(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 six month period ended March 31, 2015.

The results of operations for the three and six month periods ended March 31, 2015 are not necessarily indicative of the results to be expected for the full fiscal year.

Restatement and Revision 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 periods ended March 31, 2014. In accordance with accounting guidance presented in ASC 250-10 and SEC Staff Accounting Bulletin No. 99, Materiality, (“SAB 99”) management assessed the materiality of these errors and concluded that they were material to the Company’s financial statements for the three and six months ended March 31, 2014. The Company restated its financial statements for the three and six month periods ended March 31, 2014 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 and six months ended March 31, 2014:



(Dollars in Thousands, Except per Share Amounts)	Three Months Ended March 31, 2014 (Unaudited)				Six Months Ended March 31, 2014 (Unaudited)
	Net Income (Loss)		Diluted Net Income (Loss) Per Share		Net Income (Loss)		Diluted Net Income (Loss) Per Share
As previously reported	$	4,997	$	0.52	$	8,048	$	0.84
Revenue and accounts receivable		(500)				(248)
Dosimetry devices		13				25
Long-term investments		(25)				54
Sales taxes		(16)				(32)
Intangible assets		-				150
Equity in joint ventures		-				708
Total adjustments		(528)		(0.05)		657		0.07
Income tax expense (benefit)		(41)		-		362		0.04
Less amounts attributed to noncontrolling interest		(4)		-		8		-
Net impact of adjustments		(483)		(0.05)		287		0.03
As restated	$	4,514	$	0.47	$	8,335	$	0.87

The effect of the restatement on the previously issued Consolidated Statement of Operations for the three and six months ended March 31, 2014 is as follows:



	Three Months Ended March 31, 2014 (Unaudited)				Six Months Ended March 31, 2014 (Unaudited)
(Dollars in Thousands, Except per Share)	Previously Reported		As Restated		Previously Reported		As Restated
Service revenues	$	32,983	$	32,870	$	64,877	$	64,615
Product revenues		6,571		6,184		12,382		12,586
Net revenues		39,554		39,054		77,259		77,201
Costs and expenses:
Service costs		15,195		15,155		30,244		30,165
Product costs		3,150		3,177		6,308		6,552
Total cost of sales		18,345		18,332		36,552		36,717
Gross profit		21,209		20,722		40,707		40,484
Selling, general, and administrative		13,735		13,750		28,097		27,976
Acquisition, reorganization and nonrecurring costs		109		109		220		220
Operating income		7,365		6,863		12,390		12,288
Equity in income of joint ventures		535		535		1,108		1,816
Interest expense, net		(975)		(1,014)		(1,867)		(1,951)
Other income (expense), net		(8)		5		29		164
Income before taxes		6,917		6,389		11,660		12,317
Income tax (benefit) expense		1,954		1,913		3,450		3,812
Net income		4,963		4,476		8,210		8,505
Less: Net income attributed to noncontrolling interest		(34)		(38)		162		170
Net income attributed to Landauer, Inc.		4,997		4,514		8,048		8,335
Net income per share attributed to Landauer, Inc. shareholders:
Basic		0.52		0.47		0.84		0.87
Weighted average basic shares outstanding		9,460		9,460		9,441		9,441
Diluted		0.52		0.47		0.84		0.87
Weighted average diluted shares outstanding		9,501		9,501		9,485		9,485

The effect of the restatement on the previously issued Consolidated Statement of Cash Flows for the six months ended March 31, 2014 is as follows:



	Six Months Ended March 31, 2014 (Unaudited) (a)
(Dollars in Thousands)	Previously Reported		As Restated
Cash flows provided from operating activities:
Net income		8,210		8,505
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,662		7,487
Gain on investments		(203)		(338)
Equity in income of joint ventures		(1,108)		(1,816)
Dividends from joint ventures		1,340		1,340
Stock-based compensation and related net tax benefits		453		453
Current and long-term deferred taxes, net		791		847
Changes in operating assets and liabilities:
Decrease in accounts receivable, net		3,119		3,205
Decrease in prepaid taxes		721		1,027
Decrease in other operating assets, net		571		761
Decrease in accounts payable and other accrued liabilities		(2,025)		(2,021)
Increase in other operating liabilities, net		430		430
Net cash provided by operating activities		19,961		19,880
Cash flows used by investing activities:
Acquisition of property, plant & equipment		(2,415)		(2,415)
Acquisition of joint ventures and businesses, net of cash acquired		(1,800)		(1,800)
Other investing activities, net		(637)		(114)
Net cash used by investing activities		(4,852)		(4,329)
Cash flows (used) provided by financing activities:
Net borrowings on revolving credit facility		(43)		(43)
Long–term borrowings - loan		20,000		20,000
Long–term borrowings - repayment		(24,500)		(24,500)
Dividends paid to stockholders		(10,520)		(10,520)
Other financing activities, net		(347)		(347)
Net cash used by financing activities		(15,410)		(15,410)
Effects of foreign currency translation		108		109
Net (decrease) increase in cash and cash equivalents		(193)		250
Opening balance – cash and cash equivalents		11,184		8,672
Ending balance – cash and cash equivalents		10,991		8,922

^(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.

In connection with the preparation of the consolidated financial statements for the interim periods ended March 31, 2015, the Company identified errors in its previously issued financial statements for the interim periods ended March 31, 2014. The Company did not properly report sales and purchases to related parties in its Related Party Transactions footnote. As a result of these errors, the Company understated sales to Aquila by $284 and $2,360 for the three and six months ended March 31, 2014, respectively, and understated sales to Nagase by $31 and $99 for the three and six months ended March 31, 2014, respectively. Further, the Company understated sales to Aquila by $2,360 for the nine months ended June 30, 2014, understated sales to Nagase by $80 and $179 for the three and nine months ended June 30, 2014, respectively, understated sales to Nagase by $616 for the three months ended December 31, 2014, understated sales to Aquila by $215 for the fiscal year ended September 30, 2014 and understated sales to Nagase by $271 for the fiscal year ended September 30, 2014. In accordance with accounting guidance presented in SAB 99, management assessed the materiality of these errors and concluded that they were not material to the Company’s financial statements for the three and six months ended March 31, 2014. The Company is revising its financial statements for the three and six month periods ended March 31, 2014 to correct for these errors.