LANDAUER INC - 10-K Annual Report

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Securities and Exchange Commission FORM 10-K
Washington, DC 20549

ANNUAL REPORT PURSUANT TO SECTION 13 or 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2003

Commission File Number 1-9788

LANDAUER, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 06-1218089
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

2 SCIENCE ROAD, GLENWOOD, ILLINOIS 60425
----------------------------------------------------
(Address of principal executive offices and zip code)

Registrant's telephone number, including area code: (708) 755-7000

Securities registered pursuant to Section 12(b) of the Act:

COMMON STOCK WITH PAR VALUE OF $.10 AMERICAN STOCK EXCHANGE
- ----------------------------------- -----------------------
(Title of each class) (Name of exchange on
which registered)

Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. Yes [ ] No [ X ]

Indicate by check mark whether the Registrant is an accelerated filer

(as defined in Rule 12b-2 of the Act). Yes [ X ] No [ ]

As of March 31, 2003 the aggregate market value of the voting and
nonvoting common equities (based upon the closing price on the New York
Stock Exchange) held by non-affiliates was approximately $312,000,000.

Certain portions of the Registrant's definitive Proxy Statement in
connection with the February 4, 2004 Annual Meeting of Stockholders (the
"Proxy Statement") are incorporated by reference into Part III of this
Annual Report on Form 10-K.

INDEX

Item Page
- ---- ----

Part I

1. Business

General Description. . . . . . . . . . . . . . 1
Marketing and Sales. . . . . . . . . . . . . . 2
Patents. . . . . . . . . . . . . . . . . . . . 2
Raw Materials. . . . . . . . . . . . . . . . . 3
Competition. . . . . . . . . . . . . . . . . . 3
Research and Development . . . . . . . . . . . 4
Environmental Regulations. . . . . . . . . . . 4
Employees and Labor Relations. . . . . . . . . 4

2. Properties . . . . . . . . . . . . . . . . . . . 4

3. Legal Proceedings. . . . . . . . . . . . . . . . 5

4. Submission of Matters to a Vote
of Security Holders. . . . . . . . . . . . . . . 5

4A. Executive Officers of the Registrant . . . . . . 5

Part II

5. Market for Registrant's Common Stock and
Related Stockholder Matters. . . . . . . . . . . 6

6. Selected Financial Data. . . . . . . . . . . . . 6

7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . 7

7A. Quantitative and Qualitative Disclosures
About Market Risk. . . . . . . . . . . . . . . . 13

8. Consolidated Financial Statements and
Supplementary Data

Consolidated Balance Sheets. . . . . . . . . . 15
Consolidated Statements of Income. . . . . . . 17
Consolidated Statements of Stockholders'
Investment and Comprehensive Income. . . . . 18
Consolidated Statements of Cash Flows. . . . . 19
Notes to Consolidated Financial Statements . . 21
Report of Independent Public Auditors. . . . . 32

9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . 34

9A. Controls and Procedures. . . . . . . . . . . . . 34

i

Item Page
- ---- ----

Part III

10. Directors and Executive Officers of the Registrant 35

11. Executive Compensation . . . . . . . . . . . . . 35

12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . 35

13. Certain Relationships and Related Transactions . 35

14. Principal Accountant Fees and Services . . . . . 35

Part IV

15. Exhibits, Financial Statements Schedules,
and Reports on Form 8-K

Financial Statements . . . . . . . . . . . . . 36
List of Exhibits . . . . . . . . . . . . . . . 36
Reports on Form 8-K. . . . . . . . . . . . . . 37
Signatures of Registrant and Directors . . . . 38
Quarterly Financial Data (Unaudited) . . . . . 39

ii

PART I

ITEM 1. BUSINESS

GENERAL DESCRIPTION

Landauer, Inc. is a Delaware corporation organized on December 22,
1987 to carry on the radiation monitoring business previously established
by Tech/Ops, Inc. ("Tech/Ops"). On February 6, 1991, the Company changed
its name from Tech/Ops Landauer, Inc. to Landauer, Inc. As used herein, the
"Company" or "Landauer" refers to Landauer, Inc. and its subsidiaries.

The Company offers a service for measuring, primarily through
optically stimulated luminescent ("OSL") badges worn by client personnel,
the dose of x-ray, gamma radiation and other penetrating ionizing
radiations to which the wearer has been exposed. This technology is
marketed under the trade name Luxel[registered trademark]. While most of
the Company's revenues are domestic, these services are also marketed by
Landauer in Canada and by its subsidiaries in other parts of the world. As
of October 1, 1998, the Company acquired a 75% interest in SAPRA-Landauer,
Ltda., which provides radiation dosimetry services in Brazil. As of
December 28, 1998, SAPRA-Landauer acquired the radiation dosimetry service
business formerly conducted by REM in Sao Paulo, Brazil. During July 1999,
the Chinese government approved the Company's joint venture agreement with
China National Nuclear Corporation to form Beijing Landauer Radiation
Monitoring Technology Co., Ltd., which provides radiation monitoring
services in China. Landauer, Inc. owns a 70% interest in Beijing Landauer.

On April 2, 2002, the Company completed an agreement to merge its
European operations with the radiation monitoring business operated by
Laboratoire Central des Industries Electriques ("LCIE"), a wholly-owned
subsidiary of Bureau Veritas, a professional services company involved in
quality, health and safety, and environmental management. Under the
agreement, Landauer exchanged its United Kingdom radiation monitoring
business and certain technologies for a 51% controlling interest in the new
company named LCIE-Landauer. LCIE contributed its radiation monitoring
business, all of which is located in France. LCIE-Landauer has its
headquarters and laboratory at the current LCIE location in
Fontenay-aux-Roses, a Paris suburb. LCIE-Landauer serves France-based
customers from this location and will continue to serve the United Kingdom
customers from Oxford, England. Additionally, as part of the formation of
the new entity on April 2, 2002, LCIE-Landauer purchased the Philips France
radiation monitoring business.

Landauer's activities also include the operations of Nagase-Landauer,
Ltd., a 50%-owned joint venture in Japan involved in radiation monitoring
in that country. Nagase-Landauer commenced operations in 1974.

Landauer's InLight[trademark] dosimetry system provides smaller
in-house and commercial laboratories with the ability to offer a complete
radiation monitoring service using OSL technology. The system is based on
the Company's proprietary technology and instruments and dosimetry devices
developed by Matsushita Industrial Equipment Company, and allows customers
the flexibility to tailor their precise dosimetry needs.

Landauer's operations include services for detecting radon gas. This
service makes up a small part of revenues.

Landauer's wholly-owned subsidiary, HomeBuyer's Preferred, Inc.,
offers a radon monitoring service and, when necessary, remediation to
purchasers of personal residences. The service is targeted to corporate
employee relocation programs that have generally regarded radon as a
serious environmental hazard.

1

Landauer operates a crystal manufacturing facility in Stillwater,
Oklahoma that it acquired in August 1998. Specially formulated crystalline
material is a component in the Company's OSL technology.

The Company's shares are listed on the New York Stock Exchange. As of
September 30, 2003, there were 8,843,723 shares outstanding. The trading
symbol is LDR.

As a reporting company, Landauer is subject to the informational
requirements of the Securities Exchange Act of 1934 (the "Exchange Act")
and accordingly files its annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). The
public may read and copy any materials filed with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Please
call the SEC at (800) SEC-0330 for further information on the Public
Reference Room. As an electronic filer, Landauer's public filings are
maintained on the SEC's Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC. The address of that website is
http://www.sec.gov. In addition, Landauer's annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act may be accessed free of charge through Landauer's website
as soon as reasonably practicable after Landauer has electronically filed
such material with, or furnished it to, the SEC. The address of Landauer's
website is http://www.landauerinc.com.

MARKETING AND SALES

Landauer's dosimetry services are marketed in North America primarily
by full-time Company personnel located in Illinois, California,
Connecticut, Georgia, and Texas. The Company's services are marketed abroad
through ventures in Japan, Brazil, China, the United Kingdom, and France.
Other firms and individuals market the Company's services on a commission
basis, primarily to small customers.

Worldwide, the Company and its affiliates serve more than 60,000
customers representing approximately 1.4 million individuals. Typically, a
client will contract for a year's service in advance, representing monthly,
bimonthly or quarterly badges, readings, and reports. Sales are made
principally on a subscription basis. Customer relationships in the
radiation monitoring market served by the Company are generally stable and
recurring. Deferred contract revenue, as shown on the consolidated balance
sheet, represents advance payment for services to be rendered. At
September 30, 2003 and 2002, deferred contract revenue was $12,464,000 and
$11,885,000, respectively.

Radon gas detection kits are marketed primarily to institutional
customers and government agencies.

The HomeBuyer's Preferred[registered trademark] Radon Protection Plan
service agreement is marketed to companies and to their corporate
relocation service providers for the benefit of purchasers of residences
incident to transfers of personnel.

PATENTS

The Company holds exclusive worldwide licenses to patent rights for
certain technologies that measure and image radiation exposure to
crystalline materials when stimulated with light. These licenses were
acquired by the Company from Battelle Memorial Institute and Oklahoma State
University as part of collaborative efforts to develop and commercialize a
new generation of radiation dosimetry technology. These licenses expire
from the years 2011 through 2015.

2

As of September 30, 2003, the Company is using OSL technology to
provide dosimetry services to essentially all of its domestic and many of
its international customers. These licenses and systems represent an
important proprietary component of the OSL commercial service known as
Luxel[registered trademark].

Additionally, the Company holds certain patents that relate to
various dosimeter designs. These patents expire in 2017.

The Company believes that its business is primarily dependent upon
the Company's technical competence, the quality, reliability and price of
its services, and its prompt and responsive performance.

Rights to inventions of employees working for Landauer are assigned
to the Company.

RAW MATERIALS

The Company has multiple sources for many of its materials and
supplies, and believes that the number of sources and availability of items
are adequate. Landauer internally produces certain of its requirements,
such as OSL detector materials and plastic badge holders. All crystal
materials used in the Company's OSL technology are currently being
developed at the Company's crystal manufacturing facility in Stillwater,
Oklahoma. The InLight[trademark] dosimetry system and its components are
manufactured by Matsushita Industrial Equipment Company under an exclusive
agreement.

COMPETITION

In the United States, Landauer competes against a number of dosimetry
service providers. One of these providers, Global Dosimetry Solutions, Inc.
(formerly ICN Worldwide Dosimetry Service), is a significant competitor
with substantial resources. Other competitors tend to be smaller companies,
many of which operate on a regional basis.

Outside of the United States, radiation monitoring activities are
conducted by a combination of private entities and government agencies. The
Japanese market is served by the Company through its 50%-owned joint
venture, Nagase-Landauer, Ltd.

In early 1995, the Company began offering radiation monitoring
services to customers in Canada following approval of the Company's devices
by Canadian authorities. The Company began offering service to customers in
China during fiscal 2000. Customers in Brazil are served through the
Company's joint venture, SAPRA-Landauer, Ltda., while customers in the
United Kingdom and France are served through the Company's joint venture
LCIE-Landauer by its headquarters in suburban Paris, France and sales
office in Oxford, England.

In the United States, most government agencies, such as the
Department of Energy and Department of Defense, have their own in-house
radiation monitoring services. Additionally, many nuclear power plants also
have their own in-house radiation monitoring services.

The Company competes on the basis of advanced technologies, competent
execution of these technologies, the quality, reliability and price of its
services, and its prompt and responsive performance.

The Company's InLight[trademark] dosimetry system, while competitive
with a number of systems offered by other companies, provides the only
OSL-based radiation protection monitoring system available.

3

Radon gas detection services represent a market where Landauer has
many large and small competitors, many of whom use short-term charcoal
detectors rather than the Company's alpha-track detectors.

The HomeBuyer's Preferred[registered trademark] Radon Protection Plan
represents a product sold exclusively to the corporate relocation market
through firms providing relocation services and directly to corporate
customers.

RESEARCH AND DEVELOPMENT

Present research seeks to expand the use of OSL, particularly as it
applies to radiation measurements in therapeutic and diagnostic radiology
and nuclear medicine as well as environmental radiation dosimetry. The
InLight dosimetry system recently released for commercial application will
enable the Company's subsidiaries and other small and mid-sized dosimetry
laboratories an economical approach to practice the OSL technology.

The Company's technological expertise has been an important factor in
its growth. The Company regularly pursues product improvements to maintain
its technical position. The development of OSL dosimetry, announced in
1994, was funded by the Company in its collaborative effort with Battelle
Memorial Institute and Oklahoma State University. The Company
commercialized this technology over the past five years and has converted
nearly all of its customers to the new technology.

The Company also participates regularly in several technical
professional societies, both domestic and international, that are active in
the fields of health physics and radiation detection and monitoring.

ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS

The Company believes that it complies with federal, state and local
provisions that have been enacted or adopted regulating the discharge of
materials into the environment or otherwise protecting the environment.
This compliance has not had, nor is it expected to have, a material effect
on the capital expenditures, financial condition, liquidity, results of
operation, or competitive position of Landauer.

The U.S. Postal Service has studied the feasibility of irradiating
letters and packages to protect the public from exposure to certain
biological compounds and determined that there are other more practical
methods available to achieve the desired result. Irradiation would have an
adverse affect on dosimeters sent through the U.S. mail. Accordingly, it is
not currently expected that use of irradiation in connection with the mails
will become widespread to the extent that it impacts the Company's ability
to continue providing its service to customers that use the U.S. mails.

EMPLOYEES AND LABOR RELATIONS

As of September 30, 2003, the Company employed approximately 425
full-time employees worldwide. Landauer believes its relations with its
employees are good.

ITEM 2. PROPERTIES

Landauer owns three adjacent buildings totaling approximately 60,000
square feet in Glenwood, Illinois, about 30 miles south of Chicago. The
properties house the Company's administrative offices, laboratory, assembly
and reading operations, and warehouse. The properties and equipment of the
Company are in good condition and, in the opinion of management, are
suitable and adequate for the Company's operations. The Company maintains a
crystal growth facility in Stillwater, Oklahoma and maintains small offices
and/or locations in Japan, the United Kingdom, Brazil, China, and France.

4

ITEM 3. LEGAL PROCEEDINGS

At September 30, 2003, Landauer was involved in various legal
proceedings, but believes that these matters will be resolved without a
material effect on its liquidity, results of operation, or financial
position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company are as follows:

Name of Officer Age Position
- --------------- --- --------

Brent A. Latta 60 President and Chief Executive Officer

James M. O'Connell 56 Vice President, Finance, Treasurer,
Secretary, and Chief Financial Officer

R. Craig Yoder 51 Senior Vice President,
Marketing and Technology

Joseph M. Zlotnicki(1) 47 Vice President - International

Robert M. Greaney 50 Vice President - Operations

(1) Resigned effective December 31, 2003.

All of the Company's executive officers have been employed by the
Company for more than ten years. Mr. Latta, who joined the Company in April
1987 as Vice President, had for more than five years previously been Vice
President, Marketing of Sherwood Medical Company, a manufacturer and
distributor of medical products. Prior to being elected President and Chief
Executive Officer in 1998, Mr. Latta served as the Vice President of
Marketing for the Company. Mr. O'Connell, prior to joining the Company in
September 1990, served in various financial capacities in the
telecommunications, manufacturing and financial services industries. Dr.
Yoder was elected to his position after serving as the Company's Vice
President of Operations since 1994 and Technology Manager since joining in
1983. Prior to joining the Company, he was a member of the senior technical
staff at Pennsylvania Power and Light, and at Battelle Pacific Northwest
Laboratory. Mr. Zlotnicki was elected to his position in 2000 and has
served in such position until December 2003. For the previous ten years,
Mr. Zlotnicki held various positions in Technology and Corporate
Development. Prior to joining Landauer, Mr. Zlotnicki worked ten years for
Amersham International. Mr. Greaney was elected to his position in February
2001. He has held positions of increasing responsibility involving
operations and project management since joining the Company in 1973.

There are no family relationships between any director or executive
officer and any other director or executive officer of the Company.

5

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS

The Company's Common Stock was traded on the American Stock Exchange
from 1988 through January 14, 2002. The Company's Common Stock began
trading on the New York Stock Exchange on January 15, 2002. A summary of
market prices of the Company's Common Stock is set forth in the table on
page 39 of this Annual Report on Form 10-K. On December 15, 2003, there
were approximately 600 shareholders of record. The Company believes that
there are approximately 2,000 beneficial owners of its Common Stock. There
were no sales of unregistered securities during fiscal 2003.

The Company has paid regular quarterly cash dividends since January
1990. The Company has also paid special cash dividends in 1990 and 1992. On
November 14, 2003, the Company announced that it had increased the regular
quarterly cash dividend by 7% to $0.40 per share for the first quarter of
fiscal 2004. This increase represents an annual rate of $1.60 per share
compared with $1.50 paid in fiscal 2003. A summary of cash dividends paid
for the last two years is set forth in the table on page 39 of this Annual
Report on Form 10-K.

ITEM 6. SELECTED FINANCIAL DATA

SIX YEAR SELECTED FINANCIAL DATA

LANDAUER, INC. AND SUBSIDIARIES

For the (Dollars in Thousands, Except Per Share Data)
years ended
September 30, 1998 1999 2000 2001 2002 2003
- -------------------------- ------- ------- ------- ------- -------

Operating Results
Net revenues. . .$42,692 $43,800 $47,174 $53,028 $58,608 $64,818
Operating
income. . . . . 18,732 14,756 19,316 21,874 24,399 23,857
Net income. . . . 12,759 9,489 12,762 14,324 16,180 15,019
Percent of
net revenues. . 29.9% 21.7% 27.1% 27.0% 27.6% 23.2%
Diluted net
income per
share . . . . .$ 1.47 $ 1.09 $ 1.47 $ 1.64 $ 1.83 $ 1.69
Cash dividends
per share . . .$ 1.30 $ 1.40 $ 1.40 $ 1.40 $ 1.40 $ 1.50

Total assets. . .$46,337 $44,624 $47,061 $50,550 $60,257 $64,515

6

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

FISCAL 2003 COMPARED TO FISCAL 2002

Net revenues for fiscal 2003 were $64,818,000, an increase of 10.6%
compared with revenues of $58,608,000 reported for fiscal 2002. Revenue
growth during fiscal 2003 was attributable to gains in pricing, unit volume
and ancillary service fees for the Company's core domestic radiation
monitoring business. Additionally, full-year consolidation of the
operations of LCIE-Landauer, the Company's 51%-owned operating unit in
France and the United Kingdom, and a weak U.S. dollar contributed to
reported growth. LCIE-Landauer was included in consolidated operations for
only the second half of 2002. Consolidated revenues, excluding
LCIE-Landauer in 2003 and 2002, increased by $2.9 million, or 5.2%. The
remaining growth for fiscal 2003 was primarily attributable to price as
well as other factors including currency, volume, ancillary services, and
product mix.

During the second quarter of fiscal 2003, the Company reported a
non-cash charge in the amount of $2,750,000, or $0.19 per diluted share
(after income tax benefit of $1,092,000) to record the impairment in value
of assets related to Landauer's Aurion service. Excluding the impairment
charge, costs and expenses for fiscal 2003 grew at a slightly higher rate
than revenues reflecting higher expenses for insurance and employee
benefits, $1,138,000; full-year LCIE-Landauer operations, $2,185,000; a
weaker U.S. dollar and higher research costs, $878,000; partially offset by
lower incentive compensation costs, $1,303,000. Gross margins decreased
from 65.1% in fiscal 2002 to 63.9% in fiscal 2003.

Net other income was lower in fiscal 2002, a result of lower net
investment income offset by improved earnings from Nagase-Landauer, Ltd.,
the Company's joint venture in Japan. Fiscal 2002 results reflect the
recognition of a $786,000 gain, or $0.06 per diluted share (after income
tax expense of $275,000) arising from the exchange of a portion of the U.K.
business for controlling interest in LCIE-Landauer, the Company's operating
unit in France and the United Kingdom. The effective tax rate for 2003 was
36.9% compared with 37.3% for 2002.

As a result, net income for fiscal 2003 was $15,019,000 compared with
$16,180,000 reported for fiscal 2002. Diluted earnings per share for fiscal
2003 were $1.69 compared with $1.83 reported a year ago.

FISCAL 2002 COMPARED TO FISCAL 2001

Net revenues for fiscal 2002 were $58,608,000 compared with revenues
of $53,028,000 reported for fiscal 2001, a gain of 10.5%. Revenue growth
for fiscal 2002 reflected primarily higher pricing for dosimetry services,
increased demand for ancillary products and the services this technology
offers to customers, and account gains in key market segments. Also
contributing to revenue growth, beginning in the second half of the fiscal
year was the consolidation of the operations of LCIE-Landauer, the
Company's 51%-owned operating unit in France and the United Kingdom.
Consolidated revenues excluding LCIE-Landauer in 2002 increased by $3.4
million.

Costs and expenses in fiscal 2002 grew at a slightly lower rate than
revenues despite costs associated with the formation of LCIE Landauer,
moving the Company's listing to the New York Stock Exchange, and ongoing
investment in the development of new products and markets. Gross margins
increased moderately from 64.7% in fiscal 2001 to 65.1% in fiscal 2002.

7

Net other income was more than $1,100,000 greater than in fiscal 2001
reflecting the recognition of a $786,000 gain arising from the exchange of
a portion of the Company's United Kingdom business for a controlling
interest in LCIE-Landauer. Higher investment and joint venture income also
contributed to the increase. The Company's effective tax rate was 37.3% for
fiscal 2002, slightly higher than the fiscal 2001 rate of 36.5%.

As a result, net income for fiscal 2002 increased $1,856,000 or 13%,
to $16,180,000. Diluted earnings per share increased from $1.64 in fiscal
2001 to $1.83 in fiscal 2002. Excluding the $786,000 gain recognized on the
formation of LCIE-Landauer net income for fiscal 2002 was $15,669,000 or
$1.77 per diluted share, an increase of 9.4% compared with fiscal 2001.

Certain reclassifications have been made in the financial statements
for comparative purposes. These reclassifications have no effect on the
results of operation or financial position.

FOURTH QUARTER RESULTS OF OPERATIONS

Revenues in the fourth quarter of fiscal 2003 were 8.7% higher than
reported in the same period in fiscal 2002. Revenue growth during the
fourth quarter of fiscal 2003 was attributable to gains in pricing, unit
volume and ancillary service fees for the Company's core domestic radiation
monitoring business. A weak U.S. dollar also contributed to reported
growth, particularly in France, the United Kingdom and Canada. Costs and
expenses for the fourth quarter of fiscal 2003 were 11% higher than for the
same period in fiscal 2002, primarily related to foreign currency,
increased research activity, $505,000, and higher employee benefit costs,
$364,000, offset by reduced incentive compensation expense, $575,000. The
Company reported earnings of $4,352,000 compared with earnings of
$4,173,000 in the fourth quarter of fiscal 2002. Earnings per diluted share
for the quarter were $0.49 compared with $0.47 in the fourth quarter of
fiscal 2002.

Revenues in the fourth quarter of fiscal 2002 were 13.3% higher than
reported in the same period in fiscal 2001. Revenue growth for the quarter
reflected improved pricing as well as incremental volume, and includes the
impact of the consolidation of the operations of LCIE-Landauer, the
Company's 51%-owned operating unit in France and the United Kingdom. Net
income for the quarter of $4,173,000 represented a 9.8% increase compared
with the same period in 2001. Diluted income per share for the fourth
quarters of 2002 and 2001 was $.47 and $.43, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Landauer's cash flows, as shown in the statement of cash flows, can
differ from year to year as a result of the Company's operating, investing,
and financing activities. Investments in short-term instruments with
maturity of greater than three months are classified separately from cash
and equivalents.

Investing activities included acquisitions of property, plant and
equipment (including amortizable dosimetry device components) and amounted
to $4,715,000 and $4,656,000, respectively, in fiscal 2003 and 2002. Cash
paid for income taxes was $8,501,000 in 2003 and $10,096,000 in fiscal
2002.

At September 30, 2003, the Company had no significant long-term
liabilities or future cash commitments, and its requirement for cash flow
to support investing activities is generally limited. Capital expenditures
for fiscal 2004 are expected to amount to $7,000,000, principally for
equipment and information technology infrastructure. The Company
anticipates that funds for these capital improvements will be provided from
operations.

8

On April 2, 2002, the Company completed an agreement to merge its
European operations with the radiation monitoring business operated by
Laboratoire Central des Industries Electriques ("LCIE"). Under the terms of
the acquisition agreements, LCIE may, in the fifth and sixth year of the
venture, require Landauer to purchase its interest in LCIE-Landauer at
estimated fair value based on a multiple of EBITDA for the trailing four
quarters. Additionally, Landauer has the option to purchase LCIE's interest
in the seventh year of the venture on the same terms as LCIE's "Put"
option. A change in control provision, as defined, may accelerate the
respective Put and Call options and provides for premiums and discounts in
the event such options are exercised as the result of a change in control.
The Company anticipates that the commitment to purchase the 49% minority
interest position in LCIE- Landauer will be funded from operations and/or
available credit facilities.

The Company presently maintains bank lines of credit totaling
$5,000,000. In the opinion of management, resources are adequate for
projected operations and capital spending programs, as well as continuation
of the regular cash dividend program.

Landauer requires limited working capital for its operations since
many of its customers pay for annual services in advance. Such advance
payments amounted to $12,464,000 and $11,885,000, respectively, as of
September 30, 2003 and 2002, and are included in deferred contract revenue.
While these amounts represent approximately one-half of current
liabilities, such amounts generally do not represent a cash requirement.

Landauer offers radiation monitoring services in the United Kingdom,
Canada, Japan, Brazil, China, and France. The Company's operations in these
markets do not depend on significant capital resources.

The Company is exposed to market risk, including changes in foreign
currency exchange rates and interest rates. As discussed in Note 1,
"Summary of Significant Accounting Policies" to the consolidated financial
statements, the financial statements of the Company's non-U.S. subsidiaries
are remeasured into U.S. dollars using the U.S. dollar as the functional
currency. The market risk associated with foreign currency exchange rates
is not material in relation to the Company's financial position, results of
operations, or cash flows. The Company does not have any significant trade
accounts receivable, trade accounts payable, commitments or borrowings in a
currency other than that of the reporting units' functional currencies. As
such, the Company does not use derivative financial instruments to manage
the exposure in its non-U.S. operations.

NEW ACCOUNTING PRONOUNCEMENTS

On October 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142 which requires that goodwill and
certain intangible assets no longer be amortized to earnings, but be
reviewed periodically for impairment. For acquisitions completed prior to
June 30, 2001, the amortization of goodwill and certain intangible assets
has ceased beginning in fiscal year 2002. The Company did not recognize
goodwill amortization expense in fiscal 2003 or 2002. Goodwill amortization
expense aggregated $190,000 in fiscal 2001. Diluted EPS increased by
approximately $0.02 in both fiscal 2003 and 2002 due to the reduction in
amortization expense. As a result of applying the impairment provisions of
SFAS No. 142, no impairment loss was indicated. Goodwill and other
intangible assets at September 30, 2003 consisted of the following:

9

Accmu-
lated
Gross Amorti- Net
(Dollars in Thousands) Amount zation Amount
- ---------------------- ------- ------- -------

Intangible assets continuing
to be amortized:

Customer lists. . . . . . . . . . . $ 2,682 $ 564 $ 2,118
(useful life of 10 years)
Licenses & patents. . . . . . . . . 508 254 254
(useful life of 10-15 years)
Other intangibles . . . . . . . . . 706 279 427
------- ------- -------
Total . . . . . . . . . . . . . $ 3,896 $ 1,097 $ 2,799
======= ======= =======

Goodwill no longer being amortized. $ 5,257
Total goodwill & other intangible
assets. . . . . . . . . . . . . . $ 8,056
=======

Estimated annual aggregate amortization expense related to these
intangible assets will be approximately $355,000 for each of the next five
years.

In November 2002, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others" ("FIN 45"). FIN 45 requires a company, at the time it issues a
guarantee, to recognize an initial liability for the fair value of
obligations assumed under the guarantee and elaborates on existing
disclosure requirements related to guarantees and warranties. The initial
recognition requirements of FIN 45 are effective for guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective
for financial statements of periods ending after December 15, 2002. The
adoption of FIN 45 did not have a material affect on the financial position
or the results of operations.

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - An Amendment of FASB
Statement No. 123." This statement provides alternative methods of
transition for a voluntary change to the fair value method of accounting
for stock-based compensation. The statement amends the disclosure
requirements of FASB Statement No. 123 to require prominent disclosure in
both annual and interim financial statements about the method of accounting
for stock-based compensation and the effect of the method used on reported
results. The Company accounts for stock-based compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of SFAS No. 123. The transition provisions are
effective for fiscal years ending after December 15, 2002. The disclosure
provisions are effective for interim periods beginning after December 15,
2002. The Company implemented the required disclosure provisions in the
quarter ended March 31, 2003. The adoption of this statement did not have a
material impact on the Company's consolidated financial position, results
of operations or cash flows as the Company did not make the voluntary
change to the fair value method of accounting for stock-based compensation.

10

In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities, and Interpretation of
Accounting Research Bulletin ("ARB") No. 51," ("FIN 46"). FIN 46 clarifies
the application of ARB No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient equity at
risk for the entity to finance its activities without additional
subordinated financial support from other parties. The consolidation
requirements of FIN 46 apply immediately to variable interest entities
created after January 31, 2003, and to existing variable interest entities
in the interim period beginning after June 15, 2003. The Company believes
it has no material interests in variable interest entities that will
require disclosure or consolidation under FIN 46.

In April 2003, the FASB issued SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities," which
amends and clarifies accounting for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities under Statement 133. The implementation of SFAS No. 149 is
effective (1) for contracts entered into or modified after June 30, 2003,
with certain exceptions, and (2) for hedging relationships designated after
June 30. The Company has reviewed SFAS No. 149 and believes that the
adoption of SFAS No. 149 did not have a material impact on our financial
position or results of operations.

In May 2003, SFAS issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity,"
which changes the accounting for mandatorily redeemable shares, put
options, forward purchase contracts and obligations that have a specific
expiration or settlement date and that can be settled with shares. SFAS
No. 150 is generally effective for all financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. As the Company
does not have any interest in such instruments, the adoption of this
statement did not have a material impact upon its consolidated financial
statements.

INFLATION

The Company strives to reflect the inflationary impact of materials,
labor and other operating costs and expenses in its prices. The market for
the services that the Company offers, however, is highly competitive, and
in some cases has limited the ability of the Company to offset inflationary
cost increases.

FORWARD LOOKING STATEMENTS

Certain matters contained in this report are forward-looking
statements, including, without limitation, statements concerning the
development and introduction of new technologies, the adaptability of OSL
to new platforms and new formats (such as InLight[trademark]), the
usefulness of older technologies, the cost associated with the Company's
business development and research efforts, the anticipated results of the
Company, the Company's business plans, foreign exchange risks, government
regulations, changes in postal and delivery practices, the Company's market
position, the risks of conducting business internationally, other
anticipated financial events, the effects of changing economic and
competitive conditions, and pending accounting announcements. Such
assumptions may not materialize to the extent assumed, and such risks and
uncertainties may cause actual results to differ from anticipated results.
Such risks and uncertainties may also result in changes to the Company's
business plan and prospects and could create the need from time to time to
write down the value of the assets or otherwise cause the Company to incur
unanticipated expenses. Additional information may be obtained by reviewing
the information set forth below under "Significant Risk Factors" and
information contained in the Company's reports filed from time to time with
the Securities and Exchange Commission ("SEC").

11

CRITICAL ACCOUNTING POLICIES

The SEC issued statements regarding disclosure by companies within
their management's discussion and analysis of financial condition and
results of operations. In those statements, the SEC encouraged companies to
identify critical accounting policies. Critical accounting policies are
those that are most important to the portrayal of a company's financial
condition and results, and that require management's most difficult,
subjective or complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain. In
response to the SEC statements, management has identified the following
critical accounting policies used in the preparation of our financial
statements and accompanying notes.

REVENUE RECOGNITION AND DEFERRED CONTRACT REVENUE

The Company recognizes revenues and the related costs for its
services in the periods for which such services are provided. Many
customers pay for these services in advance. The amounts recorded as
deferred contract revenue in the consolidated balance sheet represent
customer deposits invoiced in advance during the preceding twelve months
for services rendered over the succeeding twelve months, and are net of
services rendered through the respective consolidated balance sheet date.
Such advance billings amounted to $12,464,000 and $11,885,000,
respectively, as of September 30, 2003 and September 30, 2002, are included
in deferred contract revenue, and are stated net of services rendered
through the respective consolidated balance sheet dates. Management
believes that the amount of deferred revenue shown at the respective
consolidated balance sheet dates fairly represents the level of business
activity it expects to conduct with customers invoiced under this
arrangement.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Management judgments and estimates are utilized in connection with
establishing an allowance for the possibility that portions of the
Company's accounts receivable balances may become uncollectible.
Specifically, management analyzes accounts in relation to receivable aging
trends, economic factors, and changes in customer payment history in
establishing this allowance. Accounts receivable reduced by this allowance
of $583,000 as of September 30, 2003 and $482,000 as of September 30, 2002,
amounted to $13,770,000 and $13,620,000, respectively, as of September 30,
2003 and September 30, 2002.

PROPERTY, PLANT & EQUIPMENT

Plant and equipment (including dosimetry badges and software) are
recorded at cost and are depreciated/amortized on a straight-line basis
over the estimated useful lives, which are primarily thirty years for
buildings and three to eight years for equipment. Landauer assesses the
carrying value of its property, plant and equipment and the remaining
useful lives whenever events or circumstances indicate the carrying value
may not be recoverable or the estimated useful life may no longer be
appropriate. Factors considered important which could trigger this review
included competitive conditions, government regulations and technological
changes. Maintenance and repairs are charged to expense, and renewals and
betterments are capitalized. Landauer capitalizes internal software costs
in accordance with SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use."

12

GOODWILL AND OTHER INTANGIBLE ASSETS

The Company's intangible assets are comprised of goodwill, purchased
customer lists, licenses and patents. On October 1, 2001, the Company
adopted SFAS No. 142 which requires that goodwill and certain intangible
assets no longer be amortized to earnings, but be reviewed periodically for
impairment. For acquisitions completed prior to June 30, 2001, the
amortization of goodwill and certain intangible assets has ceased beginning
in fiscal year 2002. Under SFAS No. 142, the impairment review of goodwill
and other intangible assets that are not being amortized must be based
generally on fair values. As a result of applying the impairment provisions
of SFAS No. 142, no impairment loss was required. Purchased customer lists
are recorded at cost and are amortized on a straight-line basis over the
estimated useful lives, which are primarily ten years. Patents and licenses
are also recorded at cost and are amortized on a straight-line basis over
their useful lives, which range from 10 to 15 years. Other assets are
reviewed for impairment whenever circumstances indicate that an impairment
may exist. Such review is based on estimates of future undiscounted cash
flows and an assessment of fair value based on discounted cash flows or
other indicators of fair market value.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

SIGNIFICANT RISK FACTORS

The Company's business and operations are subject to certain risks
and uncertainties, including:

FOREIGN CURRENCY EXCHANGE AND INTEREST RATE RISKS

The Company is exposed to market risk, including changes in foreign
currency exchange rates and interest rates. As discussed in Note 1 to the
financial statements in this Annual Report on Form 10-K, "Summary of
Significant Accounting Policies" to the consolidated financial statements,
the financial statements of the Company's non-U.S. subsidiaries are
remeasured into U.S. dollars using the U.S. dollar as the functional
currency. To date, the market risk associated with foreign currency
exchange rates has not been material in relation to the Company's financial
position, results of operations, or cash flows. These risks could increase,
however, as the Company expands in international markets. The Company does
not have any significant trade accounts receivable, trade accounts payable,
commitments or borrowings in a currency other than that of the reporting
units' functional currencies. As such, the Company does not currently use
derivative financial instruments to manage the exposure in its non-U.S.
operations.

RELIANCE UPON SINGLE MANUFACTURING FACILITY

Landauer, Inc. conducts its primary manufacturing and laboratory
processing operations from a single facility in Glenwood, IL. In addition,
the Company performs significant functions for some of its international
joint ventures from the Glenwood facility. If the Company were to lose
availability of its primary facility due to fire, natural disaster or other
disruptions, the Company's operations could be significantly impaired.
Although the Company maintains business interruption insurance, there can
be no assurance that the proceeds of such insurance would be sufficient to
offset any loss the Company might incur or that the Company would be able
to retain its customer base if operations were so disrupted.

13

SINGLE SOURCE FOR CRYSTAL MATERIALS

Crystal material is a key component in Landauer's OSL technology. The
Company operates a single crystal manufacturing facility in Stillwater,
Oklahoma that currently supplies all crystal material used by the Company.
If the Company were to lose availability of its Stillwater facility due to
a fire, natural disaster or other disruptions, such loss could have a
material adverse effect on the Company and its operations. Prior to
acquiring the Stillwater facility, the Company purchased the majority of
its raw crystal material from one external source. There can be no
assurance that the Company could secure additional crystal raw materials
from external sources in the event of a disruption at the Stillwater
facility.

TECHNOLOGY

Landauer's technological expertise has been an important factor in
its growth. The Company regularly pursues product improvements to maintain
its technical position. The development and introduction of new
technologies, the adaptability of OSL to new platforms and new formats, the
usefulness of older technologies as well as the introduction of new
technologies by the competition present various risks to the Company's
business. The failure or lack of market acceptance of a new technology or
the inability to respond to market requirements for new technology could
adversely affect the Company's operations or reputation with customers. The
cancellation of technology projects or the cessation of use of an existing
technology can result in impairments and charges to the Company's earnings.
In the normal course of its business, Landauer must record and process
significant amounts of data quickly and accurately and relies on various
computer and telecommunications equipment and software systems. Any failure
of such equipment or systems could adversely affect the Company's
operations.

INTERNATIONAL OPERATIONS POSE RISKS

Landauer conducts business in numerous international markets such as
Japan, France, the United Kingdom, Brazil, Canada, China, and others.
Foreign operations are subject to a number of special risks, including
among others, currency exchange rate fluctuations; disruption in relations;
political and economic unrest; trade barriers; exchange controls;
expropriation; and changes in laws and policies, including those governing
foreign owned operations.

GOVERNMENT REGULATIONS

Regulation, present and future, is a constant factor affecting the
Company's business. The radiation monitoring industry is subject to federal
and state governmental regulation. Unknown matters, new laws and
regulations, or stricter interpretations of existing law or regulations may
materially affect Landauer's business or operations in the future and/or
could increase the cost of compliance.

COMPETITION

The Company competes on the basis of advanced technologies, competent
execution of these technologies, the quality, reliability and price of its
services and its prompt and responsive performance. In much of the world,
radiation monitoring activities are conducted by a combination of private
entities and governmental agencies. The Company's primary competitor in the
United States is large and has substantial resources. This entity recently
came under new ownership and the Company is currently evaluating the
impact, if any, of the change in ownership on this competitor. The Company
also faces competitive pressures from a number of smaller competitors.

14

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS

LANDAUER, INC. & SUBSIDIARIES

(Dollars in Thousands)
As of September 30, Notes 2003 2002
- ------------------- ----- -------- --------

ASSETS

Current assets:
Cash and cash equivalents . . . . 1 $ 10,572 $ 7,627
Short-term investments. . . . . . 1 440 317
Receivables, net of allowance
for doubtful accounts of $583
in 2003 and $482 in 2002. . . . 13,770 13,620
Inventories . . . . . . . . . . . 1 3,513 2,135
Prepaid expenses. . . . . . . . . 967 773
Prepaid income taxes. . . . . . . 1 & 5 1,687 2,358
Deferred income taxes . . . . . . 289 --
-------- --------
Current assets. . . . . . . . . . . 31,238 26,830
-------- --------

Property, plant and equipment,
at cost: 1
Land and improvements . . . . . . 634 538
Buildings and improvements. . . . 4,082 3,768
Equipment . . . . . . . . . . . . 34,221 33,198
-------- --------
38,937 37,504
Less: accumulated depreciation
and amortization. . . . . . . 21,711 19,325
-------- --------

Net property, plant and equipment . 17,226 18,179
-------- --------

Equity in joint venture . . . . . . 3 3,402 2,806
Goodwill and other intangible assets,
net of amortization . . . . . . . 1 & 4 8,056 8,601
Dosimetry devices, net of
amortization. . . . . . . . . . . 4,121 3,546
Other assets. . . . . . . . . . . . 195 295
-------- --------

ASSETS. . . . . . . . . . . . . . . $ 64,238 $ 60,257
======== ========

15

CONSOLIDATED BALANCE SHEETS - CONTINUED

LANDAUER, INC. & SUBSIDIARIES

(Dollars in Thousands)
As of September 30, Notes 2003 2002
- ------------------- ----- -------- --------

LIABILITIES AND
STOCKHOLDERS' INVESTMENT

Current liabilities:
Accounts payable. . . . . . . . . $ 1,548 $ 1,789
Dividends payable . . . . . . . . 3,316 3,071
Deferred contract revenue . . . . 1 12,464 11,885
Accrued compensation and
related costs . . . . . . . . . 1,459 2,505
Accrued pension costs . . . . . . 8 2,675 1,922
Accrued taxes on income . . . . . 1 & 5 507 1,753
Other accrued expenses. . . . . . 2,860 2,264
-------- --------
Current liabilities . . . . . . . . 24,829 25,189
-------- --------

Minority interest . . . . . . . . . 984 462
Commitments and contingencies . . . 6 & 9 -- --

STOCKHOLDERS' INVESTMENT. . . . . . 7 & 10
Preferred stock, $.10 par value,
authorized 1,000,000 shares;
none issued . . . . . . . . . . . -- --
Common stock, $.10 par value
authorized 20,000,000 shares;
8,843,723 and 8,755,337 issued
and outstanding, respectively
in 2003 and 2002. . . . . . . . . 884 878
Premium paid in on common stock . . 12,207 10,946
Cumulative translation adjustments. (100) (855)
Retained earnings . . . . . . . . . 25,434 23,637
-------- --------
Stockholders' investment. . . . . . 38,425 34,606
-------- --------
LIABILITIES AND
STOCKHOLDERS' INVESTMENT. . . . . $ 64,238 $ 60,257
======== ========

The accompanying notes are an integral part
of these financial statements.

16

CONSOLIDATED STATEMENTS OF INCOME

LANDAUER, INC. & SUBSIDIARIES

(Dollars in thousands,
For the years ended except per share)
September 30, Notes 2003 2002 2001
- ------------------- ----- -------- -------- --------

Net revenues. . . . . . . . . $ 64,818 $ 58,608 $ 53,028

Costs and expenses
Cost of sales . . . . . . . 23,403 20,462 18,716
Selling, general, and
administrative. . . . . . 1 14,808 13,747 12,438
Impairment in value
of assets . . . . . . . . 11 2,750 -- --
-------- -------- --------
40,961 34,209 31,154
-------- -------- --------

Operating income. . . . . . . 23,857 24,399 21,874
Equity in income of
joint venture . . . . . . . 3 867 735 502
Other income. . . . . . . . . 176 1,137 256
-------- -------- --------

Income before taxes . . . . . 24,900 26,271 22,632
Income taxes. . . . . . . . . 1 & 5 (9,193) (9,811) (8,269)
-------- -------- --------

Income before minority
interest. . . . . . . . . . 15,707 16,460 14,363
Minority interest . . . . . . (688) (280) (39)
-------- -------- --------

Net income. . . . . . . . . . $ 15,019 $ 16,180 $ 14,324
======== ======== ========

Net income per share: 2
Basic . . . . . . . . . . . $ 1.71 $ 1.85 $ 1.65
Diluted . . . . . . . . . . $ 1.69 $ 1.83 $ 1.64
======== ======== ========

The accompanying notes are an integral part
of these financial statements.

17

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT AND COMPREHENSIVE INCOME

LANDAUER, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

LANDAUER, INC. & SUBSIDIARIES

(dollars in thousands)
For the years ended September 30, 2003 2002 2001
- --------------------------------- -------- -------- --------

Cash flow from operating activities:
Net income. . . . . . . . . . . . . $ 15,019 $ 16,180 $ 14,324

Non-cash expenses, revenues,
and gains reported in income:
Asset impairment charge . . . . . 2,750 -- --
Non-cash gain from exchange
of assets . . . . . . . . . . . -- (786) --
Depreciation and amortization . . 5,057 4,370 4,475
Equity in income of joint
venture . . . . . . . . . . . . (867) (735) (502)
Compensatory effect of stock
options . . . . . . . . . . . . 1,267 1,075 1,130
Deferred income taxes . . . . . . (1,748) 1,216 (291)
-------- -------- --------
6,459 5,140 4,812
-------- -------- --------

Net increase in other
current assets. . . . . . . . . (1,420) (4,703) (529)
Net increase in
current liabilities . . . . . . 721 2,660 853
Net increase in net long-term
assets. . . . . . . . . . . . . (677) (1,763) (1,680)
-------- -------- --------
(1,376) (3,806) (1,356)
-------- -------- --------
Net cash generated from
operating activities. . . . . . 20,102 17,514 17,780

Cash flow from investing activities:
Investment in subsidiary. . . . . . -- (877) --
Acquisition of property, plant
and equipment. . . . . . . . . . . (4,715) (4,656) (3,219)
-------- -------- --------
Net cash used by
investing activities. . . . . . (4,715) (5,533) (3,219)
-------- -------- --------

Cash flow from financing activities:
Dividend received from foreign
affiliate. . . . . . . . . . . . . 535 334 1,645
Advance from joint venture
partner. . . . . . . . . . . . . . -- 504 --
Dividends paid. . . . . . . . . . . (12,977) (12,247) (12,152)
-------- -------- --------
Net cash used by
financing activities. . . . . . (12,442) (11,409) (10,507)
-------- -------- --------
Net increase in cash. . . . . . . . . 2,945 572 4,054
Opening balance -
cash and cash equivalents . . . . . 7,627 7,055 3,001
-------- -------- --------
Ending balance -
cash and cash equivalents . . . . . $ 10,572 $ 7,627 $ 7,055
======== ======== ========

19

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

LANDAUER, INC. & SUBSIDIARIES

(dollars in thousands)
For the years ended September 30, 2003 2002 2001
- --------------------------------- -------- -------- --------

Supplemental Disclosure of
Cash Flow Information:

Cash paid for income taxes. . . . . $ 8,501 $ 10,096 $ 7,127
======== ======== ========

Supplemental Non-cash Investing
and Financing Information:

Dividend declared . . . . . . . . . $ 3,316 $ 3,071 $ 3,055
======== ======== ========

The accompanying notes are an integral part
of these financial statements.

20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LANDAUER, INC. AND SUBSIDIARIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements include the
accounts of Landauer, Inc.; HomeBuyer's Preferred, Inc., its wholly-owned
subsidiary; SAPRA-Landauer, Ltda., its 75%-owned subsidiary; Beijing
Landauer Radiation Monitoring Technology Co., Ltd., its 70%-owned
subsidiary; and LCIE-Landauer, Ltd., its 51% owned subsidiary, ("Landauer"
or the "Company"). Nagase-Landauer, Ltd. (50%-owned) is a Japanese
corporation that is accounted for on the equity basis. All material
intercompany transactions have been eliminated.

The cost of purchased businesses included in the accompanying
consolidated financial statements exceeded the fair value of net tangible
and identifiable intangible assets at the date of acquisition in the amount
of $8,519,000. As of September 30, 2003 and 2002, accumulated amortization
was $3,263,000 and $3,249,000, respectively. On October 1, 2001 the Company
adopted SFAS No. 142 which requires that goodwill and certain intangible
assets no longer be amortized to earnings, but be reviewed periodically for
impairment. For acquisitions completed before June 30, 2001, the
amortization of goodwill and certain intangible assets has ceased beginning
in fiscal year 2002. Accordingly, the Company did not recognize goodwill
amortization expense in fiscal 2003 or fiscal 2002. Goodwill amortization
expense aggregated $190,000 in fiscal 2001. Diluted earnings per share
(EPS) increased by approximately $0.02 in 2003 and 2002 due to the
reduction in amortization expense. As a result of applying the impairment
provisions of SFAS No. 142, no impairment loss was indicated in the value
of goodwill.

CASH EQUIVALENTS

Cash equivalents include investments with an original maturity of
three months or less. Primarily all investments are short-term money market
instruments.

INVESTMENTS

Investments having an original maturity of longer than three months
but less than one year are classified as current assets. Those having an
original maturity of longer than one year are classified as non-current
assets.

INVENTORIES

Inventories of material utilized in the construction of dosimeter
badges are valued at cost utilizing a first-in, first-out method.

REVENUES AND DEFERRED CONTRACT REVENUE

The Company recognizes revenues and the related costs for its
services in the periods for which such services are provided. Many
customers pay for these services in advance. The amounts recorded as
deferred contract revenue in the consolidated balance sheet represent
customer deposits invoiced in advance during the preceding twelve months
for services to be rendered over the succeeding twelve months, and are net
of services rendered through the respective consolidated balance sheet
date. Management believes that the amount of deferred contract revenue
shown at the respective consolidated balance sheet date fairly represents
the level of business activity it expects to conduct with customers
invoiced under this arrangement.

21

RESEARCH AND DEVELOPMENT

The cost of research and development programs is charged to selling,
general and administrative expense as incurred and amounted to
approximately $1,819,000 in 2003, $941,000 in 2002 and $694,000 in 2001.
Research and development costs include salaries and allocated employee
benefits, third party research contracts, depreciation and supplies.

DEPRECIATION, AMORTIZATION AND MAINTENANCE

Plant and equipment are depreciated on a straight-line basis over
their estimated useful lives, which are primarily thirty years for
buildings and three to eight years for equipment. Maintenance and repairs
are charged to expense, and renewals and betterments are capitalized.
Dosimetry devices (principally badges) and software are amortized on a
straight-line basis over their estimated lives, which are three to five
years.

ADVERTISING

The Company expenses the costs of advertising as incurred.
Advertising expense amounted to $345,000 in fiscal 2003, $473,000 in fiscal
2002 and $441,000 in fiscal 2001.

INCOME TAXES

Landauer files income tax returns in the jurisdictions in which it
operates. For financial statement purposes, provisions for federal and
state income taxes have been computed in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes."

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

Certain reclassifications have been made in the financial statement
for comparative purposes. These reclassifications have no effect on the
results of operations or financial position.

2. INCOME PER COMMON SHARE

Earnings per share (EPS) computations have been made in accordance
with the provisions of SFAS No. 128, "Earnings Per Share." Basic earnings
per share were computed by dividing net income by the weighted average
number of shares of common stock outstanding during each year. Diluted
earnings per share were computed by dividing net income by the weighted
average number of shares of common stock that would have been outstanding
assuming dilution during each year.

Following is a table that shows the weighted average number of shares
of common stock for the years ended September 30:

(Amounts in Thousands) 2003 2002 2001
---------------------- -------- -------- --------
Weighted average number
of shares of common
stock outstanding. . . . . . . 8,808 8,756 8,693
Options issued to executive. . . 83 99 54
-------- -------- --------
Weighted average number of
shares of common
stock assuming dilution. . . . 8,891 8,855 8,747
======== ======== ========

22

Following is a table that provides net income and earnings per share
for the years ended September 30:

(Dollars in Thousands,
Except Per Share) 2003 2002 2001
---------------------- -------- -------- --------
Net income . . . . . . . . . . . $ 15,019 $ 16,180 $ 14,324
Basic EPS. . . . . . . . . . . . $ 1.71 $ 1.85 $ 1.65
Diluted EPS. . . . . . . . . . . $ 1.69 $ 1.83 $ 1.64
======== ======== ========

3. EQUITY IN JOINT VENTURE

Landauer's 50% interest in the common stock of Nagase-Landauer, Ltd.,
a Japanese corporation located in Tokyo and engaged in providing radiation
monitoring services in Japan, is accounted for on the equity basis. The
related equity in earnings of this joint venture is included in its own
caption in the accompanying Statements of Income.

Condensed unaudited results of operations for Nagase-Landauer, Ltd.
for the years ended September 30, are as follows, converted into U.S.
dollars at the then-current rate of exchange:

(Dollars in Thousands) 2003 2002 2001
---------------------- -------- -------- --------
Revenues . . . . . . . . . . . . $ 14,227 $ 12,790 $ 12,169
Income before income taxes . . . 3,218 2,642 1,728
Net Income . . . . . . . . . . . 1,734 1,470 1,005
-------- -------- --------
Average exchange rate (Yen/$). . 118.9 125.9 119.4
======== ======== ========

Condensed unaudited balance sheets for the years ended September 30,
2003 and 2002 are as follows:

(Dollars in Thousands) 2003 2002
---------------------- -------- --------
Current assets . . . . . . . . . $ 11,179 $ 9,685
Other assets . . . . . . . . . . 1,806 1,943
-------- --------
Total assets . . . . . . . . . . $ 12,985 $ 11,628
======== ========

Liabilities. . . . . . . . . . . $ 6,181 $ 6,016
Stockholders' investment . . . . 6,804 5,612
-------- --------
Total liabilities and
stockholders' investment . . . $ 12,985 $ 11,628
======== ========

4. GOODWILL AND OTHER INTANGIBLE ASSETS

On October 1, 2001 the Company adopted SFAS No. 142 "Goodwill and
Other Intangible Assets." SFAS No. 142 requires that goodwill and certain
intangible assets no longer be amortized to earnings, but be reviewed
periodically for impairment. SFAS No. 142 requires transitional disclosure
of what reported income before extraordinary items and net income would
have been in all periods presented, exclusive of amortization expense
recognized in those periods related to goodwill and intangible assets that
are no longer being amortized. Similarly, adjusted per-share amounts also
are required to be disclosed for all periods presented.

23

The amortization expense and net income of the Company for 2003 and
the prior two years are shown in the table below.

(Dollars in Thousands) 2003 2002 2001
---------------------- -------- -------- --------

Reported net income. . . . . . . $ 15,019 $ 16,180 $ 14,324
Add goodwill amortization. . . . -- -- 131
-------- -------- --------
Adjusted net income. . . . . . . $ 15,019 $ 16,180 $ 14,455
======== ======== ========

Reported EPS - basic . . . . . . $ 1.71 $ 1.85 $ 1.65
Add goodwill amortization. . . . -- -- 0.02
-------- -------- --------
Adjusted EPS - basic . . . . . . $ 1.71 $ 1.85 $ 1.67
======== ======== ========

Reported EPS - diluted . . . . . $ 1.69 $ 1.83 $ 1.64
Add goodwill amortization. . . . -- -- 0.02
-------- -------- --------
Adjusted EPS - diluted . . . . . $ 1.69 $ 1.83 $ 1.66
======== ======== ========

The components of goodwill and other intangible assets for the years
ended September 30, 2003 and 2002 are as follows:

(Dollars in Thousands) 2003 2002
---------------------- -------- --------

Goodwill (No longer amortized) . $ 5,257 $ 5,181
Customer list, net of
amortization (Useful life
of 10 years) . . . . . . . . . 2,118 2,381
Licenses and patents, net of
amortization (Useful life
of 10-15 years). . . . . . . . 254 593
Other intangibles, net of
amortization (Useful life of
10 years). . . . . . . . . . . 427 446
-------- --------
Total. . . . . . . . . . . . $ 8,056 $ 8,601
======== ========

The intangible asset amounts noted above are presented net of
accumulated amortization of $4,359,000 at September 30, 2003 and $3,990,000
at September 30, 2002. Amortization of intangible assets was $384,000,
$271,000, and $558,000 for the years ended September 30, 2003, 2002 and
2001, respectively. Estimated annual aggregate amortization expense related
to intangible assets will be approximately $355,000 for each of the next
five years.

On April 2, 2002, the Company completed an agreement to merge its
European operations with Laboratoire Central des Industries Electriques
("LCIE"), a wholly-owned subsidiary of Bureau Veritas, a professional
services company involved in quality, health and safety, and environmental
management. Under the agreement, Landauer exchanged its United Kingdom
radiation monitoring business with annual revenues of approximately
$1,500,000 and its technologies for a 51% controlling interest in the new
company named LCIE-Landauer, Ltd. LCIE contributed its radiation monitoring
business that has current annual revenues of more than $3,000,000, in
France. The Company recognized a gain of $786,000 in fiscal 2002 arising
from this transaction. LCIE-Landauer has its headquarters and laboratory at

24

the current LCIE location in Fontenay-aux-Roses, a Paris suburb, and will
continue to serve United Kingdom customers from Oxford, England.
Additionally, as part of the formation of the new entity, LCIE-Landauer
purchased the Philips France radiation monitoring business for $877,000.
This Philips business unit had annual revenues of approximately $800,000 in
2001. Total consideration for these acquisitions aggregated approximately
$2,000,000, which was allocated principally to working capital and customer
list. The $1,681,000 allocated to customer list is amortized over 10 years.
The Company had payables due to Bureau Veritas in the amounts of $387,000
and $504,000 for years ended September 30, 2003 and 2002, respectively.

5. INCOME TAXES

The components of the provision for income taxes for the years ended
September 30, 2003, 2002 and 2001 are as follows:

2003
------------------------------
(Dollars in Thousands) Current Deferred Total
---------------------- -------- -------- --------
Federal. . . . . . . . . . . . . $ 9,120 $ (1,457) $ 7,663
State. . . . . . . . . . . . . . 1,821 (291) 1,530
-------- -------- --------
Total. . . . . . . . . . . . . . $ 10,941 $ (1,748) $ 9,193
======== ======== ========

2002
------------------------------
Current Deferred Total
-------- -------- --------
Federal. . . . . . . . . . . . . $ 7,014 $ 992 $ 8,006
State. . . . . . . . . . . . . . 1,581 224 1,805
-------- -------- --------
Total. . . . . . . . . . . . . . $ 8,595 $ 1,216 $ 9,811
======== ======== ========

2001
------------------------------
Current Deferred Total
-------- -------- --------
Federal. . . . . . . . . . . . . $ 6,766 $ (230) $ 6,536
State. . . . . . . . . . . . . . 1,794 (61) 1,733
-------- -------- --------
Total. . . . . . . . . . . . . . $ 8,560 $ (291) $ 8,269
======== ======== ========

The provision for taxes on income in each period differs from that
which would be computed by applying the statutory U.S. federal income tax
rate to the income before taxes. The following is a summary of the major
items affecting the provision:

(Dollars in Thousands) 2003 2002 2001
---------------------- -------- -------- --------
Statutory federal income
tax rate . . . . . . . . . . . 35% 35% 35%
Computed tax provision
statutory rate . . . . . . . . $ 8,715 $ 9,195 $ 7,921
Increases (decreases)
Resulting from:
State income tax provision,
Net of federal benefit . . . 959 1,173 1,126
Other. . . . . . . . . . . . (481) (557) (778)
-------- -------- --------
Income tax provision
in the statement of income . . $ 9,193 $ 9,811 $ 8,269
======== ======== ========

25

The Company has adopted SFAS No. 109, "Accounting For Income Taxes."
Accordingly, the Company recognizes certain income and expense items in
different years for financial and tax reporting purposes. These temporary
differences are primarily attributable to (a) utilization of accelerated
depreciation methods for tax purposes, (b) amortization of badge holder and
software development costs, (c) limitations on deductibility of pension
costs, (d) accrued benefit claims, vacation pay, and other
compensation-related costs, and (e) reserves for obsolete inventory.

Significant components of deferred taxes are as follows:

(Dollars in Thousands) 2003 2002
---------------------- -------- --------
Deferred tax assets:
Badge holder amortization. . . $ 1,421 $ 667
Pension accrual. . . . . . . . 1,273 896
Compensation expense . . . . . 455 459
Inventory reserve. . . . . . . 146 209
Other. . . . . . . . . . . . . 1,192 485
-------- --------
Total. . . . . . . . . . . $ 4,487 $ 2,716
======== ========

Deferred tax liabilities:
Depreciation . . . . . . . . . $ 320 $ 964
Software development . . . . . 3,878 3,212
-------- --------
Total . . . . . . . . . . . $ 4,198 $ 4,176
======== ========

6. LINE OF CREDIT

The Company maintains an external source of liquidity in the form of
a $5,000,000 unsecured line of credit maturing September 30, 2004. The
credit facility contains covenants for net worth and debt to equity ratios.
Draws hereunder bear interest at the one-month LIBOR rate plus 2%. There
was no outstanding liability as of the balance sheet dates, and the Company
is in compliance with these covenants.

7. CAPITAL STOCK

Landauer has two classes of capital stock, preferred and common, with
a par value of $.10 per share for each class. As of September 30, 2003 and
2002 there were 8,843,723 and 8,775,337 shares of common stock issued and
outstanding (20,000,000 shares are authorized), respectively. There are no
shares of preferred stock issued (1,000,000 shares are authorized). Cash
dividends of $1.50 per share were paid in fiscal 2003. At September 30,
2003, there were accrued and unpaid dividends of $3,316,000.

Landauer has reserved 1,450,000 shares of common stock for grants
under its stock bonus and option plans. Recipients of grants or options
must execute a standard form of noncompetition agreement. As of
September 30, 2003, there have been no bonus shares issued.

8. EMPLOYEE BENEFIT PLANS

Landauer maintains a noncontributory defined benefit pension and
retirement plan covering substantially all full-time employees. The Company
also maintains a Supplemental Key Executive Retirement Plan that provides
for certain retirement benefits payable to key officers and managers. While
charges for the supplemental plan are expensed annually, the plan is not
separately funded. The Company maintains a directors' retirement plan that
provides for certain retirement benefits payable to non-employee directors.
The directors' plan was terminated in 1997.

26

The following table sets forth the status of these plans at
September 30, 2003 and 2002 in accordance with SFAS Nos. 87 and 132:

Other Retirements
Pension Benefits
------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
Change in benefit obligation:
Benefit obligation at
beginning of year . . $ 11,917 $ 9,410 $ 984 $ 813
Service cost. . . . . . 862 564 85 72
Interest cost . . . . . 904 702 65 60
Amendments. . . . . . . 1,567 -- -- --
Actuarial loss. . . . . 1,415 1,511 46 77
Benefits paid . . . . . (275) (270) (32) (38)
-------- -------- -------- --------
Benefit obligation at
end of period . . . . . $ 16,390 $ 11,917 $ 1,148 $ 984
======== ======== ======== ========
Change in plan assets:
Fair value of assets at
beginning of year . . $ 6,959 $ 7,185 $ -- $ --
Actual return on
plan assets . . . . . 677 (447) -- --
Employer contribution . 664 491 32 39
Benefits paid . . . . . (275) (270) (32) (39)
-------- -------- -------- --------
Fair value of assets at
end of period . . . . $ 8,025 $ 6,959 $ -- $ --
======== ======== ======== ========
Reconciliation of
funded status:
Funded status . . . . . $ (8,365) $ (4,958) $ (1,148) $ (984)
Unrecognized transition
obligation (asset). . (25) (31) 204 227
Unrecognized prior
service cost. . . . . 1,544 132 51 69
Unrecognized net
actuarial (gain) loss 4,039 2,832 16 (31)
-------- -------- -------- --------
Accrued benefit cost. . . $ (2,807) $ (2,025) $ (877) $ (719)
======== ======== ======== ========
Components of net periodic
benefit cost:
Service cost. . . . . . $ 862 $ 564 $ 85 $ 72
Interest cost . . . . . 904 702 65 60
Expected return on
plan assets . . . . . (560) (575) -- --
Amortization of transition
obligation (asset). . (6) (6) 23 22
Amortization of prior
service cost. . . . . 155 18 17 17
Recognized net actuarial
(gain) loss . . . . . 92 4 (3)
-------- -------- -------- --------
Net periodic benefit cost $ 1,447 $ 707 $ 190 $ 168
======== ======== ======== ========
Weighted average rate
assumptions as of
September 30:
Discount rate at
beginning of year . . 6.75% 7.50% 6.75% 7.50%
Discount rate at
end of year . . . . . 6.25% 6.75% 6.25% 6.75%
Expected return on
plan assets . . . . . 8.00% 8.00% 0.00% 0.00%
Rate of compensation
increase. . . . . . . 5.17% 5.50% 6.00% 6.00%

27

Plan assets for the defined benefit pension plan include marketable
equity securities, corporate and government debt securities, and cash and
short-term investments. The Supplemental Key Executive Retirement Plan and
the director's retirement plan are not separately funded.

Landauer maintains a 401(K) savings plan covering substantially all
full-time employees. Qualified contributions made by employees to the plan
are partially matched by the Company. $124,000, $130,000, and
$127,000 was provided to expense for the years ended September 30, 2003,
2002 and 2001, respectively, under this plan.

Landauer has adopted SFAS No. 106, "Accounting for Postretirement
Benefits Other than Pensions" to account for the Company's unfunded retiree
medical expense reimbursement plan. Under the terms of the plan which
covers retirees with ten or more years of service, the Company will
reimburse retirees to age 70 for (i) a portion of the cost of coverage
under the then-current medical and dental insurance plans if the retiree is
under age 65, or (ii) all or a portion of the cost of Medicare and
supplemental coverage if the retiree is over age 64. The assumption for
health-care cost trend rates were 6% for those younger than 65, and 5% for
those 65 and older. The effect of a one percent increase on service and
interest costs and postretirement benefit obligation would be $17,000 and
$132,000, respectively. For a one percent decrease, the effect would be a
reduction to service and interest costs and postretirement benefit
obligation of $15,000 and $113,000, respectively. The amount of the
Company's unrecognized transition obligation resulting from the adoption of
SFAS No. 106 is $204,000 as of September 30, 2003. This liability is
included in "Other accrued expenses."

9. COMMITMENTS AND CONTINGENCIES

The Company is involved in various legal proceedings, but believes
that the outcome of these proceedings will not have a materially adverse
effect on its financial condition.

On April 2, 2002, the Company completed an agreement to merge its
European operations with the radiation monitoring business operated by
Laboratoire Central des Industries Electriques ("LCIE"). Under the terms of
the acquisition agreements, LCIE may, in the fifth and sixth year of the
venture, require Landauer to purchase its interest in LCIE-Landauer at
estimated fair value based on a multiple of EBITDA for the trailing four
quarters. Additionally, Landauer has the option to purchase LCIE's interest
in the seventh year of the venture on the same terms as LCIE's "Put"
option. A change in control provision, as defined, may accelerate the
respective Put and Call options and provides for premiums and discounts in
the event such options are exercised as the result of a change in control.

10. STOCK-BASED COMPENSATION PLANS

The Company maintains stock option plans for key employees
("Employees' Plan"). It also maintains a stock option plan for its
non-employee directors. The Company accounts for those plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations. In December
2002, the Financial Accounting Standards Board issued ("SFAS") No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure - An
Amendment of SFAS No. 123." SFAS No. 148 requires disclosure in both
annual and quarterly financial statements about the method of accounting
for stock-based compensation, and the effect of the method used on reported
results. Had compensation cost for these plans been determined consistent
with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's
net income and earnings per share in each period would have been as
follows:

28

(Amounts in Thousands,
Except Per Share) 2003 2002 2001
---------------------- -------- -------- --------

Net income, as reported. . . . . $ 15,019 $ 16,180 $ 14,324

Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects . . 243 108 32

Pro forma net income . . . . . . $ 14,776 $ 16,072 $ 14,292

Earnings per share:
Basic - As reported. . . . . . $ 1.71 $ 1.85 $ 1.65
Basic - Pro forma. . . . . . . $ 1.68 $ 1.84 $ 1.64

Diluted - As reported. . . . . $ 1.69 $ 1.83 $ 1.64
Diluted - Pro forma. . . . . . $ 1.66 $ 1.82 $ 1.63

Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to October 1, 1996, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.

The Company may grant options for up to 1,350,000 shares under the
Employees' Plan. The Company may grant options for up to 100,000 shares
under the Directors' Plan. The Company has granted options of 1,143,750 and
62,500 shares, respectively, under these plans through September 30, 2003.
Under each plan, the option exercise price equals the stock's fair market
value on the date of the grant. Options granted under the Employees' Plan
vest ratably over four years. The initial grant of options in 1997 under
the Directors' Plan vests ratable over ten years and subsequent grants vest
ratably over three years. The term of all options granted is for a period
of 10 years.

Options granted under these plans may be either incentive stock
options or non-qualified options. Options granted through fiscal 2003
become exercisable as described above, ten years for options granted to
directors, at a price not less than fair market value on the date of the
grant. The options expire ten years from the date of grant. As of
September 30, 2003, no incentive stock options had been granted.

During fiscal 2003, options for 142,250 shares were granted and
123,050 options were exercised. As of September 30, 2003, non-qualified
options for 444,950 shares had been granted at prices from $16.50 - $40.46
per share. At year-end, 192,950 shares were exercisable. This plan also
provides for the grant of restricted shares or the grant of stock
appreciation rights, either separately or in relation to options granted.
As of September 30, 2003, no stock appreciation rights had been granted.
See Note 7 for additional information on stock options.

The summary of the status of these plans at September 30, 2003, 2002
and 2001 and changes for the years then ended is presented in the following
table and narrative:

29

2003
-----------------
Weighted
(Amounts in Thousands, Average
Except per Share) Shares Price
---------------------- ------ --------

Outstanding at beginning of year . . . . . 436 $ 23.63
Granted. . . . . . . . . . . . . . . . . . 142 34.54
Exercised. . . . . . . . . . . . . . . . . (123) 20.16
Forfeited. . . . . . . . . . . . . . . . . (10) 25.18
----- --------
Outstanding at end of year . . . . . . . . 445 $ 28.05
----- --------
Exercisable at end of year . . . . . . . . 193 $ 25.12
===== ========
Weighted average fair value of
options granted. . . . . . . . . . . . . $ 6.24
========

2002
-----------------
Weighted
(Amounts in Thousands, Average
Except per Share) Shares Price
---------------------- ------ --------

Outstanding at beginning of year . . . . . 454 $ 22.15
Granted. . . . . . . . . . . . . . . . . . 55 33.21
Exercised. . . . . . . . . . . . . . . . . (73) 22.05
----- --------
Outstanding at end of year . . . . . . . . 436 $ 23.63
----- --------
Exercisable at end of year . . . . . . . . 231 $ 22.36
===== ========
Weighted average fair value of
options granted. . . . . . . . . . . . . $ 6.64
========

2001
-----------------
Weighted
(Amounts in Thousands, Average
Except per Share) Shares Price
---------------------- ------ --------

Outstanding at beginning of year . . . . . 474 $ 21.11
Granted. . . . . . . . . . . . . . . . . . 106 19.43
Exercised. . . . . . . . . . . . . . . . . (111) 15.71
Forfeited. . . . . . . . . . . . . . . . . (15) 18.34
----- --------
Outstanding at end of year . . . . . . . . 454 $ 22.15
----- --------
Exercisable at end of year . . . . . . . . 218 $ 21.64
===== ========
Weighted average fair value of
options granted. . . . . . . . . . . . . $ 2.13
========

30

Following is a table that summarizes information about options
outstanding as of September 30, 2003:

Options
Options Outstanding Exercisable
-------------------------------- ------------------
Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Shares Life Price Shares Price
- -------- -------- ----------- -------- -------- --------
$16.50-$19.00 23,500 2 $ 16.64 20,000 $ 16.50
$19.01-$22.00 62,750 7 19.35 11,750 19.32
$22.01-$25.00 28,000 4 23.20 19,000 23.53
$25.01-$28.00 138,950 5 26.41 130,450 26.43
$28.01-$31.00 - - - - -
$31.01-$34.00 40,500 8 32.11 8,250 32.13
$34.01-$37.00 139,500 9 34.50 - -
$37.01+ 11,750 9 37.35 3,500 37.15
-------- ---- -------- -------- --------
444,950 6 $ 28.05 192,950 $ 25.12
======== ==== ======== ======== ========

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in fiscal 2003, 2002 and 2001:

2003 2002 2001
-------- -------- --------
Risk free interest rates . . . . 4.13% 4.65% 5.85%
Expected dividend yield. . . . . 4.35% 4.22% 7.21%
Expected life (years). . . . . . 10 10 9
Expected volatility. . . . . . . 23.13% 23.30% 22.10%

11. IMPAIRMENT IN VALUE OF ASSETS

Following a period of product introduction, marketing efforts and an
analysis of second quarter fiscal 2003 results, it was determined that
spending constraints placed on targeted customers by health care cost
pressures and state and local government budget deficits had significantly
reduced the future net cash flows expected to be realized from Landauer's
Aurion product offering. Accordingly, the Company recorded a non-cash
pre-tax charge of $2,750,000, or $0.19 per diluted share for the fiscal
quarter ended March 31, 2003, to recognize an impairment in the value of
assets for the Aurion product line. The operating results for Aurion were
not significant for any period presented. Based on the estimated
identifiable cash flows from this service offering, the impairment charge
represents the Company's entire investment in the Aurion-related assets and
includes fixed assets, licenses, software and badge components.

12. GEOGRAPHIC INFORMATION

The Company operates in a single business segment - radiation
monitoring services. The Company provides these services primarily to
customers in the United States and to customers in other geographic
markets. The following table shows the geographical distribution of
revenues for the fiscal years ended September 30, 2003 and 2002:

(Dollars in Thousands) 2003 2002
---------------------- -------- --------
Domestic . . . . . . . . . . . . $ 54,618 $ 52,144
Europe . . . . . . . . . . . . . 6,891 3,555
Other countries. . . . . . . . . 3,309 2,909
-------- --------
$ 64,818 $ 58,608
======== ========

31

REPORT OF INDEPENDENT AUDITORS

TO STOCKHOLDERS AND DIRECTORS OF LANDAUER, INC.:

In our opinion, the accompanying consolidated balance sheets as of
September 30, 2003 and September 30, 2002 and the related consolidated
statements of income, stockholder's investment and comprehensive income and
cash flows for the years then ended present fairly, in all material
respects, the financial position of Landauer, Inc. and Subsidiaries at
September 30, 2003 and September 30, 2002, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion. The financial statements of Landauer, Inc. as of and
for the year ended September 30, 2001, were audited by other independent
accountants who have ceased operations. Those independent accountants
expressed an unqualified opinion on those financial statements, before the
revision described in Note 4, in their report dated November 6, 2001.

As discussed above, the financial statements of Landauer, Inc. as of
and for the year ended September 30, 2001, were audited by other
independent accountants who have ceased operations. As described in Note 4,
these financial statements have been revised to include the transitional
disclosures required by Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets", which was adopted by the
Company as of October 1, 2001. We audited the transitional disclosures
described in Note 4. In our opinion, the transitional disclosures for 2001
in Note 4 are appropriate. However, we were not engaged to audit, review,
or apply any procedures to the 2001 financial statements of the Company
other than with respect to such disclosures and, accordingly, we do not
express an opinion or any other form of assurance on the 2001 financial
statements taken as a whole.

PricewaterhouseCoopers LLP
Chicago, Illinois
November 14, 2003

32

REPORT OF INDEPENDENT AUDITORS

Arthur Andersen LLP originally issued this report on November 6, 2001.
These independent accountants have ceased operations.
They have not reissued their report in conjunction with this filing.

TO THE STOCKHOLDERS AND DIRECTORS OF LANDAUER, INC.

We have audited the consolidated balance sheets of Landauer, Inc. and
Subsidiaries, a Delaware corporation (see Note 1), as of September 30, 2001
and 2000 and the related consolidated statements of income, stockholders'
investment and comprehensive income, and cash flows for each of the three
years in the period ended September 30, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Landauer, Inc. and Subsidiaries as of September 30, 2001 and 2000, and the
consolidated results of its operations, and the changes in stockholders'
investment and cash flows for each of the three years in the period ended
September 30, 2001 in conformity with accounting principles generally
accepted in the United States.

Arthur Andersen LLP
Chicago, Illinois
November 6, 2001

33

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, an evaluation was
performed under the supervision and with the participation of the Company's
management, including the Chief Executive Officer ("CEO") and the Chief
Financial Officer ("CFO"), of the effectiveness of the design and operation
of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the CEO and CFO, concluded
the Company's disclosure controls and procedures as of September 30, 2003
were effective in ensuring information required to be disclosed in this
Annual Report on Form 10-K was recorded, processed, summarized and reported
on a timely basis. There have been no changes in the Company's internal
control over financial reporting that occurred during the period ended
September 30, 2003 that have materially affected, or are reasonably likely
to materially affect, the Company's internal control over financial
reporting.

34

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information contained under the headings "Election of Directors"
and "Beneficial Ownership of Common Stock" in the Proxy Statement relating
to the directors of the Company is incorporated herein by reference. The
information contained in Item 4A hereof relating to the executive officers
of the registrant is incorporated herein by reference.

AUDIT COMMITTEE FINANCIAL EXPERT

The Company has determined that Mr. Robert J. Cronin, chairman of the
Audit Committee of the Board of Directors, qualifies as an "audit committee
financial expert" as defined in Item 401(h) of Regulation S-K, and that Mr.
Cronin is "independent" as the term is used in Item 7(d)(3)(iv) of Schedule
14A under the Securities Exchange Act.

CODE OF ETHICS

The Company has adopted a Code of Business Ethics applicable to all
employees. The Company has also adopted a Code of Conduct for Senior
Financial Executives including the principal executive officer, principal
financial officer and principal accounting officer of the Company. Copies
of these documents are available on the Company's Web site at
www.landauerinc.com. The Company intends to post on its web site any
amendments to, or waivers from, its Code of Business Ethics or Code of
Conduct for Senior Financial Officers applicable to such senior officers.

ITEM 11. EXECUTIVE COMPENSATION

Except for the information relating to Item 13 hereof and except for
information referred to in Item 402(a)(8) of Regulation S-K, the
information contained under the headings "Compensation of Directors,"
"Executive Compensation," "Option Grants in Last Fiscal Year," "Aggregated
Option Exercises in Last Year and Fiscal Year-End Option Values," "Equity
Compensation Plan Information" and "Executive Employment Agreements and
Retirement Plans" in the Proxy Statement is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained under the heading "Beneficial Ownership of
Certain Voting Securities" in the Proxy Statement is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Except for the information relating to Item 11 hereof and except for
information referred to in Item 402(a)(8) of Regulation S-K, the
information contained under the headings "Election of Directors," and
"Certain Relationships and Related Transactions" in the Proxy Statement is
incorporated herein by reference.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information contained under the heading "Fees Billed by
Independent Auditors" in the Proxy Statement is incorporated herein by
reference.

35

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

A-1. FINANCIAL STATEMENTS

The financial statements of Landauer, Inc. filed as part of this
Annual Report on Form 10-K are indexed at page i.

A-3. LIST OF EXHIBITS

(3)(a) Certificate of Incorporation of the Registrant, as
amended through February 4, 1993, is incorporated by
reference to Exhibit (3)(a) to the Annual Report on Form
10-K for the fiscal year ended September 30, 1993.

(3)(b) By-laws of the Registrant are incorporated by reference
to Exhibit (3)(b) to the Annual Report on Form 10-K for
the fiscal year ended September 30, 1992.

(4)(a) Specimen common stock certificate of the Registrant
incorporated by reference to Exhibit (4)(a) to the Annual
Report on Form 10-K for the fiscal year ended
September 30, 1997.

(10)(a) The Landauer, Inc. 1996 Equity Plan, as amended and
restated through November 8, 2001, is incorporated by
reference to Exhibit (10)(a) to the Annual Report or
Form 10-K for the fiscal year ended September 30, 2002.

(10)(c) Form of Indemnification Agreement between the Registrant
and each of its directors is incorporated by reference to
Exhibit (10)(e) to the Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.

(10)(d) Landauer, Inc. Directors' Retirement Plan dated March 21,
1990, is incorporated by reference to Exhibit (10)(f) to
the Annual Report on Form 10-K for the fiscal year ended
September 30, 1996.

(10)(e) Form of Supplemental Key Executive Retirement Plan of
Landauer, Inc., as amended and restated effective
October 1, 2002, is incorporated by reference to
Exhibit (10)(e) to the Annual Report or Form 10-K for the
fiscal year ended September 30, 2002.

(10)(f) The Landauer, Inc. Incentive Compensation Plan for
Executive Officers is incorporated by reference to
Exhibit 10(h) to the Annual Report on Form 10-K for the
fiscal year ended September 30, 2000.

(10)(g) The Landauer, Inc. 1997 Non-Employee Director's Stock
Option Plan, as amended and restated through November 8,
2001, is incorporated by reference to Exhibit (10)(g) to
the Annual Report or Form 10-K for the fiscal year ended
September 30, 2002.

(10)(h) Employment agreements dated February 29, 1996 between the
Registrant and Brent A. Latta, James M. O'Connell and
R. Craig Yoder are incorporated by reference to the
Annual Report on Form 10-K for the fiscal year ended
September 30, 1998.

(10)(i) Employment agreements dated November 9, 2001 between the
Registrant and Joseph M. Zlotnicki and Robert M. Greaney
are incorporated by reference to Exhibit (10)(i) to the
Annual Report or Form 10-K for the fiscal year ended
September 30, 2002.

36

(10)(j) The Landauer, Inc. Executive Special Severance Plan dated
May 22, 2002 is incorporated by reference to Exhibit
(10)(j) to the Annual Report or Form 10-K for the fiscal
year ended September 30, 2002.

(14)(a) The Landauer, Inc. Code of Business Ethics is attached
hereto as Exhibit 14(a).

(14)(b) The Landauer, Inc. Code of Conduct for Senior Financial
Executives is attached hereto as Exhibit 14(b).

(21) Subsidiaries of the registrant are:

Beijing Landauer Radiation Monitoring
Technology Co., Ltd. (70%)
Beijing, P.R. China

HomeBuyer's Preferred, Inc. (100%)
2 Science Road
Glenwood, IL 60425-1586

Nagase-Landauer, Ltd. (50%)
Tokyo, Japan

SAPRA-Landauer, Ltda. (75%)
Sao Carlos - SP - Brazil

LCIE-Landauer, Ltd. and subsidiary (51%)
Paris, France; Oxford, United Kingdom

(31.1) Certification of Brent A. Latta, President and
Chief Executive Officer, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 filed
herewith.

(31.2) Certification of James M. O'Connell, Chief Financial
Officer, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 filed herewith.

(32.1) Certification of Brent A. Latta, President and
Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 furnished herewith.

(32.2) Certification of James M. O'Connell, Chief Financial
Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
furnished herewith.

Exhibits 10(a), 10(d), 10(e), 10(f), 10(g), 10(h), 10(i) and 10(j)
listed above are the management contracts and compensatory plans or
arrangements required to be filed as exhibits hereto pursuant to the
requirements of Item 601 of Regulation S-K.

B. REPORTS ON FORM 8-K

On April 28, 2003, Landauer filed a report on form 8-K related to its
earnings press release for the same day.

On July 24, 2003, Landauer filed a report on form 8-K related to its
earnings press release for the same day.

On November 10, 2003, Landauer filed a report on form 8-K related to
its earnings press release for the same day.

37

SIGNATURES OF REGISTRANT AND DIRECTORS

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

LANDAUER, INC.

By: /s/ Brent A. Latta December 19, 2003
------------------------
Brent A. Latta
President and Chief
Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

Signature Title Date
--------- ----- ----

/s/ Brent A. Latta President and Director December 19, 2003
- ------------------------ (Principal Executive
Brent A. Latta Officer)

/s/ James M. O'Connell Vice President, Finance, December 19, 2003
- ------------------------ Treasurer and Secretary
James M. O'Connell (Principal Financial and
Accounting Officer)

/s/ Robert J. Cronin Director December 19, 2003
- ------------------------
Robert J. Cronin

/s/ E. Gail de Planque Director December 19, 2003
- ------------------------
E. Gail de Planque

/s/ Gary D. Eppen Director December 19, 2003
- ------------------------
Gary D. Eppen

/s/ M. Christine Jacobs Director December 19, 2003
- ------------------------
M. Christine Jacobs

/s/ Richard R. Risk Director December 19, 2003
- ------------------------
Richard R. Risk

/s/ Michael D. Winfield Director December 19, 2003
- ------------------------
Michael D. Winfield

38

QUARTERLY FINANCIAL DATA (UNAUDITED)