-----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, DgOit/KyV1Fm+I7JjutwEAlqYuSGzTryDsu4fLr0zFYEft3PTw37j/UfDKOQ+A7S Xyjg+XGQgDxjBM94ytmP7Q== 0000892626-04-000291.txt : 20041213 0000892626-04-000291.hdr.sgml : 20041213 20041210174623 ACCESSION NUMBER: 0000892626-04-000291 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041213 DATE AS OF CHANGE: 20041210 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: 041197374 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 ldr_k04.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, 2004 Commission File Number 1-9788 LANDAUER, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 06-1218089 --------------------------------- ---------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 2 SCIENCE ROAD, GLENWOOD, ILLINOIS 60425 ----------------------------------------------------- (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (708) 755-7000 Securities registered pursuant to Section 12(b) of the Act: COMMON STOCK WITH PAR VALUE OF $.10 NEW YORK STOCK EXCHANGE - ----------------------------------- ----------------------- (Title of each class) (Name of exchange on which registered) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes [ ] No [ X ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ X ] No [ ] As of March 31, 2004 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 $370,000,000. The number of shares of common stock ($.10 per value) outstanding as of December 10, 2004 was 8,949,123. Registrant's 2004 Annual Report to shareholders is incorporated by reference into Part II and certain portions of the Registrant's definitive Proxy Statement in connection with the February 3, 2005 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 . . . . . . . . . . . . . . . . . . . . . 3 Raw Materials . . . . . . . . . . . . . . . . . . 3 Competition . . . . . . . . . . . . . . . . . . . 3 Research and Development. . . . . . . . . . . . . 4 Environmental and Other Governmental Regulations. . . . . . . . . . . . . . . . . . . 4 Employees and Labor Relations. . . . . . . . . . . 4 2. Properties. . . . . . . . . . . . . . . . . . . . . 5 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, Related Stockholder Matters and Issuer Purchases of Equity Securities. . . . . . . 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. . . . . . . . . . . . . . . . . 15 8. Consolidated Financial Statements and Supplementary Data Consolidated Balance Sheets . . . . . . . . . . . 18 Consolidated Statements of Income . . . . . . . . 20 Consolidated Statements of Stockholders' Investment and Comprehensive Income. . . . . . . 21 Consolidated Statements of Cash Flows . . . . . . . 22 Notes to Consolidated Financial Statements. . . . . 24 Report of Independent Registered Public Accounting Firms. . . . . . . . . . . . . . 38 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . 39 9A. Controls and Procedures . . . . . . . . . . . . . . 39 9B. Other Information . . . . . . . . . . . . . . . . . 39 PART III 10. Directors and Executive Officers of the Registrant. . . . . . . . . . . . . . . . . 39 11. Executive Compensation. . . . . . . . . . . . . . . 40 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. . . . . . . . . . . . . . . . 40 13. Certain Relationships and Related Transactions. . . 40 14. Principal Accountant Fees and Services. . . . . . . 40 PART IV 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . . . . . . . . . . . . . 40 Financial Statements. . . . . . . . . . . . . . . 40 List of Exhibits. . . . . . . . . . . . . . . . . 40 Signatures of Registrant and Directors. . . . . . 43 Quarterly Financial Data (Unaudited). . . . . . . 44 i PART I ITEM 1. BUSINESS GENERAL DESCRIPTION Landauer, Inc. is a Delaware corporation organized on December 22, 1987 to carry on the radiation monitoring business previously established by Tech/Ops, Inc. ("Tech/Ops"). On February 6, 1991, the Company changed its name from Tech/Ops Landauer, Inc. to Landauer, Inc. As used herein, the "Company" or "Landauer" refers to Landauer, Inc. and its subsidiaries. The Company offers a service for measuring, primarily through optically stimulated luminescent ("OSL") badges worn by client personnel, the dosages of x-ray, gamma radiation and other penetrating ionizing radiations to which the wearer has been exposed. This technology is marketed under the trade name Luxel. While most of the Company's revenues are domestic, these services are also marketed by Landauer in Canada and by its subsidiaries in other parts of the world. As of October 1, 1998, the Company acquired a 75% interest in SAPRA-Landauer, Ltda., which provides radiation dosimetry services in Brazil. As of December 28, 1998, SAPRA-Landauer acquired the radiation dosimetry service business formerly conducted by REM in Sao Paulo, Brazil. During July 1999, the Chinese government approved the Company's joint venture agreement with China National Nuclear Corporation to form Beijing-Landauer, Ltd., which provides radiation monitoring services in China. Landauer, Inc. owns a 70% interest in Beijing Landauer. On April 2, 2002, the Company completed an agreement to merge its European operations with the radiation monitoring business operated by Laboratoire Central des Industries Electriques ("LCIE"), a wholly-owned subsidiary of Bureau Veritas ("BV"), 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, Ltd. 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 LCIE-Landauer purchased the Philips France radiation monitoring business. In April 2004, Landauer, Inc. consummated an agreement with BV to acquire the remaining 49% minority interest in LCIE-Landauer, Ltd. owned by BV's subsidiary, LCIE, for $10.4 million in cash. 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[TM] dosimetry system, introduced in 2003, provides small and mid-sized in-house and commercial laboratories with the ability to offer a complete radiation monitoring service using OSL technology. The system is based on the Company's propriety technology and instruments and dosimetry devices developed by Mitsushita Industrial Equipment Company and allows customers the flexibility to tailor their precise dosimetry needs. Landauer's operations include services for detecting radon gas and its wholly-owned subsidiary, HomeBuyer's Preferred, Inc., offers a radon monitoring service and, when necessary, remediation to purchasers of personal residences. The service is targeted to corporate employee relocation programs that have generally regarded radon as a serious environmental hazard. Landauer operates a crystal manufacturing facility in Stillwater, Oklahoma that it acquired in August 1998. Crystal material is a component in the Company's OSL technology. 1 The Company's shares are listed on the New York Stock Exchange. As of September 30, 2004, there were 8,945,665 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 the US and Canada primarily by full-time Company personnel located in Illinois, California, Connecticut, Georgia, and Texas. The Company's services are marketed through ventures in Japan, Brazil and China, as well as its wholly owned subsidiary operating in 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 1.5 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, 2004 and 2003, deferred contract revenue was $12,554,000 and $12,464,000, respectively. The Company's radiation monitoring services are largely based on the Luxel dosimeter system in which all analyses are performed at the Company's laboratories in Glenwood, Illinois. Luxel employs the Company's proprietary optically stimulated luminescence (OSL) technology. Recently, the Company introduced the InLight dosimetry system that enables certain customers to make their own OSL measurements where results are needed faster than permitted in the traditional subscription service business model. InLight is marketed to the smaller radiation measurement laboratories found at nuclear power plants, military installations and various national research laboratories operated for the Department of Energy. InLight also forms the basis for Landauer's European venture and other future ventures that might occur where local requirements preclude using a US or other foreign-based laboratory. The medical physics market where the need to perform dosimetry associated with the use of radiation in diagnostic and therapeutic radiology is also served by the InLight product line. Radon gas detection kits are marketed directly by the Company to institutional customers and government agencies. The HomeBuyer's Preferred Radon Protection Plan service agreement is marketed directly by the Company to companies and to their corporate relocation service providers for the benefit of purchasers of residences incident to transfers of personnel. 2 PATENTS The Company holds exclusive worldwide licenses to patent rights for certain technologies that measure and image radiation exposure to crystalline materials when stimulated with light. These licenses were acquired by the Company from Battelle Memorial Institute and Oklahoma State University as part of collaborative efforts to develop and commercialize a new generation of radiation dosimetry technology. These licenses expire from the years 2011 through 2015. As of September 30, 2004, 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 based radiation monitoring services and products sold under the trade names Luxel, Luxel+ and InLight. 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 products 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 raw 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 produced at the Company's crystal manufacturing facility in Stillwater, Oklahoma. The InLight[TM] 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. is a significant competitor with substantial resources. Other competitors in the United States providing dosimetry services tend to be smaller companies, some 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 wholly owned subsidiary LCIE-Landauer Ltd. by its laboratory in suburban Paris, France and sales office in Oxford, England. In the United States, most government agencies, such as the Department of Energy and Department of Defense, have their own in-house radiation monitoring services. Additionally, many large private nuclear power plants 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[TM] 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 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 Presently, research efforts seek 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[TM] dosimetry system recently released for commercial application enables the Company's subsidiaries and other small dosimetry laboratories an economical approach to practice the OSL technology. The Company's technological expertise has been an important factor in its growth. The Company regularly pursues product improvements to maintain its technical position. The development of OSL dosimetry, announced in 1994, was funded by the Company in its collaborative effort with Battelle Memorial Institute and Oklahoma State University. The Company commercialized this technology beginning in 1998 and has converted most 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. Many of the Company's technology based services must comply with various national and international standards that are used by regulatory and accreditation bodies for approving such services and products. These accreditation bodies include, for example, the National Voluntary Laboratory Accreditation Program in the U.S. and governmental agencies, generally, in international markets. Changes in these standards and accreditation requirements can result in the Company having to incur costs to adapt its offerings and procedures. Such adaptations may introduce quality assurance issues during transition that need to be addressed to ensure timely and accurate analyses and data reporting. Additionally, changes affecting radiation protection practices, including new understandings of the hazards of radiation exposure and amended regulations, may impact how the Company's services are used by its customers and may in some circumstances cause the Company to alter its products and delivery of its services. EMPLOYEES AND LABOR RELATIONS As of September 30, 2004, the Company employed approximately 425 full- time employees worldwide. Landauer believes its relations with its employees are good. 4 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 laboratories in Japan, Brazil, China, and France, as well as a sales office in Oxford England. ITEM 3. LEGAL PROCEEDINGS From time to time the Company is involved in certain legal proceedings. As of September 30, 2004, no material legal proceedings were pending that involved the Company. 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 61 President and Chief Executive Officer James M. O'Connell 57 Vice President, Finance, Treasurer, Secretary, and Chief Financial Officer R. Craig Yoder 52 Senior Vice President, Marketing and Technology Robert M. Greaney 51 Vice President - Operations All of the Company's executive officers have been employed by the Company for more than ten years. Mr. Latta, who joined the Company in April 1987 as Vice President, had for more than five years previously been Vice President, Marketing of Sherwood Medical Company, a manufacturer and distributor of medical products. Prior to being elected President and Chief Executive Officer in 1998, Mr. Latta served as the Vice President-Marketing of the Company. Mr. O'Connell, prior to joining the Company in September 1990, served in various financial capacities in the telecommunications, manufacturing and financial services industries. Dr. Yoder was elected to his position after serving as the Company's Vice President of Operations since 1994 and Technology Manager since joining in 1983. Prior to joining the Company, he was a member of the senior technical staff at Pennsylvania Power and Light, and at Battelle Pacific Northwest Laboratory. Mr. 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 AND ISSUER PURCHASES OF EQUITY SECURITIES The Company's Common Stock is traded on the New York Stock Exchange under the trading symbol LDR since its listing in January 2002. Prior to that the Company's Common Stock was traded on the American Stock Exchange. A summary of market prices of the Company's Common Stock is set forth in the table on page 44 of this Annual Report on Form 10-K. On December 10, 2004, 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 of the Company and no purchases of equity securities of the Company during fiscal 2004, by the Company. The Company has paid regular quarterly cash dividends since January 1990. The Company also paid special cash dividends in 1990 and 1992. On November 12, 2004, the Company announced that it had increased the regular quarterly cash dividend by 6% to $0.425 per share for the first quarter of fiscal 2005. This increase represents an annual rate of $1.70 per share compared with $1.60 paid in fiscal 2004. A summary of cash dividends paid for the last two years is set forth in the table on page 44 of this Annual Report on Form 10-K. ITEM 6. SELECTED FINANCIAL DATA A summary of selected financial data for the last six years is set forth on page 1 of the Company's Annual Report to Stockholders accompanying this Annual Report on Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Landauer is the leading provider of analytical services to determine occupational and environmental radiation exposure. For 50 years, the Company has provided complete radiation dosimetry services to hospitals, medical and dental offices, universities, national laboratories, and other industries in which radiation poses a potential threat to employees. Landauer's services include the manufacture of various types of radiation detection monitors, the distribution and collection of the monitors to and from clients, and the analysis and reporting of exposure findings. These services are provided to approximately 1.5 million individuals in the U.S., Japan, France, the United Kingdom, Brazil, Canada, China, Australia and other countries. Landauer's InLight[TM] dosimetry system, introduced in 2003, provides small and mid-sized in-house and commercial laboratories with the ability to offer a complete radiation monitoring service using optically stimulated luminescence ("OSL") technology. The system is based on the Company's propriety technology and instruments and dosimetry devices developed by Matsushita Industrial Equipment Company and allows customers the flexibility to tailor their precise dosimetry needs. Landauer's operations include services for detecting, monitoring and, if necessary, remediating radon gas. Landauer operates a mature business, and growth in numbers of customers is modest. In recent years the Company's strategy has been to expand into new international markets, primarily by partnering with existing dosimetry service providers with a prominent local presence. In addition, the Company has been developing new platforms and formats for its OSL technology, such as InLight, to gain access to markets where the Company previously did not have a significant presence, such as smaller in-house and commercial laboratories. Revenue growth in recent years has occurred as a result of increased prices for certain services, entry into new markets through joint ventures and acquisitions, modest unit growth and new ancillary services and products. 6 The services provided by the Company to its customers are ongoing and are of a subscription nature. As such, revenues are recognized in the periods in which such services are rendered irrespective of whether invoiced in advance or in arrears. Given the subscription nature of Landauer's services, quarterly revenues are fairly consistent. During the second quarter of each fiscal year, however, the Company provides additional services reporting annual radiation dose summaries that generate increased revenues. The introduction of the Company's InLight product line may introduce some variability in quarter-to-quarter revenue comparisons given the nature of purchase cycles associated with sales of radiation dose measurement instruments and detectors. RESULTS OF OPERATIONS FISCAL 2004 COMPARED TO FISCAL 2003 Revenues reported for fiscal 2004 were $69,809,000, an increase of 7.7% compared with revenues of $64,818,000 reported for fiscal 2003. Domestic revenue growth during fiscal 2004, at 6.4%, was attributable to gains in pricing, unit volume and ancillary service fees for the Company's core radiation monitoring business. International revenue growth was more than 14% for the year and reflected favorable currency translation, pricing gains and unit volume in most foreign markets. The comparison of 2004 results with a year ago reflects the recognition of a non-cash asset impairment charge in the amount of $2,750,000 in 2003, offset by lower incentive compensation expense in the amount of $500,000. The resulting decline in fiscal 2003 operating income of $2,250,000 lowered diluted earnings per share by $0.15 (after income tax benefit of $894,000). Exclusive of the non-cash charge, costs and expenses for fiscal 2004 grew by $3,878,000 due to increased labor, incentive compensation and employee benefits expenses, $1,977,000 combined; costs associated with foreign operations, $887,000, impacted by expansion and currency translation; depreciation, $524,000; professional fees, $211,000 and direct materials, $206,000. The increased costs and expenses were impacted by the development of the InLight product line and the introduction of Luxel+. Net other income was $80,000 higher in 2004 as Nagase-Landauer, Ltd. earnings improved $216,000 from 2003, offset by lower net interest income of $136,000 due to financing costs associated with the acquisition of the remaining interest in LCIE-Landauer earlier this year. The effective tax rate for 2004 was 37.4% compared with 36.9% for 2003. Net income for fiscal 2004 was $17,770,000, an increase of 18.3% compared with net income of $15,019,000 for fiscal 2003; $369,000 of the net income increase is attributable to foreign currency. Diluted earnings per share for fiscal 2004 were $1.98 compared with $1.69 reported a year ago. 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. 7 During the second quarter of fiscal 2003 the Company reported a non-cash charge in the amount of $2,750,000, offset by $500,000 lower incentive compensation expense, to record the impairment in value of assets related to Landauer's Aurion service. The resulting $2,250,000 decline in operating income lowered diluted earnings per share by $0.15 (after income tax benefit of $894,000). 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 2003, 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 also 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 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. Resulting 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. FOURTH QUARTER RESULTS OF OPERATIONS Revenues for the fourth fiscal quarter of 2004 were $17,566,000, an increase of 5.5% compared with $16,656,000 a year ago. Revenue growth during the fourth quarter of fiscal 2004 was attributable to gains in pricing, unit volume, and ancillary fees for the Company's core domestic radiation monitoring business. A weak U.S. dollar and modestly higher unit volume also contributed to international growth. Cost of goods sold was 11% or $653,000 higher than for the same period a year ago, reflecting higher direct labor and benefit costs, $184,000; direct materials, $181,000; international overhead $156,000; and depreciation $123,000. The cost increases in the U.S. and Europe were impacted by the conversion of domestic customers to Luxel+ during the quarter and the introduction of InLight in France. Operating expenses were $143,000 higher related primarily to incentive compensation expense of $525,000, offset by savings related to selected general and administrative expenses such as outside research. The effective tax rate for the fourth quarter of fiscal 2004 was 37.0% compared with 36.7% for the same period in fiscal 2003. For the quarter ended September 30, 2004, the Company reported earnings of $4,532,000 compared with earnings of $4,352,000 in the same quarter a year ago; $99,000 of the net income increase is attributable to foreign currency. Earnings per diluted share for the quarter were $0.50 compared with $0.49 in 2003. 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 fiscal 2003 fourth quarter 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. 8 OUTLOOK FOR FISCAL 2005 Landauer's business plan for fiscal 2005 anticipates aggregate revenue growth for the year to be in the range of 7 - 8%. The Company's traditional domestic and international revenue sources are expected to grow at a rate of 5.5 - 6.5% with sales for the InLight product line contributing to the balance of revenue growth. Domestic revenue growth is expected to occur as a result of pricing, moderate unit growth and increased sales of ancillary services. International revenue growth for 2005 is expected to result from pricing and increased units, although currency exchange rates may impact results reported in U.S. dollars. Costs and operating expenses for fiscal 2005 are expected to grow at a rate slightly higher than revenues. Net other income in fiscal 2005 is anticipated to be comparable to the year just ended and minority interest should further decline, as a full year of ownership of the entire European business is realized. The effective income tax rate for fiscal 2005 is expected to be comparable to 2004 at 37.4%. Resulting net income for 2005 is anticipated to be higher by 6 - 8% compared with fiscal 2004. 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, dispositions of property, plant and equipment, as well as the investments in LCIE-Landauer) and amounted to $15,090,000 and $4,715,000, respectively, in fiscal 2004 and 2003. Cash paid for income taxes was $10,156,000 in 2004 and $9,086,000 in fiscal 2003. The Company's financing activities are primarily comprised of borrowing activities and payments of cash dividends to shareholders and minority partners. During fiscal 2004 and fiscal 2003, the Company paid cash dividends of $13,990,000, or $1.60 per share, and $12,977,000, or $1.50 per share, respectively. The Company had long-term liabilities in the amount of $5,162,000 and $2,661,000 at September 30, 2004 and 2003, respectively, and its requirement for cash flow to support investing activities is generally limited. Since the credit agreement described in Note 6 to the financial statements is renewed each year, borrowings thereunder are classified as current liabilities. Capital expenditures for fiscal 2005 are expected to amount to approximately $7,500,000 principally for the acquisition of equipment to support the Company's InLight product line, introduction of new products, the development of supporting software systems, and computer hardware. The Company anticipates that funds for these capital improvements will be provided from operations. In April 2004 Landauer, Inc. consummated an agreement with Bureau Veritas ("BV") to acquire the remaining 49% minority interest in LCIE- Landauer, Ltd. owned by BV's subsidiary, Laboratoire Central Industries des Electriques ("LCIE"), for $10.4 million in cash. The Company funded the purchase price from a combination of working capital funds ($2.7 million), and $7.7 million borrowed under a credit facility obtained in April 2004. This $25 million credit facility is annually renewable upon agreement of the parties and will mature in April 2005. At September 30, 2004, outstanding borrowings under the credit agreement were $5,262,000. In the event the credit facility is not renewed at maturity, it is expected that cash on hand and cash flow from operations will be sufficient to satisfy the obligation. 9 In the opinion of management, cash flow from operations and the Company's borrowing capacity under this line of credit are adequate for projected operations and capital spending programs, as well as continuation of the regular cash dividend program. From time to time, the Company may have the opportunity to make investments for acquisitions or other purposes and believes that the credit facility is adequate to fund such investments. See Note 6 to the financial statements for additional information regarding the credit facility. The outstanding borrowings under the credit facility are denominated in Euros, which is the functional currency of LCIE-Landauer, Ltd. Landauer requires limited working capital for its operations since many of its customers pay for annual services in advance. Such advance payments amounted to $12,554,000 and $12,464,000, respectively, as of September 30, 2004 and 2003, and are included in deferred contract revenue. While these amounts represent a significant component 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 generally 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. CONTRACTUAL OBLIGATIONS As of September 30, 2004, the resources required for scheduled repayment of contractual obligations were as follows: Scheduled payment in fiscal years ------------------------------------------------ There- Contractual Obligations Total 2005 2006-07 2008-09 after - ----------------------- -------- -------- -------- -------- -------- (Dollars in Thousands) Notes payable (1) $ 5,262 $ 5,262 $ -- $ -- $ -- Interest payable (2) 110 110 -- -- -- Operating leases (3) 134 134 -- -- -- Purchase obligations (4) 3,826 3,826 -- -- -- Postretirement benefits (5) 8,362 306 702 1,497 5,857 Dividends (6) 3,577 3,577 -- -- -- -------- -------- -------- -------- -------- $ 21,271 $ 13,215 $ 702 $ 1,497 $ 5,857 ======== ======== ======== ======== ======== (1) Notes payable pertain to the line of credit with a maturity date of April 12, 2005. The credit agreement is annually renewable upon agreement of the parties. (2) Interest payable is computed through the April 12, 2005 maturity date using 3.38%, the rate at which the line of credit is fixed through February 28, 2005. 10 (3) The Company has several small operating leases that are short-term in nature; it has no material operating or capital leases. (4) Includes accounts payable under other agreements to purchase goods or services including open purchase orders. (5) Includes projected benefit payments for retiree medical expenses, supplemental key executive retirement plans, and a terminated retirement plan that provides certain retirement benefits payable to non-employee directors. (6) Cash dividends in the amount of $0.40 per share were declared on September 10, 2004. NEW ACCOUNTING PRONOUNCEMENTS On November 17, 2003, the Financial Accounting Standards Board (FASB) issued the final FASB Staff Position (FSP) FAS 150-3, "Effective Date for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests under FASB Statement No. 150 (FAS 150), 'Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity'". The final FSP affects how public and nonpublic entities classify, measure, and disclose certain mandatorily redeemable non-controlling interests associated with finite-lived subsidiaries and mandatorily redeemable financial instruments and requires entities that have already adopted FAS 150 to rescind the adoption of certain provisions of FAS 150 and to permit them to present the adoption of the FSP either by restating previously issued financial statements or as a cumulative effect in the period of adoption. The Company has analyzed its financial instruments in light of FAS 150 and has determined that this statement is not applicable to its financial position and that the adoption of this statement has no impact on its consolidated statements. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an 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. In December 2003, the FASB issued FIN 46(R), "Consolidation of Variable Interest Entities," which represents a revision to FIN 46. The provisions of FIN 46(R) are effective for interests in variable interest entities as of the first interim, or annual, period ending after December 15, 2003. In addition, FIN 46(R) requires that both the primary beneficiary and all other enterprises with a significant variable interest make additional disclosure in filings issued after January 31, 2003. The Company has determined that the adoption of FIN 46(R) has no impact on its financial statements and results of operations. In December 2003, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition," which revises or rescinds portions of the interpretive guidance included in SAB No. 101, "Revenue Recognition in Financial Statements," in order to make the guidance consistent with authoritative accounting and auditing guidance and with SEC rules and regulations. The principal revisions relate to the rescission of material no longer necessary because of private sector developments in United States generally accepted accounting principles. The adoption of SAB No. 104 did not have any impact on the Company's financial position or results of operations. 11 On December 23, 2003 the FASB released revised Statement No. 132R (FAS 132R), "Employers' Disclosures about Pensions and Other Postretirement Benefits". The revised standard provides required disclosures for pensions and other postretirement benefit plans and is designed to improve disclosure transparency in financial statements. The requirements of the standard are effective for public entities for fiscal years ending after December 15, 2003 and for quarters beginning after December 15, 2003. The Company implemented the required disclosure provisions in the quarter ending March 31, 2004. On January 12, 2004, the FASB released FASB Staff Position No. FAS 106-1 (FSP 106-1). FASB Statement No. 106 (FAS 106), "Employers' Accounting for Postretirement Benefits Other Than Pensions," requires a company to consider current changes in applicable laws when measuring its postretirement benefit costs and accumulated postretirement benefit obligation. However, because (1) uncertainties may exist for plan sponsors surrounding the effect of the provisions of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") and (2) certain accounting issues raised by the Act are not addressed by FAS 106, FSP 106-1 allows plan sponsors to elect a one- time deferral of the accounting for the Act. If deferral is elected, the deferral must remain in effect until the earlier of (a) the issuance of guidance by the FASB or (b) the remeasurement of plan assets and obligations subsequent to January 31, 2004. Further, even if an entity elects deferral, certain disclosure requirements are still required. The FSP is effective for interim and annual financial statements of fiscal years ending after December 7, 2003. The Company's post retirement benefits are not based on the retiree's Medicare benefits received. As such, the Company has analyzed its postretirement benefit costs in light of FSP 106-1 and has determined that the adoption of this statement has no material impact on its consolidated statements and has implemented the required disclosure provisions in the quarter ending June 30, 2004. In May 2004, the Financial Accounting Standards Board issued FASB Staff Position ("FSP") 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." This statement applies to the sponsor of a single- employer defined benefit postretirement health care plan for which (a) the employer has concluded that prescription drug benefits available under the plan to some or all participants for some or all future years are "actuarially equivalent" to Medicare Part D and thus qualify for the subsidy under the Medicare Prescription Drug, Improvement and Modernization Act of 2003; and (b) the expected subsidy will offset or reduce the employer's share of the cost of the underlying postretirement prescription drug coverage on which the subsidy is based. FSP 106-2 requires measurement of the accumulated postretirement benefit obligation and net periodic postretirement benefit cost to reflect the effects of the Act in the first interim period beginning after June 15, 2004. The Company's post retirement benefits are not based on the retiree's Medicare benefits received nor do they include specific or separate prescription drug coverage. As such, the Company has analyzed its postretirement benefit costs in light of FSP 106-2 and has determined that the adoption of this statement has no material impact on its consolidated financial statements and results of operations. In March 2004, the FASB reached a consensus on Emerging Issues Task Force (EITF) Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments," which provides guidance to determine the meaning of other-than-temporary impairment and its application to investments classified as either available-for-sale or held-to-maturity (including individual securities and investments in mutual funds), and investments accounted for under the cost method or the equity method. The guidance for evaluating whether an investment is other-than-temporarily impaired should be applied in other-than-temporary impairment evaluations made in reporting periods beginning after June 15, 2004. The adoption of Issue No. 03-1 has not had any impact on the Company's financial statements and results of operations. 12 On March 31, 2004, the FASB issued an exposure document related to share-based payments that would amend SFAS No. 123, "Accounting for Stock- Based Compensation." The FASB has tentatively concluded that companies could adopt the new standard in one of two ways: the modified prospective transition method and the modified retrospective transition method. Using the modified prospective transition method, a company would recognize share-based employee compensation cost from the beginning of the fiscal period in which the recognition provisions are first applied as if the fair-value-based accounting method had been used to account for all employee awards granted, modified, or settled after the effective date and to any awards that were not fully vested as of the effective date. Using the modified retrospective method, a company would recognize employee compensation cost for periods presented prior to the adoption of the proposed Standard in accordance with the original provisions of SFAS No. 123; that is, an entity would recognize employee compensation cost in the amounts reported in the pro-forma disclosures provided in accordance with SFAS No. 123. A company would not be permitted to make any changes to those amounts upon adoption of the proposed Statement unless those changes represent a correction of an error (and are disclosed accordingly). For the periods after the date of adoption of the proposed Standard, the modified prospective transition method described above would be applied. The FASB expects to issue the final standard by December 31, 2004. The Company continues to evaluate the impact the final standard will have on the Company's results of operations and financial statements. See Notes 1 and 10 to the financial statements for valuation and stock-based compensation expense. In April 2004, the EITF reached consensus on EITF Issue No. 03-6, "Participating Securities and the Two Class Method under FASB Statement No. 128" ("EITF 03-6"). EITF 03-6 addresses a number of questions regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in the dividends and earnings of the company when, and if, it declares dividends on its common stock. EITF 03-6 also provides further guidance in applying the two-class method of calculating earnings per share, clarifying what constitutes a participating security and how to apply the two-class method of computing earnings per share once it is determined that a security is participating, including how to allocate undistributed earnings to such a security. EITF 03-6 is effective for fiscal periods beginning after March 31, 2004 and requires retroactive restatement of prior earnings per share amounts. The adoption of Issue No. 03-6 has not had a material impact on the Company's financial statements and results of operations. 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 and products 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, the information contained under the heading "Outlook for Fiscal 2005" in Item 7 of this report and statements concerning the development and introduction of new technologies, the adaptability of OSL to new platforms and new formats (such as InLight), the usefulness of older technologies, the cost associated with the Company's business development and research efforts, the valuation of the Company's long-lived assets or business 13 units relative to future cash flows, 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, anticipated revenue and cost growth, the risks of conducting business internationally, other anticipated financial events, the effects of changing economic and competitive conditions, government regulations, accreditation requirements, 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 SEC. CRITICAL ACCOUNTING POLICIES The Securities and Exchange Commission ("SEC") issued statements regarding disclosure by companies within their management's discussion and analysis of financial condition and results of operations. In those statements, the SEC encouraged companies to identify critical accounting policies. Critical accounting policies are those that are most important to the portrayal of a company's financial condition and results, and that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. 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 $12,554,000 and $12,464,000, respectively, as of September 30, 2004 and September 30, 2003, are included in deferred contract revenue, and are stated net of services rendered through the respective consolidated balance sheet dates. Management believes that the amount of deferred revenue shown at the respective consolidated balance sheet dates fairly represents the level of business activity it expects to conduct with customers invoiced under this arrangement. ALLOWANCE FOR DOUBTFUL ACCOUNTS Management judgments and estimates are utilized in connection with establishing an allowance for the possibility that portions of the Company's accounts receivable balances may become uncollectable. Specifically, management analyzes accounts in relation to receivable aging trends, economic factors, and changes in customer payment history in establishing this allowance. Accounts receivable, reduced by this allowance of $460,000 as of September 30, 2004 and $583,000 as of September 30, 2003, amounted to $15,060,000 and $13,770,000, respectively, as of September 30, 2004 and September 30, 2003. 14 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", and such costs amounted to $2,093,000 and $1,867,000, respectively, for fiscal 2004 and fiscal 2003. 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, 2002, the amortization of goodwill and certain intangible assets has ceased beginning in fiscal year 2003. Under SFAS 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 17 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, or commitments in a currency other than that of the reporting unit's functional currency. As such, the Company does not currently use derivative financial instruments to manage the exposure in its non-U.S. operations. 15 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 operations from the Glenwood facility. If the Company were to lose availability of its primary facility due to fire, natural disaster or other disruptions, the Company's operations could be significantly impaired. Although the Company maintains business interruption insurance, there can be no assurance that the proceeds of such insurance would be sufficient to offset any loss the Company might incur or that the Company would be able to retain its customer base if operations were so disrupted. SINGLE SOURCE FOR CRYSTAL MATERIALS Crystal material is a key component in Landauer's OSL technology. The Company operates a single crystal manufacturing facility in Stillwater, Oklahoma that currently supplies all OSL crystal radiation measurement material used by the Company. If the Company were to lose availability of its Stillwater facility due to a fire, natural disaster or other disruptions, such loss could have a material adverse effect on the Company and its operations. Although multiple sources for raw crystal material exists, there can be no assurance that the Company could secure another source to produce finished crystal materials to Landauer's specification in the event of a disruption at the Stillwater facility. TECHNOLOGY Landauer's technological expertise has been an important factor in its growth. The Company regularly pursues product improvements to maintain its technical position. The development and introduction of new technologies, the adaptability of OSL to new platforms and new formats, the usefulness of older technologies as well as the introduction of new technologies by the competition present various risks to the Company's business. The failure or lack of market acceptance of a new technology or the inability to respond to market requirements for new technology could adversely affect the Company's operations or reputation with customers. The cancellation of technology projects or the cessation of use of an existing technology can result in write downs and changes to the Company's earnings. In the normal course of its business, Landauer must record and process significant amounts of data quickly and accurately and relies on various computer and telecommunications equipment and software systems. Any failure of such equipment or systems could adversely affect the Company's operations. INTERNATIONAL OPERATIONS POSE RISKS Landauer conducts business in numerous international markets such as Japan, France, the United Kingdom, Brazil, Canada and China. Foreign operations are subject to a number of special risks, including among others, currency exchange rate fluctuations; disruption in relations; political and economic unrest; trade barriers; exchange controls; expropriation; and changes in laws and policies, including those governing foreign owned operations. GOVERNMENT REGULATIONS Regulation, present and future, is a constant factor affecting the Company's business. The radiation monitoring industry is subject to federal and state governmental regulation. Unknown matters, new laws and regulations, or stricter interpretations of existing laws or regulations may materially affect Landauer's business or operations in the future and/or could increase the cost of compliance. 16 Many of the Company's technology based services must comply with various national and international standards that are used by regulatory and accreditation bodies for approving such services and products. Changes in these standards and accreditation requirements can result in the Company having to incur costs to adapt its offerings and procedures. Such adaptations may introduce quality assurance issues during transition that need to be addressed to ensure timely and accurate analyses and data reporting. Additionally, changes affecting radiation protection practices, including new understandings of the hazards of radiation exposure and amended regulations, may impact how the Company's services are used by its customers and may in some circumstances cause the Company to alter its products and delivery of its services. COMPETITION The Company competes on the basis of advanced technologies, competent execution of these technologies, the quality, reliability and price of its services and its prompt and responsive performance. In much of the world, radiation monitoring activities are conducted by a combination of private entities and governmental agencies. The Company's primary competitor in the United States is large and has substantial resources. The Company also faces competitive pressures from a number of smaller competitors. COMPLIANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACT The Company is in the process of documenting and testing its internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, that requires annual management assessments of the effectiveness of internal controls over financial reporting and a report by our Independent Auditors addressing these assessments due to be completed by September 30, 2005. We are in the process of documenting and testing our system of internal controls to provide the basis for our report. However, at this time, due to the ongoing evaluation and testing, no assurance can be given that there may not be internal control deficiencies that would be required to be reported. 17 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS LANDAUER, INC. AND SUBSIDIARIES (Dollars in Thousands) ---------------------- As of September 30, Notes 2004 2003 - ------------------- ----- -------- -------- ASSETS Current assets: Cash and cash equivalents . . . . . . . 1 $ 7,979 $ 10,572 Short-term investments. . . . . . . . . 1 616 440 Receivables, net of allowance for doubtful accounts of $460 in 2004 and $583 in 2003. . . . . . . 15,060 13,770 Inventories . . . . . . . . . . . . . . 1 3,206 3,513 Prepaid expenses. . . . . . . . . . . . 1,116 967 Prepaid income taxes. . . . . . . . . . 1 & 5 2,292 1,687 Deferred income taxes . . . . . . . . . 5 21 289 -------- -------- Current assets. . . . . . . . . . . . . . 30,290 31,238 -------- -------- Property, plant and equipment, at cost: 1 Land and improvements . . . . . . . . . 634 634 Buildings and improvements. . . . . . . 4,056 4,082 Equipment . . . . . . . . . . . . . . . 36,331 34,221 -------- -------- 41,021 38,937 Less: accumulated depreciation and amortization. . . . . . . . . . . 22,481 21,711 -------- -------- Net property, plant and equipment . . . . 18,540 17,226 -------- -------- Equity in joint venture . . . . . . . . . 3 3,916 3,402 Goodwill and other intangible assets, net of amortization . . . . . . . . . . 1 & 4 19,493 8,056 Dosimetry devices, net of amortization. . 1 4,791 4,121 Other assets. . . . . . . . . . . . . . . 488 195 -------- -------- ASSETS. . . . . . . . . . . . . . . . . . $ 77,518 $ 64,238 ======== ======== 18 CONSOLIDATED BALANCE SHEETS (CONTINUED) LANDAUER, INC. AND SUBSIDIARIES (Dollars in Thousands) ---------------------- As of September 30, Notes 2004 2003 - ------------------- ----- -------- -------- LIABILITIES AND STOCKHOLDERS' INVESTMENT Current liabilities: Accounts payable. . . . . . . . . . . . $ 1,306 $ 1,548 Notes payable . . . . . . . . . . . . . 6 5,262 -- Dividends payable . . . . . . . . . . . 3,577 3,316 Deferred contract revenue . . . . . . . 1 12,554 12,464 Accrued compensation and related costs. 2,230 1,459 Accrued pension costs . . . . . . . . . 8 834 837 Accrued taxes on income . . . . . . . . 1 & 5 20 507 Deferred income taxes . . . . . . . . . 5 94 -- Other accrued expenses. . . . . . . . . 2,399 2,037 -------- -------- Current liabilities . . . . . . . . . . . 28,276 22,168 -------- -------- Non-current liabilities: Pension and postretirement obligations. 8 3,845 2,661 Deferred income taxes . . . . . . . . . 5 1,317 -- -------- -------- Non-current liabilities . . . . . . . . . 5,162 2,661 -------- -------- Minority interest . . . . . . . . . . . . 83 984 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; 8,945,665 and 8,843,723 issued and outstanding, respectively in 2004 and 2003. . . . . . . . . . . . 895 884 Premium paid in on common stock . . . . . 14,400 12,207 Cumulative translation adjustments. . . . (251) (100) Retained earnings . . . . . . . . . . . . 28,953 25,434 -------- -------- Stockholders' investment. . . . . . . . . 43,997 38,425 -------- -------- LIABILITIES AND STOCKHOLDERS' INVESTMENT. $ 77,518 $ 64,238 ======== ======== The accompanying notes are an integral part of these financial statements. 19 CONSOLIDATED STATEMENTS OF INCOME LANDAUER, INC. & SUBSIDIARIES (Dollars in Thousands, For the years ended Except Per Share) September 30, Notes 2004 2003 2002 - ------------------- ----- -------- -------- -------- Net revenues. . . . . . . . . . $ 69,809 $ 64,818 $ 58,608 -------- -------- -------- Costs and expenses Cost of sales . . . . . . . . 25,452 23,403 20,462 Selling, general, and administrative. . . . . . . 1 16,637 14,808 13,747 Impairment in value of assets . . . . . . . . . 11 -- 2,750 -- -------- -------- -------- 42,089 40,961 34,209 -------- -------- -------- Operating income. . . . . . . . 27,720 23,857 24,399 Equity in income of joint venture . . . . . . . . 3 1,083 867 735 Other income. . . . . . . . . . 40 176 1,137 -------- -------- -------- Income before taxes . . . . . . 28,843 24,900 26,271 Income taxes. . . . . . . . . . 1 & 5 (10,786) (9,193) (9,811) Income before minority interest. . . . . . . . . . . 18,057 15,707 16,460 Minority interest . . . . . . . (287) (688) (280) -------- -------- -------- Net income. . . . . . . . . . . $ 17,770 $ 15,019 $ 16,180 ======== ======== ======== Net income per share: 2 Basic. . . . . . . . . . . . $ 2.00 $ 1.71 $ 1.85 Diluted. . . . . . . . . . . $ 1.98 $ 1.69 $ 1.83 ======== ======== ======== The accompanying notes are an integral part of these financial statements. 20 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, 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 Options exercised . . . . . . . . . 11 2,193 -- -- 2,204 Net Income. . . . . . . . . . . . . -- -- -- 17,770 17,770 $ 17,770 Foreign currency translation adjustment. . . . . . . . . . . . -- -- (151) -- (151) (151) Dividends . . . . . . . . . . . . . -- -- -- (14,251) (14,251) -- -------- -------- -------- --------- -------- -------- Comprehensive Income. . . . . . . . $ 17,619 ======== Balance September 30, 2004. . . . . $ 895 $ 14,400 $ (251) $ 28,953 $ 43,997 ======== ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. 21
CONSOLIDATED STATEMENTS OF CASH FLOWS LANDAUER, INC. & SUBSIDIARIES (Dollars in Thousands) For the years ended September 30, 2004 2003 2002 - --------------------------------- -------- -------- -------- Cash flow from operating activities: Net income. . . . . . . . . . . . . . $ 17,770 $ 15,019 $ 16,180 Adjustments to reconcile net income to net cash provided by operating activities: Asset impairment charge . . . . . . . -- 2,750 -- Non-cash gain from exchange of assets. . . . . . . . . . . . . . . -- -- (786) Depreciation. . . . . . . . . . . . . 5,197 4,673 4,099 Amortization. . . . . . . . . . . . . 497 384 271 Bad debt expense. . . . . . . . . . . (17) 246 259 Equity in income of foreign affiliate . . . . . . . . . . . . . (1,083) (867) (735) Dividends received from foreign affiliates. . . . . . . . . . . . . 598 535 334 Tax effect of stock options . . . . . 1,451 920 472 (Increase) decrease in short-term investments . . . . . . . . . . . . (177) (123) 70 Increase in accounts receivable - net . . . . . . . . . . . . . . . (1,273) (395) (2,166) (Increase) decrease in inventory. . . 306 (1,626) (442) (Increase) decrease in prepaid expenses. . . . . . . . . . . . . . (753) 477 (2,424) Net increase in other assets. . . . . (3,200) (1,953) (2,083) (Decrease) increase in accounts payable . . . . . . . . . . . . . . 162 (56) 657 Increase (decrease) in net deferred taxes. . . . . . . . . . . 268 (1,749) 1,216 Increase (decrease) in accrued liabilities . . . . . . . . . . . . 645 (369) 965 Increase in deferred contract revenue . . . . . . . . . . . . . . 89 580 995 Increase in non-current liabilities . . . . . . . . . . . . 1,184 751 42 Increase in minority interest . . . . 278 809 407 -------- -------- -------- Net cash provided from operating activities. . . . . . . . . . . . . . 21,942 20,006 17,331 -------- -------- -------- Cash flows from investing activities: Acquisition of property, plant & equipment . . . . . . . . . (4,773) (4,715) (4,656) Disposition of property, plant & equipment . . . . . . . . . 87 -- -- Acquisition of minority interests . . (10,404) -- (877) -------- -------- -------- Net cash used by investing activities. . . . . . . . . . . . . . (15,090) (4,715) (5,533) -------- -------- -------- 22 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) LANDAUER, INC. & SUBSIDIARIES (Dollars in Thousands) For the years ended September 30, 2004 2003 2002 - --------------------------------- -------- -------- -------- Cash flows from financing activities: Dividends paid to stockholders. . . . (13,990) (12,977) (12,246) Dividends paid to minority interest. . . . . . . . . . . . . . (915) (287) (58) Proceeds from the exercise of stock options . . . . . . . . . . . 753 348 603 Advance from (repayment to) affiliates. . . . . . . . . . . . . (404) (185) 504 Net proceeds from revolving credit facility . . . . . . . . . . 5,262 -- -- -------- -------- -------- Net cash used by financing activities. . . . . . . . . . . . . . (9,294) (13,101) (11,197) -------- -------- -------- Effects of foreign currency translation . . . . . . . . . . . . . (151) 755 (29) -------- -------- -------- Net increase (decrease) in cash and cash equivalents . . . . . . (2,593) 2,945 572 Opening balance - cash and cash equivalents . . . . . . 10,572 7,627 7,055 -------- -------- -------- Ending balance - cash and cash equivalents . . . . . . $ 7,979 $ 10,572 $ 7,627 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid for income taxes. . . . . . $ 10,156 $ 9,086 $ 10,207 ======== ======== ======== Supplemental non-cash investing & financing information: Dividend declared . . . . . . . . . . $ 3,577 $ 3,316 $ 3,071 ======== ======== ======== The accompanying notes are an integral part of these financial statements. 23 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.; LCIE-Landauer, Ltd. and HomeBuyer's Preferred, Inc., its wholly-owned subsidiaries; SAPRA-Landauer, Ltda., its 75%-owned subsidiary and Beijing-Landauer, Ltd., its 70%-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. 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, principally the components associated with dosimetry devices, are valued at lower of cost or market 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. RESEARCH AND DEVELOPMENT The cost of research and development programs is charged to selling, general and administrative expense as incurred and amounted to approximately $1,758,000 in 2004, $1,819,000 in 2003 and $941,000 in 2002. 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. Dosimetry devices (principally badges) and software are amortized on a straight-line basis over their estimated lives, which are three to five years. Maintenance and repairs are charged to expense, and renewals and betterments are capitalized. 24 ADVERTISING The Company expenses the costs of advertising as incurred. Advertising expense amounted to $396,000 in fiscal 2004, $345,000 in fiscal 2003 and $473,000 in fiscal 2002. 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 statements for comparative purposes. These reclassifications have no effect on the results of operations or financial position. 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 Statement of Financial Accounting Standards ("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 costs 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: (Amounts in $000's, Except Per Share) 2004 2003 2002 ---------------------- -------- -------- -------- Net income, as reported . . . . . $ 17,770 $ 15,019 $ 16,180 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects. . . 1,282 243 108 -------- -------- -------- Pro forma net income. . . . . . . $ 16,488 $ 14,776 $ 16,072 ======== ======== ======== Earnings per share: Basic - As Reported . . . . . . $ 2.00 $ 1.71 $ 1.85 Basic - Pro Forma . . . . . . . $ 1.85 $ 1.68 $ 1.84 ======== ======== ======== Diluted - As Reported . . . . . $ 1.98 $ 1.69 $ 1.83 Diluted - Pro Forma . . . . . . $ 1.84 $ 1.66 $ 1.82 ======== ======== ======== 25 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. RECENT ACCOUNTING PRONOUNCEMENTS On November 24, 2004, the Financial Accounting Standards Board (FASB) released revised FASB Statement No. 151 (FAS 151), "Inventory Costs - an amendment of ARB No. 43". The new standard requires amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The requirements of the standard will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is reviewing FAS No. 151 to determine its impact on the Company's results of operations and financial statements. 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) 2004 2003 2002 ---------------------- -------- -------- -------- Weighted average number of shares of common stock outstanding . . . . . . . . . . 8,894 8,808 8,756 Options issued to employees . . . 77 83 99 -------- -------- -------- Weighted average number of shares of common stock assuming dilution . . . . . . . 8,971 8,891 8,855 ======== ======== ======== Following is a table that provides net income and earnings per share for the years ended September 30: (Amounts in Thousands, Except Per Share) 2004 2003 2002 ---------------------- -------- -------- -------- Net income. . . . . . . . . . . . $ 17,770 $ 15,019 $ 16,180 Basic EPS . . . . . . . . . . . . $ 2.00 $ 1.71 $ 1.85 Diluted EPS . . . . . . . . . . . $ 1.98 $ 1.69 $ 1.83 ======== ======== ======== 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. Nagase-Landauer, Ltd. distributed dividends to Landauer, Inc. of $598,000 in 2004 and $535,000 in 2003. 26 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) 2004 2003 2002 ---------------------- -------- -------- -------- Revenues. . . . . . . . . . . . . $ 13,687 $ 14,227 $ 12,790 Income before income taxes. . . . 3,838 3,218 2,642 Net income. . . . . . . . . . . . 2,166 1,734 1,470 ======== ======== ======== Average exchange rate (/$) . 108.8 118.9 125.9 ======== ======== ======== Condensed unaudited balance sheets for the years ended September 30, 2004 and 2003 are as follows: (Dollars in Thousands) 2004 2003 ---------------------- -------- -------- Current assets. . . . . . . . . . $ 12,699 $ 11,179 Other assets. . . . . . . . . . . 1,529 1,806 -------- -------- Total assets. . . . . . . . . . . $ 14,228 $ 12,985 ======== ======== Liabilities . . . . . . . . . . . $ 6,376 $ 6,181 Stockholders' investment. . . . . 7,852 6,804 -------- -------- Total liabilities and stockholders' investment. . . . $ 14,228 $ 12,985 ======== ======== 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. Consistent with the provisions of SFAS No. 142, the Company did not amortize goodwill to earnings for any of the periods presented. As a result of applying the impairment provisions of SFAS 142, no impairment loss was indicated in the value of goodwill. 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 $16,420,000. As of September 30, 2004 and 2003, accumulated amortization was $3,264,000 and $3,263,000, 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 are 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 2004, 2003 or 2002. Goodwill amortization expense aggregated $190,000 in fiscal 2001. Diluted earnings per share (EPS) increased by approximately $0.04 in 2004 and $0.02 in 2003 due to the reduction in amortization expense. As a result of applying the impairment provisions of SFAS 142, no impairment loss was indicated in the value of goodwill. 27 The components of goodwill and other intangible assets for the years ended September 30, 2004 and 2003 are as follows: (Dollars in Thousands) 2004 2003 ---------------------- -------- -------- Goodwill (not amortized). . . . . $ 13,156 $ 5,257 Customer list, net of amortization (useful life of 10-15 years) . . . . . . . . 5,702 2,118 Licenses and patents, net of amort. (useful life of 10-17 years). . . . . . . . . . . . . 393 254 Other intangibles, net of amortization (useful life of 10 years). . . . . . . . . . 242 427 -------- -------- Total . . . . . . . . . . . . . . $ 19,493 $ 8,056 ======== ======== The intangible asset amounts noted above are presented net of accumulated amortization of $4,359,000 at September 30, 2004 and $4,359,000 at September 30, 2003. Amortization of intangible assets was $497,000, $384,000, and $271,000 for the years ended September 30, 2004, 2003 and 2002, respectively. Estimated annual aggregate amortization expense related to intangible assets will be approximately $570,000 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 ("BV"), 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. 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 lists. The $1,681,000 allocated to customer list is amortized over 10 years. In April 2004 Landauer, Inc. consummated an agreement with BV to acquire the remaining 49% minority interest in LCIE-Landauer, Ltd. owned by BV's subsidiary, LCIE, for $10.4 million in cash. The purchase price was allocated based on estimates of fair value as determined by an independent third party valuation consultant. Substantially all the purchase price, plus deferred tax liabilities recorded, was allocated to intangible assets including $3.9 million of customer lists (amortized over the estimated useful life of 15 years) and goodwill of $7.9 million. LCIE-Landauer has its headquarters and laboratory at the current LCIE location in Fontenay-aux-Roses, a Paris suburb, and will continue to serve United Kingdom customers from Oxford, England. 28 5. INCOME TAXES The components of the provision for income taxes for the years ended September 30, 2004, 2003 and 2002 are as follows: 2004 ------------------------------ (Dollars in Thousands) Current Deferred Total ---------------------- -------- -------- -------- Federal . . . . . . . . . . . . . $ 8,757 $ 220 $ 8,977 State . . . . . . . . . . . . . . 1,765 44 1,809 -------- -------- -------- Total . . . . . . . . . . . . . . $ 10,522 $ 264 $ 10,786 ======== ======== ======== 2003 ------------------------------ 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 ======== ======== ======== 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) 2004 2003 2002 ---------------------- -------- -------- -------- Statutory federal income tax rate. . . . . . . . . . . . 35% 35% 35% Computed tax provision at statutory rate. . . . . . . . . $ 10,095 $ 8,715 $ 9,195 Increases (decreases) resulting from: State income tax provision, net of federal benefit. . . . 1,176 959 1,173 Other . . . . . . . . . . . . . (485) (481) (557) -------- -------- -------- Income tax provision in the statement of income . . . . . . $ 10,786 $ 9,193 $ 9,811 ======== ======== ======== 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) allowances for obsolete inventory. 29 Significant components of deferred taxes are as follows: (Dollars in Thousands) 2004 2003 ---------------------- -------- -------- Deferred tax assets: Badge holder amortization . . . $ 1,778 $ 1,421 Pension accrual . . . . . . . . 1,267 1,273 Compensation expense. . . . . . 494 455 Inventory reserve . . . . . . . 146 146 Other . . . . . . . . . . . . . 699 1,192 -------- -------- $ 4,384 $ 4,487 ======== ======== Deferred tax liabilities: Depreciation. . . . . . . . . . $ (298) $ 320 Software development. . . . . . 4,661 3,878 -------- -------- $ 4,363 $ 4,198 ======== ======== In 2004, the Company recorded a $1.4 million deferred tax liability resulting from the intangible assets purchased in the LCIE-Landauer Ltd. minority interest acquisition. 6. NOTES PAYABLE In April 2004 the Company negotiated a $25 million line of credit provided by LaSalle Bank, ABN AMRO. The credit facility, with a maturity date of April 12, 2005, provides funds that are to be used for working capital and other general corporate purposes. The credit agreement is annually renewable upon agreement of the parties and provides the Company with the option of electing to borrow funds denominated in US dollars or Euros that bear interest rates based on the federal funds rate, prime rate, EURIBOR or LIBOR. It also contains certain covenants, including a covenant for minimum tangible net worth. As of September 30, 2004 the Company was in compliance with all of the covenants contained in the credit agreement. In April 2004 the Company borrowed $7,724,000 under this facility as part of funding the acquisition of the remaining 49% minority interest in LCIE - Landauer, Ltd. During the 2004 fiscal year the Company made principal payments of $2,763,000, as well as an interest payment of $30,000. Current outstanding balances under the line are denominated in Euros and bear interest at the applicable EURIBO rate plus 1.25% per annum. At September 30, 2004, the loan is based upon the 181 day EURIBO rate and is fixed at 3.38% until February 28, 2005, at which time the Company will execute a new EURIBOR election notice and specify the interest period and rate for the remaining balance of the advance under the terms of the credit agreement. In the event the credit facility is not renewed at maturity, it is expected that cash on hand, and cash flow from operations will be sufficient to satisfy the obligation. The expectation is the Company will fund Euro-based debt service payments from the Euro-denominated cash flows. 7. 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, 2004 and 2003 there were 8,945,665 and 8,843,723 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 $1.60 per share were paid in fiscal 2004. At September 30, 2004, there are accrued and unpaid dividends of $3,577,000. 30 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, 2004, there have been no bonus shares issued. 8. EMPLOYEE BENEFIT PLANS In the United States, Landauer maintains a noncontributory defined benefit pension 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. Pensions for international employees are generally provided under government sponsored programs funded by employment taxes. 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 U.S. full-time employees. Qualified contributions made by employees to the plan are partially matched by the Company. $141,000, $124,000, and $130,000 was provided to expense for the years ended September 30, 2004, 2003 and 2002, 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 $20,000 and $153,000, respectively. For a one percent decrease, the effect would be a reduction to service and interest costs and postretirement benefit obligation of $17,000 and $135,000, respectively. The amount of the Company's unrecognized transition obligation resulting from the adoption of SFAS No. 106 is $182,000 as of September 30, 2004. This liability is included in "Other accrued expenses." The Company uses a September 30 measurement date for the majority of its plans. The following tables set forth the status of these combined plans at September 30, 2004 and 2003 in accordance with SFAS Nos. 87 and 132: Pension Benefits Other Benefits ------------------- ------------------- (Dollars in Thousands) 2004 2003 2004 2003 - ---------------------- -------- -------- -------- -------- Change in benefit obligation: Benefit obligation at beginning of year . . . $ 16,390 $ 11,917 $ 1,148 $ 984 Service cost. . . . . . . 1,001 862 98 85 Interest cost . . . . . . 986 904 82 65 Amendments. . . . . . . . -- 1,567 -- -- Actuarial (gain) loss . . (347) 1,415 182 46 Benefits paid . . . . . . (293) (275) (16) (32) -------- -------- -------- -------- Benefit obligation at end of period . . . . . . $ 17,737 $ 16,390 $ 1,494 $ 1,148 ======== ======== ======== ======== 31 Pension Benefits Other Benefits ------------------- ------------------- (Dollars in Thousands) 2004 2003 2004 2003 - ---------------------- -------- -------- -------- -------- Change in plan assets: Fair value of assets at beginning of year . . . $ 8,025 $ 6,959 $ -- $ -- Actual return on plan assets. . . . . . . . . 373 677 -- -- Employer contribution . . 837 664 16 32 Benefits paid . . . . . . (293) (275) (16) (32) -------- -------- -------- -------- Fair value of assets at end of period . . . . . . $ 8,942 $ 8,025 $ -- $ -- ======== ======== ======== ======== Reconciliation of funded status: Funded status . . . . . . $ (8,795) $ (8,365) $ (1,494) $ (1,148) Unrecognized transition obligation (asset). . . (19) (25) 182 204 Unrecognized prior service cost. . . . . . 1,387 1,544 34 51 Unrecognized net actuarial (gain) loss . 3,848 4,039 187 16 -------- -------- -------- -------- Net amount recognized . . . $ (3,579) $ (2,807) $ (1,091) $ (877) ======== ======== ======== ======== The accumulated benefit obligation for all defined benefit pension plans was $11,961,000 and $10,799,000 at September 30, 2004 and 2003, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets: September 30, (Dollars in Thousands) 2004 2003 ---------------------- -------- -------- Projected benefit obligation. . . $ 4,040 $ 3,799 Accumulated benefit obligation. . 3,514 3,195 Fair value of plan assets . . . . -- -- ======== ======== Components of Net Periodic Benefit Cost: Pension Benefits Other Benefits ------------------- ------------------- (Dollars in Thousands) 2004 2003 2004 2003 ---------------------- -------- -------- -------- -------- Service cost. . . . . $ 1,001 $ 862 $ 98 $ 85 Interest cost . . . . 986 904 82 65 Expected return on plan assets . . . . (650) (560) -- -- Amortization of transition obliga- tion (asset). . . . (6) (6) 23 23 Amortization of prior service cost. 156 155 17 17 Recognized net actuarial (gain) loss. . . . . . . . 120 92 11 -- -------- -------- -------- -------- Net periodic benefit cost. . . . $ 1,607 $ 1,447 $ 231 $ 190 ======== ======== ======== ======== 32 ASSUMPTIONS Weighted-average assumptions used to determine benefit obligations at September 30: Pension Benefits Other Benefits ------------------- ------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Discount rate . . . . 6.25% 6.25% 6.25% 6.25% Rate of compensation increase. . . . . . 5.19% 5.17% 6.00% 6.00% Weighted average assumptions used to determined net periodic benefit cost for years ended September 30: Pension Benefits Other Benefits ------------------- ------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Discount rate . . . . 6.25% 6.75% 6.25% 6.75% Expected long-term return on plan assets. . . . . . . 8.00% 8.00% 0.00% 0.00% Rate of compensation increase. . . . . . 5.19% 5.17% 6.00% 6.00% The expected long-term rate of return of plan assets is based on historical and projected rates of return for current and planned asset classes in the plan's investment portfolio. Based on the target asset allocation for each asset class, the overall expected rate of return for the portfolio was developed and adjusted for historical and expected experience of the active portfolio management results compared to the benchmark returns and for the effect of expenses paid from plan assets. The Company reviews this long-term assumption on an annual basis. Assumed health care cost trend rates at September 30: 2004 2003 -------- -------- Health care cost trend rate assumed for next year . . . . . 12% 12% Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) . . . 6% 6% Year that the rate reaches the ultimate trend rate . . . . 2010 2009 Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects: 1-Percentage- 1-Percentage- (Dollars in Thousands) Point Increase Point Decrease ---------------------- -------------- -------------- Effect on total of service and interest cost . . . . . . $ 20 $ (17) Effect on postretirement benefit obligation. . . . . . 153 (135) 33 PLAN ASSETS Landauer's pension plan weighted-average asset allocations at September 30, 2004, and 2003, by asset category are as follows: Plan Assets at September 30, Asset Category 2004 2003 -------------- -------- -------- Fixed income. . . . . . . . . . . 55% 56% Equity securities . . . . . . . . 44% 41% Cash equivalents. . . . . . . . . 1% 3% ---- ---- Total . . . . . . . . . . . . . . 100% 100% ==== ==== The plan's investment strategy supports the objectives of the plan. These objectives are to maximize returns in order to minimize contributions within reasonable and prudent levels of risk. To achieve theses objectives, the Company has established a strategic asset allocation policy to maintain approximately one half of plan assets in high quality fixed income securities such as investment grade bonds and short term government securities, with the other half containing large capitalization equity securities. The plan's objective is to periodically rebalance its assets to approximate weighted-average target asset allocations. Investments are diversified across classes and within each class to minimize the risk of large losses. CONTRIBUTIONS The Company expects to contribute $789,000 to its pension plan in fiscal 2005, the maximum amount permitted under U.S. tax law. ESTIMATED FUTURE BENEFIT PAYMENTS The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: Pension Other (Dollars in Thousands) Benefits Benefits ---------------------- -------- -------- 2005. . . . . . . . . . . . . . . $ 284 $ 22 2006. . . . . . . . . . . . . . . 326 13 2007. . . . . . . . . . . . . . . 344 19 2008. . . . . . . . . . . . . . . 612 55 2009. . . . . . . . . . . . . . . 742 88 Years 2010-2014 . . . . . . . . . 5,091 767 9. COMMITMENTS AND CONTINGENCIES The Company is involved in certain legal proceedings, but believes that the outcome of these proceedings will not have a materially adverse effect on its financial condition. 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. No compensation costs have been recognized for stock-based compensation plan. 34 The Company may grant options for up to 1,350,000 shares under the Employees' Plan. The Company may grant options for up to 100,000 shares under the Directors' Plan. The Company has granted options on 1,344,250 and 71,500 shares, respectively, under these plans through September 30, 2004. 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 varying periods of times. The initial grant of options in 1997 under the Directors' Plan vests ratably over ten years and subsequent grants vest ratably over three years. Options granted under the Employees' Plan in fiscal year 2004 were completely vested at September 30, 2004. The term of all options granted is for a period of 10 years. All options granted under these plans have been non-qualified options. Options granted through fiscal 2004 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. As of September 30, 2004, no incentive stock options had been granted. During fiscal 2004, options for 209,500 shares were granted and 186,062 options were exercised. As of September 30, 2004, non-qualified options for 439,513 shares had been granted at prices from $18.63 - $44.34 per share. At year-end, 281,207 shares were exercisable. This plan also provides for the grant of other forms of equity awards, however, for the years ended September 30, 2004, 2003 and 2002 no such grants have been made. See Note 7 for additional information on stock options. The summary of the status of these plans at September 30, 2004, 2003, and 2002 and changes for the years then ended is presented in the following table and narrative: 2004 ----------------- Weighted (Amounts in Thousands, Average Except per Share) Shares Price ---------------------- ------ -------- Outstanding at beginning of year. . . . . . 445 $ 28.05 Granted . . . . . . . . . . . . . . . . . . 210 39.78 Exercised . . . . . . . . . . . . . . . . . (186) 24.37 Forfeited . . . . . . . . . . . . . . . . . (29) 35.08 ----- ------- Outstanding at end of year. . . . . . . . . 440 $ 34.73 ----- ------- Exercisable at end of year. . . . . . . . . 281 $ 36.26 ===== ======= Weighted average fair value of options granted . . . . . . . . . . . . . $ 8.17 ======= 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 ======= 35 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 ======= Following is a table that summarizes information about options outstanding as of September 30, 2004: Options Options Outstanding Exercisable -------------------------------- ------------------ Average Weighted Weighted Range of Remaining Average Average Exercise Contractual Exercise Exercise Prices Shares Life Price Shares Price - -------- -------- ----------- -------- -------- -------- $ 18.63-$ 22.00 29,375 6 $ 19.35 5,875 $ 19.36 $ 22.01-$ 25.00 17,000 3 22.36 9,500 22.31 $ 25.01-$ 28.00 32,700 4 26.41 32,700 26.41 $ 28.01-$ 31.00 -- -- -- -- -- $ 31.01-$ 34.00 24,000 7 32.10 7,500 32.02 $ 34.01-$ 37.00 130,688 8 34.50 32,819 34.50 $ 37.01 $ 40.00 191,250 9 39.51 187,688 39.55 $ 40.01+ 14,500 9 41.97 5,125 41.35 ------- --- ------- ------- ------- 439,513 6 $ 34.73 281,207 $ 36.26 ======= === ======= ======= ======= 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 2004, 2003, and 2002: 2004 2003 2002 -------- -------- -------- Risk free interest rates. . . . . 4.27% 4.13% 4.65% Expected dividend yield . . . . . 4.02% 4.35% 4.22% Expected life (years) . . . . . . 10 10 10 Expected volatility . . . . . . . 24.22% 23.13% 23.30% 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 Aurion. 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 fixed assets, licenses, software and badge components. 36 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, 2004 and 2003: (Dollars in Thousands) 2004 2003 ---------------------- -------- -------- Domestic. . . . . . . . . . . . . $ 58,133 $ 54,618 Europe. . . . . . . . . . . . . . 8,104 6,891 Other countries . . . . . . . . . 3,572 3,309 -------- -------- $ 69,809 $ 64,818 ======== ======== 13. ACQUISITION OF MINORITY INTEREST IN LCIE- LANDAUER, LTD. In April 2004 Landauer, Inc. consummated an agreement with Bureau Veritas ("BV") to acquire the 49% minority interest in LCIE-Landauer, Ltd. owned by BV's subsidiary, Laboratoire Central Industries des Electriques ("LCIE"), for $10.4 million in cash. The purchase price was allocated to identifiable intangible assets based on estimates of fair value as determined by an independent third party valuation consultant. Substantially all the purchase price, plus deferred tax liabilities recorded, was allocated to intangible assets including $3.9 of customer lists (amortized over the estimated useful life of 15 years) and goodwill of $7.9 million. Had the acquisition occurred at the beginning of the periods presented, unaudited net income of the Company on a proforma basis would have been as follows: $000 (Except EPS) Year Ending September 30, 2004 2003 -------- -------- Proforma Net Income . . . . . . . $ 18,011 $ 15,367 Diluted earnings per share. . . . $ 2.01 $ 1.73 The unaudited proforma net income is for illustrative purposes only and is not necessarily indicative of the financial results had the acquisition actually occurred at the beginning of the periods presented. Landauer funded the purchase price from a combination of working capital funds ($2.7 million), and $7.7 million borrowed under a credit facility obtained in April 2004. See Note 6 for additional information on the credit facility. 37 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO STOCKHOLDERS AND DIRECTORS OF LANDAUER, INC.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, stockholders' investment and comprehensive income and cash flows present fairly, in all material respects, the financial position of Landauer, Inc. and its subsidiaries at September 30, 2004 and September 30, 2003, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2004 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 the standards of the Public Company Accounting Oversight Board (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, 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. PricewaterhouseCoopers LLP Chicago, Illinois December 9, 2004 38 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 as defined in Rule 13(a)-15(e) under the Securities and Exchange Act of 1934, as amended. Based on that evaluation, the Company's management, including the CEO and CFO, concluded the Company's disclosure controls and procedures as of September 30, 2004 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, 2004 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. ITEM 9B. OTHER INFORMATION The Company has reported on Form 8-K all information required to be disclosed in a report on Form 8-K during the quarter ended September 30, 2004. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained under the headings "Election of Directors and Beneficial Ownership of Certain Voting Securities" in the Proxy Statement relating to the directors of the Company is incorporated herein by reference. The information contained in Item 4A hereof relating to the executive officers of the registrant is incorporated herein by reference. AUDIT COMMITTEE FINANCIAL EXPERTS The Company has determined that Messrs. Robert J. Cronin and Thomas M. White, qualify as "audit committee financial experts" as defined in Item 401(h) of Regulation S-K, and that each 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 and printed copies are available upon request from the Company. 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. 39 ITEM 11. EXECUTIVE COMPENSATION Except for the information relating to Item 13 hereof and except for information referred to in Item 402(a)(8) of Regulation S-K, the information contained under the headings "Executive Compensation" and "Compensation Committee Report" in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS The information contained under the headings "Beneficial Ownership of Certain Voting Securities" and "Equity Compensation Plan Information" 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. 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. 40 (10)(b) Liability Assumption and Sharing Agreement among Tech/Ops, Inc., Tech/Ops Sevcon, Inc., and the Registrant is incorporated by reference to Exhibit (10)(d) to the Annual Report on Form 10-K for the fiscal year ended September 30, 1993. (10)(c) Form of Indemnification Agreement between the Registrant and each of its directors is incorporated by reference to Exhibit (10)(e) to the Annual Report on Form 10-K for the fiscal year ended September 30, 1993. (10)(d) Landauer, Inc. Directors' Retirement Plan dated March 21, 1990, is incorporated by reference to Exhibit (10)(f) to the Annual Report on Form 10-K for the fiscal year ended September 30, 1996. (10)(e) Form of Supplemental Key Executive Retirement Plan of Landauer, Inc., as amended and restated effective October 1, 2003, is incorporated by reference to Exhibit (10)(e) to the Annual Report or Form 10-K for the fiscal year ended September 30, 2003. (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, 2002, is incorporated by reference to Exhibit (10)(g) to the Annual Report or Form 10-K for the fiscal year ended September 30, 2003. (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, 2002 between the Registrant 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, 2003. (10)(j) The Landauer, Inc. Executive Special Severance Plan dated May 22, 2003 is incorporated by reference to Exhibit (10)(j) to the Annual Report or Form 10-K for the fiscal year ended September 30, 2003. (10)(k) The Credit Agreement between Landauer, Inc. and LaSalle Bank N.A. is incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10Q for the quarter ended June 30, 2004. (10)(l) Form of stock option award pursuant to the Landauer, Inc. 1996 Equity Plan as attached hereto as Exhibit (10)(i). 41 (21) Subsidiaries of the registrant are: Beijing-Landauer, Ltd. (70%) Beijing, P.R. China HomeBuyer's Preferred, Inc. (100%) 2 Science Road Glenwood, IL 60425-1586 Nagase-Landauer, Ltd. (50%) Tokyo, Japan SAPRA-Landauer, Ltda. (75%) Sao Carlos - SP - Brazil LCIE-Landauer, Ltd. and subsidiary (100%) Paris, France Oxford, United Kingdom 31.1 Certification of Brent A. Latta, President and Chief Executive Office, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2003 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 2003 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 2003 furnished herewith. 32.2 Certification of James M. O'Connell, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003 furnished herewith. Exhibits 10(a), 10(d), 10(e), 10(f), 10(g), 10(h), 10(i), 10(j) and 10(l) 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. 42 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 10, 2004 ------------------------ 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 10, 2004 Brent A. Latta (Principal Executive Officer) /s/ James M. O'Connell Vice President, Finance, December 10, 2004 James M. O'Connell Treasurer and Secretary (Principal Financial and Accounting Officer) /s/ Robert J. Cronin Director December 10, 2004 Robert J. Cronin /s/ E. Gail de Planque Director December 10, 2004 E. Gail de Planque /s/ Gary D. Eppen Director December 10, 2004 Gary D. Eppen /s/ Richard R. Risk Director December 10, 2004 Richard R. Risk /s/ Thomas M. White Director December 10, 2004 Thomas M. White /s/ Michael D. Winfield Director December 10, 2004 Michael D. Winfield 43 QUARTERLY FINANCIAL DATA (UNAUDITED)
(Amounts in Thousands, Except Per Share) ------------------------------------------------------- First Second Third Fourth Total Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ------- Net revenues 2004 $16,778 $18,262 $17,203 $17,566 $69,809 2003 $15,392 $16,846 $15,925 $16,655 $64,818 Operating income 2004 $ 6,359 $ 7,667 $ 6,717 $ 6,977 $27,720 2003 $ 6,065 $ 4,792 $ 6,138 $ 6,862 $23,857 Net income 2004 $ 4,005 $ 4,839 $ 4,394 $ 4,532 $17,770 2003 $ 3,809 $ 3,030(1) $ 3,828 $ 4,352 $15,019 Diluted net income per share 2004 $ 0.45 $ 0.54 $ 0.49 $ 0.50 $ 1.98 2003 $ 0.43 $ 0.34 $ 0.43 $ 0.49 $ 1.69 Cash dividends per share 2004 $ 0.40 $ 0.40 $ 0.40 $ 0.40 $ 1.60 2003 $ 0.375 $ 0.375 $ 0.375 $ 0.375 $ 1.50 Common stock price per share 2004 high $ 41.96 $ 44.75 $ 44.73 $ 47.97 $ 47.97 low 35.48 40.05 38.71 41.45 35.48 2003 high $ 37.30 $ 38.95 $ 42.70 $ 42.65 $ 42.70 low 32.70 33.40 36.40 35.08 32.70 Weighted Average Diluted Shares Outstanding 2004 8,930 8,978 8,976 8,999 8,971 2003 8,863 8,871 8,910 8,918 8,891 (1) Includes asset impairment charge of $2,750 related to the Aurion product line. 44
EX-10.L 2 exh_10.txt EXHIBIT 10(l) - ------------- LANDAUER, INC. NON-STATUTORY STOCK OPTION AGREEMENT FOR EMPLOYEES Landauer, Inc., a Delaware corporation (the "Company"), hereby grants to _____________ (the "Optionee") as of ________________ (the "Option Date"), pursuant to the provisions of the Landauer, Inc. 1996 Equity Plan (the "Plan"), a non-qualified option to purchase from the Company (the "Option") _________ shares of its Common Stock, $.10 par value ("Stock"), at the price of ________ per share upon and subject to the terms and conditions set forth below. References to employment by the Company shall also mean employment by a Subsidiary. Capitalized terms not defined herein shall have the meanings specified in the Plan. 1. OPTION SUBJECT TO ACCEPTANCE OF AGREEMENT. The Option shall be null and void unless the Optionee shall accept this Agreement by executing it in the space provided below and returning such original execution copy to the Company. 2. TIME AND MANNER OF EXERCISE OF OPTION. 2.1. MAXIMUM TERM OF OPTION. In no event may the Option be exercised, in whole or in part, after _______________ (the "Expiration Date"). 2.2. EXERCISE OF OPTION. (a) The Option shall become exercisable _______________ with respect to _________ of the shares of Stock subject to the Option on the Option Date. (b) If the Optionee's employment with the Company terminates by reason of Disability, the Option shall be exercisable by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is one year after the Optionee's Employment Termination Date and (ii) the Expiration Date. (c) If the Optionee's employment with the Company terminates by reason of retirement on or after age 65 (or prior to age 65 with the consent of the Company), the Option shall be exercisable by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is ______________ after the Optionee's Employment Termination Date and (ii) the Expiration Date. (d) If the Optionee's employment with the Company terminates by reason of death, the Option shall be exercisable by the Optionee or the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earliest to occur of (i) the date which is one year after the date of death and (ii) the Expiration Date; provided, however, that in the event that the date of death is less than six months prior to the Expiration Date, the Optionee's Legal Representative or Permitted Transferees shall have until the six month anniversary of the date of death to exercise the Option. (e) If the Optionee's employment with the Company terminates for any reason other than Disability, retirement on or after age 65 (or prior to age 65 with the consent of the Company), or death, the Option shall be exercisable by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is three months after the Optionee's Employment Termination Date and (ii) the Expiration Date; provided that if the Optionee's employment is terminated for Cause, the Option shall terminate automatically on the Optionee's Employment Termination Date; 1 (f) If the Optionee dies during the period set forth in Section 2.2(b) following termination of employment by reason of Disability, or if the Optionee dies during the period set forth in Section 2.2(c) following termination of employment by reason of retirement on or after age 65 (or prior to age 65 with the consent of the Company), or if the Optionee dies during the period set forth in Section 2.2(e) following termination of employment for any reason other than Disability or retirement on or after age 65 (or prior to age 65 with the consent of the Company), the Option may thereafter be exercised by the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earliest to occur of (i) the date which is one year after the date of death and (ii) the Expiration Date; provided, however that in the event that the date of death is less than six months prior to the Expiration Date, the Optionee's Legal Representative or Permitted Transferees shall have until the six month anniversary of the date of death to exercise the Option. 2.3. METHOD OF EXERCISE. Subject to the limitations set forth in this Agreement, the Option may be exercised by the Optionee (1) by giving written notice to the Company specifying the number of whole shares of Stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (i) in cash, (ii) by delivery (either actual delivery or by attestation procedures established by the Company) of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and in each case for which the Optionee has good title, free and clear of all liens and encumbrances) having an aggregate Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (iii) in cash by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (iv) a combination of (i), and (ii), (2) if applicable, by surrendering to the Company any Tandem SARs which are cancelled by reason of the exercise of the Option and (3) by executing such documents as the Company may reasonably request. The Company shall have sole discretion to disapprove of an election pursuant to clause (iii). Any fraction of a share of Stock, which would be required to pay such purchase price, shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the full purchase price therefor has been paid. 2.4. TERMINATION OF OPTION. (a) In no event may the Option be exercised after it terminates as set forth in this Section 2.4. The Option shall terminate, to the extent not exercised pursuant to Section 2.3 or earlier terminated or extended pursuant to Section 2.2, on the Expiration Date. (b) In the event that rights to purchase all or a portion of the shares of Stock subject to the Option expire or are exercised, cancelled or forfeited, the Optionee shall, upon the Company's request, promptly return this Agreement to the Company for full or partial cancellation, as the case may be. Such cancellation shall be effective regardless of whether the Optionee returns this Agreement. If the Optionee continues to have rights to purchase shares of Stock hereunder, the Company shall, within 10 days of the Optionee's delivery of this Agreement to the Company, either (i) mark this Agreement to indicate the extent to which the Option has expired or been exercised, cancelled or forfeited or (ii) issue to the Optionee a substitute option agreement applicable to such rights, which agreement shall otherwise be substantially similar to this Agreement in form and substance. 2 3. ADDITIONAL TERMS AND CONDITIONS OF OPTION. 3.1. NONTRANSFERABILITY OF OPTION. The Option may not be transferred by the Optionee other than by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the foregoing sentence, during the Optionee's lifetime the Option is exercisable only by the Optionee or the Optionee's Legal Representative. Except to the extent permitted by the foregoing, the Option may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the Option, the Option and all rights hereunder shall immediately become null and void. 3.2. INVESTMENT REPRESENTATION; RESTRICTION ON TRANSFER OF STOCK. (a) The Optionee hereby represents and covenants that (i) any share of Stock purchased upon exercise of the Option will be purchased for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such purchase has been registered under the Securities Act and any applicable state securities laws; (ii) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (iii) if requested by the Company, the Optionee shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of purchase of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to any exercise of the Option, the Optionee shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance or delivery of the shares and, in connection therewith, shall execute any documents which the Board or the Committee shall in its sole discretion deem necessary or advisable. (b) The Optionee hereby acknowledges and agrees that the shares of Stock purchased upon exercise of the Option may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise), without the express prior written consent of the Company, until the earlier to occur of (i) ________________ and (ii) the termination of the Optionee's employment with the Company for a reason set forth in Section 2.2(b), 2.2(c) or 2.2(d); PROVIDED, HOWEVER, that the restriction on transfer contained in this Section 3.2(b) shall not apply to (x) the transfer of the number of shares of Stock purchased upon exercise of the Option which is required to be transferred for the payment pursuant to Section 2.3(1)(iii) of the aggregate purchase price of the total number of shares purchased upon such exercise or (y) the withholding by the Company pursuant to Section 3.3(b)(3) or the transfer pursuant to Section 3.3(b)(4) of the number of shares of Stock purchased upon exercise of the Option which is required to be withheld or transferred, as the case may be, for the payment of the Required Tax Payments (as defined in Section 3.3(a)) in connection with such exercise of the Option. The Company shall require that certificates evidencing shares of Stock delivered in connection with the exercise of the Option bear a legend indicating that the sale, transfer or other disposition thereof by the holder is prohibited except in compliance with this Section 3.2(b). 3 3.3. WITHHOLDING TAXES. (a) As a condition precedent to the delivery of Stock upon exercise of the Option, the Optionee shall, upon request by the Company, pay to the Company in addition to the purchase price of the shares, such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to such exercise of the Option. If the Optionee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Optionee. (b) The Optionee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 3.3(a), (2) delivery (either actual delivery or by attestation procedures established by the Company) to the Company of previously owned whole shares of Stock (for which the Optionee has good title, free and clear of all liens and encumbrances) having an aggregate Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Option (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold whole shares of Stock which would otherwise be delivered to the Optionee upon exercise of the Option having an aggregate Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (5) any combination of (1), (2) and (3). The Company shall have sole discretion to disapprove of an election pursuant to clause (4). Shares of Stock to be delivered or withheld may not have a Fair Market Value in excess of the amount of the Required Tax Payments determined by applying the minimum statutory withholding rate. Any fraction of a share of Stock, which would be required to satisfy any such obligation, shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 3.4. ADJUSTMENT. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Option and the purchase price per security shall be appropriately adjusted by the Committee without an increase in the aggregate purchase price. If any adjustment would result in a fractional security being subject to the Option, the Company shall pay the Optionee, in connection with the first exercise of the Option occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date over (B) the exercise price of the Option. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 3.5. COMPLIANCE WITH APPLICABLE LAW. The Option is subject to the condition that if the listing, registration or qualification of the shares subject to the Option upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the purchase or delivery of shares hereunder, the Option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent or approval. 4 3.6. DELIVERY OF CERTIFICATES. Upon the exercise of the Option, in whole or in part, the Company shall deliver or cause to be delivered one or more certificates representing the number of shares purchased against full payment therefor. The Company shall pay all original issue or transfer taxes and all fees and expenses incident to such delivery, except as otherwise provided in Section 3.3. 3.7. OPTION CONFERS NO RIGHTS AS STOCKHOLDER. The Optionee shall not be entitled to any privileges of ownership with respect to shares of Stock subject to the Option unless and until purchased and delivered upon the exercise of the Option, in whole or in part, and the Optionee becomes a stockholder of record with respect to such delivered shares; and the Optionee shall not be considered a stockholder of the Company with respect to any such shares not so purchased and delivered. 3.8. OPTION CONFERS NO RIGHTS TO CONTINUED EMPLOYMENT. In no event shall the granting of the Option or its acceptance by the Optionee give or be deemed to give the Optionee any right to continued employment by the Company or any affiliate of the Company. 3.9. DECISIONS OF BOARD OR COMMITTEE. The Board or the Committee shall have the right to resolve all questions, which may arise in connection with the Option or its exercise. Any interpretation, determination or other action made or taken by the Board or the Committee regarding the Plan or this Agreement shall be final, binding and conclusive. 3.10. COMPANY TO RESERVE SHARES. The Company shall at all times prior to the expiration or termination of the Option reserve and keep available, either in its treasury or out of its authorized but unissued shares of Stock, the full number of shares subject to the Option from time to time. 3.11. AGREEMENT SUBJECT TO THE PLAN. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Optionee hereby acknowledges receipt of a copy of the Plan. 4. MISCELLANEOUS PROVISIONS. 4.1. DESIGNATION AS NONQUALIFIED STOCK OPTION. The Option is hereby designated as not constituting an "incentive stock option" within meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); this Agreement shall be interpreted and treated consistently with such designation. 4.2. MEANING OF CERTAIN TERMS. (a) As used herein, employment by the Company shall include employment by a corporation, which is a "subsidiary corporation" of the Company, as such term is defined in section 424 of the Code. References in this Agreement to sections of the Code shall be deemed to refer to any successor section of the Code or any successor internal revenue law. (b) As used herein, the term "Legal Representative" shall include an executor, administrator, legal representative, guardian or similar person and the term "Permitted Transferee" shall include any transferee or (ii) designated pursuant to beneficiary designation procedures approved by the Company. 4.3. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Optionee, acquire any rights hereunder in accordance with this Agreement or the Plan. 5 4.4. NOTICES. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Landauer, Inc., 2 Science Road, Glenwood, Illinois 60425, Attention: Vice President and Treasurer, and if to the Optionee, ________________, _________________, __________, ________. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication sent to the Company is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. 4.5. GOVERNING LAW. This Agreement, the Option and all determinations made and actions taken pursuant hereto and thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws. 4.6. COUNTERPARTS. This Agreement may be executed in two counterparts each of which shall be deemed an original and both of which together shall constitute one and the same instrument. LANDAUER, INC. By: ------------------------------ James M. O'Connell Vice President & Treasurer Accepted this __________ day of __________________________, 200__ Optionee 6 EX-31.1 3 exh_311.txt EXHIBIT 31.1 - ------------ CERTIFICATIONS Form 10-K 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 10, 2004 /s/ Brent A. Latta ----------------------------------- President & Chief Executive Officer EX-31.2 4 exh_312.txt EXHIBIT 31.2 - ------------ CERTIFICATIONS I, James M. O'Connell, certify that: 1. I have reviewed this annual report on Form 10-K of Landauer, Inc.; 2. Based on my knowledge, this 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 10, 2004 /s/ James M. O'Connell ------------------------------ Chief Financial Officer EX-32.1 5 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, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Brent A. Latta, President and 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 10, 2004 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. EX-32.2 6 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, 2004 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 10, 2004 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-----