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EX-10.K - LANDAUER INCexh_10.txt
EX-32.2 - LANDAUER INCexh_322.txt
EX-31.2 - LANDAUER INCexh_312.txt
EX-32.1 - LANDAUER INCexh_321.txt
EX-31.1 - LANDAUER INCexh_311.txt

                                UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, DC 20549

                                  FORM 10-K

      [ X ]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934

                For the fiscal year ended September 30, 2009

      [   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934

                        Commission File Number 1-9788

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


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


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


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


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


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


         Securities registered pursuant to Section 12(g) of the Act:
                                    None

      Indicate by check mark if the Registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.  Yes [  ]   No [ X ]

      Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [   ]  No [ X ]

      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 whether the registrant has submitted
electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).  Yes [   ]  No [   ]

      Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405) 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.  [ X ]




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ X ] Non-accelerated filer [ ] Smaller reporting company [ ] Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [ X ] As of March 31, 2009 the aggregate market value, based upon the closing price on the New York Stock Exchange, of the voting and nonvoting common equity held by non-affiliates was approximately $469,000,000. The number of shares of common stock ($0.10 par value) outstanding as of December 1, 2009 was 9,348,011. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement in connection with the February 11, 2010 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 3 Marketing and Sales 5 Seasonality 6 International Activities 7 Patents 7 Raw Materials 7 Competition 7 Research and Development 8 Environmental and Other Governmental Regulations 8 Employees and Labor Relations 9 Available Information 9 Executive Officers of the Company 9 1A. Risk Factors 10 1B. Unresolved Staff Comments 14 2. Properties 14 3. Legal Proceedings 15 4. Submission of Matters to a Vote of Security Holders 15 PART II 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 15 6. Selected Financial Data 16 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 7A. Quantitative and Qualitative Disclosures about Market Risk 29 8. Consolidated Financial Statements and Supplementary Data Consolidated Balance Sheets 30 Consolidated Statements of Income 32 Consolidated Statements of Stockholders' Equity and Comprehensive Income 33 Consolidated Statements of Cash Flows 35 Notes to Consolidated Financial Statements 37 Report of Independent Registered Public Accounting Firm 56 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 58 9A. Controls and Procedures 58 9B. Other Information 58 PART III 10. Directors, Executive Officers and Corporate Governance 59 11. Executive Compensation 59 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 59 13. Certain Relationships and Related Transactions, and Director Independence 59 14. Principal Accounting Fees and Services 59 Part IV 15. Exhibits, Financial Statement Schedules Financial Statements 60 List of Exhibits 60 Signatures 64 Quarterly Financial Data (Unaudited) 65
PART I (Dollars in thousands) ITEM 1. BUSINESS GENERAL DESCRIPTION Landauer is a leading global provider of technical and analytical services to determine occupational and environmental radiation exposure and is the leading domestic provider of outsourced medical physics services. For over 50 years, the Company has provided complete radiation dosimetry services to hospitals, medical and dental offices, universities, national laboratories, nuclear facilities and other industries in which radiation poses a potential threat to employees. Landauer's services include the manufacture of various types of radiation detection monitors, the distribution and collection of the monitors to and from customers, and the analysis and reporting of exposure findings. These services are provided to approximately 1.6 million individuals in the United States, Australia, Brazil, Canada, China, France, Japan, Mexico, the United Kingdom and other countries. In addition to providing analytical services, the Company may lease or sell dosimetry detectors and reading equipment to large customers that want to manage their own dosimetry programs, or into smaller international markets in which it is not economical to establish a direct service. Through its Global Physics Solutions, Inc. ("GPS") subsidiary, which was acquired in November 2009, the Company provides therapeutic and diagnostic physics services and educational services to the medical physics community. Landauer, Inc. is a Delaware corporation organized on December 22, 1987. As used herein, the "Company" or "Landauer" refers to Landauer, Inc. and its subsidiaries. The Company's shares are listed on the New York Stock Exchange under the symbol LDR. As of September 30, 2009, there were 9,381,098 shares outstanding. The majority of the Company's revenues are realized from radiation monitoring services and other services incidental to radiation dose measurement. The Company enters into agreements with customers to provide them with radiation monitoring services, generally for a twelve-month period, and such agreements generally have a high renewal rate. Relationships with customers are generally stable and recurring, and the Company provides customers with on-going services. As part of its services, the Company provides to its customers radiation detection badges, which are produced and owned by the Company. The badges are worn for a period selected by the customers ("wear period"), which is usually one, two, or three months in duration. At the end of the wear period, the badges are returned to the Company for analysis. The Company analyzes the badges that have been worn and provides its customers with a report indicating their radiation exposures. The Company recycles certain badge components for reuse, while also producing replacement badges on a continual basis. The Company offers its service for measuring the dosages of x-ray, gamma radiation and other penetrating ionizing radiations to which the wearer has been exposed, primarily through badges, which contain optically stimulated luminescent ("OSL") material, which are worn by customer personnel. This technology is marketed under the trade names Luxel+(r) and InLight(r). A key component of the Company's dosimetry system is OSL crystal material. Landauer operates a crystal manufacturing facility in Stillwater, Oklahoma that it acquired in August 1998. The Company's base OSL material is manufactured utilizing a proprietary process to create aluminum oxide crystals in a unique structure that is able to retain charged electrons following the crystal's exposure to radiation. 3
Landauer's InLight dosimetry system, introduced in 2003, provides in-house and commercial laboratories with the ability to provide in-house radiation monitoring services using OSL technology. InLight services may involve a customer acquiring or leasing dosimetry devices as well as analytical reading equipment from the Company. The system is based on the Company's proprietary technology and instruments, and dosimetry devices developed by Panasonic Communications Company. The InLight system allows customers the flexibility to tailor their precise dosimetry needs. Landauer's operations include services for the measurement and monitoring of radon gas (referred to as "sales of radon kits"), which represent less than 3% of the Company's total revenues for fiscal 2009. Its wholly-owned subsidiary, HomeBuyer's Preferred, Inc., offers a service, targeted to corporate employee relocation programs, which provides radon monitoring and, when necessary, remediation to purchasers of personal residences. Testing requires the customer to deploy a radon detector and return the detector to the Company's laboratories for dose determination and reporting. The Company assists with remediation services on properties where radon measurements exceed a specified threshold. Other radiation measurement-related services ("ancillary services") augment the basic radiation measurement services that the Company offers, providing administrative and informational tools to customers for the management of their radiation safety programs. Landauer believes that its business is largely dependent upon the Company's technical competence, the quality, reliability and price of its services and products, and its prompt and responsive service. 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. The following table summarizes the Company's international affiliates and the territories each serves: Service Company Ownership Territory ------- --------- --------- Consolidated Subsidiaries: Landauer-Europe, Ltd. 100% Europe SAPRA-Landauer, Ltda. 75% South America Beijing-Landauer, Ltd. 70% China Landauer Australasia Pty Ltd. 51% Australia ALSA Dosimetria, S. de R.L. de C.V. 56.25% Central America Equity Method Joint Venture: Nagase-Landauer, Ltd. 50% Japan In November 2009, Landauer completed the acquisition of GPS. GPS is based in Texas with operations throughout the Midwest and provides medical physics services to hospitals and radiation therapy centers. Also, in November 2009, Landauer completed the acquisition of Gammadata Metteknik AB ("GDM"), a Swedish provider of radon measurement services. GDM is based near Stockholm, Sweden and provides measurement services throughout the Scandinavian region and Europe. In October 2009, Landauer acquired a dosimetry service in Sweden, now called Landauer Persondosimetri AB. 4
The Company completed the acquisition of GPS as a platform to expand into the Medical Physics Services Market, serving domestic hospitals and radiation therapy centers. Based in Texas, GPS is the leading nationwide service provider of clinical physics support, equipment commissioning and accreditation support, diagnostic equipment testing and educational services. Clinical physics support is provided by medical physicists, who are either diagnostic or therapeutic physicists. Diagnostic physicists are concerned primarily with the radiation delivered by imaging equipment, image quality and compliance with safe practices in nuclear pharmacies. In many ways diagnostic physicists perform a certification function. Therapeutic physicists are concerned with the safe delivery of radiation in cancer treatment. Therapeutic physicists contribute to the development of therapeutic techniques, collaborate with radiation oncologists to design treatment plans, and monitor equipment and procedures to ensure that cancer patients receive the prescribed dose of radiation to the correct location. Both specialties are aligned with critical treatment trends in the continued increased utilization of radiation for the diagnosis and treatment of disease. The ability to target treatments and reduce the impact of surgical procedures is often aided by imaging and therapeutic techniques. A summary of selected financial data for Landauer for the last five fiscal years is set forth in Item 6 of Part II of this Annual Report on Form 10-K. MARKETING AND SALES Landauer's dosimetry services are marketed in the United States and Canada primarily by full-time Company personnel located in five sales regions with support from telesales representatives. The Company's non-domestic services are marketed through its wholly owned subsidiary operating in the United Kingdom and France, as well as its venture in Japan and subsidiaries in Brazil, Australia, Mexico and China. Other firms and individuals market the Company's services on a commission basis, generally to small customers or in geographic regions in which the Company does not have a direct presence. Worldwide, the Company and its affiliates serve approximately 67,000 customers representing approximately 1.6 million dosimeters annually. The customer base is diverse and fragmented with no single customer representing greater than 2% of revenue. Typically, a customer will contract on a subscription basis for one year of service in advance, representing monthly, bimonthly or quarterly badges, readings and reports. Customer relationships in the radiation monitoring market are generally stable and recurring. Deferred contract revenue, as shown on the consolidated balance sheets, represents advance payment for services to be rendered for those customers invoiced in advance. At September 30, 2009 and 2008, deferred contract revenue was $15,632 and $15,626, respectively. Further details of the Company's revenue recognition and deferred contract revenue policy are set forth in the "Critical Accounting Policies" section of Item 7 of this Annual Report on Form 10-K. The Company's domestic radiation monitoring services are largely based on the Luxel+ dosimeter system in which all analyses are performed at the Company's laboratories in Glenwood, Illinois. Luxel+ employs the Company's proprietary OSL technology. The Company's InLight dosimetry system enables certain customers to make their own measurements using OSL technology. InLight is marketed to domestic and international radiation measurement laboratories found at nuclear power plants, military installations, the Department of Homeland Security, national research laboratories, and commercial services. Landauer has positioned the InLight system as both a product line and a radiation monitoring service in ways that others can benefit directly from the technical and operational advantage of OSL technology. The resulting business models include: . The provision of InLight systems to subsidiary and partner laboratories. 5
. The sale of radiation detection monitors and analytical instruments and the provision of custom analytical software to independent laboratories throughout the world to replace their existing technologies with an OSL-based radiation dosimetry system. . The lease or rental of InLight systems by in-house laboratories such as nuclear power plants, Department of Energy facilities and others for their temporary or permanent use in radiation safety programs. . The sale of the MicroStar(r) system, a miniaturized OSL reader based on InLight technology, to hospitals, laboratories and others that require specialized radiation measurements for a variety of purposes. . The provision of the "legal dose of record" to Homeland Security and First Responder personnel by combining InLight passive dosimetry technology with the active dosimeters offered by industry leaders. For most radiation dosimetry laboratories operating around the world, the laboratory must maintain accreditation with a regulatory body to provide the user with a formal record of dose - a process that is expensive and time consuming. By combining the implementation of an InLight system in the laboratory and "dose of record" determination by Landauer or a Company affiliated and accredited facility, the user can provide its workers with the periodic radiation safety management infrastructure without the need to maintain its own accreditation. Additionally, dosimetry management software options provide the ability to measure incremental radiation dose of workers at regular intervals over long periods of time. For those customers that require the establishment of an on-site laboratory but do not have the need or ability to maintain inventories of ready-to-wear devices for their employees, the InLight system allows those devices to be provided by Landauer at predetermined intervals. This option reduces investment in the upfront dosimetry system and adds the convenience of on-time delivery of devices. InLight also forms the basis for Landauer's operations in Europe, Asia, and Mexico and other future operations that might occur where local requirements preclude using a U.S. or other foreign-based laboratory. Radon gas detection kits are marketed directly by the Company primarily to institutional customers and government agencies. The HomeBuyer's Preferred(r) Radon Protection Plan service agreement is marketed directly by Landauer to companies and to their corporate relocation service providers for the benefit of purchasers of residences incident to transfers of personnel. Medical physics outsourced services are marketed to hospitals and free-standing cancer centers or free-standing imaging centers primarily in the Midwest. The services are marketed by two full-time business development professionals supported by GPS' senior leadership and physicists. SEASONALITY The services provided by the Company to its customers are ongoing and are of a subscription nature. As such, revenues are recognized in the periods in which such services are rendered, irrespective of whether invoiced in advance or in arrears. Given the subscription nature of Landauer's services, quarterly revenues are fairly consistent. During the second quarter of each fiscal year, the Company provides additional services for reporting annual radiation dose summaries that generate increased revenues. The introduction of the Company's InLight product line may result in some variability in quarter-to-quarter revenue comparisons given the nature of purchase cycles associated with sales of radiation dose measurement instruments and detectors. 6
INTERNATIONAL ACTIVITIES Information regarding the Company's activities by geographic region is contained under the footnote "Geographic Information" on page 54 of this Annual Report on Form 10-K. 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 ("Battelle") and Oklahoma State University ("OSU") as part of collaborative efforts to develop and commercialize a new generation of radiation dosimetry technology. The underlying patents for these licenses expire in years 2010 through 2024. The Battelle patents, which address specific OSL materials and basic aspects of use, expire in 2014. The OSU patents are specific to the stimulation process, imaging and data interpretation. The last of these patents expires in 2024. As of September 30, 2009, the Company is using OSL technology to provide dosimetry services to essentially its entire domestic and the majority of its international customers. These patents represent an important proprietary component of the OSL-based radiation monitoring services and products sold under the trade names Luxel, Luxel+ and InLight. Additionally, the Company holds certain patents that relate to various dosimeter designs, radiation measurement materials and methods, and optical data storage techniques using aluminum oxide generated from the Company's research and development activities. These patents expire between 2017 through 2024. Rights to inventions of employees working for Landauer are assigned to the Company. RAW MATERIALS The Company has multiple sources for many of its raw materials and supplies, and believes that the number of sources and availability of these items are adequate. Landauer internally produces certain of its requirements, such as OSL detector materials and plastic badge holders. All crystal materials used in the Company's OSL technology are produced at the Company's crystal manufacturing facility in Stillwater, Oklahoma. The InLight dosimetry system and its components are manufactured by Panasonic Communications Company under an exclusive agreement. If the Company were to lose availability of its Stillwater facility or materials from Panasonic due to a fire, natural disaster or other disruptions, such loss could have a material adverse effect on the Company and its operations. COMPETITION In the United States, Landauer competes against a number of dosimetry service providers. One of these providers, Global Dosimetry Solutions, a division of Mirion Technologies, is a significant competitor with substantial resources. Other competitors in the United States that provide dosimetry services tend to be smaller companies, some of which operate on a regional basis. Most government agencies in the United States, such as the Department of Energy and Department of Defense, have their own in-house radiation monitoring services, as do many large private nuclear power plants. Outside of the United States, radiation monitoring activities are conducted by a combination of private entities and government agencies. 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. Landauer's InLight dosimetry system competes with other dosimetry systems based on the technical advantages of OSL methods combined with an integrated systems approach featuring comprehensive software, automation and value. 7
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 long-term alpha-track detectors. The HomeBuyer's Preferred Radon Protection Plan represents a product sold exclusively to the corporate relocation market through firms providing relocation services and directly to corporate customers. Medical physics outsourced services represents a large fragmented market where GPS has many small competitors. In addition many facilities directly employ full-time physicists as an alternative from obtaining services from an outsourced provider. RESEARCH AND DEVELOPMENT The Company's technological expertise has been an important factor in its growth. The Company regularly pursues product improvements to maintain its technical position. The development of OSL dosimetry, announced in 1994, was funded by the Company in its collaborative effort with Battelle Memorial Institute and Oklahoma State University. The Company commercialized this technology beginning in 1998 and has converted most of its customers to the technology. Current research efforts seek to expand the use of OSL, particularly as it applies to radiation measurements in therapeutic and diagnostic radiology and nuclear medicine as well as to environmental radiation dosimetry. In addition, the Company is evaluating new badge and InLight reader configurations that have military application and is designing a badge that will support global standardization. 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. In fiscal 2009, 2008 and 2007, the Company spent $1,948, $1,837 and $1,831, respectively, on research and development activities. 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 operations, or competitive position of Landauer. Many of the Company's technology based services must comply with various national and international standards that are used by regulatory and accreditation bodies for approving such services and products. These accreditation bodies include, for example, the National Voluntary Laboratory Accreditation Program in the U.S. and governmental agencies, generally, in international markets. Changes in these standards and accreditation requirements can result in the Company having to incur costs to adapt its offerings and procedures. Such adaptations may introduce quality assurance issues during transition that need to be addressed to ensure timely and accurate analyses and data reporting. Additionally, changes affecting radiation protection practices, including new understandings of the hazards of radiation exposure and amended regulations, may impact how the Company's services are used by its customers and may, in some circumstances, cause the Company to alter its products and delivery of its services. 8
EMPLOYEES AND LABOR RELATIONS As of September 30, 2009, the Company employed approximately 430 full-time employees worldwide. The Company believes that it generally maintains good relations with employees at all locations. AVAILABLE INFORMATION 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 100 F Street, NE, Washington, D.C. 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 reports 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. A copy of the Company's Annual Report on Form 10-K is available free of charge upon the written request of any shareholder. Requests should be submitted to the following address: Landauer, Inc., Attention: Corporate Secretary, 2 Science Road, Glenwood, Illinois 60425. Pursuant to Section 303A.12(a), Landauer, Inc. has complied with the New York Stock Exchange requirement to provide an annual CEO certification no later than 30 days following the Company's annual meeting. EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company are as follows: NAME OF OFFICER AGE POSITION --------------- --- -------- William E. Saxelby 53 President and Chief Executive Officer Jonathon M. Singer 45 Senior Vice President, Treasurer, Secretary, and Chief Financial Officer R. Craig Yoder 57 Senior Vice President-Marketing and Technology Richard E. Bailey 63 Senior Vice President-Operations Mr. Saxelby joined the Company in September 2005 as President and Chief Executive Officer. Previously, he served as Chief Executive Officer of Medical Research Laboratories, a manufacturer of defibrillators, prior to its sale to Welch Allyn in 2003, and consulted with certain private equity firms between 2003 and 2005. Prior to joining Medical Research Laboratories, he served as a Corporate Vice President of Allegiance Healthcare from 1996 to 1999, and from 1978 to 1996 he held executive positions at Baxter International and its American Hospital Supply subsidiary. 9
Mr. Singer joined the Company in October 2006 as Senior Vice President, Treasurer, Secretary, and Chief Financial Officer. Previously, he served as Vice President Global Finance, Chief Financial Officer for the Medical segment of Teleflex Incorporated. From 2004 to 2005, he served as Vice President, Strategy and Business Development for Teleflex's Medical segment. From 1998 through 2004, he worked in a number of positions within the Medical Products and Services business segment of Cardinal Health, Inc., most recently as its Vice President, Strategy and Business Development. Dr. Yoder was elected to his position in February 2001, 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. Bailey was elected to his position in May 2006. Prior to joining the Company, he was President and Chief Operating Officer of Dean Foods Company and held senior executive positions with Philip Morris Company, Kraft Foods, Inc., and Total Logistic Control. There are no family relationships between any director or executive officer and any other director or executive officer of the Company. ITEM 1A. RISK FACTORS In addition to factors discussed elsewhere in this Annual Report on Form 10-K, set forth below are certain risks and uncertainties that could adversely affect our results of operations or financial condition and cause actual results or events to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. WE RELY ON A SINGLE FACILITY FOR THE PRIMARY MANUFACTURING AND PROCESSING OF OUR DOSIMETRY PRODUCTS AND SERVICES. Landauer conducts its primary dosimetry manufacturing and laboratory processing operations and performs significant functions for some of its international operations from a single facility in Glenwood, Illinois. 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. WE RELY ON A SINGLE FACILITY FOR THE MANUFACTURING OF CRYSTAL MATERIAL, A KEY COMPONENT IN OUR OSL TECHNOLOGY, AND A SINGLE VENDOR FOR THE MANUFACTURING OF INLIGHT PRODUCTS. Crystal material is a key component in Landauer's OSL technology. The Company operates a single crystal manufacturing facility in Stillwater, Oklahoma that currently supplies all OSL crystal radiation measurement material used by the Company. Although multiple sources for raw crystal material exist, there can be no assurance that the Company could secure another source to produce finished crystal materials to Landauer's specification in the event of a disruption at the Stillwater facility. The InLight dosimetry system and its components are manufactured by Panasonic Communications Company under an exclusive agreement. If the Company were to lose availability of its Stillwater facility or materials from Panasonic due to a fire, natural disaster or other disruptions, such loss could have a material adverse effect on the Company and its operations. 10
IF WE ARE NOT SUCCESSFUL IN THE DEVELOPMENT OR INTRODUCTION OF NEW TECHNOLOGIES, OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED. Landauer's technological expertise has been an important factor in its growth. The Company regularly pursues product improvements to maintain its technical position. The development and introduction of new technologies, the adaptability of OSL to new platforms and new formats, the usefulness of older technologies as well as the introduction of new technologies by the competition present various risks to the Company's business. The failure or lack of market acceptance of a new technology or the inability to respond to market requirements for new technology could adversely affect the Company's operations or reputation with customers. The cancellation of technology projects or the cessation of use of an existing technology can result in write-downs and charges to the Company's earnings. In the normal course of its business, Landauer must record and process significant amounts of data quickly and accurately and relies on various computer and telecommunications equipment and software systems. Any failure of such equipment or systems could adversely affect the Company's operations. IF WE ARE UNABLE TO SUCCESSFULLY EXECUTE BUSINESS DEVELOPMENT ACTIVITIES SUCH AS THE ACQUISITION AND INTEGRATION OF STRATEGIC BUSINESSES, OUR ON-GOING BUSINESS AND RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED. A principal growth strategy of Landauer is to explore opportunities to selectively enhance its business through development activities, such as strategic acquisitions, investments and alliances. In furtherance of this objective, in November 2009, Landauer acquired GPS and GDM and intends to continue to pursue other acquisition and business development initiatives in the future. Acquisitions and other business development activities involve various significant challenges and risks, including the following: . Difficulty in acquiring desired businesses or assets on economically acceptable terms; . Difficulty in integrating new employees, business systems and technology; . Difficulty in consolidating facilities and infrastructure; . Potential need to operate and manage new lines of business; . Potential loss of key personnel; . Diversion of management's attention from on-going operations; . Realization of satisfactory returns on investments; and . Disputes with strategic partners, due to conflicting priorities or conflicts of interest. Development activities could result in the incurrence of debt, contingent liabilities, interest and amortization expenses or periodic impairment charges related to goodwill and other intangible assets as well as significant charges related to integration costs. If the Company is unable to successfully integrate and manage businesses that it acquires within expected terms and in a timely manner, its business and results of operations could be adversely affected. 11
CERTAIN OF OUR INTERNATIONAL OPERATIONS ARE CONDUCTED THROUGH JOINT VENTURES IN WHICH WE RELY SIGNIFICANTLY ON OUR JOINT VENTURE PARTNERS. A substantial portion of the Company's international operations are conducted through joint ventures with third parties. In Australia, Brazil, China, and Mexico, the Company has a controlling interest in the related joint ventures. In Japan, the Company has a 50% interest in Nagase-Landauer, Ltd. In all of these joint ventures, Landauer relies significantly on the services and skills of its joint venture partners to manage and conduct the local operations and ensure compliance with local laws and regulations. If the joint venture partners were unable to perform adequately these functions, Landauer's operations in such regions could be adversely affected. AS A PORTION OF OUR BUSINESS IS CONDUCTED OUTSIDE OF THE UNITED STATES, ADVERSE INTERNATIONAL DEVELOPMENTS COULD NEGATIVELY IMPACT OUR BUSINESS AND RESULTS OF OPERATIONS. Landauer conducts business in numerous international markets such as Australia, Brazil, Canada, China, France, Japan, Mexico, and the United Kingdom. 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. OUR BUSINESS IS SUBJECT TO EXTENSIVE DOMESTIC AND FOREIGN GOVERNMENT REGULATIONS, WHICH COULD INCREASE OUR COSTS, CAUSE US TO INCUR LIABILITIES AND ADVERSELY AFFECT OUR RESULTS OF OPERATIONS. Regulation, present and future, is a constant factor affecting the Company's business. The radiation monitoring industry is subject to federal, state and international governmental regulation. Unknown matters, new laws and regulations, or stricter interpretations of existing laws or regulations may materially affect Landauer's business or operations in the future and/or could increase the cost of compliance. The equipment commissioning business of GPS, which Landauer acquired in November 2009, and the employment of physicists and other healthcare professionals also are subject to federal, state and international governmental regulation and licensing requirements. Many of the Company's technology-based services must comply with various domestic and international standards that are used by regulatory and accreditation bodies for approving such services and products. The failure of the Company to obtain accreditation for its products and services may adversely affect the Company's business and market perception of the effectiveness of its products and services. Changes in these standards and accreditation requirements may also result in the Company having to incur substantial costs to adapt its offerings and procedures. Such adaptations may introduce quality assurance issues during transition that need to be addressed to ensure timely and accurate analyses and data reporting. Additionally, changes affecting radiation protection practices, including new understandings of the hazards of radiation exposure and amended regulations, may impact how the Company's services are used by its customers and may, in some circumstances, cause the Company to alter its products and delivery of its services. FLUCTUATIONS IN CURRENCY EXCHANGE RATES COULD ADVERSELY AFFECT OUR RESULTS. The Company is exposed to market risk, including changes in foreign currency exchange rates. The financial statements of the Company's non-U.S. subsidiaries are remeasured into U.S. dollars using the U.S. dollar as the reporting 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. 12
SEVERAL OF OUR CURRENT AND POTENTIAL COMPETITORS HAVE SIGNIFICANTLY GREATER RESOURCES, AND INCREASED COMPETITION COULD IMPAIR SALES OF OUR PRODUCTS. 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, has substantial resources, and has been particularly active in recent years in soliciting business from the Company's customers. The Company also faces competitive pressures from a number of smaller competitors. UNFORESEEN PROBLEMS WITH THE IMPLEMENTATION AND MAINTENANCE OF OUR INFORMATION SYSTEMS COULD INTERFERE WITH OUR OPERATIONS. As part of the Company's initiative to re-engineer business processes and replace components of its information technology systems, the Company is implementing new enterprise resource planning software and other applications to manage certain of its business operations. The Company has and likely will continue to incur substantial costs associated with the implementation and additional costs associated with maintenance of the new systems. As the new applications are implemented and functionality added, unforeseen problems could arise. Such problems could adversely impact the Company's operations, including the ability to perform the following in a timely manner: customer quotes, customer orders, product shipment, customer services and support, order billing and tracking, contractual obligations fulfillment and other related operations. In addition, the Company has engaged third-party consultants for the development and implementation of the new systems. If the consultants fail to perform on their obligations, development and implementation of the project could be further delayed. If the new systems fail to provide simplified processes to serve customers and increase the speed with which the Company develops and introduces new products, the Company's results of operations and cash flows could be adversely affected. OUR FAILURE TO ATTRACT, MOTIVATE AND RETAIN QUALIFIED AND KEY PERSONNEL TO SUPPORT OUR BUSINESS MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS PLANS, PROSPECTS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The Company's success depends, in large part, upon the talent and efforts of key individuals including highly skilled scientists, physicists and engineers, as well as experienced senior management, sales, marketing and finance personnel. Competition for these individuals is intense and there can be no assurance that the Company will be successful in attracting, motivating, or retaining key personnel. The loss of the services of one or more of these senior executives or key employees, or the inability to continue to attract these personnel may have a material effect on its business plans, prospects, results of operations and financial condition. The Company's continued ability to compete effectively depends on its ability to attract new skilled employees and to retain and motivate its existing employees. The GPS business involves the delivery of professional services and is highly labor-intensive. Its success depends largely on its general ability to attract, develop, motivate and retain highly skilled licensed medical physicists ("physicists"). Further, the Company must successfully maintain the right mix of physicists with relevant experience and skill sets as the Company continues to grow, as it expands into new service offerings, and as the market evolves. The loss of a significant number of its physicists, the inability to attract, hire, develop, train and retain additional skilled personnel, or not maintaining the right mix of professionals could have a serious negative effect on the Company, including its ability to manage, staff and successfully complete its existing engagements and obtain new engagements. Qualified physicists are in great demand, and the Company faces significant competition for both senior and junior physicists with the requisite credentials and experience. The Company's principal competition for talent comes from other outsource 13
medical physicist firms, hospitals and free-standing radiation therapy centers. Many of these competitors may be able to offer significantly greater compensation and benefits or more attractive lifestyle choices, career paths or geographic locations than those of the Company. Therefore, the Company may not be successful in attracting and retaining the skilled physicists it requires to conduct and expand its operations successfully. Increasing competition for these revenue-generating medical physicists may also significantly increase the Company's labor costs, which could negatively affect its margins and results of operations. THE CURRENT UNITED STATES AND STATE HEALTH REFORM LEGISLATIVE INITIATIVES COULD ADVERSELY AFFECT OUR OPERATIONS AND BUSINESS CONDITION. The Obama Administration and Congress are considering federal legislation to reform the U.S. healthcare system. The current proposed federal health reform legislation includes various bills with various Congressional sponsors. A common issue addressed in the proposed federal health reform initiatives is increasing access to health benefits for the uninsured or underinsured populations. Some of the current proposed federal health reform legislation includes reforms and reductions that could affect Medicare reimbursements and health insurance coverage for certain services and treatments. Some states also have pending health reform legislative initiatives. Changes in reimbursements and coverages could adversely affect hospitals and medical services providers, which could result in reduced demand for certain services offered by the Company, including services offered by our recently acquired GPS subsidiary. At this time, Landauer is unable to determine the ultimate content or timing of any health reform legislation. Landauer will not be able to determine the effect that any such legislation may have on its operations and business condition until such legislation is enacted, but such legislation may adversely affect the operations and business condition of Landauer and its subsidiaries. WE COULD BE SUBJECT TO PROFESSIONAL LIABILITY LAWSUITS, SOME OF WHICH WE MAY NOT BE FULLY INSURED AGAINST OR RESERVED FOR, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. In recent years, physicians, hospitals and other participants in the healthcare industry have become subject to an increasing number of lawsuits alleging medical malpractice and related legal theories such as negligent hiring, supervision and credentialing, and vicarious liability for acts of their employees or independent contractors. Many of these lawsuits involve large claims and substantial defense costs. The acquisition of GPS increases the Company's presence in the healthcare industry. As the Company increases its focus on the healthcare industry, it could be exposed to litigation or subject to fines, penalties or suspension of services relating to the compliance with regulatory requirements. ITEM 1B. UNRESOLVED STAFF COMMENTS At September 30, 2009, the Company is not aware of any unresolved written comments from the Commission staff regarding its periodic or current reports under the Act. ITEM 2. PROPERTIES Landauer owns three adjacent buildings totaling approximately 65,000 square feet in Glenwood, Illinois, about 30 miles south of Chicago, and leases a local warehouse. The properties house the Company's administrative offices, information technology resources, and laboratory, assembly and reading operations. 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 leases a crystal growth facility in Stillwater, Oklahoma and maintains laboratories in Japan, through its joint venture with Nagase-Landauer, Ltd., Brazil, China, Australia, Mexico and France, as well as a sales office in England. GPS leases offices in Ohio, Indiana, Michigan and Texas. 14
ITEM 3. LEGAL PROCEEDINGS The Company is a party, from time to time, to various legal proceedings, lawsuits and other claims arising in the ordinary course of its business. The Company does not believe that any such litigation pending as of September 30, 2009, if adversely determined, would have a material effect on its business, financial position, results of operations, or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the three months ended September 30, 2009. PART II (Dollars in thousands, except per share data) ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company's common stock is traded on the New York Stock Exchange under the trading symbol LDR. A summary of high and low market prices of the Company's common stock for the last two fiscal years is set forth in the table on page 65 of this Annual Report on Form 10-K. As of December 1, 2009, there were approximately 343 shareholders of record. There were no sales of unregistered securities of the Company and no repurchases of equity securities of the Company during fiscal 2009 by the Company. On November 27, 2009, the Company declared an increase of the regular quarterly cash dividend by 2.4% to $0.5375 per share for the first quarter of fiscal 2010. This increase represents an annual rate of $2.15 per share compared with $2.10 paid in fiscal 2009. A summary of cash dividends paid for the last two fiscal years is set forth in the table on page 65 of this Annual Report on Form 10-K. Information pursuant to this Item relating to securities authorized for issuance under equity compensation plans, contained under the heading "Equity Compensation Plan Information" in the Proxy Statement, is incorporated herein by reference. PERFORMANCE GRAPH The following graph reflects a comparison of the cumulative total return (change in stock price plus reinvested dividends) assuming $100 invested in: (a) Landauer's common stock, (b) the Standard & Poor's ("S&P") industry index represented by a group of health care services companies and (c) the S&P SmallCap 600 Index during the period from September 30, 2004 through September 30, 2009. The comparisons in the following table are historical and are not intended to forecast or be indicative of possible future performance of Landauer's common stock. Landauer's common stock was added to the S&P SmallCap 600 Index on September 16, 2008. The S&P SmallCap 600 Index consists of stocks of U.S. companies with market capitalizations between $200 million and $1.0 billion. New stocks are not only based on size, but also financial viability, liquidity, adequate public float and other trading requirements. 15
[ LINE CHART INDICATING THE FOLLOWING ] Value of Investment at September 30, --------------------------------------- (Dollars) 2004 2005 2006 2007 2008 2009 --------- ---- ---- ---- ---- ---- ---- Landauer, Inc. . . . . . . $100 $108 $116 $121 $180 $141 S&P Health Care Services . 100 144 169 229 240 263 S&P SmallCap 600 Index . . 100 121 130 149 129 115 ITEM 6. SELECTED FINANCIAL DATA FIVE YEAR SELECTED FINANCIAL DATA LANDAUER, INC. AND SUBSIDIARIES FOR THE YEARS ENDED SEPTEMBER 30, (Dollars in Thousands, Except per Share) 2005(1) 2006(2) 2007(3) 2008(4) 2009(5) ---------------------- -------- -------- -------- -------- -------- Operating results Net revenues . . . $ 75,221 $ 79,043 $ 83,716 $ 89,954 $ 93,827 Operating income . 26,551 29,505 28,603 34,075 32,518 Net income . . . . 17,208 19,046 19,316 22,983 23,366 Diluted net income per share. . . . $ 1.90 $ 2.09 $ 2.10 $ 2.47 $ 2.49 Cash dividends per share. . . . . . . . $ 1.70 $ 1.80 $ 1.90 $ 2.00 $ 2.10 Total assets . . . . . $ 85,859 $ 90,674 $ 97,340 $118,690 $125,205 (1) Fiscal 2005 includes a management reorganization charge of $2,300, reducing net income by $1,386 (after income tax benefit of $914) or $0.15 per diluted share. (2) Fiscal 2006 includes reorganization charges and management transition charges of $1,650, reducing net income by $994 (after income tax benefit of $656) or $0.11 per diluted share. (3) Fiscal 2007 includes accelerated depreciation and impairment charges of $2,875, reducing net income by $1,725 (after income tax benefit of $1,150) or $0.19 per diluted share. (4) Fiscal 2008 includes accelerated depreciation charges of $376, reducing net income by $225 (after income tax benefit of $151) or $0.02 per diluted share. (5) Fiscal 2009 includes pension curtailment and transition costs of $2,236, reducing net income by $1,478 (after income tax benefit of $758) or $0.16 per diluted share, and reorganization charges of $416, reducing net income by $275 (after income tax benefit of $141) or $0.03 per diluted share. 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Landauer is a leading global provider of technical and analytical services to determine occupational and environmental radiation exposure and is the leading domestic provider of outsourced medical physics services. For over 50 years, the Company has provided complete radiation dosimetry services to hospitals, medical and dental offices, universities, national laboratories, nuclear facilities and other industries in which radiation poses a potential threat to employees. Landauer's services include the manufacture of various types of radiation detection monitors, the distribution and collection of the monitors to and from customers, and the analysis and reporting of exposure findings. These services are provided to approximately 1.6 million individuals in the United States, Australia, Brazil, Canada, China, France, Japan, Mexico, the United Kingdom and other countries. In addition to providing analytical services, the Company may lease or sell dosimetry detectors and reading equipment to large customers that want to manage their own dosimetry programs, or into smaller international markets in which it is not economical to establish a direct service. Through its Global Physics Solutions, Inc. ("GPS") subsidiary, which was acquired in November 2009, the Company provides therapeutic and diagnostic physics services and educational services to the medical physics community. Landauer's occupational and environmental monitoring business is a mature business, and growth in numbers of customers is modest. In recent years, the Company's strategy has been to expand into new international markets, primarily by partnering with existing dosimetry service providers with a prominent local presence. In addition, the Company has been developing new platforms and formats for its OSL technology, such as InLight, to gain access to markets where the Company previously did not have a significant presence, such as smaller in-house and commercial laboratories, nuclear power facilities, tactical military monitoring and hospitals to support monitoring of patient exposure to radiation. Revenue growth in recent years has occurred as a result of entry into new markets through joint ventures and acquisitions, modest unit growth, sale of InLight equipment and badges, and new ancillary services and products. The Company believes pricing in the domestic market has become more competitive and opportunities to continue to obtain regular price increases from its customers may be more limited in the future. On November 9, 2009, the Company completed the acquisition of GPS. Based in Texas with operations throughout the Midwest, GPS is the leading nationwide provider of medical physics services to hospitals and radiation therapy centers. Medical physics services is a large fragmented market. Market growth is expected to be driven by: the utilization of radiation in the provision of healthcare; trends towards outsourcing; and a limited domestic supply of qualified medical physicists. Also, in November 2009, Landauer completed the acquisition of GDM, a Swedish provider of radon measurement services. GDM is based near Stockholm, Sweden and provides measurement services throughout the Scandinavian region and Europe. In October 2009, Landauer acquired a dosimetry service in Sweden, now called Landauer Persondosimetri AB. 17
RESULTS OF OPERATIONS FISCAL 2009 COMPARED TO FISCAL 2008 Revenues for fiscal 2009 were $93,827, an increase of 4.3% compared with revenues of $89,954 for fiscal 2008. Domestic revenue growth for fiscal 2009 was $3,002, or 4.5%, attributable primarily to gains in the core radiation monitoring business driven by increased pricing for certain services and increases in domestic InLight equipment revenue. International revenue increased $871, or 3.7%, as a result of growth in volume in most regions, InLight equipment revenue, and the sale of InLight badges to Nagase-Landauer to support its fiscal 2010 transition of the Japanese service market from the current Luxel badge to a next generation badge based upon the InLight platform. The impact of the strengthening of the dollar against most foreign currencies reduced revenue by approximately $2,745. The domestic InLight equipment sales increase was driven primarily by sales to the Canadian government agency responsible for occupational monitoring and radiation emergency preparedness for the citizens of Canada. In March 2009, the Company executed a multi-year contract valued at approximately $8,000, which represents an estimate of purchases over the contract term, with commitments to be established annually, subject to annual funding by the Canadian government. In fiscal 2008, the Company initiated a similar contract in the amount of $2,000 with the agency. During fiscal 2009, the Company recognized revenue of approximately $2,700 under these agreements, compared with approximately $800 in fiscal 2008. The Company recorded deferred revenue of $486 under the contract as of September 30, 2009. Total cost of sales for fiscal 2009 was $30,766, an increase of $1,852, or 6.4%, compared with cost of sales of $28,914 for fiscal 2008, due to increased cost of materials to support growth in InLight product sales. Gross margins for fiscal 2009 were 67.2% of revenues, compared with 67.9% in fiscal 2008. Selling, general and administrative expenses for fiscal 2009 were $27,891, an increase of $1,302 or 4.9%, compared with selling, general and administrative expenses of $26,589 for fiscal 2008. Factors contributing to the increase included: $487 for increased incentive compensation costs and higher salary and benefits related to staff additions; $346 of increased professional fees related primarily to international patent and trademark activities; and $132 of increased expense spending to replace the Company's information technology systems that support customer relationship management and the order-to-cash cycle. On February 5, 2009, the Board of Directors approved changes to the Company's retirement benefit plans to transition from a defined benefit philosophy for retirement benefits to a defined contribution approach. The Company anticipates that the redesign of its retirement plans will result in future cost savings while offering market based retirement benefits to its employees. As a result of the changes, the Company recognized $2,236 ($1,478 after-tax) of non-recurring pension curtailment and transition costs during the second fiscal quarter of 2009. In addition, the Company initiated a management reorganization plan to strengthen selected roles in the organization. As a result, the Company recognized $489 ($322 after-tax) of non-recurring reorganization charges during the second fiscal quarter of 2009. The estimated reorganization charges were reduced by $73 ($47 after-tax) in the fourth fiscal quarter of 2009 based on actual payments to severed employees. Operating income for fiscal 2009 was $32,518, a decrease of $1,557, or 4.6%, compared with operating income of $34,075 for fiscal 2008. Fiscal 2009 operating income was impacted negatively by $2,652 due to the effect of the pension curtailment and transition costs and the reorganization charges. 18
Net other income, including equity in income of joint venture, for fiscal 2009 was $2,199, a decrease of $157, or 6.7%, compared with net other income of $2,356 for fiscal 2008. The decrease in net other income was due to lower interest and investment income as a result of declines in market rates, substantially offset by increased Nagase-Landauer, Ltd. equity earnings, favorably impacted by foreign exchange, during fiscal 2009. The effective tax rate was 31.9% and 36.0% in fiscal 2009 and 2008, respectively. The reduction was due primarily to a change in the state tax rate driven by changes in the Illinois state tax law effective for fiscal 2009. Additional benefits were realized from the reduction of state tax reserves related to the filing of voluntary disclosures in certain states and the tax benefit of funding the frozen pension plan. Net income for the 2009 fiscal year was $23,366, an increase of 1.7%, compared with net income of $22,983 for fiscal 2008, with resulting diluted earnings per share for the current year of $2.49, compared with $2.47 reported a year ago. The fiscal 2009 net income increase was minimized by the effect of the pension curtailment and transition costs and the reorganization charges, in the amount of $1,753, or $0.19 per diluted share. FISCAL 2008 COMPARED TO FISCAL 2007 Revenues for fiscal 2008 were $89,954, an increase of 7.5% compared with revenues of $83,716 for fiscal 2007. Domestic revenue growth for fiscal 2008 was $1,735, or 2.7%, attributable primarily to continued growth of domestic InLight equipment and services. International revenue increased $4,503, or 24.0%, as a result of growth in volume in most regions, lead by increased InLight service revenues; revenues attributable to the addition of a new 56.25% owned subsidiary in Mexico; and favorable currency exchange rates. Favorable currency, primarily the strengthening of the Euro and Brazilian Real against the dollar, contributed approximately $2,064 of the revenue growth. The domestic InLight equipment increase was driven primary by a sale to the Canadian government agency responsible for occupational monitoring and radiation emergency preparedness for the citizens of Canada. The Company completed a $2,000 contract during the quarter ended March 31, 2008 with the agency, under which $1,850 of product was delivered. Approximately, $1,100 of the product delivered required additional processing by Landauer to be fully utilized for its intended purpose. Per the terms of the agreement, the Canadian agency was given the option to obtain additional processing of the dosimetry materials from the Company or to exchange the materials for finished product. In fiscal 2008, the Company recorded $1,100 of deferred revenue related to the portion of the sale that required additional performance by the Company, which was subsequently recognized in fiscal 2009. Total cost of sales for fiscal 2008 was $28,914, an increase of $1,387, or 5.0%, compared with cost of sales of $27,527 for fiscal 2007. Gross margins for fiscal 2008 were 67.9% of revenues, compared with 67.1% in fiscal 2007. The improvement was a result primarily of increased revenues without a corresponding increase to the fixed cost structure, as well as lower depreciation expense. Selling, general and administrative expenses for fiscal 2008 were $26,589, an increase of $1,878 or 7.6%, compared with selling, general and administrative expenses of $24,711 for fiscal 2007. Factors contributing to the increase in selling, general and administrative costs included: $695 for domestic sales and marketing resources; $1,800 for incentive compensation programs; and approximately $700 for foreign operations, primarily relating to increased foreign exchange rates and the addition of a new subsidiary in Mexico. These increases were partially offset by $1,409 in reduced expense spending for the Company's project to reengineer business processes and to replace its information technology systems that support improved business relationship management and the order-to-cash cycle. 19
During the 2007 fiscal year, the Company implemented a plan to support long-term profitability and growth. This plan supported investment in two initiatives to improve focus and build shareholder value. First, the Company expanded sales and marketing resources to better reach markets targeted by the Company for growth. Secondly, the Company accelerated its program to re-engineer business processes. An important part of the program is replacing the Company's information technology system. The project was initiated during fiscal 2007 and was targeted to be completed during fiscal 2008. The project extended beyond its initial timeline due to increased customization of the software to capture the unique business requirements of the Company. As part of the information technology initiative in the 2007 fiscal year, management completed an evaluation of the usefulness of investments made in legacy information systems' hardware and software having a net book value of approximately $4,600. Of these assets, approximately $3,500 was determined to be either impaired or subject to accelerated depreciation. This resulted in a fiscal 2008 charge of $376 ($225, after-tax) for accelerated depreciation and a fiscal 2007 charge of $2,875 ($1,725, after-tax), of which $2,185 was for impaired assets. Operating income for fiscal 2008 was $34,075, an increase of $5,472, or 19.1%, compared with operating income of $28,603 for fiscal 2007. The increase in operating income was due to the growth in revenue and gross profit, reduced spending in fiscal 2008 for the systems initiative and reduced impact of the charge for accelerated depreciation and impaired assets. Net other income, including equity in income of joint venture, for fiscal 2008 was $2,356, an increase of $129, or 5.8%, compared with net other income of $2,227 for fiscal 2007. The increase in net other income was primarily due to increases in interest and investment income. Nagase-Landauer, Ltd. equity earnings were approximately $1,400 in each fiscal 2008 and 2007. Income tax expense for fiscal 2008 and 2007 was $13,118 and $11,413, respectively. The effective tax rate was 36.0% and 37.0% in fiscal 2008 and 2007, respectively. The decline in the effective tax rate was driven by a number of factors including the increased impact of foreign and state tax credits and foreign source income. Net income for the 2008 fiscal year was $22,983, an increase of 19.0%, compared with net income of $19,316 for fiscal 2007, with resulting diluted earnings per share for fiscal 2008 of $2.47, compared with $2.10 reported in fiscal 2007. FOURTH QUARTER RESULTS OF OPERATIONS Revenues for the fourth fiscal quarter of 2009 were $22,967, an increase of $467, or 2.1%, compared with $22,500 in the fourth fiscal quarter of 2008. Domestic revenue growth for the fourth quarter was $284, or 1.7%, resulting from gains in the core radiation monitoring business driven by increased pricing for certain services. International revenue in the fourth fiscal quarter of 2009 increased $184, or 3.0%. Growth in volume in most regions, InLight product revenue, and the sale of InLight badges to Nagase-Landauer to support its fiscal 2010 transition to the InLight platform, were partially offset by the impact of the strengthening of the dollar against most foreign currencies which reduced revenue by approximately $234. 20
Cost of sales for the fourth quarter of fiscal 2009 was $7,373, compared to $7,269 for the fourth quarter of fiscal 2008. Selling, general and administrative expenses for the fourth quarter of fiscal 2009 were $8,098, an increase of $839, or 12%, compared with expense of $7,259 for the fourth quarter of fiscal 2008. Factors contributing to the increase included: $346 of increased professional fees related primarily to international patent and trademark activities; $315 of increased expense spending to re-engineer business processes and to replace the Company's information technology systems that support customer relationship management and the order-to-cash cycle; and $207 increased international selling, general and administrative expenses generally for the Company's operations in France. Operating income for the fourth fiscal quarter of 2009 was $7,569, a decrease of $403, or 5.1%, compared with $7,972 in the fourth fiscal quarter of 2008. Net other income for the fourth quarter increased by $33 to $471 in fiscal 2009 due to higher Nagase-Landauer, Ltd. equity earnings. Income tax expense and the effective tax rates, respectively, were $2,718 and 33.8% in the fiscal fourth quarter 2009, and $2,859 and 34.0% in the fiscal fourth quarter 2008. Net income for the fiscal fourth quarter of 2009 was $5,250, compared with net income of $5,484 for fourth quarter fiscal 2008, with resulting diluted earnings per share for the 2009 quarter of $0.56 compared with $0.59 reported in the fiscal fourth quarter of 2008. OUTLOOK FOR FISCAL 2010 Landauer's business plan for fiscal 2010 includes projections currently for aggregate revenue growth for the year to be in the range of 25 to 30 percent, with the recently completed acquisitions contributing 20 to 23 percent of the growth. The business plan includes expense spending of $2,400 to $2,800 to support the successful completion of the Company's systems initiative and the related post implementation support. The Company projects a net income increase in the range of 4 to 8 percent, excluding the impact of transaction related fees in fiscal 2010 and the fiscal 2009 after tax impact of pension curtailment and transition costs and management reorganization charges of $1,800. In addition, the Company expects capital spending to be in the range of $7,000 to $9,000, primarily for the completion of our systems initiative. LIQUIDITY AND CAPITAL RESOURCES Landauer generated $2,555 in cash during fiscal year 2009 to end the year with $36,493 in cash on hand. The Company had no outstanding borrowings throughout the year. The Company completed the acquisition of GPS on November 9, 2009 for a purchase price of $22,000 in cash. Landauer also completed the acquisition of GDM for $6,700 in cash. The Company funded the purchase prices through borrowings under its credit agreement of $18,000, with the remainder paid from the Company's cash on hand. Under the credit agreement, the Company elects to pay an annualized interest rate based on LIBOR plus 2.9%. In addition, the Company must maintain a fixed charge coverage ratio, as calculated pursuant to the terms of the amended credit agreement, as of the end of each calendar quarter of not less than 1.35 to 1.00, and a funded debt to EBITDA ratio less than or equal to 1.5 to 1.00. Cash flows provided by operating activities for fiscal 2009 were $30,209, a decrease of $4,442, or 13%, from fiscal 2008. The decline in operating cash flow was driven primarily by contributions of $6,400 in excess of the required annual pension plan payments to fund the remainder of the plan's current unfunded balance. Other factors contributing to the change in operating cash flow include decreased prepaid taxes and decreased net current deferred taxes. 21
During the 2007 fiscal year, the Company initiated a project to replace its information technology systems. The project has extended beyond its initial timeline and planned costs due to increased customization of the software to capture the unique business requirements of the Company. The total project cost is estimated currently to be approximately $25,000 to $27,000 and is targeted currently to be completed during calendar 2010. Investing activities included acquisitions of property, plant and equipment in the amounts of $9,126, $7,533 and $7,386 in fiscal 2009, 2008 and 2007, respectively. Included in these costs were $5,856, $5,656 and $5,263 in fiscal 2009, 2008 and 2007, respectively, for the Company's systems initiative. In addition, Landauer invested $498 in fiscal 2008 for its acquisition of 56.25% ownership in a subsidiary in Mexico. Capital expenditures for fiscal 2010 are expected to be approximately $7,000 to $9,000 principally for the project to replace the Company's information systems. The Company anticipates that funds for these capital improvements will be provided from operations. The Company's financing activities are comprised of credit facility activities and payments of cash dividends to shareholders and minority partners, offset partially by proceeds from the exercise of stock options. During fiscal 2009, 2008 and 2007, the Company paid cash dividends of $19,360, or $2.10 per share, $18,270, or $2.00 per share, and $17,163, or $1.90 per share, respectively, and such amounts have been provided from operations. Cash paid for income taxes was $7,515, $10,213 and $13,191 in fiscal 2009, 2008 and 2007, respectively. As described in Note 9 to the financial statements, the Company amended its credit agreement in June 2009, which originally had an expiration date of October 31, 2009 and permitted borrowings up to $15,000. The amendment, among other changes to the original terms, extended the maturity date to June 16, 2011 and increased the aggregate amount of funds available to $30,000; subject, with respect to amounts borrowed in excess of $20,000, to certain criteria outlined in the agreement. The Company renegotiated the credit facility because it was able to obtain favorable terms, and the Company wanted to ensure it had committed access to capital in support of anticipated strategic expansion activities, given the current credit environment. The Company completed the acquisition of GPS on November 9, 2009 for a purchase price of $22,000 in cash. Landauer also completed the acquisition of GDM for $6,700 in cash. The Company funded the purchase prices through borrowings under its credit agreement of $18,000, with the remainder paid from the Company's cash on hand. Under the credit agreement, the Company elects to pay an annualized interest rate based on LIBOR plus 2.9%. In addition, the Company must maintain a fixed charge coverage ratio, as calculated pursuant to the terms of the amended credit agreement, as of the end of each calendar quarter of not less than 1.35 to 1.00, and a funded debt to EBITDA ratio less than or equal to 1.5 to 1.00. In the opinion of management, cash flows from operations and the Company's borrowing capacity under its line of credit are adequate for projected operations and capital spending programs, as well as continuation of the regular cash dividend program. From time to time, the Company may have the opportunity to make investments for acquisitions or other purposes, and borrowings can be made under the current credit facility to fund such investments. Landauer requires limited working capital for its operations since many of its customers pay for services in advance. Such advance payments, reflected on the balance sheets as "Deferred Contract Revenue", amounted to $15,632 and $15,626, respectively, as of September 30, 2009 and 2008. While these amounts represent approximately 42% and 46% of current liabilities, respectively as of September 30, 2009 and 2008, such amounts generally do not represent a future cash obligation. Customers are invoiced generally in accordance with the Company's standard terms, with payment due thirty days from date of invoice. 22
Landauer also offers radiation monitoring services in Australia, Brazil, Canada, China, France, Japan, Mexico, and the United Kingdom. The Company's operations in these markets generally do not depend on significant capital. The Company is exposed to market risk, including changes in foreign currency exchange rates. The financial statements of the Company's non-U.S. subsidiaries are remeasured into U.S. dollars using the U.S. dollar as the reporting 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. CONTRACTUAL OBLIGATIONS As of September 30, 2009, the expected resources required for scheduled payment of contractual obligations were as follows: Scheduled payments by fiscal year ------------------------------------------- There- (Dollars in Thousands) Total 2010 2011-12 2013-14 after ---------------------- ------- ------- ------- ------- ------- Purchase obligations (1) . $14,718 $14,718 $ - $ - $ - Dividends (2). . . . . . . 4,996 4,996 - - - Pension and postretirement benefits (3) . . . . . . 3,706 297 686 766 1,957 Operating leases (4) . . . 1,003 393 262 187 161 ------- ------- ------- ------- ------- $24,423 $20,404 $ 948 $ 953 $ 2,118 ======= ======= ======= ======= ======= (1) Includes accounts payable under other agreements to purchase goods or services including open purchase orders; also includes remaining contractual obligations associated with the Company's information systems upgrade. (2) Cash dividends in the amount of $0.525 per share were declared on August 28, 2009. (3) Includes estimated future benefit payments for the supplemental key executive retirement plans and a terminated retirement plan that provides certain retirement benefits payable to non-employee directors. The amounts are actuarially determined, which includes the use of assumptions, and may vary significantly from expectations. (4) The Company has several small operating leases that are generally short-term in nature; it has no material operating or capital leases. The Company is not able to reasonably estimate the timing of the payments or the amount by which its gross unrecognized tax benefits of $532 will increase or decrease over time. Therefore, the liability is excluded from the preceding table. Refer to footnote 8, "Income Taxes" for further information. 23
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2007, the Financial Accounting Standards Board ("FASB") issued authoritative guidance that amends the accounting for business combinations, and the accounting and reporting for a noncontrolling interest in a subsidiary. The amended guidance aims to improve, simplify, and converge internationally the accounting for and reporting of business combinations and noncontrolling interests in consolidated financial statements. The revised provisions are effective, and should be applied prospectively, for the Company beginning in fiscal 2010. The Company will apply the amended guidance for any business combinations beginning in fiscal 2010, including the first quarter acquisitions of GPS, GDM and Landauer Persondosimetri AB. The Company does not expect the amended guidance for accounting and reporting for noncontrolling interests to have a significant impact on the Company's financial statements. In September 2009, the FASB approved the issuance of new guidance for arrangements with multiple deliverables and arrangements that include software elements. By providing another alternative for determining the selling price of deliverables, the new guidance will allow companies to allocate arrangement consideration in multiple deliverable arrangements in a manner that better reflects the transaction's economics and will often result in earlier revenue recognition. In addition, the residual method of allocating arrangement consideration is no longer permitted under the new guidance. The new guidance for arrangements that include software elements removes non-software components of tangible products and certain software components of tangible products from the scope of existing software revenue guidance, resulting in the recognition of revenue similar to that for other tangible products. The new guidance requires expanded qualitative and quantitative disclosures. The new guidance is effective for fiscal years beginning on or after June 15, 2010. The guidance may be applied either prospectively from the beginning of the fiscal year for new or materially modified arrangements or retrospectively. The Company is currently evaluating the impact of this new guidance to its financial position, results of operations and financial disclosures. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS Effective October 1, 2008, the Company adopted the FASB authoritative guidance for the accounting for the deferred compensation and postretirement benefit aspects of collateral assignment split-dollar life insurance arrangements. The guidance requires that an employer recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement. As a result of the implementation of the guidance, the Company recognized a decrease of $362 in its long-term asset recorded for its collateral assignment split-dollar life insurance arrangement and recorded a liability of $538 for premiums payable under the arrangement. The October 1, 2008 balance of retained earnings was reduced by $900. The Company's liability for this arrangement is expected to be settled in fiscal 2014. Effective October 1, 2008, the Company adopted the FASB standards which define fair value, establish a framework for measuring fair value and expand disclosures about fair value measurements. The guidance applies under other accounting standards that require or permit fair value measurements. The adoption of these standards did not impact the Company's consolidated financial statements for the year ended September 30, 2009. 24
Effective October 1, 2008, the Company adopted the FASB authoritative guidance which permits entities to choose to measure many financial instruments and certain other items at fair value on an instrument-by-instrument basis, with unrealized gains and losses related to these financial instruments reported in earnings at each subsequent reporting date. The new guidance also establishes presentation and disclosure requirements to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. The Company did not elect the fair value option and, therefore, the adoption of the guidance did not impact the Company's financial position, results of operations and financial disclosures for the year ended September 30, 2009. Effective June 30, 2009, the Company adopted the new general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The standards require disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The adoption of the standards did not impact the consolidated financial statements for the year ended September 30, 2009. Effective for the Company's financial statements issued for the fiscal year ending September 30, 2009, the Company adopted the FASB Accounting Standards Codification. The FASB established the Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The Codification supersedes all prior accounting standard documents, and all other nongrandfathered non-SEC accounting literature not included in the Codification became nonauthoritative. The Codification does not change or alter existing U.S. GAAP and, therefore, did not have any impact on the Company's 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 and products that the Company offers, however, is highly competitive, and in some cases has limited the ability of the Company to offset inflationary cost increases. FORWARD LOOKING STATEMENTS Certain matters contained in this report, including the information contained under the heading "Outlook for Fiscal 2010" in Item 7 of this report, constitute forward-looking statements that are based on certain assumptions and involve certain risks and uncertainties. These include the following, without limitation: assumptions, risks and uncertainties associated with the Company's development and introduction of new technologies in general; continued customer acceptance of the InLight technology; the adaptability of optically stimulated luminescence (OSL) technology to new platforms and formats, such as Luxel+; the costs associated with the Company's research and business development efforts; the effectiveness of changes and upgrades to and costs associated with the Company's information systems; the usefulness of older technologies; the anticipated results of operations of the Company and its subsidiaries or ventures; valuation of the Company's long-lived assets or business units relative to future cash flows; changes in pricing of products and services; changes in postal and delivery practices; the Company's business plans; anticipated revenue and cost growth; the ability to integrate the operations of acquired businesses and to realize the expected benefits of acquisitions; the risks associated with conducting business internationally; costs incurred for potential acquisitions or similar transactions; other anticipated financial events; the effects of changing economic and competitive conditions; foreign exchange rates; government regulations; accreditation requirements; changes in the trading 25
market that affect the cost of obligations under the Company's benefit plans; and pending accounting pronouncements. These assumptions may not materialize to the extent assumed, and risks and uncertainties may cause actual results to be different from anticipated results. These risks and uncertainties also may result in changes to the Company's business plans and prospects, and could create the need from time to time to write down the value of assets or otherwise cause the Company to incur unanticipated expenses. Additional information may be obtained by reviewing the information set forth in Item 1A "Risk Factors" and Item 7A "Quantitative and Qualitative Disclosures about Market Risk" and information contained in the Company's reports filed, from time to time, with the SEC. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that management make assumptions and estimates that affect the results of operations and the amounts of assets and liabilities reported in the financial statements as well as related disclosures. 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. Below are the critical accounting policies which have been applied in the preparation of the Company's financial statements and accompanying notes. REVENUE RECOGNITION AND DEFERRED CONTRACT REVENUE The majority of the services provided by the Company to its customers is of a subscription nature and is continuous. The Company views its business as services provided to customers over a period of time and the wear period is the period over which those services are provided. Badge production, wearing of badges, badge analysis, and report preparation are integral to the benefit that the Company provides to its customers. These services are provided to customers on an agreed-upon recurring basis (monthly, bi-monthly or quarterly) that the customer chooses for the wear period. Revenue is recognized on a straight-line basis, adjusted for changes in pricing and volume, over the wear period as the service is continuous and no other discernible pattern of recognition is evident. Revenues are recognized over the periods in which the customers wear the badges irrespective of whether invoiced in advance or in arrears. The amounts recorded as deferred contract revenue in the consolidated balance sheets 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 $15,632 and $15,626, respectively, as of September 30, 2009 and September 30, 2008. PROPERTY, PLANT & EQUIPMENT AND OTHER ASSETS Maintenance and repairs are charged to expense, and renewals and betterments are capitalized. Plant and equipment and other assets, primarily dosimetry badges, are recorded at cost and are depreciated or amortized on a straight-line basis over the estimated useful lives, which are primarily 30 years for buildings, three to eight years for equipment, and thirty months to five years for other assets. Landauer assesses the carrying value and the remaining useful lives of its property, plant, equipment, and other assets when events or circumstances indicate the carrying value may not be recoverable or the estimated useful life may no longer be appropriate. Factors that could trigger this review include competitive conditions, government regulations and technological changes. 26
Landauer capitalizes, as a component of equipment, costs of software which is acquired, internally developed, or modified solely to meet the Company's internal needs. In accordance with FASB authoritative guidance, internal and external costs incurred to develop internal-use computer software during the application development stage are capitalized. Costs incurred during the preliminary project stage as well as training costs and maintenance costs during the postimplementation-operation stage are expensed. Capitalized costs amounted to $6,086, $10,645 and $4,532, respectively, for fiscal years 2009, 2008 and 2007. In fiscal year 2009, approximately $5,555 of the capitalized software costs was related to the Company's initiative to re-engineer various business processes and replace components of its information technology systems that support customer relationship management and the order-to-cash cycle. The new software is replacing certain legacy assets that were either subject to immediate impairment or retirement once the full system implementation has been completed. In fiscal 2009, the remainder of the costs was related to legacy assets remaining in use by the Company. In fiscal years 2008 and 2007, some of the legacy assets were included in the evaluation for immediate impairment or retirement. Information regarding these costs is contained under the footnote "Impairment and Accelerated Depreciation Charges" on page 42 of this Annual Report on Form 10-K. GOODWILL AND OTHER INTANGIBLE ASSETS Landauer's intangible assets include purchased customer lists, licenses, patents, trademarks, tradenames and goodwill. Purchased customer lists are recorded at cost and are amortized on a straight-line basis over estimated useful lives, which range from 10 to 15 years. Patents and licenses are also recorded at cost and are amortized on a straight-line basis over their useful lives, which range from 10 to 17 years. The Company acquired goodwill primarily from its acquisitions of Landauer-Europe and SAPRA-Landauer as well as other smaller investments. Goodwill as well as trademarks and tradenames have indefinite lives. FASB authoritative guidance requires that goodwill and certain intangible assets with indefinite lives be reviewed periodically for impairment. The impairment review of goodwill and other intangible assets that are not being amortized, generally, is performed annually and is based on fair values. The Company's methodology for testing goodwill for impairment includes an initial review of potential impairment triggering events and tests of fair market value. Should a triggering event be identified, the Company performs a financial analysis of future undiscounted cash flows projections by investment. Triggering events include, but are not limited to, a current-period operating or cash flow loss; a product, technology, or service introduced by a competitor; or a loss of key personnel. As a result of its testing and review for impairment, the Company determined that no impairment was required to be recognized as of September 30, 2009. Information regarding the value of goodwill and other intangible assets is presented under the footnote "Goodwill and Other Intangible Assets" on page 44 of this Annual Report on Form 10-K. INCOME TAXES The Company estimates the income tax provision for income taxes that are currently payable, and records deferred tax assets and liabilities for the temporary differences in tax consequences between the financial statements and tax returns. Temporary differences result from, among other events, revenues, expenses, gains, or losses that are included in taxable income of an earlier or later year than the year in which they are recognized in financial income. These deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. To the extent that deferred tax assets will not likely be recovered from future taxable income, a valuation allowance is established against such deferred tax assets. 27
Management exercises significant judgment in the valuation of its current and deferred tax assets and liabilities. The Company recognizes the financial statement effects of its tax positions in its current and deferred tax assets and liabilities when it is more likely than not that the position will be sustained upon examination by a taxing authority. Management considers, among other factors, the Company's current and past performance, the market environment in which the Company operates, and tax planning strategies. Further, the Company provides for income tax issues not yet resolved with federal, state and local tax authorities. The Company assesses and updates its tax positions when significant changes in circumstances, which would cause a change in judgment about the likelihood of realizing the deferred items, occur. Variations in the actual outcome of these future tax consequences could materially impact the Company's financial position, results of operations or cash flows. Further information regarding the Company's income taxes is contained under the footnote "Income Taxes" on page 44 of this Annual Report on Form 10-K. DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS The pension expenses and benefit obligations recorded for the Company's defined benefit plans are dependent on actuarial assumptions. These assumptions include discount rates, expected return on plan assets, interest costs, expected compensation increases, benefits earned, mortality rates, and other factors. Management reviews the plan assumptions on an annual basis to ensure that the most current, relevant information is considered. If actual results vary considerably from those that are expected or if future changes are made to these assumptions, the amounts recognized for these plans could change significantly. As a result of plan amendments during fiscal 2009 which led to plan curtailments, the amended plans required remeasurement of benefit obligations using prevailing rates at that time. For the period from October 1, 2008, to January 31, 2009, the discount rate used for the amended plans was 7.50%. For the period February 1, 2009, to September 30, 2009, the discount rate used for the amended plans was 6.38%. All other assumptions determined as of October 1, 2008 remained appropriate for the amended plans through the entire fiscal year. Including the impact of the changes in discount rates, the weighted-average assumed discount rate used to determine the fiscal 2009 plan expenses was 7.34% for pension benefits and 7.50% for other benefits compared to 6.30% for all benefits in fiscal 2008. For fiscal 2009 expense, the expected long-term rate of return of plan assets was 6.50%, unchanged from fiscal 2008. In establishing the rate, management considered the historical rates of return and the current and planned asset classes of the plan investment portfolio. In determining the rate of compensation increase of 3.50% for fiscal 2009 and 2008, management considered historical Company increases, market expectations and expected future Company increases. The weighted-average assumptions used to determine benefit obligations at September 30, 2009 were: a discount rate of 5.59% compared to the fiscal 2008 rate of 7.50%, adjusted to reflect the single rate that, when applied to the projected benefit disbursements from the plan, would result in the same discounted value as the array of rates that make up the Citigroup Pension Discount Curve as of September 30, 2009; and a rate of compensation increase of 3.50%, unchanged from fiscal 2008. The Company recognizes on its balance sheet the amount by which the projected benefit obligations of its defined benefit plans exceed the fair value of plan assets. Subsequent changes in the funded status of the plans as a result of future transactions and events, amortization of previously unrecognized costs, and changes to actuarial assumptions are recognized as an asset or a liability and amortized as components of net periodic pension cost or accumulated other comprehensive income. An increase or decrease in the assumptions or economic events outside of management's control could have a material effect on the Company's results of operations or financial condition. Information regarding these plans is contained under the footnote "Employee Benefit Plans" on page 47 of this Annual Report on Form 10-K. 28
STOCK-BASED COMPENSATION The Company measures and recognizes compensation cost at fair value for all stock-based awards, net of the estimated impact of forfeited awards. The Company granted stock options in years prior to fiscal 2006. The fair values of options were estimated using a Black-Scholes option pricing model. In addition to stock options, key employees and/or non-employee directors are eligible to receive performance shares and restricted stock. The fair value of performance shares and restricted stock granted under the Company's 2005 Long-Term Incentive Plan was based on the average of the Company's high and low stock prices on the date of grant. Upon the adoption of the Company's Incentive Compensation Plan in February 2008, the fair value of performance shares and restricted stock granted under the new plan is based on the Company's closing stock price on the grant date. The terms of performance share awards allow the recipients of such awards to earn a variable number of shares based on the achievement of the performance goals specified in the awards. Stock-based compensation expense associated with performance share awards is recognized based on management's best estimates of the achievement of the performance goals specified in such awards and the resulting number of shares that are expected to be earned. The Company evaluates on a quarterly basis the progress towards achieving the performance criteria. The cumulative effect on current and prior periods of a change in the estimated number of performance share awards expected to be earned is recognized as compensation cost or as a reduction of cost in the period of the revised estimate. Compensation expense for restricted stock is recognized ratably over the vesting period. Forfeitures of awards are estimated at the time of grant and stock-based compensation cost is recognized only for those awards expected to vest. The Company uses historical experience to estimate projected forfeitures. The Company recognizes the cumulative effect on current and prior periods of a change in the forfeiture rate, or actual forfeitures, as compensation cost or as a reduction of cost in the period of the revision. If revisions are made to management's assumptions and estimates or if actual results vary considerably from those that are expected, stock-based compensation expense could change significantly, impacting the Company's results of operations or financial condition. Further information regarding the Company's stock-based awards is presented under the footnote "Stock-Based Compensation" on page 53 of this Annual Report on Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk, including changes in foreign currency exchange rates. The financial statements of the Company's international subsidiaries are remeasured into U.S. dollars using the U.S. dollar as the reporting 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 and markets becomes more volatile. The Company estimates that a 10% and 20% adverse change in the underlying foreign currency exchange rates would have decreased reported net income in fiscal 2009 by approximately $450 and $825, respectively. Historically, the Company believes that adverse changes in foreign exchange rates have not materially impacted its financial condition. 29
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS LANDAUER, INC. AND SUBSIDIARIES AS OF SEPTEMBER 30, (Dollars in Thousands) 2009 2008 ---------------------- -------- -------- ASSETS Current assets: Cash and cash equivalents. . . . . . . . . . $ 36,493 $ 33,938 Receivables, net of allowances of $622 in 2009 and $609 in 2008. . . . . . . 20,663 19,738 Inventories. . . . . . . . . . . . . . . . . 4,063 3,550 Prepaid expenses and other current assets. . 2,599 1,227 Prepaid income taxes . . . . . . . . . . . . 3,743 7,964 Deferred income taxes. . . . . . . . . . . . 976 2,312 -------- -------- Current assets . . . . . . . . . . . . . . . . . 68,537 68,729 Property, plant and equipment, at cost: Land and improvements. . . . . . . . . . . . 619 635 Buildings and improvements . . . . . . . . . 4,346 4,349 Internal software. . . . . . . . . . . . . . 31,226 25,271 Equipment. . . . . . . . . . . . . . . . . . 31,159 27,340 -------- -------- 67,350 57,595 Accumulated depreciation and amortization. . . . (41,199) (37,410) -------- -------- Net property, plant and equipment. . . . . . . . 26,151 20,185 -------- -------- Equity in joint venture. . . . . . . . . . . . . 7,421 5,796 Goodwill . . . . . . . . . . . . . . . . . . . . 13,384 13,343 Intangible assets, net of amortization of $4,595 in 2009 and $4,065 in 2008 . . . . . 3,996 4,759 Dosimetry devices, net of amortization of $11,614 in 2009 and $10,632 in 2008 . . . . 4,583 4,454 Other assets . . . . . . . . . . . . . . . . . . 1,133 1,424 -------- -------- ASSETS . . . . . . . . . . . . . . . . . . . . . $125,205 $118,690 ======== ======== 30
CONSOLIDATED BALANCE SHEETS (CONTINUED) LANDAUER, INC. AND SUBSIDIARIES AS OF SEPTEMBER 30, (Dollars in Thousands) 2009 2008 ---------------------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . . . $ 5,193 $ 981 Dividends payable. . . . . . . . . . . . . . 4,996 4,686 Deferred contract revenue. . . . . . . . . . 15,632 15,626 Accrued compensation and related costs . . . 4,876 5,368 Accrued pension and postretirement costs . . 346 366 Other accrued expenses . . . . . . . . . . . 5,832 7,197 -------- -------- Current liabilities. . . . . . . . . . . . . . . 36,875 34,224 -------- -------- Non-current liabilities: Pension and postretirement obligations . . . 8,238 8,609 Deferred income taxes. . . . . . . . . . . . 4,608 4,622 Other non-current liabilities. . . . . . . . 1,030 935 -------- -------- Non-current liabilities. . . . . . . . . . . . . 13,876 14,166 -------- -------- Minority interest in subsidiary. . . . . . . . . 693 545 STOCKHOLDERS' EQUITY Preferred stock, $.10 par value per share, authorized 1,000,000 shares; none issued. . . . . . . . . . . . . . . . - - Common stock, $.10 par value per share, authorized 20,000,000 shares; 9,381,098 and 9,332,508 issued and outstanding, respectively, in 2009 and 2008 . . . . . . 938 933 Additional paid in capital. . . . . . . . . 30,834 28,826 Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . (515) 289 Retained earnings . . . . . . . . . . . . . 42,504 39,707 -------- -------- Stockholders' equity . . . . . . . . . . . . 73,761 69,755 -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . $125,205 $118,690 ======== ======== The accompanying notes are an integral part of these financial statements. 31
CONSOLIDATED STATEMENTS OF INCOME LANDAUER, INC. AND SUBSIDIARIES FOR THE YEARS ENDED SEPTEMBER 30, (Dollars in Thousands, Except per Share) 2009 2008 2007 ---------------------- -------- -------- -------- Net revenues . . . . . . . . . . . . . . $ 93,827 $ 89,954 $ 83,716 -------- -------- -------- Costs and expenses: Cost of sales. . . . . . . . . . . . 30,766 28,914 27,527 Selling, general, and administrative . . . . . . . . . . 27,891 26,589 24,711 Net defined benefit plan curtailment loss and transition costs. . . . . . . . . . . . . . . 2,236 - - Impairment and accelerated depreciation charges . . . . . . . - 376 2,875 Reorganization charges . . . . . . . 416 - - -------- -------- -------- 61,309 55,879 55,113 -------- -------- -------- Operating income . . . . . . . . . . . . 32,518 34,075 28,603 Equity in income of joint venture. . . . 1,575 1,351 1,414 Other income, net. . . . . . . . . . . . 624 1,005 813 -------- -------- -------- Income before taxes. . . . . . . . . . . 34,717 36,431 30,830 Income taxes . . . . . . . . . . . . . . 11,071 13,118 11,413 -------- -------- -------- Income before minority interest. . . . . 23,646 23,313 19,417 Minority interest. . . . . . . . . . . . 280 330 101 -------- -------- -------- Net income . . . . . . . . . . . . . . . $ 23,366 $ 22,983 $ 19,316 ======== ======== ======== Net income per share: Basic. . . . . . . . . . . . . . . . $ 2.51 $ 2.49 $ 2.12 Weighted average basic shares outstanding. . . . . . . . . . . . 9,293 9,237 9,127 Diluted. . . . . . . . . . . . . . . $ 2.49 $ 2.47 $ 2.10 Weighted average diluted shares outstanding. . . . . . . . . . . . 9,366 9,302 9,196 ======== ======== ======== The accompanying notes are an integral part of these financial statements. 32
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME LANDAUER, INC. AND SUBSIDIARIES Addi- Accumulated Total Compre- tional Other Stock- hensive Common Paid In Comprehensive Retained holders' Income (Dollars in Thousands) Stock Capital Income (Loss) Earnings Equity (Loss) ---------------------- -------- -------- ------------- -------- ---------- -------- BALANCE SEPTEMBER 30, 2006 . . . . . $ 909 $ 19,641 $ (498) $ 33,647 $ 53,699 Adoption of new benefit plan accounting guidance. . . . . . . - - (780) - (780) Stock-based compensation arrangements. . . . . . . . . . . 12 3,940 - - 3,952 Net income . . . . . . . . . . . . . - - - 19,316 19,316 $ 19,316 Foreign currency translation adjustment. . . . . . . . . . . . - - 609 - 609 609 Dividends. . . . . . . . . . . . . . - - - (17,446) (17,446) - Minimum pension liability adjustment. . . . . . . . . . . . - - 160 - 160 160 -------- -------- -------- -------- -------- -------- Comprehensive Income . . . . . . . . $ 20,085 ======== BALANCE SEPTEMBER 30, 2007 . . . . . 921 23,581 (509) 35,517 59,510 Adoption of new income tax accounting guidance . . . . . . . - - - (231) (231) Stock-based compensation arrangements . . . . . . . . . . 12 5,245 - - 5,257 Net income . . . . . . . . . . . . . - - - 22,983 22,983 $ 22,983 Foreign currency translation adjustment. . . . . . . . . . . . - - (235) - (235) (235) Dividends. . . . . . . . . . . . . . - - - (18,562) (18,562) - Defined benefit pension plans activity. . . . . . . . . . . . . - - 964 - 964 964 Other postretirement benefit plans activity. . . . . . . . . . . . . - - 69 - 69 69 -------- -------- -------- -------- -------- -------- Comprehensive Income . . . . . . . . $ 23,781 ======== 33
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (CONTINUED) LANDAUER, INC. AND SUBSIDIARIES Addi- Accumulated Total Compre- tional Other Stock- hensive Common Paid In Comprehensive Retained holders' Income (Dollars in Thousands) Stock Capital Income (Loss) Earnings Equity (Loss) ---------------------- -------- -------- ------------- -------- ---------- -------- BALANCE SEPTEMBER 30, 2008 . . . . . $ 933 $ 28,826 $ 289 $ 39,707 $ 69,755 Adoption of new postretirement life insurance arrangements accounting guidance . . . . . . . - - - (900) (900) Stock-based compensation arrangements. . . . . . . . . . . 5 2,008 - - 2,013 Net income . . . . . . . . . . . . . - - - 23,366 23,366 $ 23,366 Foreign currency translation adjustment. . . . . . . . . . . . - - 1,243 - 1,243 1,243 Dividends. . . . . . . . . . . . . . - - - (19,669) (19,669) - Defined benefit pension plans activity. . . . . . . . . . . . . - - (2,017) - (2,017) (2,017) Other postretirement benefit plans activity. . . . . . . . . . - - (30) - (30) (30) -------- -------- -------- -------- -------- -------- Comprehensive Income . . . . . . . . $ 22,562 ======== BALANCE SEPTEMBER 30, 2009 . . . . . $ 938 $ 30,834 $ (515) $ 42,504 $ 73,761 ======== ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. 34
CONSOLIDATED STATEMENTS OF CASH FLOWS LANDAUER, INC. AND SUBSIDIARIES FOR THE YEARS ENDED SEPTEMBER 30, (Dollars in Thousands) 2009 2008 2007 ---------------------- -------- -------- -------- Cash flows from operating activities: Net income . . . . . . . . . . . . . . . $ 23,366 $ 22,983 $ 19,316 Adjustments to reconcile net income to net cash provided by operating activities: Asset impairment and accelerated depreciation charges . . . . . . . - 376 2,875 Depreciation . . . . . . . . . . . . 5,230 5,719 6,851 Amortization . . . . . . . . . . . . 615 658 640 Equity in net income of joint venture. . . . . . . . . . . . . . (1,575) (1,351) (1,414) Dividends from joint venture . . . . 1,062 894 560 Stock-based compensation . . . . . . 2,152 1,200 801 Tax benefit from stock-based compensation arrangements. . . . . 1,089 1,408 925 Excess tax benefit from stock- based compensation arrangements. . (228) (1,019) (829) Defined benefit plans net curtailment loss . . . . . . . . . 1,350 - - (Increase) decrease in accounts receivable, net. . . . . . . . . . (872) 55 1,101 Decrease (increase) in prepaid taxes. . . . . . . . . . . . . . . 3,357 (6,198) (1,343) Decrease (increase) in current deferred taxes, net. . . . . . . . 2,457 1,107 (2,219) Increase in dosimetry devices at cost. . . . . . . . . . . . . . (1,856) (1,235) (1,190) (Increase) decrease in long-term deferred taxes, net. . . . . . . . (384) 5,084 889 Increase (decrease) in accounts payable and other current liabilities. . . . . . . . . . . . 1,229 3,286 (309) (Decrease) increase in deferred contract revenue . . . . . . . . . (59) 1,782 (84) (Decrease) increase in long-term pension and postretirement obligations. . . . . . . . . . . . (4,934) 666 697 Other operating activities, net. . . (1,790) (764) 738 -------- -------- -------- Net cash provided by operating activities . . . . . . . 30,209 34,651 28,005 -------- -------- -------- Cash flows used by investing activities: Acquisition of businesses, net of cash acquired . . . . . . . . - (498) - Acquisition of property, plant & equipment. . . . . . . . . . . . . . (9,126) (7,533) (7,386) -------- -------- -------- Net cash used by investing activities. (9,126) (8,031) (7,386) -------- -------- -------- Cash flows used by financing activities: Payments on revolving credit facilities . . . . . . . . . . . . . - - (1,717) Dividends paid to minority interest. . (151) (167) (117) Dividends paid to stockholders . . . . (19,360) (18,270) (17,163) Proceeds from the exercise of stock options. . . . . . . . . . . . 590 4,011 3,011 Excess tax benefit from stock-based compensation arrangements. . . . . . 228 1,019 829 -------- -------- -------- Net cash used by financing activities. (18,693) (13,407) (15,157) -------- -------- -------- 35
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) LANDAUER, INC. AND SUBSIDIARIES FOR THE YEARS ENDED SEPTEMBER 30, (Dollars in Thousands) 2009 2008 2007 ---------------------- -------- -------- -------- Effects of foreign currency translation. . . . . . . . . . . . . 165 (344) 187 Net increase in cash and cash equivalents . . . . . . . . . . . . 2,555 12,869 5,649 Opening balance - cash and cash equivalents. . . . . . . . 33,938 21,069 15,420 -------- -------- -------- Ending balance - cash and cash equivalents. . . . . . . . $ 36,493 $ 33,938 $ 21,069 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid for income taxes . . . . . . $ 7,515 $ 10,213 $ 13,191 ======== ======== ======== The accompanying notes are an integral part of these financial statements. 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LANDAUER, INC. AND SUBSIDIARIES (Dollars in thousands) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Landauer, Inc.; Landauer-Europe, Ltd. and HomeBuyer's Preferred, Inc., its wholly-owned subsidiaries; SAPRA-Landauer, Ltda., its 75%-owned subsidiary, Beijing-Landauer, Ltd., its 70%-owned subsidiary, ALSA Dosimetria, S. de R.L. de C.V. its 56.25%-owned subsidiary, and Landauer Australasia Pty 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 intercompany transactions have been eliminated. CASH EQUIVALENTS Cash equivalents include investments with an original maturity of three months or less. Primarily all investments are short-term money market instruments. INVENTORIES Inventories, principally the components associated with dosimetry devices, are valued at lower of cost or market utilizing a first-in, first-out method. REVENUES AND DEFERRED CONTRACT REVENUE The source of revenues for the Company is radiation measuring and monitoring services including other services incidental to measuring and monitoring. The measuring and monitoring services provided by the Company to its customers are of a subscription nature and are continuous. The Company views its business as services provided to customers over a period of time and the wear period is the period over which those services are provided. Badge production, wearing of badges, badge analysis, and report preparation are integral to the benefit that the Company provides to its customers. These services are provided to customers on an agreed-upon recurring basis (monthly, bi-monthly or quarterly) that the customer chooses for the wear period. Revenue is recognized on a straight-line basis, adjusted for changes in pricing and volume, over the wear period as the service is continuous and no other discernible pattern of recognition is evident. Revenues are recognized over the periods in which the customers wear the badges irrespective of whether invoiced in advance or in arrears. Many customers pay for these services in advance. The amounts recorded as deferred contract revenue in the consolidated balance sheets 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. Other services incidental to measuring and monitoring augment the basic radiation measurement services that the Company offers, providing administrative and informational tools to customers for the management of their radiation detection programs. Other service revenues are recognized upon delivery of the reports to customers or as other such services are provided. 37
The Company sells radiation monitoring products to its customers, principally InLight products, for their use in conducting radiation measurements or managing radiation detection programs. Revenues from product sales are recognized when shipped. Revenues are shown net of nominal sales allowance adjustments. RESEARCH AND DEVELOPMENT The cost of research and development programs is charged to selling, general and administrative expense as incurred and amounted to approximately $1,948 in fiscal 2009, $1,837 in fiscal 2008 and $1,831 in fiscal 2007. Research and development costs include salaries and allocated employee benefits, third-party research contracts, depreciation and supplies. DEPRECIATION, AMORTIZATION AND MAINTENANCE Property, plant and equipment are recorded at cost. Plant, equipment and custom software are depreciated on a straight-line basis over their estimated useful lives, which are primarily 30 years for buildings and three to eight years for equipment and custom software. Dosimetry devices, principally badges, and software are amortized on a straight-line basis over their estimated lives, which are thirty months to five years. Maintenance and repairs are charged to expense, and renewals and betterments are capitalized. ADVERTISING The Company expenses the costs of advertising as incurred. Advertising expense, primarily related to product shows and exhibits, amounted to $572 in fiscal 2009, $532 in fiscal 2008 and $403 in fiscal 2007. INCOME TAXES Landauer files income tax returns in the jurisdictions in which it operates. The Company estimates the income tax provision for income taxes that are currently payable, and records deferred tax assets and liabilities for the temporary differences in tax consequences between the financial statements and tax returns. The Company would record a valuation allowance in situations where the realization of deferred tax assets is not more likely than not. The Company recognizes the financial statement effects of its tax positions in its current and deferred tax assets and liabilities when it is more likely than not that the position will be sustained upon examination by a taxing authority. Further information regarding the Company's income taxes is contained in the footnote "Income Taxes" on page 44 of this Annual Report on Form 10-K. 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. RECLASSIFICATIONS Certain reclassifications have been made in the financial statements for comparative purposes. These reclassifications have no effect on the results of operations or financial position. 38
STOCK-BASED COMPENSATION The Company measures and recognizes compensation cost at fair value for all share-based payments, including stock options. Stock-based compensation expense, primarily for grants of restricted stock, totaled approximately $2,152, $1,200 and $801 for fiscal 2009, 2008 and 2007, respectively. The total income tax benefit recognized in the consolidated statements of income related to expense for stock-based compensation was approximately $777, $484 and $322 during fiscal 2009, 2008 and 2007, respectively. The Company has not granted stock options subsequent to fiscal 2005. Awards of stock options in prior fiscal years were granted with an exercise price equal to the market value of the stock on the date of grant. The fair value of stock options was estimated using the Black-Scholes option-pricing model. Expected volatility and the expected life of stock options were based on historical experience. The risk free interest rate was derived from the implied yield available on U.S. Treasury zero-coupon issues with a remaining term, as of the date of grant, equal to the expected term of the option. The dividend yield was based on annual dividends and the fair market value of the Company's stock on the date of grant. Compensation expense was recognized ratably over the vesting period of the stock option. Subsequent to fiscal 2005, key employees and/or non-employee directors have been granted restricted share awards that consist of performance shares and time vested restricted stock. Performance shares represent a right to receive shares of common stock upon satisfaction of performance goals or other specified metrics. Restricted stock represents a right to receive shares of common stock upon the passage of a specified period of time. The fair value of performance shares and restricted stock granted under the Company's 2005 Long-Term Incentive Plan was based on the average of the Company's high and low stock prices on the date of grant. Upon the adoption of the Company's Incentive Compensation Plan in February 2008, the fair value of performance shares and restricted stock granted under the new plan is based on the Company's closing stock price on the date of grant. Compensation expense for performance shares is recorded ratably over the vesting period, assuming that achievement of performance goals is deemed probable. Compensation expense for restricted stock is recognized ratably over the vesting period. The per share weighted average fair value of restricted shares, including restricted stock and performance shares, granted during fiscal 2009, 2008 and 2007 was $59.12, $51.41 and $49.27, respectively. EMPLOYEE BENEFIT PLANS Landauer sponsors postretirement benefit plans to provide pension, supplemental retirement funds, and medical expense reimbursement to eligible retired employees, as well as a directors' retirement plan that provides for certain retirement benefits payable to non-employee directors. Refer to the footnote "Employee Benefit Plans" on page 47 of this Annual Report on Form 10-K for further information on these benefit plans. Effective September 30, 2007 the Company adopted the FASB authoritative guidance related to defined benefit pension and other postretirement plans that requires companies to recognize on their balance sheet the funded status of their defined benefit and other post-retirement plans and to recognize changes in the funded status of these plans through comprehensive income in the year in which the changes occur. This guidance also requires that plan measurement dates coincide with the Company's fiscal year end. The adoption of this guidance did not impact the Company's plan measurement dates, as its plans historically have used a plan measurement date of September 30. 39
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2007, the FASB issued authoritative guidance that amends the accounting for business combinations, and the accounting and reporting for a noncontrolling interest in a subsidiary. The amended guidance aims to improve, simplify, and converge internationally the accounting for and reporting of business combinations and noncontrolling interests in consolidated financial statements. The revised provisions are effective, and should be applied prospectively, for the Company beginning in fiscal 2010. The Company will apply the amended guidance for any business combinations beginning in fiscal 2010, including the first quarter acquisitions of GPS, GDM and Landauer Persondosimetri AB. The Company does not expect the amended guidance for accounting and reporting for noncontrolling interests to have a significant impact on the Company's financial statements. In September 2009, the FASB approved the issuance of new guidance for arrangements with multiple deliverables and arrangements that include software elements. By providing another alternative for determining the selling price of deliverables, the new guidance will allow companies to allocate arrangement consideration in multiple deliverable arrangements in a manner that better reflects the transaction's economics and will often result in earlier revenue recognition. In addition, the residual method of allocating arrangement consideration is no longer permitted under the new guidance. The new guidance for arrangements that include software elements removes non-software components of tangible products and certain software components of tangible products from the scope of existing software revenue guidance, resulting in the recognition of revenue similar to that for other tangible products. The new guidance requires expanded qualitative and quantitative disclosures. The new guidance is effective for fiscal years beginning on or after June 15, 2010. The guidance may be applied either prospectively from the beginning of the fiscal year for new or materially modified arrangements or retrospectively. The Company is currently evaluating the impact of this new guidance to its financial position, results of operations and financial disclosures. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS Effective October 1, 2008, the Company adopted the FASB authoritative guidance for the accounting for the deferred compensation and postretirement benefit aspects of collateral assignment split-dollar life insurance arrangements. The guidance requires that an employer recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement. As a result of the implementation of the guidance, the Company recognized a decrease of $362 in its long-term asset recorded for its collateral assignment split-dollar life insurance arrangement and recorded a liability of $538 for premiums payable under the arrangement. The October 1, 2008 balance of retained earnings was reduced by $900. The Company's liability for this arrangement is expected to be settled in fiscal 2014. Effective October 1, 2008, the Company adopted the FASB standards which define fair value, establish a framework for measuring fair value and expand disclosures about fair value measurements. The guidance applies under other accounting standards that require or permit fair value measurements. The adoption of these standards did not impact the Company's consolidated financial statements for the year ended September 30, 2009. 40
Effective October 1, 2008, the Company adopted the FASB authoritative guidance which permits entities to choose to measure many financial instruments and certain other items at fair value on an instrument-by-instrument basis, with unrealized gains and losses related to these financial instruments reported in earnings at each subsequent reporting date. The new guidance also establishes presentation and disclosure requirements to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. The Company did not elect the fair value option and, therefore, the adoption of the guidance did not impact the Company's financial position, results of operations and financial disclosures for the year ended September 30, 2009. Effective June 30, 2009, the Company adopted the new general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The standards require disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The adoption of the standards did not impact the consolidated financial statements for the year ended September 30, 2009. Effective for the Company's financial statements issued for the fiscal year ending September 30, 2009, the Company adopted the FASB Accounting Standards Codification. The FASB established the Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The Codification supersedes all prior accounting standard documents, and all other nongrandfathered non-SEC accounting literature not included in the Codification became nonauthoritative. The Codification does not change or alter existing U.S. GAAP and, therefore, did not have any impact on the Company's consolidated financial statements. SUBSEQUENT EVENTS REVIEW Management evaluated material subsequent events through December 11, 2009, the date the report on Form 10-K which contained the accompanying financial statements was filed with the SEC. No material subsequent events, other than those disclosed in footnote 15, "Subsequent Events", occurred since September 30, 2009, which required recognition or disclosure in the financial statements. 2. NET DEFINED BENEFIT PLAN CURTAILMENT LOSS AND TRANSITION COSTS On February 5, 2009, the Board of Directors approved changes to the Company's retirement benefit plans. The objective of the changes is to transition from a defined benefit strategy for retirement benefits to a defined contribution approach. These changes, effective March 31, 2009, include the following actions: . cease all accruals for future years of service in the Company's defined benefit retirement plans and supplemental retirement plans and to freeze benefits provided under the plans effective March 31, 2009; . provide supplemental transition benefits to participants who satisfy certain age and service requirements; . provide enhanced benefits in the existing 401(k) retirement savings plan; and . adopt a new nonqualified deferred compensation plan for the benefit of certain executives. The Company anticipates that the re-design of its retirement plans will result in future cost savings while offering market based retirement benefits to its employees. 41
In connection with the redesign of its retirement benefit plans, the Company recognized charges of $2,236 ($1,478 after-tax) during its second fiscal quarter. The charges include a one-time net curtailment loss, in accordance with FASB authoritative guidance, in the amount of $1,125. In addition, the charge also includes costs of $1,111 pre-tax related to the transition of the contractual retirement benefit obligation of the Company's Chief Executive Officer to a defined contribution obligation and professional fees directly associated with the benefit plan transitions. During fiscal 2009, the Company made contributions of approximately $6,400 in excess of the required annual pension plan payments to fund the remainder of the plan's current unfunded balance. 3. IMPAIRMENT AND ACCELERATED DEPRECIATION CHARGES During fiscal 2007, the Company began implementation of an information technology initiative to re-engineer various business processes and replace components of its information technology systems that support customer relationship management and the order-to-cash cycle. As part of this information technology initiative, management conducted an evaluation of its different information technology platforms and the usefulness of its investments made in legacy information systems' hardware and software; this evaluation was concluded in the quarter ending June 30, 2007. Management identified certain legacy assets with a net book value of approximately $3,500 that were either subject to immediate impairment or retirement once the full system implementation has been completed. Management anticipated that the assets subject to retirement would be utilized through March 31, 2008, and therefore, the Company recorded accelerated depreciation through the newly determined remaining useful lives. As of September 30, 2007, the Company recorded a pretax non-cash charge of $2,875 ($1,725, after tax), or $0.19 per diluted share. The non-cash charge included an impairment of $2,185 for those assets management determined have no future value and $690 of incremental depreciation expense for those assets whose remaining useful lives were adjusted. In fiscal 2008, the Company recognized a non-cash charge of $376 ($225, after tax), or $0.02 per diluted share, for the remaining accelerated depreciation on the assets to be retired. 4. REORGANIZATION CHARGES During the second quarter of fiscal 2009, the Company initiated a management reorganization plan to strengthen selected roles in the organization. As a result, in March 2009, the Company recognized expense, including severance, in the amount of $489 ($322 after-tax) associated with these management organizational changes. The estimated reorganization charges were reduced by $73 ($47 after-tax) in the fourth fiscal quarter of 2009 based on actual payments to severed employees. 5. INCOME PER COMMON 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. The Company maintains a pool of windfall tax benefits which is available to offset shortfalls of current and deferred taxes on stock-based compensation transactions. 42
Following is a table that presents the weighted average number of shares of common stock for the years ended September 30: (Amounts in Thousands) 2009 2008 2007 ---------------------- -------- -------- -------- Weighted average number of shares of common stock outstanding . . . . . . . 9,293 9,237 9,127 Effect of dilutive stock-based compensation awards. . . . . . . . . . 73 65 69 -------- -------- -------- Weighted average number of shares of common stock assuming dilution . . . . 9,366 9,302 9,196 ======== ======== ======== 6. 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. Landauer received dividend payments of $1,062, $894 and $560 during fiscal years 2009, 2008 and 2007, respectively. Condensed results of operations information for Nagase-Landauer, Ltd. was as follows, converted into U.S. dollars at the average rate of exchange, for the years ended September 30: (Dollars in Thousands) 2009 2008 2007 ---------------------- -------- -------- -------- Revenues . . . . . . . . . . . . . . . . . $ 20,886 $ 19,235 $ 16,472 Gross profit . . . . . . . . . . . . . . . 11,554 10,062 8,599 Income before income taxes . . . . . . . . 5,804 4,885 4,833 Net income . . . . . . . . . . . . . . . . 3,150 2,701 2,828 ======== ======== ======== Condensed balance sheet information for the years ended September 30, 2009 and 2008, converted into U.S. dollars at the then-current rate of exchange, was as follows: (Dollars in Thousands) 2009 2008 ---------------------- -------- -------- Current assets . . . . . . . . . . . . . . $ 15,406 $ 15,136 Other assets . . . . . . . . . . . . . . . 12,459 4,185 -------- -------- Total assets . . . . . . . . . . . . . . . $ 27,865 $ 19,321 ======== ======== Current liabilities. . . . . . . . . . . . $ 11,184 $ 6,266 Other liabilities. . . . . . . . . . . . . 1,839 1,465 Stockholders' equity . . . . . . . . . . . 14,842 11,590 -------- -------- Total liabilities and stockholders' equity . . . . . . . . . . $ 27,865 $ 19,321 ======== ======== 43
7. GOODWILL AND OTHER INTANGIBLE ASSETS The components of goodwill and other intangible assets for the years ended September 30, 2009 and 2008 were as follows: (Dollars in Thousands) 2009 2008 ---------------------- -------- -------- Goodwill . . . . . . . . . . . . . . . . . $ 13,384 $ 13,343 Customer lists, net of amortization of $3,636 in 2009 and $3,078 in 2008 (useful life of 10-15 years) . . . . . . 3,576 4,134 Licenses and patents, net of amortization of $402 in 2009 and $430 in 2008 (useful life of 10-17 years) . . . . . . . . . . . . . . 203 606 Other intangibles, net of amortization of $557 in 2009 and $557 in 2008 . . . . 217 19 -------- -------- Total. . . . . . . . . . . . . . . . . . . $ 17,380 $ 18,102 ======== ======== The intangible asset amounts noted above are presented net of accumulated amortization of $7,897 at September 30, 2009 and $7,359 at September 30, 2008. Amortization of intangible assets was $615, $658 and $640, for the years ended September 30, 2009, 2008 and 2007, respectively. Estimated annual aggregate amortization expense related to intangible assets will be approximately $580, $520, $520, $520 and $490, respectively, for each of the next five years. As a result of its annual testing and review for impairment of goodwill and other intangible assets, the Company determined that no impairment was required to be recognized as of September 30, 2009. 8. INCOME TAXES The breakdown of pretax income for the years ended September 30, 2009, 2008 and 2007 was as follows: (Dollars in Thousands) 2009 2008 2007 ---------------------- -------- -------- -------- Pretax income: U.S. . . . . . . . . . . . . . . . . . $ 29,377 $ 30,767 $ 27,009 Foreign. . . . . . . . . . . . . . . . 5,340 5,664 3,821 -------- -------- -------- Total pretax income. . . . . . . . . . . . $ 34,717 $ 36,431 $ 30,830 ======== ======== ======== The components of the provision for income taxes for the years ended September 30, 2009, 2008 and 2007 were as follows: (Dollars in Thousands) 2009 2008 2007 ---------------------- -------- -------- -------- Current: Federal. . . . . . . . . . . . . . . . $ 8,867 $ 5,340 $ 9,752 State. . . . . . . . . . . . . . . . . (275) 958 2,349 -------- -------- -------- Current tax provision. . . . . . . . $ 8,592 $ 6,298 $ 12,101 ======== ======== ======== Deferred: Federal. . . . . . . . . . . . . . . . $ 2,381 $ 5,379 $ (520) State. . . . . . . . . . . . . . . . . 98 1,441 (168) -------- -------- -------- Deferred tax provision (benefit) . . $ 2,479 $ 6,820 $ (688) ======== ======== ======== Income tax provision . . . . . . . . . . . $ 11,071 $ 13,118 $ 11,413 ======== ======== ======== 44
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 of 35.0% to income before taxes. Significant items affecting the provision were as follows: (Dollars in Thousands) 2009 2008 2007 ---------------------- -------- -------- -------- Income tax provision at statutory rate of 35.0%. . . . . . . . . . . . . . $ 12,151 $ 12,751 $ 10,791 Increases (decreases) resulting from: State income taxes, net of federal benefit. . . . . . . . . . . 326 1,559 1,418 Foreign rate differences . . . . . . . (241) (481) (206) Non-taxed equity earnings. . . . . . . (551) (473) (495) Foreign tax credit impact, net . . . . (378) (386) (342) Other. . . . . . . . . . . . . . . . . (236) 148 247 -------- -------- -------- Income tax provision as reported . . . $ 11,071 $ 13,118 $ 11,413 ======== ======== ======== Effective income tax rate. . . . . . . 31.9% 36.0% 37.0% ======== ======== ======== 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 employee benefits and other compensation related costs, and (e) allowances for obsolete inventory. Significant components of deferred taxes at September 30 were as follows: (Dollars in Thousands) 2009 2008 ---------------------- -------- -------- Deferred tax assets: Pension accrual. . . . . . . . . . . . $ 2,617 $ 1,967 Compensation expense . . . . . . . . . 665 722 HomeBuyer's accrued mitigation costs . 234 290 Medical insurance claims . . . . . . . 496 528 Other. . . . . . . . . . . . . . . . . 437 613 -------- -------- $ 4,449 $ 4,120 ======== ======== Deferred tax liabilities: Tangible asset amortization. . . . . . $ 803 $ 506 Depreciation . . . . . . . . . . . . . 500 553 Software development . . . . . . . . . 5,678 3,928 Intangible asset amortization. . . . . 406 632 Other. . . . . . . . . . . . . . . . . 694 811 -------- -------- $ 8,081 $ 6,430 ======== ======== Net deferred tax liability . . . . . . . . $ (3,632) $ (2,310) ======== ======== Deferred taxes are not provided on the undistributed earnings of certain subsidiaries operating outside of the United States that have been or are intended to be permanently reinvested outside of the United States. If these earnings were distributed, foreign tax credits may become available under current law to reduce or eliminate the resulting income tax liability in the United States. 45
The Company believes that the realization of the deferred tax assets is more likely than not based upon the expectation that it will generate the necessary taxable income in the future periods and no valuation reserves have been provided. INCOME TAX UNCERTAINTIES Landauer operates in numerous taxing jurisdictions and is subject to regular examinations by various U.S. federal, state and foreign jurisdictions for various tax periods. The Company's income tax positions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which it does business. Due to the subjectivity of interpretations of laws and rulings in each jurisdiction, the differences and interplay in tax laws between those jurisdictions as well as the inherent uncertainty in estimating the final resolution of complex tax audit matters, the Company's estimates of income tax liabilities may differ from actual payments or assessments. The Company recognized a $231 decrease in stockholders' equity as of October 1, 2007 related to a change in accounting for uncertain tax positions. The liability for income tax uncertainties recognized as of October 1, 2007 was $421. A reconciliation of gross unrecognized tax benefits, exclusive of interest and penalties, is as follows: (Dollars in Thousands) 2009 2008 ---------------------- -------- -------- Balance at beginning of year . . . . . . . $ 694 $ 421 Increases based on tax positions for the current year . . . . . . . . . . 158 91 Increases based on tax positions for prior years. . . . . . . . . . . . . - 307 Decreases based on tax positions for prior years. . . . . . . . . . . . . (64) (49) Settlements. . . . . . . . . . . . . . . . (219) (26) Lapse of statute of limitations. . . . . . (37) (50) -------- -------- Balance at end of year . . . . . . . . . $ 532 $ 694 ======== ======== The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $493 (net of federal tax benefit) as of September 30, 2009 and $516 (net of federal tax benefit) as of September 30, 2008. As of September 30, 2009, the Company believes that it is reasonably possible that its liability for income tax uncertainties will decrease, exclusive of interest and penalties, by approximately $89, due to the lapsing of the statutes of limitations within the next twelve months. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company recognized $44 and $145 in interest and penalties during fiscal years 2009 and 2008, respectively. As of September 30, 2009 and 2008, the gross amount of interest accrued was $49 and $90, respectively, and the accrual for the potential payment of penalties was $5 and $151, respectively. The decrease in accrued interest and penalties between September 30, 2009 and September 30, 2008 is primarily attributable to the settlement of certain state tax liabilities. 46
As of September 30, 2009, the Company's U.S. income tax returns for fiscal years 2005 and subsequent years remain subject to examination by the Internal Revenue Service. The Company has no on-going examinations of any tax year by the Internal Revenue Service. State income tax returns generally have statute of limitations for periods between three and five years from the date of filing. During fiscal year 2009, the State of New York began an income tax audit of the returns for the fiscal tax years ending September 30, 2005, 2006 and 2007. The audit resulted in no material adjustments. For the Company's major foreign jurisdictions, its tax returns in the UK and France for fiscal years 2006 and subsequent years remain open and subject to examination by taxing officials. 9. CREDIT FACILITY In October 2007, the Company negotiated a credit facility, which originally had an expiration date of October 31, 2009 and permitted borrowings up to $15,000. In June 2009, the Company amended its credit agreement. The amendment, among other changes to the original terms, extended the maturity date to June 16, 2011 and increased the aggregate amount of funds available to $30,000; subject, with respect to amounts borrowed in excess of $20,000, to certain criteria outlined in the agreement. No borrowings were outstanding as of September 30, 2009. The Company completed the acquisition of GPS on November 9, 2009 for a purchase price of $22,000 in cash. Landauer also completed the acquisition of GDM for $6,700 in cash. The Company funded the purchase prices through borrowings under its credit agreement of $18,000, with the remainder paid from the Company's cash on hand. Under the credit agreement, the Company elects to pay an annualized interest rate based on LIBOR plus 2.9%. In addition, the Company must maintain a fixed charge coverage ratio, as calculated pursuant to the terms of the amended credit agreement, as of the end of each calendar quarter of not less than 1.35 to 1.00, and a funded debt to EBITDA ratio less than or equal to 1.5 to 1.00. 10. CAPITAL STOCK Landauer has two classes of capital stock, preferred and common, with a par value of $0.10 per share for each class. As of September 30, 2009 and 2008, there were 9,381,098 and 9,332,508 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 $2.10 per common share were declared in fiscal 2009. At September 30, 2009, there were accrued and unpaid dividends of $4,996. Landauer has reserved 500,000 shares of common stock under the Landauer, Inc. Incentive Compensation Plan approved on February 7, 2008. Previously, Landauer had reserved 500,000 shares of common stock for grants under its 2005 Long-Term Incentive Plan. Upon approval of the new plan in 2008, all shares reserved under the prior plan were cancelled. 11. EMPLOYEE BENEFIT PLANS Historically the Company provided, to substantially all full-time employees in the U.S, a qualified noncontributory defined benefit pension plan to provide a basic replacement income benefit upon retirement. For key executives, the basic benefit was supplemented with a supplemental executive retirement plan to address United States tax law limitations placed on the benefits under the qualified pension plan. The supplemental plan is not separately funded and costs of the plan are expensed annually. Landauer formerly maintained a directors' retirement plan that provides certain retirement benefits for non-employee directors. The directors' plan was terminated in January 1997 and benefits accrued under the retirement plan are frozen. 47
During 2009, the Company redesigned its retirement benefit plans for U.S. salaried employees to reflect a change in philosophy from a defined benefit structure to a defined contribution structure. The Company anticipates that the redesign of its retirement plans will result in future cost savings while offering market based retirement benefits to its employees. As part of the redesign, the qualified noncontributory defined benefit pension plan and the supplemental executive retirement plan were amended to, among other changes, cease all benefit accruals under such plans. The Company also adopted a new supplemental defined contribution plan for certain executives, which allows participating executives to make voluntary deferrals and provides for employer contributions at the discretion of the Company. Landauer maintains a 401(k) savings plan covering substantially all U.S. full-time employees. Qualified contributions made by employees to the plan are partially matched by the Company. The 401(k) savings plan was amended effective April 1, 2009 to enhance the Company's matching contribution, along with certain other changes. Amounts expensed for company contributions under the plan during the fiscal years ended September 30, 2009, 2008 and 2007 were $461, $123 and $149, respectively. The Company also maintains an 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, or to age 65 in accordance with plan changes effective October 1, 2005, 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 assumptions for health-care cost ultimate trend rates were 6% for those younger than 65, and 5% for those 65 and older. Pensions for international employees are generally provided under government sponsored programs funded by employment taxes. The Company's subsidiary in France maintains a pension plan, in the amount of approximately $134 and $144 as of September 30, 2009 and 2008, respectively, which has not been included in the following tables. The Company recognizes the over- or underfunded status of its defined benefit pension and postretirement plans on its balance sheet and recognizes changes in the funded status, as the changes occur, through comprehensive income. The Company uses its fiscal year end, September 30, as the measurement date for its plans. The following tables set forth the status of the combined defined benefit pension plans and the postretirement medical plan, as pension benefits and other benefits, respectively, at September 30. Pension Benefits Other Benefits ------------------ ------------------- (Dollars in Thousands) 2009 2008 2009 2008 ---------------------- -------- -------- -------- -------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year. . . . . . . . . . . . . $ 19,860 $ 21,458 $ 1,134 $ 1,355 Service cost . . . . . . . . . . . 977 1,084 40 43 Interest cost. . . . . . . . . . . 1,412 1,347 71 68 Effect of amendments, curtailments, settlements (1). . (2,728) - - - Actuarial loss (gain). . . . . . . 7,364 (3,400) (64) (284) Benefits paid. . . . . . . . . . . (759) (629) (31) (48) -------- -------- -------- -------- Benefit obligation at end of year. . . . . . . . . . . 26,126 19,860 1,150 1,134 -------- -------- -------- -------- 48
Pension Benefits Other Benefits ------------------ ------------------- (Dollars in Thousands) 2009 2008 2009 2008 ---------------------- -------- -------- -------- -------- CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year. . . . . . . . 12,163 13,099 - - Actual return on plan assets . . . 1,258 (1,189) - - Employer contributions . . . . . . 7,354 882 31 48 Benefits paid. . . . . . . . . . . (759) (629) (31) (48) -------- -------- -------- -------- Fair value of plan assets at end of year. . . . . . . . . . . 20,016 12,163 - - -------- -------- -------- -------- Funded status at end of year . . . $ (6,110) $ (7,697) $ (1,150) $ (1,134) ======== ======== ======== ======== (1) Represents benefit costs arising from the amendments and related curtailments and settlements to the Company's plans in the second quarter of fiscal 2009. Refer to Note 2 "Net Defined Benefit Plan Curtailment Loss and Transition Costs" for additional information. Pension Benefits Other Benefits ------------------ ------------------- (Dollars in Thousands) 2009 2008 2009 2008 ---------------------- -------- -------- -------- -------- AMOUNTS RECOGNIZED IN CONSOLIDATED BALANCE SHEETS: Current liabilities - accrued pension and postretirement costs. . . . . . . . . . . . . . $ (297) $ (286) $ (50) $ (80) Noncurrent liabilities - pension and postretirement obligations . (5,813) (7,411) (1,100) (1,054) -------- -------- -------- -------- Net amount recognized. . . . . . . $ (6,110) $ (7,697) $ (1,150) $ (1,134) ======== ======== ======== ======== AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): Net loss (gain). . . . . . . . . . $ 3,212 $ (677) $ 47 $ 110 Prior service cost (credit). . . . - 734 (222) (333) -------- -------- -------- -------- Net amount recognized in accumulated other compre- hensive income (loss). . . . . . $ 3,212 $ 57 $ (175) $ (223) ======== ======== ======== ======== At September 30, 2009 and 2008, the accumulated benefit obligation for all defined benefit pension plans was $26,126 and $17,975, respectively. Information for pension plans with an accumulated benefit obligation in excess of plans assets is set forth in the following table: September 30, ------------------ (Dollars in Thousands) 2009 2008 ---------------------- -------- -------- Projected benefit obligation . . . . . . . $ 26,126 $ 6,424 Accumulated benefit obligation . . . . . . 26,126 6,352 Fair value of plan assets. . . . . . . . . 20,016 - ======== ======== 49
The components of net periodic benefit cost were as follows: Pension Benefits Other Benefits ------------------------- ------------------------- (Dollars in Thousands) 2009 2008 2007 2009 2008 2007 ------------ ------- ------- ------- ------- ------- ------- Service cost . . . . $ 977 $ 1,084 $ 1,143 $ 40 $ 43 $ 58 Interest cost. . . . 1,412 1,347 1,210 71 68 76 Expected return on plan assets. . . . (983) (859) (747) - - - Amortization of transition asset . - - (6) - - - Amortization of prior service cost (credit). . . 45 149 149 (111) (111) (111) Recognized net actuarial loss . . 5 9 40 - 10 59 Special termination benefits . . . . . - - 140 - - - Curtailment loss . . 1,350 - - - - - Settlement gain. . . (225) - - - - - ------- ------- ------- ------- ------- ------- Net periodic benefit cost . . . $ 2,581 $ 1,730 $ 1,929 $ - $ 10 $ 82 ======= ======= ======= ======= ======= ======= Other changes in plan assets and benefit obligations recognized in other comprehensive income, pre-tax, during fiscal 2009 and 2008 were as follows: Pension Benefits Other Benefits ------------------ ------------------ 2009 2008 2009 2008 -------- -------- -------- -------- Net loss (gain). . . . . . . . . . $ 3,895 $ (1,351) $ (64) $ (284) Amortization of net gain . . . . . (5) (9) - (10) Prior service credit . . . . . . . (689) - - - Amortization of prior service cost (credit) . . . . . . . . . (45) (149) 111 111 -------- -------- -------- -------- Total recognized in other comprehensive income. . . . . . $ 3,156 $ (1,509) $ 47 $ (183) ======== ======== ======== ======== Total recognized in net periodic benefit cost and other comprehensive income. . . $ 5,737 $ 221 $ 47 $ (173) ======== ======== ======== ======== The estimated pre-tax amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit cost over the next fiscal year are: Pension Other (Dollars in Thousands) Benefits Benefits ---------------------- -------- -------- Net loss . . . . . . . . . . . . . . . . . . . . $ 49 $ - Prior service credit . . . . . . . . . . . . . . - (111) -------- -------- Net amount expected to be recognized . . . . . . $ 49 $ (111) ======== ======== 50
ASSUMPTIONS The weighted-average assumptions used to determine benefit obligations at September 30 were as follows: Pension Benefits Other Benefits ------------------ ------------------ 2009 2008 2009 2008 -------- -------- -------- -------- Discount rate. . . . . . . . . . . 5.59% 7.50% 5.59% 7.50% Rate of compensation increase. . . 3.50% 3.50% 3.50% 3.50% The weighted-average assumptions used to determine net periodic benefit cost for years ended September 30 were as follows: Pension Benefits Other Benefits ------------------ ------------------ 2009 2008 2009 2008 -------- -------- -------- -------- Discount rate. . . . . . . . . . . 7.34% 6.30% 7.50% 6.30% Expected long-term return on plan assets . . . . . . . . . 6.50% 6.50% 6.50% 0.00% Rate of compensation increase. . . 3.50% 3.50% 3.50% 3.50% The expected long-term rate of return of plan assets is based on historical and projected rates of return for current and planned asset classes in the plan's investment portfolio. Based on the target asset allocation for each asset class, the overall expected rate of return for the portfolio was developed and adjusted for historical and expected experience of the active portfolio management results compared to the benchmark returns and for the effect of expenses paid from plan assets. The Company reviews this long-term assumption on an annual basis. Assumed health care cost trend rates at September 30 were: 2009 2008 -------- -------- Health care cost trend rate assumed for next year. . . . . . . . . . . . . . . . . . . 12% 12% Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) . . . . . 6% 6% Year that the rate reaches the ultimate trend rate. . . . . . . . . . . . . . 2015 2014 Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects as of September 30, 2009. 1-Percentage- 1-Percentage- (Dollars in Thousands) Point Increase Point Decrease ---------------------- -------------- -------------- Effect on aggregate of service and interest cost. . . . . . . . . . . $ 7 $ (6) Effect on postretirement benefit obligation . . . . . . . . . . $ 62 $ (57) 51
PLAN ASSETS Landauer's pension plan weighted-average asset allocations by asset category at September 30 were: Plan Assets at September 30, --------------------- Asset Category 2009 2008 -------------- -------- -------- Fixed income . . . . . . . . . . . . . . . . . . 75% 57% Equity securities. . . . . . . . . . . . . . . . 25% 40% Cash equivalents . . . . . . . . . . . . . . . . 0% 3% ---- ---- Total. . . . . . . . . . . . . . . . . . . . . . 100% 100% ==== ==== Plan assets for the qualified defined benefit pension plan include marketable equity securities, corporate and government debt securities, and cash and short-term investments. The plan assets are not directly invested in the Company's common stock. The supplemental executive retirement plans and the directors' retirement plan are not separately funded. The plan's investment strategy supports the objectives of the plan. These objectives are to maximize returns in order to meet long-term cash requirements within reasonable and prudent levels of risk. To achieve these objectives, the Company has established a strategic asset allocation policy which is to maintain approximately one half of plan assets in high quality fixed income securities such as investment grade bonds and short term government securities, with the other half containing large capitalization equity securities. The plan's objective is to periodically rebalance its assets to approximate weighted-average target asset allocations. Investments are diversified across classes and within each class to minimize the risk of large losses. CONTRIBUTIONS The Company, under IRS minimum funding standards, is not required to make contributions to its defined benefit pension plan during fiscal 2010. ESTIMATED FUTURE BENEFIT PAYMENTS The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: Pension Other (Dollars in Thousands) Benefits Benefits ---------------------- -------- -------- 2010 . . . . . . . . . . . . . . . . . . . $ 797 $ 51 2011 . . . . . . . . . . . . . . . . . . . 804 59 2012 . . . . . . . . . . . . . . . . . . . 1,039 60 2013 . . . . . . . . . . . . . . . . . . . 1,064 44 2014 . . . . . . . . . . . . . . . . . . . 1,204 44 Years 2015-2019. . . . . . . . . . . . . . 7,345 187 12. COMMITMENTS AND CONTINGENCIES The Company is a party, from time to time, to various legal proceedings, lawsuits and other claims arising in the ordinary course of its business. The Company does not believe that any such litigation pending as of September 30, 2009, if adversely determined, would have a material effect on its business, financial position, results of operations, or cash flows. 52
13. STOCK-BASED COMPENSATION The Company maintains stock-based compensation awards for key employees and/or non-employee directors under four plans: (i) the Landauer, Inc. 1996 Equity Plan, as amended and restated through November 8, 2001; (ii) the Landauer, Inc. 1997 Non-Employee Director's Stock Option Plan, as amended and restated through November 8, 2001; (iii) the Landauer, Inc. 2005 Long-Term Incentive Plan; and (iv) the Landauer, Inc. Incentive Compensation Plan (the "IC Plan") which was approved by shareholders in February 2008. For future grants, the IC Plan replaced the previous three plans. The Company reserved 500,000 shares of its common stock for grant under the IC Plan, and shares reserved for award and unused under the previous three plans were cancelled. The Plans provide for grants of options to purchase the Company's common stock, restricted stock, restricted stock units, performance shares and units, and stock appreciation rights. Shares issued upon settlement of stock-based compensation awards are issued from the Company's authorized, unissued stock. STOCK OPTIONS Expense related to stock options issued to eligible employees and directors under the Plans is recognized ratably over the vesting period. Stock options generally vest over a period of 0 to 4 years and have 10-year contractual terms. A summary of stock option activity during fiscal 2009 is presented below (in thousands, except option prices): Weighted- Average Weighted- Remaining Number Average Contractual Aggregate of Exercise Term Intrinsic Options Price (Years) Value ------- --------- ----------- --------- Outstanding at October 1, 2008. . . . 163 $ 44.94 Exercised. . . . . . . . (24) 44.25 ------ ------- Outstanding at September 30, 2009 . . 139 $ 45.06 5 $ 1,375 ====== ======= ======= ======= Exercisable at September 30, 2009 . . 139 $ 45.06 5 $ 1,375 ====== ======= ======= ======= As of September 30, 2009, all outstanding stock options were vested and compensation expense related to stock options was recognized. The Company has not granted stock options subsequent to fiscal 2005. The intrinsic value of options exercised totaled approximately $401, $2,273 and $2,181 during fiscal 2009, 2008 and 2007, respectively. The total income tax benefit recognized in the consolidated statements of income related to the exercise of stock options was approximately $145, $915 and $870 during fiscal 2009, 2008 and 2007, respectively. 53
RESTRICTED SHARE AWARDS Restricted share awards consist of performance shares and time vested restricted stock. Expense related to performance shares and restricted stock is recognized ratably over the vesting period. Restricted stock issued to eligible employees and directors under the Plans vests, to date, over a period from 6 months to 5 years, and performance shares contingently vest over various periods, depending on the nature of the performance goal. Restricted share transactions during fiscal 2009 were as follows (in thousands, except fair values): Number of Weighted- Restricted Average Share Fair Awards Value ---------- ---------- Outstanding at October 1, 2008 . . . . 47 $ 50.41 Granted. . . . . . . . . . . . . . . . 80 59.12 Vested . . . . . . . . . . . . . . . . (48) 50.52 Forfeited. . . . . . . . . . . . . . . (7) 51.79 ------ ------- Outstanding at September 30, 2009. . . 72 $ 59.89 ====== ======= As of September 30, 2009, unrecognized compensation expense related to restricted share awards totaled approximately $2,008 and is expected to be recognized over a weighted average period of 2.1 years. The total fair value of shares vested during fiscal 2009, 2008 and 2007 was $2,442, $986 and $87, respectively. 14. 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, as well as to customers in other geographic markets. The Company does not have any significant long-lived assets in foreign countries. The following table shows the geographical distribution of revenues for the fiscal years ended September 30, 2009, 2008 and 2007: (Dollars in Thousands) 2009 2008 2007 ---------------------- -------- -------- -------- Domestic . . . . . . . . . . . . . . . . . $ 69,666 $ 66,663 $ 64,928 Europe - France and UK . . . . . . . . . . 13,743 14,581 12,046 Other countries. . . . . . . . . . . . . . 10,418 8,710 6,742 -------- -------- -------- $ 93,827 $ 89,954 $ 83,716 ======== ======== ======== Revenues of Nagase-Landauer, Ltd., the Company's joint venture in Japan, are not consolidated and are not included in the above table. Audited revenues of Nagase-Landauer, Ltd. for fiscal years 2009, 2008 and 2007 were $20,886, $19,235 and $16,472, respectively. See Note 6 "Equity in Joint Venture" for additional information on Nagase-Landauer, Ltd. 54
15. SUBSEQUENT EVENTS On November 9, 2009, Landauer, Inc. completed the acquisition of all of the issued and outstanding capital stock of Global Physics Solutions, Inc. ("GPS"). GPS is based in Texas with operations throughout the Midwest and provides medical physics services to hospitals and radiation therapy centers. Pursuant to a stock purchase agreement by and among Landauer, GPS, the stockholders of GPS and DW Management Services, L.L.C., as the stockholders representative, Landauer purchased all of the issued and outstanding shares of preferred stock and common stock of GPS for an aggregate purchase price of $22,000 in cash. This purchase price includes amounts applied by Landauer at the closing to repay all of the outstanding indebtedness of GPS and to pay certain costs and expenses incurred by GPS as a result of the transaction. Landauer also deposited $1,000 of the purchase price into an escrow account to be held for a period of 18 months and applied to the settlement of the GPS stockholders' indemnification obligations, if any, in connection with the transaction. On November 2, 2009, Landauer completed the acquisition of Gammadata Matteknik AB ("GDM"), a Swedish provider of radon measurement services, for $6,700 in cash. GDM is based near Stockholm, Sweden and provides measurement services throughout the Scandinavian region and Europe. Landauer previously acquired a dosimetry service in Sweden, now called Landauer Persondosimetri AB. The Company funded the purchase prices through borrowings under its credit agreement of $18,000, with the remainder paid from the Company's cash on hand. Under the credit agreement, the Company elects to pay an annualized interest rate based on LIBOR plus 2.9%. In addition, the Company must maintain a fixed charge coverage ratio, as calculated pursuant to the terms of the amended credit agreement, as of the end of each calendar quarter of not less than 1.35 to 1.00, and a funded debt to EBITDA ratio less than or equal to 1.5 to 1.00. The initial accounting for these acquisitions will be completed in the first quarter of fiscal 2010, and will result in the recognition of intangible assets and goodwill. 55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To Stockholders and Board of Directors of Landauer, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of stockholders' equity and comprehensive income, and of cash flows present fairly, in all material respects, the financial position of Landauer, Inc. and its subsidiaries at September 30, 2009 and September 30, 2008, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2009 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting, appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for its defined benefit pension and other post-retirement plans in 2007. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. 56
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Chicago, IL December 11, 2009 57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES DISCLOSURE 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") (the Company's principal executive officer and principal financial officer, respectively), of the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Based upon that evaluation, the Company's CEO and CFO concluded that the Company's disclosure controls and procedures as of September 30, 2009 were effective. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Controls-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that the Company's internal control over financial reporting was effective as of September 30, 2009. The effectiveness of the Company's internal control over financial reporting as of September 30, 2009 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their attestation report which appears under Item 8 of this Annual Report on Form 10-K. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There have been no changes in the Company's internal control over financial reporting that occurred during the period ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. 58
PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information pursuant to this Item relating to the directors of the Company, contained under the headings "Election of Directors", "Beneficial Ownership of Common Stock", and "Process for Nominating Directors" in the Proxy Statement, is incorporated herein by reference. Information pursuant to this Item relating to the officers of the Company, contained under the heading "Executive Officers of the Company" in this Annual Report on Form 10-K, is incorporated herein by reference. Disclosure pursuant to this Item regarding Section 16(a) reporting compliance, contained under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement, is incorporated herein by reference. Information pursuant to this Item relating to the Company's Audit Committee and the Company's code of ethics, contained under the heading "Board of Directors and Committees" in the Proxy Statement, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Except for the information relating to Item 13 hereof, the information contained under the headings "Executive Compensation" and "Compensation Committee Report" in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information contained under the headings "Beneficial Ownership of Common Stock" and "Equity Compensation Plan Information" in the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Except for the information relating to Item 11 hereof, the information contained under the headings "Election of Directors" and "Independence of Directors" in the Proxy Statement is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information contained under the heading "Fees Billed by Independent Public Accountants" in the Proxy Statement is incorporated herein by reference. 59
PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: (1) Financial Statements - The financial statements of Landauer listed under Item 8 herein. (2) Financial Statement Schedules - None. (3) Exhibits - The following 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, as amended and restated effective February 5, 2009, are incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated February 5, 2009. (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 on Form 10-K for the fiscal year ended September 30, 2002. (10)(b) Amendment No. 1 to the Landauer, Inc. 1996 Equity Plan, as amended and restated through November 8, 2001, is incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. (10)(c) Liability Assumption and Sharing Agreement among Tech/Ops, Inc., Tech/Ops Sevcon, Inc., and the Registrant is incorporated by reference to Exhibit (10)(d) to the Annual Report on Form 10-K for the fiscal year ended September 30, 1993. (10)(d) 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)(e) 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)(f) Form of Supplemental Key Executive Retirement Plan of Landauer, Inc., as amended and restated effective October 1, 2003, is incorporated by reference to Exhibit (10)(e) to the Annual Report on Form 10-K for the fiscal year ended September 30, 2003. (10)(g) 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. 60
(10)(h) 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 on Form 10-K for the fiscal year ended September 30, 2003. (10)(i) Amendment No. 1 to 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 10.2 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. (10)(j) Employment agreement dated February 29, 1996 between the Registrant and R. Craig Yoder is incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended September 30, 1998. (10)(k) The Landauer, Inc. Executive Special Severance Plan as amended and restated on November 12, 2009 as attached hereto as Exhibit (10)(k). (10)(l) Form of stock option award pursuant to the Landauer, Inc. 1996 Equity Plan, as amended and restated through November 8, 2001, is incorporated by reference to Exhibit 10(l) to the Annual Report on Form 10-K for the fiscal year ended September 30, 2004. (10)(m) The Landauer, Inc. 2005 Long-Term Incentive Plan is incorporated by reference to Exhibit (10)(m) to the Annual Report on Form 10-K for the fiscal year ended September 30, 2005. (10)(n) Amendment No. 1 to the Landauer, Inc. 2005 Long-Term Incentive Plan is incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. (10)(o) Form of stock option award pursuant to the Landauer, Inc. 2005 Long-Term Incentive Plan is incorporated by reference to Exhibit (10)(n) to the Annual Report on Form 10-K for the fiscal year ended September 30, 2005. (10)(p) Form of director's restricted share award pursuant to the Landauer, Inc. 2005 Long-Term Incentive Plan is incorporated by reference to Exhibit (10)(o) to the Annual Report on Form 10-K for the fiscal year ended September 30, 2005. (10)(q) Form of key employee restricted share award pursuant to the Landauer, Inc. 2005 Long-Term Incentive Plan is incorporated by reference to Exhibit (10)(p) to the Annual Report on Form 10-K for the fiscal year ended September 30, 2005. (10)(r) Employment agreement dated September 28, 2005 between the Registrant and William E. Saxelby is incorporated by reference to Exhibit (10)(q) to the Annual Report on Form 10-K for the fiscal year ended September 30, 2005. (10)(s) Amendment to Employment Agreement dated May 2, 2006 between the Registrant and R. Craig Yoder is incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. (10)(t) Employment agreement dated September 8, 2006 between the Registrant and Jonathon M. Singer is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated September 8, 2006. 61
(10)(u) Form of Performance Stock Grant under the Landauer, Inc. 2005 Long-Term Incentive Plan is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated February 16, 2006. (10)(v) Form of Restricted Stock Award under the Landauer, Inc. 2005 Long-Term Incentive Plan is incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K dated March 19, 2007. (10)(w) Form of Performance Stock Award under the Landauer, Inc. 2005 Long-Term Incentive Plan is incorporated by reference to Exhibit (10)(w) to the Annual Report on Form 10-K for the fiscal year ended September 30, 2007. (10)(x) Form of Restricted Stock Award under the Landauer, Inc. 2005 Long-Term Incentive Plan is incorporated by reference to Exhibit (10)(x) to the Annual Report on Form 10-K for the fiscal year ended September 30, 2007. (10)(y) The Loan Agreement between Landauer, Inc. and U.S. Bank, N.A. is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated October 11, 2007. (10)(z) The Landauer, Inc. Incentive Compensation Plan is incorporated by reference to Exhibit A to the Proxy Statement for the Annual Meeting of Shareholders dated January 4, 2008. (10)(aa) Form of Restricted Stock Award under the Landauer, Inc. Incentive Compensation Plan is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated February 7, 2008. (10)(ab) Form of Performance Stock Award under the Landauer, Inc. Incentive Compensation Plan is incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K dated February 7, 2008. (10)(ac) Amendment dated as of May 1, 2009 to the Employment Agreement between the Registrant and William E. Saxelby is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated May 1, 2009. (10)(ad) First Amendment, dated June 17, 2009, to Loan Agreement between Landauer, Inc. and U.S. Bank, N.A. is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated June 17, 2009. (21) Subsidiaries of the registrant are: Beijing-Landauer, Ltd. (70%) Beijing, P.R. China HomeBuyer's Preferred, Inc. (100%) Glenwood, IL Landauer Australasia Pty Ltd. (51%) Sydney, Australia Landauer-Europe, Ltd. and subsidiary (100%) Paris, France Oxford, United Kingdom Nagase-Landauer, Ltd. (50%) Tokyo, Japan SAPRA-Landauer, Ltda. (75%) Sao Carlos - SP, Brazil 62
ALSA Dosimetria, S. de R.L. de C.V. (56.25%) Mexico City, Mexico Global Physics Solutions, Inc. (100%) Cypress, Texas Gammadata Matteknik AB (100%) Uppsala, Sweden Landauer Persondosimetri AB (100%) Solna, Sweden 31.1 Certification of William E. Saxelby, President and Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith. 31.2 Certification of Jonathon M. Singer, Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith. 32.1 Certification of William E. Saxelby, 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 Jonathon M. Singer, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 furnished herewith. Exhibits 10(a), 10(b), 10(e), 10(f), 10(g), 10(h), 10(i), 10(j), 10(k), 10(l), 10(m), 10(n), 10(o), 10(p), 10(q), 10(r), 10(s), 10(t), 10(u), 10(v), 10(w), 10(x), 10(z), 10(aa), 10(ab) and 10(ac) listed above are 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. 63
SIGNATURES 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/ William E. Saxelby December 11, 2009 -------------------------- William E. Saxelby 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/ William E. Saxelby President and Director December 11, 2009 ------------------------- (Principal Executive Officer) William E. Saxelby /s/ Jonathon M. Singer Senior Vice President, December 11, 2009 ------------------------- Treasurer and Secretary Jonathon M. Singer (Principal Financial and Accounting Officer) /s/ Robert J. Cronin Director December 11, 2009 ------------------------- Robert J. Cronin /s/ William G. Dempsey Director December 11, 2009 ------------------------- William G. Dempsey /s/ Michael T. Leatherman Director December 11, 2009 ------------------------- Michael T. Leatherman /s/ David E. Meador Director December 11, 2009 ------------------------- David E. Meador /s/ Stephen C. Mitchell Director December 11, 2009 ------------------------- Stephen C. Mitchell /s/ Thomas M. White Director December 11, 2009 ------------------------- Thomas M. White 64
QUARTERLY FINANCIAL DATA (UNAUDITED) (Amounts in Thousands, First Second Third Fourth Total Except per Share) Quarter Quarter Quarter Quarter Year ---------------------- ------- ------- ------- ------- ------- Net revenues 2009 $22,438 $24,954 $23,468 $22,967 $93,827 2008 $21,809 $23,743 $21,902 $22,500 $89,954 Gross profit 2009 $15,298 $16,575 $15,594 $15,594 $63,061 2008 $14,608 $16,228 $14,973 $15,231 $61,040 Operating income (1, 2) 2009 $ 8,805 $ 7,162 $ 8,982 $ 7,569 $32,518 2008 $ 7,820 $ 9,781 $ 8,502 $ 7,972 $34,075 Net income 2009 $ 6,142 $ 5,428 $ 6,546 $ 5,250 $23,366 2008 $ 5,276 $ 6,430 $ 5,793 $ 5,484 $22,983 Diluted net income per 2009 $ 0.66 $ 0.58 $ 0.70 $ 0.56 $ 2.49 share (1, 2) 2008 $ 0.57 $ 0.69 $ 0.62 $ 0.59 $ 2.47 Cash dividends per share 2009 $ 0.525 $ 0.525 $ 0.525 $ 0.525 $ 2.10 2008 $ 0.500 $ 0.500 $ 0.500 $ 0.500 $ 2.00 Common stock price per share 2009 high $ 74.51 $ 73.99 $ 63.00 $ 68.96 $ 74.51 low $ 46.82 $ 46.08 $ 49.37 $ 52.17 $ 46.08 2008 high $ 52.17 $ 54.39 $ 62.83 $ 73.52 $ 73.52 low $ 47.20 $ 47.00 $ 49.74 $ 54.89 $ 47.00 Weighted average diluted 2009 9,310 9,328 9,347 9,393 9,366 shares outstanding 2008 9,227 9,268 9,307 9,342 9,302 (1) Includes accelerated depreciation of $376, reducing net income by $225 (after income tax benefit of $151) or $0.02 per diluted share in fiscal year 2008. (2) Includes pension curtailment and transition costs of $2,236, reducing net income by $1,478 (after income tax benefit of $758) or $0.16 per diluted share, and reorganization charges of $416, reducing net income by $275 (after income tax benefit of $141) or $0.03 per diluted share in fiscal year 2009. 65