(1)Basis of Presentation and Consolidation

As used herein, the “Company” or “Landauer” refers to Landauer, Inc. and its subsidiaries.

The consolidated financial statements include the accounts of the Company, its subsidiaries and variable interest entities in which the Company has a controlling financial interest. All inter-company balances and transactions are eliminated in consolidation. Entities in which the Company does not have a controlling financial interest, but is considered to have significant influence, are accounted for on the equity method.

The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014 and other financial information filed with the Securities and Exchange Commission (the “SEC”). The September 30, 2014 balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).

The accounting policies followed by the Company are set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014. There have been no changes to the accounting policies for the three month period ended December 31, 2014.

The results of operations for the three month period ended December 31, 2014 are not necessarily indicative of the results to be expected for the full fiscal year.

Restatement of Prior Period Financial Statements

In connection with the preparation of the consolidated financial statements for the fiscal year ended September 30, 2014, the Company identified errors in its previously issued financial statements for the interim period ended December 31, 2013. In accordance with accounting guidance presented in ASC 250-10 and SEC Staff Accounting Bulletin No. 99, Materiality, management assessed the materiality of these errors and concluded that they were material to the Company’s financial statements for the three months ended December 31, 2013. The Company is restating its financial statements for the interim period ended December 31, 2013 to correct for these errors. Following is a description of the corrections:

Income taxes – The Company did not properly allocate income between taxing jurisdictions for certain items. This resulted in the misstatement of income tax expense (benefit), prepaid taxes, current and deferred tax assets and liabilities, other accrued expenses and accumulated other comprehensive income.

Revenue and accounts receivable – The Company identified the following errors related to revenue recognition and its accounting for receivables:

The Company did not properly defer revenue for the portion of the badge wear period remaining at the end of each month. This resulted in the misstatement of revenue and the deferred revenue liability.

The Company did not recognize revenue for certain customers in accordance with contractually established terms and conditions. This resulted in the misstatement of revenue, cost of sales, inventory and the deferred revenue liability.

Revenue was recognized for certain product sales prior to the transfer of the risk of loss to customers. This resulted in the misstatement of revenue, cost of sales, inventory and the deferred revenue liability.

Credit memos were recorded to customers’ accounts prior to recognition of the related revenue. This resulted in the misstatement of revenue and receivables, net of allowances.

The Company did not properly record an allowance for credit memos to be issued to customers in the same periods as the related revenue. This resulted in the misstatement of revenue and receivables, net of allowances.

The Company utilized a methodology at one of its foreign subsidiaries to record an allowance for doubtful accounts that did not properly estimate future bad debts based on the subsidiary’s historical experience. As a result, the Company did not record an allowance for certain significantly aged receivables and bad debt expense was not recorded in the proper periods. This resulted in the misstatement of selling, general and administrative expenses and receivables, net of allowances.

Dosimetry devices – The Company did not properly account for certain dosimetry devices, based on the expected useful life of the devices as determined by the wear period of the related badges. This resulted in a misstatement of cost of sales and dosimetry devices, net of accumulated depreciation.

Long-term investments - The Company recorded fixed income mutual fund investments held by one of its foreign subsidiaries as cash, instead of properly classifying them as available-for-sale securities. As a result, both realized and unrealized gains were incorrectly recorded as interest income. This resulted in the misstatement of interest expense, net, other income (expense), net, net income attributed to noncontrolling interest, comprehensive income, cash, other assets, accumulated other comprehensive income, and noncontrolling interest.

Sales taxes – The Company did not collect and remit sales taxes to the proper taxing jurisdictions. This resulted in the misstatement of selling, general and administrative expenses and other accrued expenses.

Intangible assets – The Company’s intangible assets include purchased customer lists, licenses, patents, trademarks and tradenames. These assets are recorded at fair value and assigned estimated useful lives at the time of acquisition. The Company did not properly amortize certain customer lists and trademarks based on their assigned useful lives and, therefore, did not record amortization expense in the proper periods. This resulted in a misstatement of selling, general and administrative expenses and intangible assets, net of accumulated amortization.

Equity in joint ventures – The Company identified the following errors related to accounting for its joint ventures:

During fiscal 2012 and 2013, the Company did not properly record its share of equity income from certain joint ventures in the proper periods.

The Company did not properly eliminate intra-entity profit on sales to one of its joint ventures accounted for on the equity method. This resulted in the misstatement of equity in income of joint ventures and equity in joint ventures (investment account).

Revenue was recorded at one of the Company’s joint ventures on equipment sales prior to transfer of the risk of loss to the customer. As a result, the Company did not record its share of equity income from the joint venture in the proper periods.

The following table summarizes the impact of the restatement on net income (loss) and diluted net income (loss) per share attributed to Landauer, Inc. for the three months ended December 31, 2013:



(Dollars in Thousands, Except per Share Amounts)	Three Months Ended December 31, 2013 (Unaudited)
	Net Income (Loss)		Diluted Net Income (Loss) Per Share
As previously reported	$	3,051	$	0.32
Revenue and accounts receivable		252
Dosimetry devices		12
Long-term investments		79
Sales taxes		(16)
Intangible assets		150
Equity in joint ventures		708
Total adjustments		1,185		0.12
Income tax expense (benefit)		403		0.04
Less amounts attributed to noncontrolling interest		12		-
Net impact of adjustments		770		0.08
As restated	$	3,821	$	0.40

The effect of the restatement on the previously issued Consolidated Statement of Operations for the three months ended December 31, 2013 is as follows:



	Three Months Ended December 31, 2013 (Unaudited)
(Dollars in Thousands, Except per Share)	Previously Reported		As Restated
Service revenues	$	31,894	$	31,745
Product revenues		5,811		6,402
Net revenues		37,705		38,147
Costs and expenses:
Service costs		15,049		15,010
Product costs		3,158		3,375
Total cost of sales		18,207		18,385
Gross profit		19,498		19,762
Selling, general, and administrative		14,362		14,226
Acquisition, reorganization and nonrecurring costs		111		111
Operating income		5,025		5,425
Equity in income of joint ventures		573		1,281
Interest expense, net		(892)		(937)
Other income (expense), net		37		159
Income before taxes		4,743		5,928
Income tax (benefit) expense		1,496		1,899
Net income		3,247		4,029
Less: Net income attributed to noncontrolling interest		196		208
Net income attributed to Landauer, Inc.	$	3,051	$	3,821
Net income per share attributed to Landauer, Inc. shareholders:
Basic	$	0.32	$	0.40
Weighted average basic shares outstanding		9,422		9,422
Diluted	$	0.32	$	0.40
Weighted average diluted shares outstanding		9,467		9,467

The effect of the restatement on the previously issued Consolidated Statement of Cash Flows for the three months ended December 31, 2013 is as follows:



	Three Months Ended December 31, 2013 (Unaudited) (a)
(Dollars in Thousands)	Previously Reported		As Restated
Cash flows provided from operating activities:
Net income	$	3,247	$	4,029
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,894		3,732
Gain on investments		(146)		(268)
Equity in income of joint ventures		(573)		(1,281)
Dividends from joint ventures		1,340		1,340
Stock-based compensation and related net tax benefits		282		282
Current and long-term deferred taxes, net		292		260
Changes in operating assets and liabilities:
Decrease in accounts receivable, net		4,396		4,482
Decrease in prepaid taxes		466		901
(Increase) decrease in other operating assets, net		(88)		102
Decrease in accounts payable and other accrued liabilities		(3,328)		(3,840)
Increase in other operating liabilities, net		200		200
Net cash provided by operating activities		9,982		9,939
Cash flows used by investing activities:
Acquisition of property, plant & equipment		(1,245)		(1,245)
Acquisition of joint ventures and businesses, net of cash acquired		(1,800)		(1,800)
Other investing activities, net		(573)		97
Net cash used by investing activities		(3,618)		(2,948)
Cash flows (used) provided by financing activities:
Net borrowings on revolving credit facility		(21)		(21)
Long–term borrowings - loan		14,000		14,000
Long–term borrowings - repayment		(13,000)		(13,000)
Dividends paid to stockholders		(5,274)		(5,274)
Other financing activities, net		49		49
Net cash used by financing activities		(4,246)		(4,246)
Effects of foreign currency translation		(30)		49
Net increase in cash and cash equivalents		2,088		2,794
Opening balance – cash and cash equivalents		11,184		8,672
Ending balance – cash and cash equivalents	$	13,272	$	11,466

(a)

As reported in the Company's 2014 third fiscal quarter Form 10-Q (filed on August 11, 2014), certain errors were identified in the Consolidated Statement of Cash Flows that impacted prior periods. The errors related to the following: treatment of accrued additions for property, plant and equipment, classification of debt financing fees and classification of unrealized gains or losses on investments in the Consolidated Statements of Cash Flows. The prior period consolidated statements of cash flows were revised in the 2014 third fiscal quarter Form 10-Q to correct for these errors and the impacts of the corrections are reflected within the 'Previously Reported' columns above.