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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2014

 

Commission File Number 1-9788

 

 

 

 

 

 

LANDAUER, INC.

(Exact Name of registrant as specified in its charter)

 

 

 

 

 

 

Delaware

06-1218089

 

 

(State or other jurisdiction of

Incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

 

 

 

 

2 Science Road, Glenwood, IL  60425

(Address of principal executive offices and zip code)

 

 

 

 

 

 

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

 

 

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 Web site, 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 [ X ]    No [    ]

 

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

[    ]

 

 

(Do not check if a smaller reporting company)

 

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [     ]    No [  X  ]

 

As of February 24, 2015, 9,560,674 shares of common stock, par value $0.10 per share, of the registrant were outstanding.

 

1

 


 

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

 

 

PART I    FINANCIAL INFORMATION 

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets (Unaudited)

3

 

 

 

 

 

 

 

 

Consolidated Statements of Operations (Unaudited)

4

 

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited)

5

 

 

 

 

 

 

 

 

Consolidated Statement of Stockholders’ Equity (Unaudited)

6

 

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited)

7

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

8

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

 

 

 

 

 

 

Item 4.

Controls and Procedures

24

 

 

 

 

 

 

 

 

 

 

 

PART II    OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

27

 

 

 

 

 

 

Item 1A.

Risk Factors

27

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

28

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

28

 

 

 

 

 

Item 5.

Other Information

28

 

 

 

 

 

Item 6.

Exhibits

29

 

 

 

 

 

 

 

 

 

 

 

SIGNATURE 

30

 

 

 

 

 

 

 

 

2

 


 

PART I  FINANCIAL INFORMATION

  Item 1.Financial Statements

LANDAUER, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

 

 

 

 

 

 

 

 

 

 

(Dollars in Thousands)

 

December 31,
2014

 

September 30,
2014

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,397 

 

$

6,761 

Receivables, net of allowances of $1,742 at December 31, 2014 and $1,872 at September 30, 2014

 

 

29,565 

 

 

34,707 

Inventories

 

 

7,077 

 

 

6,687 

Deferred income tax asset - current

 

 

2,362 

 

 

2,369 

Prepaid income taxes

 

 

2,736 

 

 

1,836 

Prepaid expenses and other current assets

 

 

4,284 

 

 

1,973 

Current assets

 

 

54,421 

 

 

54,333 

Property, plant and equipment, at cost

 

 

104,792 

 

 

104,010 

Accumulated depreciation and amortization

 

 

(59,065)

 

 

(57,253)

Net property, plant and equipment

 

 

45,727 

 

 

46,757 

Equity in joint ventures

 

 

22,477 

 

 

23,835 

Goodwill

 

 

42,226 

 

 

43,218 

Intangible assets, net of accumulated amortization of $37,769 at December 31, 2014 and $37,579 at September 30, 2014

 

 

13,764 

 

 

14,077 

Dosimetry devices, net of accumulated depreciation of $4,584 at December 31, 2014 and $4,353 at September 30, 2014

 

 

3,570 

 

 

3,958 

Deferred income tax assets

 

 

18,467 

 

 

18,374 

Other assets

 

 

10,195 

 

 

12,034 

ASSETS

 

$

210,847 

 

$

216,586 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

5,681 

 

$

6,248 

Dividends payable

 

 

5,302 

 

 

5,329 

Deferred contract revenue

 

 

14,724 

 

 

14,750 

Accrued compensation and related costs

 

 

6,950 

 

 

7,132 

Accrued severance

 

 

807 

 

 

2,731 

Other accrued expenses

 

 

8,412 

 

 

8,538 

Current liabilities

 

 

41,876 

 

 

44,728 

Non-current liabilities:

 

 

 

 

 

 

Long-term debt

 

 

133,585 

 

 

133,585 

Pension and postretirement obligations

 

 

19,366 

 

 

19,475 

Deferred income taxes

 

 

484 

 

 

509 

Uncertain income tax liabilities

 

 

3,379 

 

 

3,284 

Other non-current liabilities

 

 

960 

 

 

1,271 

Non-current liabilities

 

 

157,774 

 

 

158,124 

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; 9,637,186 and 9,577,874 shares issued and outstanding at December 31, 2014 and September 30, 2014, respectively

 

 

952 

 

 

958 

Additional paid in capital

 

 

40,729 

 

 

40,317 

Accumulated other comprehensive loss

 

 

(11,882)

 

 

(10,148)

(Accumulated deficit) retained earnings

 

 

(19,800)

 

 

(18,873)

Landauer, Inc. stockholders' equity

 

 

9,999 

 

 

12,254 

Noncontrolling interest

 

 

1,198 

 

 

1,480 

Stockholders' equity

 

 

11,197 

 

 

13,734 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

210,847 

 

$

216,586 

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

3

 


 

LANDAUER, INC. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
December 31,

(Dollars in Thousands, Except per Share)

 

2014

 

2013
(As Restated)

Service revenues

 

$

32,057 

 

$

31,745 

Product revenues

 

 

5,490 

 

 

6,402 

Net revenues

 

 

37,547 

 

 

38,147 

Costs and expenses:

 

 

 

 

 

 

Service costs

 

 

15,634 

 

 

15,010 

Product costs

 

 

2,117 

 

 

3,375 

Total cost of sales

 

 

17,751 

 

 

18,385 

Gross profit

 

 

19,796 

 

 

19,762 

Selling, general and administrative

 

 

13,655 

 

 

14,226 

Acquisition, reorganization and nonrecurring costs

 

 

 -

 

 

111 

Operating income

 

 

6,141 

 

 

5,425 

Equity in income of joint ventures

 

 

696 

 

 

1,281 

Interest expense, net

 

 

(953)

 

 

(937)

Other (expense) income, net

 

 

251 

 

 

159 

Income before taxes

 

 

6,135 

 

 

5,928 

Income tax expense

 

 

1,610 

 

 

1,899 

Net income

 

 

4,525 

 

 

4,029 

Less:  Net income attributed to noncontrolling interest

 

 

148 

 

 

208 

Net income attributed to Landauer, Inc.

 

$

4,377 

 

$

3,821 

 

 

 

 

 

 

 

Net income per share attributable to Landauer, Inc. shareholders:

 

 

 

 

 

 

Basic

 

$

0.46 

 

$

0.40 

Weighted average basic shares outstanding

 

 

9,446 

 

 

9,422 

Diluted

 

$

0.46 

 

$

0.40 

Weighted average diluted shares outstanding

 

 

9,474 

 

 

9,467 

 

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

4

 


 

LANDAUER, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
December 31, 2014

(Dollars in Thousands)

 

Landauer, Inc.

 

Noncontrolling
Interest

 

Total

Net income

 

$

4,377 

 

$

148 

 

$

4,525 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Defined benefit pension and postretirement plans activity, net of taxes of $0

 

 

72 

 

 

 -

 

 

72 

Unrealized gains (losses) on available-for-sale securities, net of taxes of $0

 

 

(35)

 

 

 -

 

 

(35)

Foreign currency translation adjustment, net of taxes of $954

 

 

(1,771)

 

 

(99)

 

 

(1,870)

Comprehensive income

 

$

2,643 

 

$

49 

 

$

2,692 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
December 31, 2013

 

 

(As Restated)

(Dollars in Thousands)

 

Landauer, Inc.

 

Noncontrolling
Interest

 

Total

Net income

 

$

3,821 

 

$

208 

 

$

4,029 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Defined benefit pension and postretirement plans activity, net of taxes of $0

 

 

45 

 

 

 

 

 

45 

Unrealized gains (losses) on available-for-sale securities, net of taxes of $0

 

 

(79)

 

 

 

 

 

(79)

Foreign currency translation adjustment, net of taxes of $0

 

 

(256)

 

 

(68)

 

 

(324)

Comprehensive income

 

$

3,531 

 

$

140 

 

$

3,671 

 

 

 

 

 

 

 

 

 

 

 

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

5

 


 

LANDAUER, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Landauer, Inc. Stockholders' Equity

 

 

 

 

 

 

(Dollars in Thousands)

Common
Stock
Shares

 

Common
Stock

 

Addi-
tional
Paid in
Capital

 

Accumulated Other Compre-hensive (Loss) Income

 

(Accumulated Deficit) Retained
Earnings

 

Non-
Controlling
Interest

 

Total
Stock-
holders'
Equity

September 30,
2014

 

9,577,874 

 

$

958 

 

$

40,317 

 

$

(10,148)

 

$

(18,873)

 

$

1,480 

 

$

13,734 

Stock-based compensation arrangements

 

59,312 

 

 

(6)

 

 

412 

 

 

 -

 

 

 -

 

 

 -

 

 

406 

Dividends

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(5,304)

 

 

(331)

 

 

(5,635)

Net income

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

4,377 

 

 

148 

 

 

4,525 

Foreign currency translation adjustment, net of tax

 

 -

 

 

 -

 

 

 -

 

 

(1,771)

 

 

 -

 

 

(99)

 

 

(1,870)

Unrealized gains (losses) on available-for-sale securities, net of tax

 

 -

 

 

 -

 

 

 -

 

 

(35)

 

 

 -

 

 

 -

 

 

(35)

Defined benefit pension and postretirement plans activity, net of tax

 

 -

 

 

 -

 

 

 -

 

 

72 

 

 

 -

 

 

 -

 

 

72 

December 31,
2014

 

9,637,186 

 

$

952 

 

$

40,729 

 

$

(11,882)

 

$

(19,800)

 

$

1,198 

 

$

11,197 

 

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

6

 


 

LANDAUER, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
December 31,

(Dollars in Thousands)

 

2014

 

2013
(As Restated)

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

4,525 

 

$

4,029 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

3,078 

 

 

3,732 

Equity in  income of joint ventures

 

 

(696)

 

 

(1,281)

Dividends from joint ventures

 

 

1,139 

 

 

1,340 

Stock-based compensation and related net tax benefits

 

 

437 

 

 

282 

Current and long-term deferred taxes, net

 

 

(1,195)

 

 

260 

Gain on sale, disposal and abandonment of fixed assets

 

 

(3)

 

 

 -

Gain on investments

 

 

(111)

 

 

(268)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Decrease in accounts receivable, net

 

 

4,985 

 

 

4,482 

(Increase) decrease in prepaid taxes

 

 

(214)

 

 

901 

(Increase) decrease in other operating assets, net

 

 

(1,437)

 

 

102 

Decrease in accounts payable and other accrued liabilities

 

 

(971)

 

 

(3,840)

(Decrease) increase in other operating liabilities, net

 

 

(53)

 

 

200 

Net cash provided by operating activities

 

 

9,484 

 

 

9,939 

Cash flows used by investing activities:

 

 

 

 

 

 

Acquisition of property, plant and equipment

 

 

(1,384)

 

 

(1,245)

Acquisition of joint ventures and businesses, net of cash acquired

 

 

 -

 

 

(1,800)

Other investing activities, net

 

 

(315)

 

 

97 

Net cash used by investing activities

 

 

(1,699)

 

 

(2,948)

Cash flows (used) provided by financing activities:

 

 

 

 

 

 

Net borrowings on revolving credit facility

 

 

 -

 

 

(21)

Long-term borrowings - loan

 

 

8,800 

 

 

14,000 

Long-term borrowings - repayment

 

 

(8,800)

 

 

(13,000)

Dividends paid to stockholders

 

 

(5,347)

 

 

(5,274)

Other financing activities, net

 

 

(331)

 

 

49 

Net cash used by financing activities

 

 

(5,678)

 

 

(4,246)

Effects of foreign currency translation

 

 

(471)

 

 

49 

Net increase in cash and cash equivalents

 

 

1,636 

 

 

2,794 

Opening balance - cash and cash equivalents

 

 

6,761 

 

 

8,672 

Ending balance - cash and cash equivalents

 

$

8,397 

 

$

11,466 

 

 

 

 

 

 

 

Accrued capital spending included in accounts payable and other accrued liabilities

 

$

205 

 

$

174 

 

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

7

 


 

LANDAUER, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

December  31, 2014

(Dollars in thousands)

 

(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.

8

 


 

·

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.

 

9

 


 

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 

 

10

 


 

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.

 

11

 


 

(2)Recent Accounting Pronouncements

 

In July 2013, the Financial Accounting Standards Board (“FASB”) issued new guidance to reduce the diversity in presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. This requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with certain exceptions listed in the guidance.  This guidance was  adopted by the Company in the first quarter of fiscal 2015.  The adoption did not have a material impact on the Company’s consolidated financial statements.

 

In May 2014, the FASB issued new guidance for recognizing revenue from contracts with customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance.  This guidance is effective for the Company in the first quarter of fiscal 2018.  Early adoption is not permitted.  The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.

 

In June 2014, the FASB issued new guidance on accounting for share-based payments requiring a specific performance target to be achieved in order for employees to become eligible to vest in the awards when that performance target may be achieved after the requisite service period for the award.  This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period for which the requisite service has already been rendered.  This guidance is effective for the Company in the first quarter of fiscal 2017.  Early adoption is permitted.  The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.

 

In August 2014, the FASB issued new guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of doubt about the entity’s ability to continue as a going concern.  An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.  This guidance is effective for the Company in the first quarter of fiscal 2017, with early adoption permitted.  The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

 

In November 2014, the FASB issued new guidance on accounting for pushdown accounting in the event of a business combination.  This update provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity.  This guidance was adopted by the Company in the first quarter of fiscal 2015.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

 

In January 2015, the FASB issued new guidance on accounting for unusual and infrequently occurring items, which eliminates the concept of extraordinary items.  An unusual and infrequently occurring item will no longer be classified as an extraordinary item and segregated from ordinary operations in the income statement, but will be shown as a component of income from continuing operations or separately disclosed in notes to the financial statements.  This guidance is effective for the Company in the first quarter of fiscal 2017, with early adoption permitted.  The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

 

In February 2015, the FASB issued amended guidance on the model used to evaluate whether certain legal entities should be consolidated.  This guidance is effective for the Company in the first quarter of fiscal 2017.  Early adoption is permitted.  The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.

12

 


 

(3)Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market.  Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities.  A fair value hierarchy with three tiers has been established to prioritize the inputs to valuation techniques used to measure fair value.  The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.  Level 1 inputs include quoted prices in active markets for identical assets and liabilities.  Level 2 inputs consist of observable inputs other than quoted prices in active markets or indirectly observable through corroboration with observable market data.  Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.

 

Financial assets measured at fair value on a recurring basis are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2014 Using

(Dollars in Thousands)

Quoted Prices in Active Markets for Identical Assets
(Level 1)

 

Significant Other Observable Inputs (Level 2)

 

Significant Unobservable Inputs
(Level 3)

Asset Category

 

 

 

 

 

 

 

 

Cash equivalents

$

167 

 

$

 -

 

$

 -

Mutual funds

 

3,845 

 

 

 -

 

 

 -

Available-for-sale securities

 

 -

 

 

2,179 

 

 

 -

Total financial assets at fair value

$

4,012 

 

$

2,179 

 

$

 -

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at September 30, 2014 Using

(Dollars in Thousands)

Quoted Prices in Active Markets for Identical Assets
(Level 1)

 

Significant Other Observable Inputs (Level 2)

 

Significant Unobservable Inputs
(Level 3)

Asset Category

 

 

 

 

 

 

 

 

Cash equivalents

$

105 

 

$

 -

 

$

 -

Mutual funds

 

3,629 

 

 

 -

 

 

 -

Available-for-sale securities

 

 -

 

 

2,382 

 

 

 -

Total financial assets at fair value

$

3,734 

 

$

2,382 

 

$

 -

 

Following is a description of each category in the fair value hierarchy and the financial assets and liabilities of the Company that were included in each category at December 31, 2014 and September 30, 2014, measured on a recurring basis.

 

The Level 1 financial assets were comprised of investments in trading securities, which are reported in other long-term assets.  The investments are held in a Rabbi trust for benefits under the Company’s deferred compensation plan.  Under the plan, participants designate investment options to serve as the basis for measurement of the notional value of their accounts.  The investments include a money market fund and mutual funds that are publicly traded.  The fair values of the shares or underlying securities of these funds are based on quoted market prices.

 

The Level 2 financial assets are long-term investments consisting primarily of fixed income mutual funds, classified as available-for-sale securities.  These are reported in other long-term assets.  The investments in fixed income mutual funds are valued based on the net asset value of the underlying securities as provided by the investment account manager.  The investments are not restricted or subject

13

 


 

to a lockup and may be redeemed on demand.  Notice within a certain period of time prior to redemption is not required.

 

The Company’s long term debt is classified as Level 2.  The carrying amount of the Company’s long-term debt approximated fair value as the stated interest rates were variable in relation to prevailing market rates.

 

The Company recorded a liability for contingent consideration during the second quarter of fiscal 2014 related to the acquisition of ilumark GmbH and the launch of its new medical products.  The liability was recorded at fair value, which was determined using a discounted cash flow model based on assumptions and projections relevant to revenues.  A discount rate of 11% was used and payments are projected to occur in fiscal 2016 and 2017.  The fair value of the contingent consideration was $699 as of December 31, 2014, and is reported in other non-current liabilities.  The contingent consideration liability is classified as Level 3.

 

There were no transfers between fair value hierarchy levels during the period.

 

 

(4)Income per Common Share

 

Basic net income per share was computed by dividing net income available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period.  Diluted net income per share was computed by dividing net income available to common stockholders for the period by the weighted average number of shares of common stock that would have been outstanding assuming dilution from stock-based compensation awards during the period.    

 

The following table sets forth the computation of net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
December 31,

(Dollars in Thousands, Except per Share)

2014

 

2013
(As Restated)

Basic Net Income per Share:

 

 

 

 

 

 

Net income attributed to Landauer, Inc.

 

$

4,377 

 

$

3,821 

Less:  Income allocated to unvested restricted stock

 

 

29 

 

 

46 

Net income available to common stockholders

 

$

4,348 

 

$

3,775 

Basic weighted average shares outstanding

 

 

9,446 

 

 

9,422 

Net income per share - Basic

 

$

0.46 

 

$

0.40 

 

 

 

 

 

 

 

Diluted Net Income per Share:

 

 

 

 

 

 

Net income attributed to Landauer, Inc.

 

$

4,377 

 

$

3,821 

Less:   Income allocated to unvested restricted stock

 

 

29 

 

 

46 

Net income available to common stockholders

 

$

4,348 

 

$

3,775 

Basic weighted average shares outstanding

 

 

9,446 

 

 

9,422 

Effect of dilutive securities

 

 

28 

 

 

45 

Diluted weighted averages shares outstanding

 

 

9,474 

 

 

9,467 

Net income per share - Diluted

 

$

0.46 

 

$

0.40 

Dividends paid per share

 

$

0.55 

 

$

0.55 

 

On March 9, 2015, the Company declared a reduction in dividend to $0.275 per share, compared to $0.55 per share in the previous quarter.

 

 

14

 


 

(5)Employee Benefit Plans

 

The components of net periodic benefit cost for pension and other benefits were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Benefits

Three Months Ended
December 31,

(Dollars in Thousands)

2014

 

2013

Interest cost

$

364 

 

$

375 

Expected return on plan assets

 

(396)

 

 

(377)

Amortization of net loss

 

84 

 

 

48 

Net periodic benefit cost

$

52 

 

$

46 

 

 

 

 

 

 

Other Benefits

Three Months Ended
December 31,

(Dollars in Thousands)

2014

 

2013

Service cost

$

13 

 

$

15 

Interest cost

 

 

 

13 

Amortization of net gain

 

(12)

 

 

(3)

Net periodic benefit cost

$

 

$

25 

 

The Company, under the IRS minimum funding standards, has no required contributions to make to its defined benefit pension plan during fiscal 2015.

 

The Company maintains 401(k) Retirement Savings Plans for certain employees, which may provide for employer matching contributions, and a supplemental defined contribution plan for certain executives, which provides for employer contributions at the discretion of the Company.  Amounts expensed for Company contributions under these plans during the three months ended December 31, 2014 and 2013 were $407 and $458, respectively. 

 

 

(6)Goodwill and Intangible Assets

 

Changes in the carrying amount of goodwill by reportable segment for the three months ended December 31, 2014 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in Thousands)

 

Radiation Measurement

 

Medical
Physics

 

Medical
Products

 

Total

Balance as of September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

18,961 

 

$

22,611 

 

$

65,714 

 

$

107,286 

Accumulated impairment losses

 

 

 -

 

 

 -

 

 

(64,068)

 

 

(64,068)

Balance as of September 30, 2014

 

$

18,961 

 

$

22,611 

 

$

1,646 

 

$

43,218 

Effects of foreign currency

 

 

(923)

 

 

 -

 

 

(69)

 

 

(992)

Balance as of December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

18,038 

 

$

22,611 

 

$

65,645 

 

$

106,294 

Accumulated impairment losses

 

 

 -

 

 

 -

 

 

(64,068)

 

 

(64,068)

Balance as of December 31, 2014

 

$

18,038 

 

$

22,611 

 

$

1,577 

 

$

42,226 

 

15

 


 

Intangible assets consisted of the following:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

(Dollars in Thousands)

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying Amount

 

Intangibles Impairment Charge

Customer lists

 

$

43,756 

 

$

33,053 

 

$

10,703 

 

$

18,657 

Trademarks and tradenames

 

 

2,176 

 

 

2,051 

 

 

125 

 

 

1,498 

Licenses and patents

 

 

5,024 

 

 

2,108 

 

 

2,916 

 

 

665 

Other intangibles

 

 

577 

 

 

557 

 

 

20 

 

 

 -

Intangible assets

 

$

51,533 

 

$

37,769 

 

$

13,764 

 

$

20,820 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2014

(Dollars in Thousands)

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying Amount

 

Intangibles Impairment Charge

Customer lists

 

$

44,138 

 

$

32,934 

 

$

11,204 

 

$

18,657 

Trademarks and tradenames

 

 

2,176 

 

 

2,051 

 

 

125 

 

 

1,498 

Licenses and patents

 

 

4,765 

 

 

2,037 

 

 

2,728 

 

 

665 

Other intangibles

 

 

577 

 

 

557 

 

 

20 

 

 

 -

Intangible assets

 

$

51,656 

 

$

37,579 

 

$

14,077 

 

$

20,820 

 

Identifiable intangible assets with finite lives are amortized over their estimated useful lives.  Intangible asset amortization expense was $563 and $1,056 for the three months ended December 31, 2014 and 2013, respectively.

 

(7)Accumulated Other Comprehensive Loss

 

Accumulated elements of other comprehensive loss, net of tax, are included in the stockholders’ equity section of the condensed consolidated balance sheets.  Changes in each component for the three months ended December 31 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in Thousands)

Foreign Currency Translation Adjustments

 

Unrealized Gains and Losses on Available-for-Sale Securities

 

Pension and Postretirement Plans

 

Comprehensive (Loss) Income

Balance at September 30, 2014

$

(2,493)

 

$

166 

 

$

(7,821)

 

$

(10,148)

Other comprehensive income before reclassifications

 

(1,771)

 

 

57 

 

 

 -

 

 

(1,714)

Amounts reclassified from accumulated other comprehensive income

 

 -

 

 

(92)

 

 

72 

 

 

(20)

Net current period other comprehensive income

 

(1,771)

 

 

(35)

 

 

72 

 

 

(1,734)

Balance at December 31, 2014

$

(4,264)

 

$

131 

 

$

(7,749)

 

$

(11,882)

 

 

16

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in Thousands)

Foreign Currency Translation Adjustments

 

Unrealized Gains and Losses on Available-for-Sale Securities

 

Pension and Postretirement Plans

 

Comprehensive (Loss) Income

Balance at September 30, 2013 (As Restated)

$

(383)

 

$

132 

 

$

(4,157)

 

$

(4,408)

Other comprehensive income before reclassifications

 

(256)

 

 

43 

 

 

 -

 

 

(213)

Amounts reclassified from accumulated other comprehensive income

 

 -

 

 

(122)

 

 

45 

 

 

(77)

Net current period other comprehensive income

 

(256)

 

 

(79)

 

 

45 

 

 

(290)

Balance at December 31, 2013 (As Restated)

$

(639)

 

$

53 

 

$

(4,112)

 

$

(4,698)

 

The tables below present the impact on net income of significant amounts reclassified out of each component of accumulated other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and Postretirement Plans (1)

Three Months Ended
December 31,

(Dollars in Thousands)

2014

 

2013
(As Restated)

Amortization of net loss

$

72 

 

$

45 

Total before tax

 

72 

 

 

45 

Provision for income taxes

 

 -

 

 

 -

Total net of tax

$

72 

 

$

45 

 

(1)These accumulated other comprehensive loss components are included in the computation of net periodic benefit costs (refer to Note 5 of the Notes to Consolidated Financial Statements for additional details regarding employee benefit plans).

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains and Losses on Available-for-Sale Securities

Three Months Ended
December 31,

(Dollars in Thousands)

2014

 

2013
(As Restated)

Realized gains on available-for-sale securities into earnings (1)

$

(92)

 

$

(122)

Total before tax

 

(92)

 

 

(122)

Provision for income taxes (2)

 

 -

 

 

 -

Total net of tax

$

(92)

 

$

(122)

 

(1)This amount is reported in Interest Expense, net on the Consolidated Statements of Operations

(2)This amount is reported in Income Tax Expense on the Consolidated Statements of Operations

 

17

 


 

(8)Income Taxes

 

The effective tax rates for the first fiscal quarter of 2015 and 2014 were 26.2% and 32.0%, respectively.  The decrease in the effective tax rate was due primarily to the enactment of the research and development credit for calendar year 2014 in the first fiscal quarter of 2015.

 

 

(9)Segment Information

 

The following tables summarize financial information for each reportable segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
December 31,

(Dollars in Thousands)

 

2014

 

2013
(As Restated)

Revenues by segment:

 

 

 

 

 

 

Radiation Measurement

 

$

26,491 

 

$

28,183 

Medical Physics

 

 

8,484 

 

 

7,739 

Medical Products

 

 

2,572 

 

 

2,225 

Consolidated revenues

 

$

37,547 

 

$

38,147 

 

 

 

 

 

 

 

 

 

Three Months Ended
December 31,

(Dollars in Thousands)

 

2014

 

2013
(As Restated)

Operating income (loss) by segment:

 

 

 

 

 

 

Radiation Measurement

 

$

9,384 

 

$

8,829 

Medical Physics

 

 

618 

 

 

433 

Medical Products

 

 

334 

 

 

(288)

Corporate

 

 

(4,195)

 

 

(3,549)

Consolidated operating income

 

$

6,141 

 

$

5,425 

 

 

 

 

 

 

 

 

 

(Dollars in Thousands)

 

December 31,
2014

 

September 30,
2014

Segment assets:

 

 

 

 

 

 

Radiation Measurement

 

$

142,577 

 

$

148,151 

Medical Physics

 

 

39,295 

 

 

38,851 

Medical Products

 

 

48,337 

 

 

48,164 

Eliminations

 

 

(19,362)

 

 

(18,580)

Consolidated assets

 

$

210,847 

 

$

216,586 

 

 

 

 

(10)Related Party Transactions

 

The Company has a minority interest in Yamasato, Fujiwara, Higa & Associates, Inc. doing business as Aquila.  The Company provides dosimetry parts to Aquila for its military contract.  The sales to and purchases from Aquila were as follows for the periods ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
December 31,

(Dollars in Thousands)

 

2014

 

2013

Sales to Aquila

 

$

1,743 

 

$

2,076 

Purchases from Aquila

 

 

 

 

 -

 

18

 


 

Balance sheet items were as follows for the periods ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in Thousands)

 

December 31,
2014

 

September 30,
2014

Amounts in accounts receivable

 

$

1,812 

 

$

3,799 

Amounts in accounts payable

 

 

 -

 

 

227 

 

The Company has a 50% equity interest in Nagase-Landauer, Ltd. (“Nagase”), a radiation measurement company in Japan.  The sales to and purchases from Nagase were as follows for the periods ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
December 31,

(Dollars in Thousands)

 

2014

 

2013

Sales to Nagase

 

$

30 

 

$

169 

Purchases from Nagase

 

 

266 

 

 

857 

 

Balance sheet items were as follows for the periods ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in Thousands)

 

December 31,
2014

 

September 30,
2014

Amounts in accounts receivable

 

$

11 

 

$

27 

Amounts in accounts payable

 

 

41 

 

 

60 

 

 

 

 

19

 


 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of the Company’s unaudited consolidated financial condition and results of operations should be read in conjunction with the annual audited consolidated financial statements and related notes thereto. The following discussion includes forward-looking statements that involve certain risks and uncertainties. For additional information regarding forward-looking statements and risk factors, see “Forward-Looking Statements” herein and Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014.

 

The preparation of financial statements in conformity with U.S. GAAP 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 of operations, 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.  The Company bases its estimates, judgments and assumptions on historical experience and other relevant factors that are believed to be reasonable under the circumstances. In any given reporting period, the Company’s actual results may differ from the estimates, judgments and assumptions used in preparing the consolidated financial statements. 

 

Results of Operations

Comparison of the first fiscal quarter ended December 31, 2014 and the first fiscal quarter ended December 31, 2013

 

Revenues for the first fiscal quarter of 2015 were $37.5 million, a decrease of $0.6 million, or 1.6%, compared with revenues of $38.1 million for the first fiscal quarter of 2014. The Radiation Measurement segment decreased $1.7 million, which was primarily due to an unfavorable foreign currency impact of $0.8 million and a decrease in sales of military products to its joint venture of $0.7 millionThe decrease in sales to its joint venture resulted from discontinued sales of low margin components for military products during the second half of fiscal 2014. The Company continues to sell higher margin Radwatch products to the joint venture.  The Medical Physics segment increased $0.7 million, due to increased imaging and radiation therapy services.  The Medical Products segment increased $0.4 million, due to higher domestic revenues and the full-quarter impact in fiscal 2015 of a modest acquisition in December 2013.

 

Gross margin was 52.8% for the first fiscal quarter of 2015, compared with 52.0% for the first fiscal quarter of 2014.  Higher gross margins in the Radiation Measurement segment, due to favorable product mix, were partially offset by a 0.6% decline in gross margin in the Medical Physics segment driven by increased staffing expenses to support additional contracts in the imaging and therapy divisions and a 0.5% decline in gross margin in the Medical Products segment driven by Spherz price pressure.  

 

Selling, general and administrative expenses for the first fiscal quarter of 2015 were $13.7 million, a decrease of $0.6 million, or 4.2%, compared with $14.3 million for the first fiscal quarter of 2014. The decrease in selling, general and administrative expenses resulted primarily from a $0.9 million decrease in research and development expenses and a $0.7 million decrease in amortization expense as a result of adjustments recorded during the third fiscal quarter of 2014 to reduce the carrying value of intangible assets, partially offset by higher legal, audit and other professional fees of $0.7 million.

 

Operating income for the first fiscal quarter of 2015 was $6.1 million, an increase of $0.7 million, or 13.0%, compared with operating income of $5.4 million for the first fiscal quarter of 2014. The increase in operating income was driven by a $0.9 million decrease in research and development expenses, offset by an increase in other selling, general and administrative expenses of $0.3 million.

 

20

 


 

Equity in income of joint ventures for the first fiscal quarter of 2015 was $0.7 million, a decrease of $0.6 million, or 46.2%, compared with $1.3 million for the first fiscal quarter of 2014.  The decrease was due primarily to the timing of military orders.

 

The effective tax rates for the first fiscal quarter of 2015 and 2014 were 26.2% and 32.0%, respectively.  The decrease in the effective tax rate was due primarily to the enactment of the research and development credit for calendar year 2014 in the first fiscal quarter of 2015.

 

Net income attributed to Landauer for the first fiscal quarter of 2015 was $4.4 million, an increase of $0.6 million, or 15.8%, compared with net income of $3.8 million in the first fiscal quarter of 2014.  The increase in net income was the result of a decrease in operating expenses of $0.7 million and a decrease in income tax provision of $0.3 million, partially offset by a decrease in equity in income of joint ventures of $0.6 million.

 

Radiation Measurement Segment

 

Radiation Measurement revenues for the first fiscal quarter of 2015 were $26.5 million, a decrease of $1.7 million, or 6.0%, compared with $28.2 million for the first fiscal quarter of 2014. The decrease in revenues was due primarily to the unfavorable impact of changes in foreign currency exchange rates of $0.8 million and lower military product sales to our joint venture of $0.7 million. The joint venture began sourcing these components directly from the supplier during the second half of fiscal 2014.

 

Operating income for the first fiscal quarter of 2015 was $9.4 million, an increase of $0.6 million, or 6.8%, compared with operating income of $8.8 million for the first fiscal quarter of 2014. The increase in operating income was due to a $1.0 million decrease in research and development expenses to support the Verifii next generation dosimetry platform, offset by a $0.3 million increase in selling, general and administrative expenses due to higher bad debt expense and additional headcount to support sales and customer service activities.

 

Medical Physics Segment

 

Medical Physics revenues for the first fiscal quarter of 2015 were $8.4 million, an increase of $0.7 million, or 9.1%, compared with $7.7 million for the first fiscal quarter of 2014.  Imaging services revenue increased by $0.4 million, driven by new customer contracts for outsourced enterprise radiation safety solutions.  Radiation therapy service revenue increased by $0.2 million, due to higher demand for services by our existing customers.

 

Operating income for the first fiscal quarter of 2015 was $0.6 million, compared to $0.4 million for the first fiscal quarter of 2014.  The increase in operating income is due primarily to headcount reductions in administrative functions during fiscal 2014.

 

Medical Products Segment

 

Medical Products revenues for the first fiscal quarter of 2015 were $2.6 million, an increase of $0.4 million, or 18.2%, compared to $2.2 million for the first fiscal quarter of 2014.  The increase in revenues is due to volume growth of $0.3 million and additional revenues of $0.3 million resulting from an acquisition completed in December 2013, offset by the impact of continued pressure on Spherz product pricing.

 

Medical Products had operating income of $0.3 million for the first fiscal quarter of 2015 versus an operating loss of $0.3 million for the first fiscal quarter of 2014.  The change was primarily due to a $0.7 million decrease in amortization expense as a result of adjustments recorded during the third fiscal quarter of 2014 to reduce the carrying value of intangible assets.

 

21

 


 

Corporate Selling, General and Administrative Expenses

 

Corporate selling, general and administrative expenses for the first fiscal quarter of 2015 were $4.2 million, an increase of $0.7 million, or 20%, compared to $3.5 million for the first fiscal quarter of 2014.  The increase was due primarily to higher legal, audit and other professional fees of $0.7 million.

 

Liquidity and Capital Resources

 

The Company’s principal source of liquidity is operating cash flows supplemented by borrowings for major acquisitions and other significant transactions.  The Company’s cash-generating capability is one of its fundamental strengths and provides it with substantial financial flexibility in meeting operating and investing needs.

 

The following table sets forth a summary of the Company’s cash flows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
December 31,

(Dollars in Thousands)

2014

 

2013
(As Restated)

Net cash provided by (used by):

 

 

 

 

 

Operating activities

$

9,484 

 

$

9,939 

Investing activities

 

(1,699)

 

 

(2,948)

Financing activities

 

(5,678)

 

 

(4,246)

Effect of foreign currency translation

 

(471)

 

 

49 

Net increase in cash and cash equivalents

$

1,636 

 

$

2,794 

 

Cash provided by operating activities for the first three months of fiscal 2015 was $9.5 million, a decrease of $0.5 million over the same fiscal period in 2014.  The decrease was primarily due to an increase in cash paid for income taxes of $0.3 million.

 

Cash used by investing activities for the first three months of fiscal 2015 was $1.7 million, a decrease of $1.2 million over the same fiscal period of 2014.  The difference was primarily due to the acquisition of a small German distributor for $1.8 million in the first fiscal quarter of 2014.

 

Cash used by financing activities for the first three months of fiscal 2015 was $5.7 million, an increase of $1.4 million over the same fiscal period of 2014.  The increase was primarily due to a reduction in net long-term borrowings.  As of December 31, 2014, the Company had $41.4 million of unused availability under its current $175.0 million credit facility, which provides adequate liquidity to meet its current and anticipated obligations.  During the first three months of both fiscal 2015 and 2014, the Company paid cash dividends of $5.3 million.

 

The Company expects to meet short-term liquidity requirements (including capital expenditures) through net cash from operating activities and cash on hand. As of December 31, 2014, long-term liquidity requirements consist primarily of obligations under the long-term debt obligations.  The Company does not have any required debt repayments until August 2, 2018, when the debt facility expires.  The Company was in compliance with all covenants as of December 31, 2014.

 

 

Recent Accounting Pronouncements

 

See Note 2 to the Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q.

 

22

 


 

Contractual Obligations

 

There have been no material changes, outside of the ordinary course of business, in the Company’s outstanding contractual obligations since the end of fiscal year 2014 through December 31, 2014.

 

Forward-Looking Statements

 

Certain matters contained in 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 future performance, the Company’s development and introduction of new technologies in general; the ability to protect and utilize the Company’s intellectual property; events or circumstances which result in an impairment of assets, including but not limited to, goodwill and identifiable intangible assets; continued customer acceptance of the InLight technology; the adaptability of optically stimulated luminescence (“OSL”) technology to new platforms and formats; military and other government funding for the purchase of certain of the Company’s equipment and services; the impact on sales and pricing of certain customer group purchasing arrangements; changes in spending or reimbursement for medical products or services; the costs associated with the Company’s research and business development efforts; the usefulness of older technologies and related licenses and intellectual property; the effectiveness of and costs associated with the Company’s IT platform enhancements; the anticipated results of operations of the Company and its subsidiaries or joint ventures; valuation of the Company’s long-lived assets or business units relative to future cash flows; changes in pricing of services and products; 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, including instability in capital markets which could impact availability of short and long-term financing; the timing and extent of changes in interest rates; the level of borrowings; foreign exchange rates; government regulations; accreditation requirements; changes in the trading market that affect the costs 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 what is anticipated today.  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” of the Company's Annual Report on Form 10-K for the year ended September 30, 2014  and information contained in other reports filed by the Company, from time to time, with the SEC. The Company does not undertake, and expressly disclaims, any duty to update any forward-looking statement whether as a result of new information, future events or changes in the Company’s expectations, except as required by law.

 

23

 


 

Item 3.quantitative and Qualitative Disclosures About Market Risk

 

The Company is exposed to market risk, including changes in foreign currency exchange rates and is subject to interest rate risk related to borrowings under its existing credit facility.  These risks are set forth in Item 7A “Quantitative and Qualitative Disclosures about Market Risk” of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014.  The Company believes there have been no material changes in the information provided from the end of the preceding fiscal year through December 31, 2014.

 

Item 4.Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of December 31, 2014, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and 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 Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended.

 

Based upon that evaluation, our CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as a result of the material weaknesses that existed in our internal control over financial reporting described below. 

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

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.

 

We previously identified and reported the following material weaknesses in internal controls in financial reporting:

 

Control Environment - We did not maintain an effective control environment as we did not maintain a sufficient complement of personnel with an appropriate level of knowledge of accounting, experience and training commensurate with our financial reporting requirements. Additionally, we did not consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives.  These material weaknesses contributed to the following control deficiencies, each of which is considered to be a material weakness:

 

·

Consolidated Statement of Cash Flows:  We did not design effective controls over the preparation and review of our Consolidated Statement of Cash Flows.  Specifically, controls were not designed to evaluate whether transactions were properly classified within the Consolidated Statement of Cash Flows, including nonrecurring transactions and adjustments pertaining to purchases of property, plant and equipment.  This material weakness resulted in errors in our historical financial statements.  The Company recorded adjustments to correct these errors as follows:

 

o

Revising its fiscal 2013 Statement of Consolidated Cash Flows reflecting adjustments in cash flows from investing and operating activities

 

24

 


 

·

IT general controls and segregation of duties:  We did not design and maintain processes and procedures that restrict access to key financial systems and records to appropriate users and evaluate whether appropriate segregation of duties is maintained. Specifically, certain personnel had access to financial application, programs and data beyond that needed to perform their individual job responsibilities without independent monitoring. This material weakness did not result in a material misstatement of the consolidated financial statements. 

 

Risk Assessment - We did not design and implement effective risk assessment with regard to our processes and procedures commensurate with our financial reporting requirements. Specifically, we did not design and implement controls in response to risks of misstatement of the financial statements.  This material weakness contributed to the following control deficiencies, each of which is considered to be a material weakness:

 

·

Revenue: We did not maintain processes and procedures that were adequately designed, documented and executed to support the accurate and timely reporting of revenue and the related receivables.      Specifically, we did not design and maintain effective controls to evaluate whether revenue was recognized in accordance with agreed-upon terms and conditions, including customer order entry, pricing, customer acceptance provisions, and recorded in the proper period. This material weakness resulted in errors in our historical financial statements.  The Company recorded adjustments to correct these errors as follows:

 

o

Restating its fiscal 2013 financial statements reflecting adjustments in net sales, accounts receivable, deferred revenue, cost of sales and inventory.

 

o

Revising its fiscal 2012 financial statements reflecting adjustments in net sales, accounts receivable, deferred revenue, cost of sales and inventory.

 

·

Foreign affiliate cash and investments: We did not design effective controls to evaluate whether cash and investments held by foreign affiliates were appropriately accounted for and classified.  This material weakness resulted in errors in our historical financial statements.  The Company recorded adjustments to correct these errors as follows:

 

o

Restating its fiscal 2013 financial statements reflecting adjustments in cash, investments, accumulated other comprehensive income, interest expense and other income (expense).

 

o

Revising its fiscal 2012 financial statements reflecting adjustments in cash, investments, accumulated other comprehensive income, interest expense and other income (expense).

 

Notwithstanding the identified material weaknesses, management believes the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly state in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.

 

Remediation Plan and Activities

 

In response to the identified material weaknesses, our management, with oversight from our audit committee, has dedicated significant resources and efforts to improve our control environment and risk assessment and to remedy the identified material weaknesses. We are currently evaluating the impact of the material weaknesses and are in the process of taking the following actions:

 

25

 


 

·

Commencing a comprehensive risk assessment process to assess risks and identify, design, implement, and re-evaluate our control activities to address the risks identified, including implementation of monitoring controls related to the design and operating effectiveness of control activities

 

·

Establishing appropriate roles and responsibilities within our world-wide finance and accounting departments to support the improvement of knowledge and experience over financial reporting;

 

·

Evaluating our training programs and developing additional training programs for our world-wide finance and accounting personnel; and

 

·

Strengthening our policies and procedures and determining guidelines for documentation of controls throughout our domestic and international locations for consistency of design and operation.

 

We believe that the foregoing actions will support the improvement of our internal control over financial reporting, and through our efforts to identify, design and implement the necessary control activities. We will continue to devote significant time and attention to these remediation efforts. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address the material weaknesses or determine to modify the remediation plan described above. Until the remediation steps set forth above, including the efforts to implement and test the necessary control activities we identify, are fully completed, the material weaknesses described above will continue to exist.

 

Changes in Internal Control Over Financial Reporting

 

We have improved our process over the preparation and review of our Consolidated Statement of Cash Flows to ensure completeness and accuracy over the transactions reported.  We created new templates and supporting schedules that facilitate the preparation of the Consolidated Statement of Cash Flows.  We also enhanced our cash flow checklist to identify the most common elements of operating, investing and financing activities, including nonrecurring transactions and adjustments.

 

 

26

 


 

PART II  OTHER INFORMATION

 

Item 1.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 December 31, 2014, if adversely determined, would have a material effect on its business, financial position, results of operations, or cash flows.

 

Item 1A.Risk Factors

 

Information regarding risk factors is set forth in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014.  The Company believes there have been no material changes in the information provided from the end of the preceding fiscal year through December 31, 2014.

 

 

 

 

27

 


 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

The Company’s purchases of its equity securities from the end of the preceding fiscal year through December 31, 2014 includes the deemed surrender of existing shares of Landauer common stock to the Company by stock-based compensation plan participants to satisfy the exercise price or tax liability of employee stock awards at the time of exercise or vesting.  These surrendered shares are not part of any publicly announced share repurchase program.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period

Total
Number of Shares
Purchased

 

 

Average
Price Paid
per Share

 

Total Number of
Shares Purchased
as Part of
Publicly
Announced
Plans
or Programs

 

Maximum
Number of
Shares that May
Yet be
Purchased
Under the Plans
or Programs

October 1 - October 31, 2014

490 

 

$

32.74 

 

 -

 

 -

November 1 - November 30, 2014

 -

 

 

 -

 

 -

 

 -

December 1 - December 31, 2014

 -

 

 

 -

 

 -

 

 -

Quarter ended  December 31, 2014

490 

 

$

32.74 

 

 -

 

 -

 

Item 3.Defaults Upon Senior Securities

 

Not Applicable 

 

Item 4.Mine Safety Disclosures

 

Not Applicable 

 

Item 5.Other Information

 

Not Applicable 

 

28

 


 

Item 6.Exhibits

 

 

 

Cer

3.1

 

Certificate of Incorporation of the Registrant, as amended through March 6, 2015

 

 

 

10.1

 

Offer Letter dated December 15, 2014, between the Company and Michael T. Leatherman (incorporated by reference to Exhibit 10(g) to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014)

 

 

 

31.1*

 

Certification of Michael T. Leatherman, President and Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

31.2*

 

Certification of Mark A. Zorko,  Interim Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32.1*

 

Certification of Michael T. Leatherman, 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

 

 

 

32.2*

 

Certification of Mark A. Zorko,  Interim Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101.INS**

 

XBRL INSTANCE FILE

 

 

 

101.SCH**

 

XBRL SCHEMA FILE

 

 

 

101.CAL**

 

XBRL CALCULATION FILE

 

 

 

101.DEF**

 

XBRL DEFINITION FILE

 

 

 

101.LAB**

 

XBRL LABEL FILE

 

 

 

101.PRE**

 

XBRL PRESENTATION FILE

 

 

 

 

* Filed herewith

 

** Furnished with the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December  31, 2014

 

 

29

 


 

SIGNATURE

 

Pursuant to the requirements 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.

 

8

 

 

 

11

 

 

 

 

 

 

 

 

 

LANDAUER, INC.

 

 

 

 

 

Date: March 9, 2015

 

/s/ Mark A. Zorko

 

 

 

Mark A. Zorko

 

 

 

Interim Chief Financial Officer (Principal Financial Officer)

 

 

30