduct. Sexual harassment in any form, verbal or physical, by any employee, officer or director will not be tolerated. PROTECTION AND PROPER USE OF COMPANY ASSETS All employees, officers and directors must protect the Company's assets and ensure their efficient use. Such assets include, without limitation, intellectual property such as the Landauer or other affiliated names, logos, trademarks, patents, copyrights, confidential information, ideas, plans and strategies. Theft, carelessness and waste have a direct impact on the Company's profitability. Any misuse or infringement of the Company's assets should be reported to the President or the Vice President Finance and Administration. Products and services are to be made available to all prospective purchasers without discrimination as to any protected status as defined by applicable law. Statements, whether oral or written, relative to any product or service should be accurate and not misleading. No products or services should be offered under false pretenses or where the purchase may be of an obvious disadvantage or deleterious to the customer. Brokers, dealers, agents, and distributors shall be asked to abide by this Code of Business Conduct and Ethics in representing Landauer and monetary compensation to them shall not exceed standard commissions. Bribes or kickbacks, or other devices to obtain favored treatment by government, businesses or individuals are prohibited. Payments or gifts to government officials or employees are prohibited where such payment is made to cause that person to use his influence or to cause him to fail to perform his required duty or to assist in obtaining or retaining governmental business, private business, or to influence legislation or regulations. No payment shall be made to any other party if you have reason to suspect all or part of it will be used to make such prohibited payments. 5 Our purchasing decisions are to be based upon cost factors, the quality of products and services, and how well the supplying company stands behind them and maintains availability. Purchases are to be made from the suppliers offering the maximum overall advantage to the Company. It is also the responsibility of persons involved in the purchasing cycle whether specifier, buyer, or manager to select the lowest cost product type and class that will meet the need. ANTI-TRUST LAWS The United States, the European Economic Community and many other countries, have anti-trust and/or other laws relating to relationships between competitors, suppliers, and customers. Each Manager and each person involved in sales, purchasing, or pricing should try within reason to familiarize themselves with the laws appropriate to their country or sphere of operations. In the U.S., the relevant laws are the SHERMAN ACT, CLAYTON ACT, ROBINSON PATMAN ACT, and the FTC ACT. These acts make it illegal in most circumstances in the U.S. to have agreements between two or more persons that restrain commerce or trade or create a monopoly. When the effect may be to substantially lessen competition you may not discriminate in price between purchasers or sell or lease products upon the condition that the purchaser will not use products of a competitor. Some important points are: (1) Do not agree with other suppliers to fix prices or terms; (2) Do not agree to divide a market with other suppliers; (3) Do not agree to refrain from soliciting competitors' customers; (4) Do not agree to restrict products; (5) Do not charge one customer less than you charge his competitor for comparable products or services, involving comparable terms and volumes. Do not discuss these or any other similar matters with competitors. At any time if such matters are broached you are expected to inform the others present that you cannot participate and then leave. Any occurrence of this type should be reported to the President of the Company or the Vice President Finance and Administration. POLITICAL CONTRIBUTIONS The Company generally does not make contributions of any kind to political campaigns, candidates, or public officials. Employees should not engage in political activity or make political contributions of any kind if there is a reasonable likelihood that this would or could be construed as support by Landauer or reflecting the policy of the Company. REPORTING ILLEGAL OR UNETHICAL BEHAVIOR All employees, officers and directors have a duty to adhere to this Code of Business Conduct and Ethics. Employees are encouraged to talk to supervisors, managers or other appropriate personnel about possible illegal or unethical behavior that has occurred and, when in doubt, about the best course of action in a particular situation. 6 If you are concerned about a violation of this Code of Business Conduct and Ethics or other illegal or unethical conduct by employees, officers or directors of the Company, contact your supervisor or call or write the Corporate Compliance Officer. The firm of Global Compliance Services, Inc. has been engaged to receive confidential information about violations of this nature through their INTEGRITY LINE service. Their telephone number is 1-888-475-8268 for the submission of confidential, anonymous reports of improper behavior. Confidentiality will be maintained to the fullest extent possible. No employee will be penalized for making a good-faith report of violations of this Code of Business Conduct and Ethics or other illegal or unethical conduct, nor will we tolerate retaliation of any kind against anyone who makes a good-faith report. An employee, officer or director who submits a false report of a violation, however, will be subject to disciplinary action. If you report a violation and in some way also are involved in the violation, the fact that you stepped forward will be considered. The Company will investigate all reports of violations. You should not investigate on your own but leave such work to the appropriate persons chosen by the Company's Board of Directors. If the result of an investigation indicates that corrective action is required, the Company will decide what steps to take, including, when appropriate, legal proceedings and disciplinary action up to and including termination, to rectify the problem and avoid the likelihood of its recurrence. RELATIONSHIP TO POLICY MANUAL This Code of Business Conduct and Ethics does not supercede, change, alter or replace the existing policies and procedures already in place as stated in the Policy Manual and communicated to the Company's employees, officers and directors. Certain policies referred to herein are contained in their entirety in the Policy Manual, and employees, officers and directors are instructed to refer to the Policy Manual for a copy of those policies and required reporting procedures. The Policy Manual contains information that is proprietary and confidential, and the Company hereby expressly denies waiving any right to assert claims that the contents of the Policy Manual are proprietary and/or confidential. This Code of Business Conduct and Ethics and the Policy Manual are statements of goals and expectations for individual and business conduct. They are not intended to, and do not in any way constitute, an employment contract or an assurance of continued employment. The Company does not create any contractual rights by issuing this Code of Business Conduct and Ethics or the Policy Manual. AMENDMENT, MODIFICATION AND WAIVER This Code of Business Conduct and Ethics may be amended, modified or waived by the Board of Directors of the Company. Any change to, or waiver of, this Code of Business Conduct and Ethics for executive officers or directors may be required to be disclosed promptly to our stockholders either by a Form 8-K filing or by publishing a statement on our website. ACKNOWLEDGMENT Employees, officers and directors are accountable for knowing and abiding by these policies. The Company may require that employees, officers and directors sign an acknowledgment confirming that they have received and read this Code of Business Conduct and Ethics, understand it and are complying with it. The Company also may require certain supervisory personnel to complete an annual questionnaire regarding their knowledge of any potential or actual violations of this Code of Business Conduct and Ethics. Newly hired employees and officers and newly appointed directors must sign the acknowledgment. A full copy of this Code of Business Conduct and Ethics may be found on the Company's website at landauerinc.com. 7 EX-14.B 4 exh_14b.txt EXHIBIT 14(b) - ------------- LANDAUER, INC. CODE OF ETHICS FOR FINANCIAL EXECUTIVES ------------------------------------------------------ This Landauer, Inc. Code of Ethics for Financial Executives ("Code of Ethics") applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions (collectively, the "Covered Officers"). Landauer expects each of the Covered Officers to act in accordance with the highest standards of personal and professional integrity in all aspects of their activities, to comply with all applicable laws, rules and regulations, to deter wrongdoing and abide by this Code of Ethics and the Landauer, Inc. Code of Business Conduct and Ethics. This Code of Ethics is intended to supplement the Landauer, Inc. Code of Business Conduct and Ethics. Each Covered Officer will: (a) Engage in and promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (b) Produce full, fair, accurate, timely, and understandable disclosure in reports and documents that Landauer files with, or submits to, the Securities and Exchange Commission and in other public communications made by Landauer; (c) Comply with applicable governmental laws, rules and regulations; and (d) Promptly report any possible violation of this Code of Ethics to any of the individuals listed below or to the Global Compliance Services - Integrity Line 1-888-475-8268. Each Covered Officer is prohibited from directly or indirectly taking any action to fraudulently influence, coerce, manipulate or mislead Landauer's independent public auditors for the purpose of rendering the financial statements of Landauer misleading. Each Covered Officer will be held accountable for adherence to this Code of Ethics. Any failure to observe the terms of this Code of Ethics may result in disciplinary action, up to and including termination of employment. Violations of this Code of Ethics may also constitute violations of law and may result in civil and criminal penalties for the Covered Officer, his or her supervisors and/or Landauer. If a Covered Officer has any questions regarding the best course of action in a particular situation, he or she should promptly contact any of the individuals listed below. A Covered Officer may choose to remain anonymous in reporting any possible violation of this Code of Ethics. No employee will be penalized for making a good-faith report of violations of this Code of Ethics or other illegal or unethical conduct, nor will Landauer tolerate retaliation of any kind against anyone who makes a good-faith report. Reports may be made to: . Global Compliance Services - Integrity Line 1-888-475-8268 . Robert J. Cronin, Director, Audit Committee Chair . James Eidam, PricewaterhouseCoopers, Independent Auditor This Code of Ethics does not supersede or replace the existing policies and procedures already in place as stated in the Landauer Code of Business Conduct and Ethics and communicated to Landauer's employees, officers and directors. Any change to, or waiver of, this Code of Ethics for covered officers must be approved by the Board and disclosed promptly to Landauer's shareholders. EX-31.1 5 exh_311.txt EXHIBIT 31.1 - ------------ CERTIFICATION 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b. Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. December 19, 2003 /s/ Brent A. Latta ----------------------------------- President & Chief Executive Officer EX-31.2 6 exh_312.txt EXHIBIT 31.2 - ------------ CERTIFICATION 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b. Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. December 19, 2003 /s/ James M. O'Connell ----------------------------------- Chief Financial Officer EX-32.1 7 exh_321.txt EXHIBIT 32.1 - ------------ CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Landauer, Inc. (the "Company") on Form 10-K for the fiscal year ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Brent A. Latta, Chief Executive Officer of the Company, certify that: i. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and ii. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Brent A. Latta ----------------------------------- President & Chief Executive Officer December 19, 2003 EX-32.2 8 exh_322.txt EXHIBIT 32.2 - ------------ CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Landauer, Inc. (the "Company") on Form 10-K for the fiscal year ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James M. O'Connell, Chief Financial Officer of the Company, certify that: i. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and ii. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ James M. O'Connell ----------------------------------- Chief Financial Officer December 19, 2003 [Signed originals of these written statements required by Section 906 have been provided to Landauer, Inc. and will be retained by Landauer, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.] -----END PRIVACY-ENHANCED MESSAGE-----