ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

Landauer is a leading provider of analytical services to determine occupational and environmental radiation exposure. 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 clients, and the analysis and reporting of exposure findings. These services are provided to approximately 69,000 customers representing approximately 1.6 million individuals in the U.S., Japan, France, the United Kingdom, Brazil, Canada, China, Australia, Mexico and other countries. In addition to providing analytical services, the Company leases or sells 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.

Landauer operates a mature business, and growth in numbers of customers is modest. In recent years, the Company's strategy has been to expand into new international markets, primarily by partnering with existing dosimetry service providers with a prominent local presence. In addition, the Company has developed new platforms and formats for its Optically Stimulated Luminescence (OSL) technology, such as InLight, to gain access to markets where the Company previously did not have a significant presence, such as smaller in-house and commercial laboratories. Revenue growth in recent years has occurred as a result of entry into new markets through joint ventures and acquisitions, modest unit growth, the sale of InLight equipment and badges, new ancillary services and products, and increased pricing for certain services. 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.

RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2009

Revenues for the second quarter of fiscal 2009 were $24,954,000, a 5.1% increase compared to revenues of $23,743,000 for the same quarter in fiscal 2008. Domestic revenue growth for the second quarter was $1,110,000, or 6.1%, resulting from gains in the core radiation monitoring business driven by increased pricing for certain services and increases in domestic InLight equipment revenue. International revenue increased $101,000, or 1.8%. Growth in volume in most regions was offset by the impact of the strengthening of the dollar against most foreign currencies which reduced revenue by approximately $1,042,000.

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.

During the quarter ended March 31, 2009, the Company executed a multi-year contract valued at approximately $8 million, which represents an estimate of purchases over the contract term with commitments to be established annually and subject to annual funding by the Canadian government. Approximately $2,000,000 of product was delivered during the quarter. Approximately $960,000 of the product delivered requires additional processing by Landauer to be fully utilized for its intended purpose. Per the terms of the agreement, the Canadian agency has the option to obtain additional processing of the dosimetry materials from the Company or to exchange the materials for finished product. Consistent with the Staff Accounting Bulletin No. 104 "Revenue Recognition," the Company recorded $960,000 of deferred revenue as of March 31, 2009, related to the portion of the sale that requires additional performance by the Company. In fiscal

2008, during its second quarter, the Company initiated a similar contract in the amount of $2,000,000 with the agency, under which $1,850,000 of product was delivered. Approximately $1,100,000 of the product delivered required additional processing by Landauer to be fully utilized for its intended purpose. The Company recorded $1,100,000 of deferred revenue in fiscal 2008, related to the portion of the sale that required additional performance by the Company. During the first and second quarters of fiscal 2009, the Company recognized approximately $556,000 and $538,000, respectively, of revenue for InLight equipment delivered under the exchange provisions of the fiscal 2008 agreement.

Total cost of sales for the second quarter of fiscal 2009 was $8,379,000, an increase of $864,000, or 11.5%, compared with cost of sales of $7,515,000 for the same quarter in fiscal 2008. Gross margins were 66.4% of revenues for the second quarter of fiscal 2009, compared with the 68.3% reported for the same period in fiscal 2008. The decline in gross margin rate is primarily a result of revenue mix due to the increased contribution of lower margin InLight equipment sales.

Selling, general and administrative expense for the second quarter of fiscal 2009 was $6,688,000, an increase of $241,000, or 3.7%, compared with expense of $6,447,000 for the second quarter of fiscal 2008, which included accelerated depreciation charges of $188,000. The primary factors contributing to the increase were $371,000 in additional non-recurring pension expense due to the acceleration of certain costs to support the defined benefit plan curtailment, and $185,000 in additional professional fees to support due diligence of an acquisition opportunity the Company chose not to pursue. These costs were partially offset by the timing of 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.

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 $2,236,000 ($1,478,000 after-tax) of non-recurring pension curtailment and transition costs during the second fiscal quarter of 2009. Further details are included in Note 2 to the Consolidated Financial Statements. In addition, the Company initiated a management reorganization plan to strengthen selected roles in the organization. As a result, the Company recognized $489,000 ($322,000 after-tax) of non-recurring reorganization charges during the second fiscal quarter of 2009.

Resulting operating income for the quarter ended March 31, 2009 was $7,162,000, a decrease of 26.8% compared with $9,781,000 reported in the same quarter in fiscal 2008.

Net other income, including equity in income of joint venture, for the quarter was $119,000 higher than a year ago, primarily reflecting recognized foreign currency gains.

The effective income tax rates for the second quarter of fiscal 2009 and 2008 were 30.6% and 37.3%, respectively. The reduction in the current year rate is due primarily to a change in the state tax rate driven by changes in the Illinois state tax law, as well as the favorable settlement of certain state tax liabilities during the quarter.

Resulting net income for the quarter ended March 31, 2009 amounted to $5,428,000, or $0.58 per diluted share, compared with $6,430,000 or $0.69 per diluted share, for the same quarter in fiscal 2008.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2009

Revenues for the first six months of the fiscal year were $47,392,000, a 4.0% increase compared to revenues of $45,552,000 for the same period in fiscal 2008. Domestic revenue growth was $1,996,000, or 5.8%, resulting from gains in the core radiation monitoring business driven by increased prices for certain services and increases in domestic InLight equipment revenue. International revenue decreased $156,000, or 1.4%. Growth in volume in most regions was offset by the impact of the strengthening of the dollar against most foreign currencies which reduced revenue by approximately $1,741,000.

As noted above for the quarter ended March 31, 2009, 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. Revenues recognized year-to-date under contracts with the agency were approximately $2,163,000.

Total cost of sales for the first six months of fiscal 2009 was $15,519,000, an increase of $803,000 or 5.5%, compared with cost of sales of $14,716,000 for the same period in fiscal 2008. Gross margins were 67.3% of revenues for the first half of fiscal 2009, compared with the 67.7% reported for the same period in fiscal 2008.

Selling, general and administrative expenses for the first six months of fiscal 2009 were $13,181,000, a decrease of $54,000, or 0.4%, compared with expense of $13,235,000 reported for the same period in fiscal 2008, which included accelerated depreciation charges of $376,000. Increased costs due to additional non-recurring pension expense due to the acceleration of certain costs to support the defined benefit plan curtailment, and additional professional fees to support due diligence of an acquisition opportunity the Company chose not to pursue were partially offset by the timing of expense spending to re-engineer business processes and to replace the Company's IT systems that support customer relationship management and the order-to-cash cycle.

As noted above for the quarter ended March 31, 2009, changes to the Company's retirement benefit plans to transition from a defined benefit philosophy for retirement benefits to a defined contribution approach resulted in $2,236,000 ($1,478,000 after-tax) of non-recurring pension curtailment and transition costs during the second fiscal quarter of 2009. In addition, the Company recognized $489,000 ($322,000 after-tax) of non- recurring reorganization costs during the second fiscal quarter of 2009.

Resulting operating income for the six months ended March 31, 2009 was $15,967,000, a decrease of 9.3% compared with $17,601,000 reported in the same period in fiscal 2008.

Net other income, including equity in income of joint venture, for the first six months was $16,000 lower than a year ago, reflecting lower net interest income.

The effective income tax rate for the first half of fiscal 2009 and fiscal 2008 were 32.2% and 37.3%, respectively. The reduction is due primarily to a change in the state tax rate driven by changes in the Illinois state tax laws and the benefit of certain tax credits for qualified research and development activities, as well as the benefit of the reversal of certain state tax reserves not considered necessary after the settlement of open tax years.

Resulting net income for the six months ended March 31, 2009 amounted to $11,570,000, or $1.24 per diluted share, compared with $11,706,000, or $1.27 per diluted share, for the same period in fiscal 2008.

LIQUIDITY AND CAPITAL RESOURCES

Landauer generated $2,687,000 in cash during the quarter ended March 31, 2009, resulting in cash on hand of $36,625,000. Cash flows provided by operating activities for the first half of fiscal 2009 were $15,154,000 compared to $15,173,000 in the first half of fiscal 2008.

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. Due to the extension, the Company completed a thorough assessment of the scope, timing and cost required to successfully implement the systems initiative. The total project cost is currently estimated to be approximately $25 to $27 million and is targeted to be completed during calendar 2010.

Investing activities included acquisitions of property, plant and equipment in the amounts of $2,437,000 and $2,385,000 for the six months ended March 31, 2009 and 2008, respectively. Capital expenditures for the remainder of fiscal 2009 are expected to be approximately $7.0 to $8.0 million, including the expected increase in the cost of the Company's information systems initiative noted above. The Company anticipates that funds for these capital improvements will be provided from operations.

The Company's financing activities were comprised primarily of payments of cash dividends to shareholders. During the first half of fiscal 2009, the Company funded cash dividends of $9,549,000, or $0.525 per share for the first quarter of fiscal 2009 and $0.50 per share for the fourth quarter of fiscal 2008. During the first six months of fiscal 2008, the Company paid cash dividends of $8,987,000, or $0.50 per share. Such amounts have been provided from operations.

As described in Note 9 to the financial statements, the Company negotiated a credit facility in October 2007, which expires on October 31, 2009. The credit facility permits borrowings up to $15,000,000. To date, no borrowings have been made under this facility. The Company continues to evaluate a new credit facility that would extend the expiration date of the Company's credit facility and increase permitted borrowing.

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 sheet as "Deferred Contract Revenue", amounted to $14,420,000 and $15,626,000, respectively, as of March 31, 2009 and September 30, 2008. While these amounts represent approximately 45% and 46% of current liabilities, respectively, as of March 31, 2009 and September 30, 2008, such amounts do not represent a future cash obligation.

All customers are invoiced in accordance with the Company's standard terms, with payment generally due thirty days from date of invoice. Reflecting the Company's invoicing practices and that a significant portion of the Company's revenues are subject to health care industry reimbursement cycles, the days of sales outstanding for the Company averaged approximately 94 and 95 days over the course of the second quarter of fiscal 2009 and fiscal 2008, respectively.

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

OUTLOOK FOR BALANCE OF FISCAL 2009

Landauer's business plan for fiscal 2009 currently anticipates aggregate revenue growth for the year to be in the range of 3 - 5%. The Company currently anticipates a net income increase in the range of 6 - 8%, prior to the $1.8 million after-tax impact of the non-recurring pension curtailment and transition costs and management reorganization charges discussed above.

FORWARD-LOOKING STATEMENTS

Certain of the statements made herein 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<registered trademark>+; 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 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 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 Annual Report on Form 10-K for the year ended September 30, 2008 and other reports filed by the Company, from time to time, with the SEC.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued SFAS No. 141R, "Business Combinations," and SFAS No. 160 "Noncontrolling Interests in Consolidated Financial Statements." These standards aim to improve, simplify, and converge internationally the accounting for and reporting of business combinations and noncontrolling interests in consolidated financial statements. The provisions of SFAS No. 141R and SFAS No. 160 are effective, and should be applied prospectively, for the Company beginning in fiscal 2010. The Company will apply SFAS No. 141R for any business combinations beginning in fiscal 2010. The Company is currently evaluating the impact of SFAS No. 160 to its financial position, results of operations and financial disclosures.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

Effective October 1, 2008, the Company adopted the guidance of the Emerging Issues Task Force (EITF) Issue No. 06-10, "Accounting for the Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements." The EITF affirmed as a final consensus that an employer should recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement. As a result of the implementation of EITF No. 06- 10, the Company recognized a decrease of $362,000 in its long-term asset recorded for its collateral assignment split-dollar life insurance arrangement and recorded a liability of $538,000 for premiums payable under the arrangement. The October 1, 2008 balance of retained earnings was reduced by $900,000. The Company's liability for this arrangement is expected to be settled in fiscal 2014.

Effective October 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. The adoption of SFAS No. 157 did not impact the Company's unaudited consolidated financial statements for the quarter ended March 31, 2009.

Effective October 1, 2008, the Company adopted SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities, including an Amendment of FASB Statement No. 115." SFAS No. 159 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. SFAS No. 159 also establishes presentation and disclosure requirements to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities.

The adoption of SFAS No. 159 did not impact the Company's financial position, results of operations and financial disclosures for the quarter ended March 31, 2009.

CRITICAL ACCOUNTING POLICIES

The critical accounting policies followed by the Company are set forth in Item 7 and "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements of the 2008 Landauer Annual Report on Form 10-K. The Company believes that at March 31, 2009, there have been no material changes to this information.