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, 20132014
Commission File Number 1-9788
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| LANDAUER, INC. (Exact Name of registrant as specified in its charter) |
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| Delaware | 06-1218089 |
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| (State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification Number) |
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| 2 Science Road, Glenwood, IL 60425 (Address of principal executive offices and zip code) |
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| Registrant’s telephone number, including area code: (708) 755-7000 |
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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.
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| Large accelerated filer | [ ] |
| Accelerated filer | [ X ] |
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| Non-accelerated filer | [ ] |
| Smaller reporting company | [ ] |
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| (Do not check if a smaller reporting company) |
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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 January 28, 2014, 9,537,544February 24, 2015, 9,560,674 shares of common stock, par value $0.10 per share, of the registrant were outstanding.
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Item 1. |
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| Consolidated Statements of Comprehensive | 5 |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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2
PART PART I FINANCIAL INFORMATION
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
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(Dollars in Thousands) |
| December 31, |
| September 30, |
| December 31, |
| September 30, | ||||
ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 13,272 |
| $ | 11,184 |
| $ | 8,397 |
| $ | 6,761 |
Receivables, net of allowances of $570 and $600 respectively |
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| 34,178 |
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| 38,419 | ||||||
Receivables, net of allowances of $1,742 at December 31, 2014 and $1,872 at September 30, 2014 |
| 29,565 |
| 34,707 | ||||||||
Inventories |
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| 8,301 |
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| 9,539 |
| 7,077 |
| 6,687 | ||
Deferred income tax asset - current |
| 2,362 |
| 2,369 | ||||||||
Prepaid income taxes |
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| 2,671 |
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| 3,132 |
| 2,736 |
| 1,836 | ||
Prepaid expenses and other current assets |
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| 5,220 |
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| 4,019 |
| 4,284 |
| 1,973 | ||
Current assets |
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| 63,642 |
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| 66,293 |
| 54,421 |
| 54,333 | ||
Property, plant and equipment, at cost |
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| 104,316 |
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| 107,446 |
| 104,792 |
| 104,010 | ||
Accumulated depreciation and amortization |
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| (53,407) |
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| (55,514) |
| (59,065) |
| (57,253) | ||
Net property, plant and equipment |
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| 50,909 |
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| 51,932 |
| 45,727 |
| 46,757 | ||
Equity in joint ventures |
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| 22,600 |
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| 23,942 |
| 22,477 |
| 23,835 | ||
Goodwill |
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| 86,529 |
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| 84,436 |
| 42,226 |
| 43,218 | ||
Intangible assets, net of accumulated amortization of $14,790 and $13,605, respectively |
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| 37,022 |
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| 37,161 | ||||||
Dosimetry devices, net of accumulated depreciation of $9,915 and $9,472, respectively |
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| 5,739 |
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| 5,798 | ||||||
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 |
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| 7,704 |
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| 7,271 |
| 10,195 |
| 12,034 | ||
Assets |
| $ | 274,145 |
| $ | 276,833 | ||||||
ASSETS |
| $ | 210,847 |
| $ | 216,586 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
| $ | 6,036 |
| $ | 6,310 |
| $ | 5,681 |
| $ | 6,248 |
Dividends payable |
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| 5,433 |
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| 5,419 |
| 5,302 |
| 5,329 | ||
Deferred contract revenue |
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| 13,572 |
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| 13,181 |
| 14,724 |
| 14,750 | ||
Accrued compensation and related costs |
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| 6,160 |
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| 8,207 |
| 6,950 |
| 7,132 | ||
Accrued severance |
| 807 |
| 2,731 | ||||||||
Other accrued expenses |
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| 6,217 |
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| 7,531 |
| 8,412 |
| 8,538 | ||
Current liabilities |
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| 37,418 |
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| 40,648 |
| 41,876 |
| 44,728 | ||
Non-current liabilities: |
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Long-term debt |
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| 143,785 |
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| 142,785 |
| 133,585 |
| 133,585 | ||
Pension and postretirement obligations |
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| 13,308 |
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| 13,047 |
| 19,366 |
| 19,475 | ||
Deferred income taxes |
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| 10,324 |
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| 9,817 |
| 484 |
| 509 | ||
Uncertain income tax liabilities |
| 3,379 |
| 3,284 | ||||||||
Other non-current liabilities |
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| 1,890 |
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| 915 |
| 960 |
| 1,271 | ||
Non-current liabilities |
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| 169,307 |
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| 166,564 |
| 157,774 |
| 158,124 | ||
Stockholders' equity: |
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Preferred stock, $.10 par value per share, authorized 1,000,000 shares; none issued |
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| - |
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Common stock, $.10 par value per share, authorized 20,000,000 shares; 9,615,711 and 9,575,926 issued and outstanding at December 31, 2013 and September 30, 2013 respectively |
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| 962 |
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| 958 | ||||||
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 |
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| 39,653 |
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| 39,465 |
| 40,729 |
| 40,317 | ||
Accumulated other comprehensive loss |
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| (4,547) |
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| (4,456) |
| (11,882) |
| (10,148) | ||
Retained earnings |
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| 29,582 |
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| 32,012 | ||||||
(Accumulated deficit) retained earnings |
| (19,800) |
| (18,873) | ||||||||
Landauer, Inc. stockholders' equity |
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| 65,650 |
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| 67,979 |
| 9,999 |
| 12,254 | ||
Noncontrolling interest |
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| 1,770 |
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| 1,642 |
| 1,198 |
| 1,480 | ||
Stockholders' equity |
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| 67,420 |
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| 69,621 |
| 11,197 |
| 13,734 | ||
Liabilities and Stockholders' Equity |
| $ | 274,145 |
| $ | 276,833 | ||||||
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)
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| Three Months Ended December 31, |
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| Three Months Ended | ||||||
(Dollars in Thousands, Except per Share) |
| 2013 |
| 2012 |
| 2014 |
| 2013 | ||||
Service revenues |
| $ | 31,894 |
| $ | 31,469 |
| $ | 32,057 |
| $ | 31,745 |
Product revenues |
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| 5,811 |
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| 5,212 |
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| 5,490 |
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| 6,402 |
Net revenues |
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| 37,705 |
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| 36,681 |
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| 37,547 |
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| 38,147 |
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Cost and expenses: |
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Costs and expenses: |
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Service costs |
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| 15,049 |
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| 14,308 |
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| 15,634 |
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| 15,010 |
Product costs |
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| 3,158 |
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| 2,255 |
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| 2,117 |
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| 3,375 |
Total cost of sales |
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| 18,207 |
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| 16,563 |
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| 17,751 |
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| 18,385 |
Gross profit |
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| 19,796 |
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| 19,762 | ||||||
Selling, general and administrative |
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| 14,362 |
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| 13,391 |
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| 13,655 |
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| 14,226 |
Acquisition and reorganization costs |
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| 111 |
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| 0 | ||||||
Costs and expenses |
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| 32,680 |
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| 29,954 | ||||||
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Acquisition, reorganization and nonrecurring costs |
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| 111 | ||||||
Operating income |
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| 5,025 |
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| 6,727 |
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| 6,141 |
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| 5,425 |
Equity in income of joint ventures |
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| 573 |
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| 1,528 |
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| 696 |
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| 1,281 |
Interest expense, net |
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| (892) |
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| (1,033) |
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| (953) |
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| (937) |
Other income, net |
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| 37 |
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| 95 | ||||||
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Other (expense) income, net |
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| 251 |
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| 159 | ||||||
Income before taxes |
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| 4,743 |
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| 7,317 |
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| 6,135 |
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| 5,928 |
Income taxes |
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| 1,496 |
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| 2,274 | ||||||
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Income tax expense |
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| 1,610 |
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| 1,899 | ||||||
Net income |
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| 3,247 |
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| 5,043 |
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| 4,525 |
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| 4,029 |
Less: Net income attributed to |
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| 196 |
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| 166 |
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| 148 |
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| 208 |
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Net income attributed to Landauer, Inc. |
| $ | 3,051 |
| $ | 4,877 |
| $ | 4,377 |
| $ | 3,821 |
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Net income per share attributable to |
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Basic |
| $ | 0.32 |
| $ | 0.52 |
| $ | 0.46 |
| $ | 0.40 |
Weighted average basic shares |
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| 9,422 |
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| 9,336 |
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| 9,446 |
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| 9,422 |
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Diluted |
| $ | 0.32 |
| $ | 0.52 |
| $ | 0.46 |
| $ | 0.40 |
Weighted average diluted shares |
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| 9,467 |
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| 9,385 |
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| 9,474 |
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| 9,467 |
The accompanying notes are an integral part of theseconsolidated financial statements.statements.
4
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
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| Three Months Ended |
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(Dollars in Thousands) | Landauer, Inc. |
| Noncontrolling |
| Total |
| Landauer, Inc. |
| Noncontrolling |
| Total | |||||||
Net income |
| $ | 3,051 |
| $ | 196 |
| $ | 3,247 |
| $ | 4,377 |
| $ | 148 |
| $ | 4,525 |
Other comprehensive income: |
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Defined benefit pension and postretirement plans activity, net of tax |
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| 165 |
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| - |
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| 165 | |||||||||
Foreign currency translation adjustment |
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| (256) |
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| (68) |
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| (324) | |||||||||
Defined benefit pension and postretirement plans activity, net of taxes of $0 |
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| 72 |
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| - |
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| 72 | |||||||||
Unrealized gains (losses) on available-for-sale securities, net of taxes of $0 |
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| (35) |
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| - |
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| (35) | |||||||||
Foreign currency translation adjustment, net of taxes of $954 |
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| (1,771) |
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| (99) |
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| (1,870) | |||||||||
Comprehensive income |
| $ | 2,960 |
| $ | 128 |
| $ | 3,088 |
| $ | 2,643 |
| $ | 49 |
| $ | 2,692 |
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| Three Months Ended | ||||||||||||||
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| (As Restated) | |||||||
(Dollars in Thousands) |
| Landauer, Inc. |
| Noncontrolling |
| Total |
| Landauer, Inc. |
| Noncontrolling |
| Total | ||||||
Net income |
| $ | 4,877 |
| $ | 166 |
| $ | 5,043 |
| $ | 3,821 |
| $ | 208 |
| $ | 4,029 |
Other comprehensive income: |
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Defined benefit pension and postretirement plans activity, net of tax |
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| 108 |
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| - |
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| 108 | |||||||||
Foreign currency translation adjustment |
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| (624) |
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| 2 |
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| (622) | |||||||||
Defined benefit pension and postretirement plans activity, net of taxes of $0 |
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| 45 |
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| 45 | |||||||||
Unrealized gains (losses) on available-for-sale securities, net of taxes of $0 |
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| (79) |
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| (79) | |||||||||
Foreign currency translation adjustment, net of taxes of $0 |
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| (256) |
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| (68) |
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| (324) | |||||||||
Comprehensive income |
| $ | 4,361 |
| $ | 168 |
| $ | 4,529 |
| $ | 3,531 |
| $ | 140 |
| $ | 3,671 |
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The accompanying notes are an integral part of theseconsolidated financial statements.statements.
5
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders’ Equity (Unaudited)
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| Landauer, Inc. Stockholders' Equity |
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| Landauer, Inc. Stockholders' Equity |
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(Dollars in Thousands) | Common |
| Common |
| Addi- |
| Accumulated Other Compre-hensive (Loss) Income |
| Retained |
| Non- |
| Total | Common |
| Common |
| Addi- |
| Accumulated Other Compre-hensive (Loss) Income |
| (Accumulated Deficit) Retained |
| Non- |
| Total | ||||||||||||||
Balance September 30, 2013 |
| 9,575,926 |
| $ | 958 |
| $ | 39,465 |
| $ | (4,456) |
| $ | 32,012 |
| $ | 1,642 |
| $ | 69,621 | ||||||||||||||||||||
September 30, |
| 9,577,874 |
| $ | 958 |
| $ | 40,317 |
| $ | (10,148) |
| $ | (18,873) |
| $ | 1,480 |
| $ | 13,734 | ||||||||||||||||||||
Stock-based compensation arrangements |
| 39,785 |
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| 4 |
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| 188 |
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| - |
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| - |
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| - |
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| 192 |
| 59,312 |
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| (6) |
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| 412 |
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| - |
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| - |
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| - |
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| 406 |
Dividends |
| - |
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| - |
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| - |
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| - |
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| (5,481) |
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| - |
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| (5,481) |
| - |
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| - |
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| - |
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| - |
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| (5,304) |
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| (331) |
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| (5,635) |
Net income |
| - |
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| - |
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| - |
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| - |
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| 3,051 |
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| 196 |
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| 3,247 |
| - |
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| - |
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| - |
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| - |
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| 4,377 |
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| 148 |
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| 4,525 |
Foreign currency translation adjustment |
| - |
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| - |
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| - |
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| (256) |
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| - |
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| (68) |
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| (324) | ||||||||||||||||||||
Foreign currency translation adjustment, net of tax |
| - |
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| - |
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| - |
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| (1,771) |
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| - |
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| (99) |
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| (1,870) | ||||||||||||||||||||
Unrealized gains (losses) on available-for-sale securities, net of tax |
| - |
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| - |
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| - |
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| (35) |
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| - |
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| - |
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| (35) | ||||||||||||||||||||
Defined benefit pension and postretirement plans activity, net of tax |
| - |
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| - |
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| - |
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| 165 |
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| - |
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| - |
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| 165 |
| - |
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| - |
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| - |
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| 72 |
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| - |
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| - |
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| 72 |
Balance December 31, 2013 |
| 9,615,711 |
| $ | 962 |
| $ | 39,653 |
| $ | (4,547) |
| $ | 29,582 |
| $ | 1,770 |
| $ | 67,420 | ||||||||||||||||||||
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December 31, |
| 9,637,186 |
| $ | 952 |
| $ | 40,729 |
| $ | (11,882) |
| $ | (19,800) |
| $ | 1,198 |
| $ | 11,197 |
The accompanying notes are an integral part of theseconsolidated financial statements.statements.
6
LANDAUER, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
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|
|
|
|
|
| Three Months Ended | Three Months Ended | ||||||||||
(Dollars in Thousands) |
| 2013 |
| 2012 |
| 2014 |
| 2013 | ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 3,247 |
| $ | 5,043 |
| $ | 4,525 |
| $ | 4,029 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 3,894 |
|
| 3,450 |
|
| 3,078 |
|
| 3,732 |
Equity in income of joint ventures |
|
| (573) |
|
| (1,528) |
|
| (696) |
|
| (1,281) |
Dividends from joint ventures |
|
| 1,340 |
|
| 1,892 |
|
| 1,139 |
|
| 1,340 |
Stock-based compensation and related net tax benefits |
|
| 282 |
|
| 625 |
|
| 437 |
|
| 282 |
Current and long-term deferred taxes, net |
|
| 292 |
|
| 7 |
|
| (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 (increase) in accounts receivable, net |
|
| 4,396 |
|
| (1,114) | ||||||
Decrease in prepaid taxes |
|
| 466 |
|
| 1,449 | ||||||
Increase in other operating assets, net |
|
| (88) |
|
| (1,953) | ||||||
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 |
|
| (3,502) |
|
| (5,775) |
|
| (971) |
|
| (3,840) |
Increase in other operating liabilities, net |
|
| 200 |
|
| 244 | ||||||
(Decrease) increase in other operating liabilities, net |
|
| (53) |
|
| 200 | ||||||
Net cash provided by operating activities |
|
| 9,954 |
|
| 2,340 |
|
| 9,484 |
|
| 9,939 |
Cash flows used by investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment |
|
| (1,071) |
|
| (1,902) |
|
| (1,384) |
|
| (1,245) |
Acquisition of joint ventures and businesses, net of cash acquired |
|
| (1,800) |
|
| - |
|
| - |
|
| (1,800) |
Other investing activities, net |
|
| (719) |
|
| (453) |
|
| (315) |
|
| 97 |
Net cash used by investing activities |
|
| (3,590) |
|
| (2,355) |
|
| (1,699) |
|
| (2,948) |
Cash flows (used) provided by financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings on revolving credit facility |
|
| (21) |
|
| - |
|
| - |
|
| (21) |
Long-term borrowings - loan |
|
| 14,000 |
|
| 4,300 |
|
| 8,800 |
|
| 14,000 |
Long-term borrowings - repayment |
|
| (13,000) |
|
| - |
|
| (8,800) |
|
| (13,000) |
Dividends paid to stockholders |
|
| (5,274) |
|
| (5,229) |
|
| (5,347) |
|
| (5,274) |
Other financing activities, net |
|
| 49 |
|
| (248) |
|
| (331) |
|
| 49 |
Net cash used by financing activities |
|
| (4,246) |
|
| (1,177) |
|
| (5,678) |
|
| (4,246) |
|
|
|
|
|
|
| ||||||
Effects of foreign currency translation |
|
| (30) |
|
| 56 |
|
| (471) |
|
| 49 |
|
|
|
|
|
|
| ||||||
Net increase (decrease) in cash and cash equivalents |
|
| 2,088 |
|
| (1,136) | ||||||
Net increase in cash and cash equivalents |
|
| 1,636 |
|
| 2,794 | ||||||
Opening balance - cash and cash equivalents |
|
| 11,184 |
|
| 17,633 |
|
| 6,761 |
|
| 8,672 |
Ending balance - cash and cash equivalents |
| $ | 13,272 |
| $ | 16,497 |
| $ | 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 theseconsolidated financial statements.statements.
7
LANDAUER, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
December 31, 20132014
(Dollars in thousands)
(1)Basis of Presentation and Consolidation
As used herein, the “Company” or “Landauer” refers to Landauer, Inc. and its subsidiaries.
TheseThe 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, 20132014 and other financial information filed with the Securities and Exchange Commission (the “SEC”).
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, 2013. There have been no changes to the accounting policies for the three month period ended December 31, 2013.
The results of operations for the three month period ended December 31, 2013 are not necessarily indicative of the results to be expected for the full fiscal year. The September 30, 20132014 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.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 opinionpreparation of management, the accompanying unaudited consolidated financial statements include all adjustments necessary for a fair statement of such financial statements. Certain reclassifications have been madethe fiscal year ended September 30, 2014, the Company identified errors in theits previously issued financial statements for comparative purposes. These reclassifications have no effectthe 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 results of operations or financial positionexpected useful life of the Company.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 | ||||
|
| 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 | ||||
(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 | ||||
(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 February 2013, the FASB issued new guidance on the presentation of comprehensive income. This guidance requires reclassification adjustments from other comprehensive income to be presented either in the financial statements or in the notes to the financial statements. The standard would not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the guidance would require an entity to provide enhanced disclosures to present separately by component reclassifications out of accumulated other comprehensive income. This guidance was adopted by the Company in the first quarter of fiscal 2014. The adoption did not have a material impact on its consolidated financial statements.
In March 2013, the FASB issued an accounting update that clarifies the applicable guidance for the release of the cumulative translation adjustment when an entity ceases to have a controlling financial interest in a subsidiary or a group of assets that is a business within a foreign entity. The guidance outlines the events when cumulative translation adjustments should be released into net income and is intended by FASB to eliminate some disparity in current accounting practice. This guidance was adopted by the Company in the first quarter of fiscal 2014. The adoption did not have a material impact on its consolidated financial statements.
In July 2013, the FASBFinancial 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 2015.2018. 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.
812
(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.
As of December 31, 2013 and September 30, 2013, the Company’s financialFinancial assets measured and recorded 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 |
| Significant Other Observable Inputs (Level 2) |
| Significant Unobservable Inputs | |||
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 |
| Significant Other Observable Inputs (Level 2) |
| Significant Unobservable Inputs | |||
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 and, therefore, are categorized as Level 1 in the fair value hierarchy.prices.
FinancialThe Level 2 financial assets measured at fairare 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 on a recurring basisof the underlying securities as provided by the investment account manager. The investments are summarized below:
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| |||
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| ||||||
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| |||
| ||||||||
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| ||||||
| ||||||||
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| |||
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| ||||||
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not restricted or subject
913
Asto a lockup and may be redeemed on demand. Notice within a certain period of December 31, 2013, thetime 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 which is categorized as Level 1 in the fair value hierarchy, 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:
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| Three Months Ended |
| Three Months Ended | ||||||||
(Dollars in Thousands, Except per Share) | (Dollars in Thousands, Except per Share) | 2013 |
| 2012 | (Dollars in Thousands, Except per Share) | 2014 |
| 2013 | ||||
Basic Net Income per Share: |
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|
|
Net income attributed to Landauer, Inc. |
| $ | 3,051 |
| $ | 4,877 |
| $ | 4,377 |
| $ | 3,821 |
Less: Income allocated to unvested restricted stock |
|
| 46 |
|
| 31 |
|
| 29 |
|
| 46 |
Net income available to common stockholders |
| $ | 3,005 |
| $ | 4,846 |
| $ | 4,348 |
| $ | 3,775 |
Basic weighted average shares outstanding |
|
| 9,422 |
|
| 9,336 |
|
| 9,446 |
|
| 9,422 |
Net income per share - Basic |
| $ | 0.32 |
| $ | 0.52 |
| $ | 0.46 |
| $ | 0.40 |
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Diluted Net Income per Share: |
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Net income attributed to Landauer, Inc. |
| $ | 3,051 |
| $ | 4,877 |
| $ | 4,377 |
| $ | 3,821 |
Less: Income allocated to unvested restricted stock |
|
| 46 |
|
| 31 |
|
| 29 |
|
| 46 |
Net income available to common stockholder |
| $ | 3,005 |
| $ | 4,846 | ||||||
Net income available to common stockholders |
| $ | 4,348 |
| $ | 3,775 | ||||||
Basic weighted average shares outstanding |
|
| 9,422 |
|
| 9,336 |
|
| 9,446 |
|
| 9,422 |
Effect of dilutive securities |
|
| 45 |
|
| 49 |
|
| 28 |
|
| 45 |
Diluted weighted averages shares outstanding |
|
| 9,467 |
|
| 9,385 |
|
| 9,474 |
|
| 9,467 |
Net income per share - Diluted |
| $ | 0.32 |
| $ | 0.52 |
| $ | 0.46 |
| $ | 0.40 |
Dividends paid per share |
| $ | 0.55 |
| $ | 0.55 |
On December 3, 2013,March 9, 2015, the Company declared a regular quarterly cashreduction in dividend in the amount ofto $0.275 per share, compared to $0.55 per share forin the fourth quarter of fiscal 2013. The dividends were paid on January 6, 2014 to shareholders of record as of December 23, 2013. previous quarter.
14
(5)Employee Benefit Plans
The components of net periodic benefit cost for pension and other benefits were as follows:
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Pension Benefits | Three Months Ended December 31, | Three Months Ended | ||||||||
| 2013 |
| 2012 | |||||||
(Dollars in Thousands) | 2014 |
| 2013 | |||||||
Interest cost | $ | 375 |
| $ | 340 | $ | 364 |
| $ | 375 |
Expected return on plan assets |
| (377) |
|
| (365) |
| (396) |
|
| (377) |
Amortization of net loss |
| 48 |
|
| 108 |
| 84 |
|
| 48 |
Net periodic benefit cost | $ | 46 |
| $ | 83 | $ | 52 |
| $ | 46 |
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Other Benefits | Three Months Ended December 31, | Three Months Ended | ||||||||
| 2013 |
| 2012 | |||||||
(Dollars in Thousands) | 2014 |
| 2013 | |||||||
Service cost | $ | 15 |
| $ | 17 | $ | 13 |
| $ | 15 |
Interest cost |
| 13 |
|
| 12 |
| 8 |
|
| 13 |
Amortization of net (gain) loss |
| (3) |
|
| - | |||||
Amortization of net gain |
| (12) |
|
| (3) | |||||
Net periodic benefit cost | $ | 25 |
| $ | 29 | $ | 9 |
| $ | 25 |
10
The Company, under the IRS minimum funding standards, has no required contributions to make to its defined benefit pension plan during fiscal 2014.2015.
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 first three months of fiscalended December 31, 2014 and 2013 were $407 and $458, and $371, respectively.
(6)Goodwill and Other IntangiblesIntangible Assets
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| Radiation Measurement |
| Medical |
| Medical |
| Total | ||||
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Balance as of September 30, 2013 |
| $ | 20,456 |
| $ | 22,611 |
| $ | 41,369 |
| $ | 84,436 |
Increase related to acquisitions, net |
|
| - |
|
| - |
|
| 2,019 |
|
| 2,019 |
Effects of foreign currency |
|
| 74 |
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|
|
| 74 |
Accumulated goodwill impairment charges |
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|
|
| - |
Goodwill, net as of December 31, 2013 |
| $ | 20,530 |
| $ | 22,611 |
| $ | 43,388 |
| $ | 86,529 |
On December 23rd, 2013,Changes in the Company acquired a small German distributor on behalfcarrying amount of the Medical Products segment. The preliminary purchase price allocation indicates an increase in customer lists of $772 and an increase in goodwill of $2,019.
Intangible assetsby reportable segment for the yearsthree months ended December 31, 2014 were as follows:
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|
| December 31, 2013 |
|
| September 30, 2013 | ||||||
|
| Gross |
| Accumulated |
| Gross |
| Accumulated | ||||
|
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|
|
Customer lists |
| $ | 44,865 |
| $ | 12,676 |
| $ | 43,954 |
| $ | 11,639 |
Trademarks and tradenames |
|
| 2,156 |
|
| 451 |
|
| 2,154 |
|
| 400 |
Licenses and patents |
|
| 4,214 |
|
| 1,106 |
|
| 4,080 |
|
| 1,009 |
Other intangibles |
|
| 577 |
|
| 557 |
|
| 577 |
|
| 557 |
Intangible assets |
| $ | 51,812 |
| $ | 14,790 |
| $ | 50,765 |
| $ | 13,605 |
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|
(Dollars in Thousands) |
| Radiation Measurement |
| Medical |
| Medical |
| Total | ||||
Balance as of September 30, 2014 |
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|
|
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 |
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|
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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:
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|
|
| December 31, 2014 | ||||||||||
(Dollars in Thousands) |
| Gross |
| Accumulated |
| Net |
| 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 |
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|
|
|
|
| September 30, 2014 | ||||||||||
(Dollars in Thousands) |
| Gross |
| Accumulated |
| Net |
| 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 Income (Loss)Loss
Accumulated elements of other comprehensive income (loss) (“AOCI”),loss, net of tax, are included in the stockholders’ equity section of the condensed consolidated balance sheets. Changes in each component of AOCIfor the three months ended December 31 are as follows:
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|
|
(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) |
1116
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|
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| Foreign Currency Translation Adjustments |
| Pension and Postretirement Plans, net of tax |
| Total | ||||||||||||||
Balance at September 30, 2013 | $ | (178) |
| $ | (4,278) |
| $ | (4,456) | |||||||||||
(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) |
|
| - |
|
| (256) |
| (256) |
|
| 43 |
|
| - |
|
| (213) |
Amounts reclassified from accumulated other comprehensive income |
| - |
|
| 165 |
|
| 165 |
| - |
|
| (122) |
|
| 45 |
|
| (77) |
Net current period other comprehensive income |
| (256) |
|
| 165 |
|
| (91) |
| (256) |
|
| (79) |
|
| 45 |
|
| (290) |
Balance at December 31, 2013 | $ | (434) |
| $ | (4,113) |
| $ | (4,547) | |||||||||||
Balance at December 31, 2013 (As Restated) | $ | (639) |
| $ | 53 |
| $ | (4,112) |
| $ | (4,698) |
ReclassificationsThe tables below present the impact on net income of significant amounts reclassified out of each component of accumulated other comprehensive income (loss)loss:
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|
|
|
|
Pension and Postretirement Plans (1) | Three Months Ended | ||||
(Dollars in Thousands) | 2014 |
| 2013 | ||
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) was as follows:.
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|
|
Pension and Postretirement Plans | Three Months Ended December 31, | ||||
| 2013 |
| 2012 | ||
Amortization of net loss | $ | 45 |
| $ | 108 |
Provision for income taxes |
| 120 |
|
| - |
Total net of tax | $ | 165 |
| $ | 108 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains and Losses on Available-for-Sale Securities | Three Months Ended | ||||
(Dollars in Thousands) | 2014 |
| 2013 | ||
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.
(8)(9)Segment Information
During the first fiscal quarter of 2014, the Company changed the presentation of its reporting segments to separately disclose certain ‘corporate expenses’ that had previously been reported within the Radiation Measurement segment. As a result, the current segment disclosures will reflect three reporting segments: Radiation Measurement, Medical Physics, Medical Products and one functional group: Corporate. The following tables summarize financial information for each reportable segment:
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|
|
|
| Three Months Ended | ||||
(Dollars in Thousands) |
| 2014 |
| 2013 | ||
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 | ||||
(Dollars in Thousands) |
| 2014 |
| 2013 | ||
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Three Months Ended December 31, | ||||||||||
|
| 2013 |
| 2012 | ||||||||
Revenues by segment: |
|
|
|
|
|
| ||||||
(Dollars in Thousands) |
| December 31, |
| September 30, | ||||||||
Segment assets: |
|
|
|
|
|
| ||||||
Radiation Measurement |
| $ | 27,741 |
|
| 26,403 |
| $ | 142,577 |
| $ | 148,151 |
Medical Physics |
|
| 7,739 |
|
| 7,589 |
|
| 39,295 |
|
| 38,851 |
Medical Products |
|
| 2,225 |
|
| 2,689 |
|
| 48,337 |
|
| 48,164 |
Consolidated revenues |
| $ | 37,705 |
|
| 36,681 | ||||||
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
| ||||||
|
| Three Months Ended December 31, | ||||||||||
|
| 2013 |
| 2012 | ||||||||
Operating income (loss) by segment: |
|
|
|
|
|
| ||||||
Radiation Measurement |
| $ | 8,579 |
|
| 9,432 | ||||||
Medical Physics |
|
| 433 |
|
| 792 | ||||||
Medical Products |
|
| (438) |
|
| 670 | ||||||
Corporate |
|
| (3,549) |
|
| (4,167) | ||||||
Consolidated operating income |
| $ | 5,025 |
|
| 6,727 | ||||||
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:
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|
|
|
|
|
|
|
|
|
|
| Three Months Ended | ||||
(Dollars in Thousands) |
| 2014 |
| 2013 | ||
Sales to Aquila |
| $ | 1,743 |
| $ | 2,076 |
Purchases from Aquila |
|
| 8 |
|
| - |
1218
Balance sheet items were as follows for the periods ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands) |
| December 31, |
| September 30, | ||
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:
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|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended | ||||
(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, |
| September 30, | ||
Amounts in accounts receivable |
| $ | 11 |
| $ | 27 |
Amounts in accounts payable |
|
| 41 |
|
| 60 |
19
Item Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of ourthe Company’s unaudited consolidated financial condition and results of operations should be read in conjunction with ourthe 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 ourthe Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013.2014.
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. We base ourThe 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, ourthe Company’s actual results may differ from the estimates, judgments and assumptions used in preparing ourthe consolidated financial statements.
Goodwill and Other Intangible Assets
There was no provision for impairment charges during the first three months of fiscal 2014 and fiscal 2013, respectively. The Company will continue to evaluate goodwill and other identified intangible assets for impairment. Goodwill and other identified intangible assets are material components of the Company’s financial statements and impairment charges to the Company’s goodwill or other identified intangible assets in future periods could be material to the Company’s results of operations.
While historical performance and current expectations have resulted in fair values of goodwill and other identified intangible assets in excess of carrying values, if our assumptions are not realized, it is possible that in the future an additional impairment charge may need to be recorded. However, it is not possible at this time to determine if an impairment charge would result or if such a charge would be material. The Company will continue to monitor the recoverability of its remaining goodwill.
For a detailed discussion of the Company’s critical accounting policies, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended September 30, 2013.
Results of Operations
Comparison of the first fiscal quarter ended December 31, 20132014 and the first fiscal quarter ended December 31, 20122013
Revenues for the first fiscal quarter of 20142015 were $37.7$37.5 million, an increasea decrease of $1.0$0.6 million, or 2.7%1.6%, compared with revenues of $36.7$38.1 million for the first fiscal quarter of 2013.2014. The Radiation Measurement segment experienceddecreased $1.7 million, which was primarily due to an increaseunfavorable foreign currency impact of $1.4$0.8 million and a decrease in sales of military products to its joint venture of $0.7 million. The 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 primarily to a $1.1 million increase in revenue from international operations.increased imaging and radiation therapy services. The Medical Products segment revenues decreased by $0.5increased $0.4 million, due primarily to higher domestic revenues and the declinefull-quarter impact in the Spherz selling price and shipments. fiscal 2015 of a modest acquisition in December 2013.
Cost of salesGross margin was 52.8% for the first fiscal quarter of 2014 was $18.2 million, an increase of $1.6 million, or 9.6%,2015, compared with cost of sales of $16.6 million52.0% for the first fiscal quarter of 2013. The cost of sales increase was2014. Higher gross margins in the Radiation Measurement segment, due primarily to favorable product mix, were partially offset by a 0.6% decline in gross margin in the Medical Physics segment driven by increased internationalstaffing expenses of $0.4 million asto support additional contracts in the imaging and therapy divisions and a result of increased sales, an increase0.5% decline in material costs of $0.5 million and an increasegross margin in service costs of $0.3 million.the Medical Products segment driven by Spherz price pressure.
13
Selling, general and administrative expenses for the first fiscal quarter of 20142015 were $14.5$13.7 million, an increasea decrease of $1.1$0.6 million, or 8.2%4.2%, compared with operating expenses of $13.4$14.3 million for the first fiscal quarter of 2013.2014. The decrease in selling, general and administrative expense increase was dueexpenses resulted primarily to $1.0from a $0.9 million of increaseddecrease in research and development expenses primarily attributed to advancement of our next generation dosimetry platform, $0.4and a $0.7 million decrease in increased amortization expense and $0.2 million in increased payroll largely dueas a result of adjustments recorded during the third fiscal quarter of 2014 to new personnelreduce the carrying value of intangible assets, partially offset by $0.5 millionhigher legal, audit and other professional fees of reduced stock compensation expense from revised estimates consistent with the company’s fiscal 2014 guidance.$0.7 million.
Operating income for the first fiscal quarter of 20142015 was $5.0$6.1 million, a decreasean increase of $1.7$0.7 million, or 25.4%13.0%, compared with operating income of $6.7$5.4 million for the first fiscal quarter of 2013.2014. The decreaseincrease in operating income was due to increaseddriven by a $0.9 million decrease in research and development costs of $1.0 million, a $0.5 decrease in Spherz revenue,expenses, offset by an increase in material costsother selling, general and administrative expenses of $0.5 million, an increase in amortization costs of $0.4 million due to revised intangible life and an increase in services and payroll costs of $0.5 million, offset by $0.7 million of increased international operating income and $0.5 million of reduced stock compensation expense from revised estimates.$0.3 million.
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Equity in income of joint ventures for the first fiscal quarter of 20142015 was $0.6$0.7 million, a decrease of $0.9$0.6 million, or 60.0%46.2%, from the prior year first fiscal quarter amount of $1.5compared with $1.3 million due primarily to decreases of equipment shipments of the RadWatch product largely related with services and associated timing of military funding of defense department budgets.
The effective tax rate 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 2013 was 31.5% and 31.1%32.0%, respectively. The increasedecrease in the effective tax rate was due primarily to a true-upthe enactment of a priorthe research and development credit for calendar year pension adjustment.2014 in the first fiscal quarter of 2015.
Net income attributableattributed to Landauer for the first fiscal quarter of 20142015 was $3.1$4.4 million, a decreasean increase of $1.8$0.6 million, or 36.7%15.8%, compared with net income of $4.9$3.8 million in the first fiscal quarter of 2013.2014. The decreaseincrease in net income was due to an increasethe result of a decrease in researchoperating expenses of $0.7 million and development costsa decrease in income tax provision of $1.0$0.3 million, partially offset by a decrease in equity earnings due to timing of $0.9 million, a $0.5 million decrease in Spherz revenue, an increase in material costs of $0.5 million, an increase in amortization costs of $0.4 million and an increase in services and payroll costs of $0.5 million, offset by $0.7 million in international operating income, a decrease of $0.8 million in income taxes and $0.5 million of reduced stock compensation expense from revised estimates.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the first fiscal quarterjoint ventures of 2014 were $9.2 million compared with $11.5 million for the first fiscal quarter of 2013. The decline was due primarily to lower income, lower provision for income taxes offset by slightly higher depreciation. A reconciliation of net income to EBITDA and Adjusted EBITDA is included herein under this Item 2.
Change in Segment Presentation
During the first fiscal quarter of 2014, the Company changed the presentation of its reporting segments to separately disclose certain ‘corporate expenses’ that had previously been reported within the Radiation Measurement segment. As a result, the current segment disclosures will reflect three reporting segments: Radiation Measurement, Medical Physics, Medical Products and one functional group: Corporate.$0.6 million.
Radiation Measurement Segment
Radiation Measurement revenues for the first fiscal quarter of 20142015 were $27.7$26.5 million, an increasea decrease of $1.4$1.7 million, or 5.3%6.0%, fromcompared with $28.2 million for the first fiscal quarter of 2013 of $26.4 million.2014. The $1.4 million increasedecrease in the fiscal quarterrevenues was due primarily to increasesthe unfavorable impact of changes in revenuesforeign 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 both equipment and measurement services at international subsidiaries. the supplier during the second half of fiscal 2014.
Operating income for the first fiscal quarter of 2014
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2015 was $8.6$9.4 million, a decreasean increase of $0.9$0.6 million, or 9.6%6.8%, compared towith operating income of $9.4$8.8 million for the first fiscal quarter of 2013.2014. The decreaseincrease in operating income was due to increaseda $1.0 million decrease in research and development expenses of $1.0 million, primarily attributed to advancement of oursupport the Verifii next generation dosimeter and increased materials expenses ofdosimetry platform, offset by a $0.3 million offset by increased international operating income of $0.7 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 20142015 were $7.7$8.4 million, an increase of $0.1$0.7 million, or 1.3%9.1%, as compared to $7.6with $7.7 million for the first fiscal quarter of 2013. Medical Physics operating2014. 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 20142015 was $0.6 million, compared to $0.4 million or 5.2% of revenues, as compared to $0.8 million, or 10.5% of revenues, infor the first fiscal quarter of 2013.2014. The decreaseincrease in operating income was partiallyis due primarily to increased staffingheadcount reductions in support of the continued advancement of its system-sell initiatives and previously unallocated expense prior to changes in segment presentation.administrative functions during fiscal 2014.
Medical Products Segment
Medical Products revenues for the first fiscal quarter of 20142015 were $2.2$2.6 million, a decreasean increase of $0.5$0.4 million, or 18.5%18.2%, compared to $2.7$2.2 million for the first fiscal quarter of 2013. Operating loss for2014. 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 first fiscal quarterimpact of 2014 was $0.4 million, a decrease of $1.1 million, as compared tocontinued pressure on Spherz product pricing.
Medical Products had operating income of $0.7$0.3 million for the first fiscal quarter of 2013.2015 versus an operating loss of $0.3 million for the first fiscal quarter of 2014. The decrease ischange was primarily due primarily to a $0.7 million decrease in revenueamortization expense as a result of $0.5 million, an increase in amortizationadjustments recorded during the third fiscal quarter of $0.4 million and increased material costs2014 to reduce the carrying value of $0.2 million.intangible assets.
21
Corporate Selling, General and Administrative Expenses
Corporate selling, general and administrative expenses reflect costs associated with supporting the entire Company, including executive management and administrative functions such as accounting, treasury, legal, human resources, and information technology management, as well as other costs required to support the Company. Corporate expenses for the first fiscal quarter of 20142015 were $3.6$4.2 million, a decreasean increase of $0.6$0.7 million, asor 20%, compared to $4.2$3.5 million infor the first fiscal quarter of 2013.2014. The decreaseincrease was due primarily to $0.5 millionhigher legal, audit and other professional fees of reduced stock compensation expense from revised estimates consistent with the company’s fiscal 2014 guidance.
Fiscal 2014 Outlook
Landauer’s business plan for fiscal 2014 currently anticipates aggregate revenues for the year to be in the range of $140.0 to $160.0 million, and reflects the uncertainty of government funding during fiscal 2014 related to the military equipment sales opportunities the Company has developed. The Company also anticipates that the effective tax rate for the full fiscal year will be within a range of 28% to 32%.
Based upon the above assumptions, the Company anticipates reported net income for fiscal 2014 in the range of $16.0 to $18.0 million and Adjusted EBITDA for fiscal 2014 in the range of $46.0 to $49.0$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:
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| Three Months Ended | ||||
(Dollars in Thousands) | 2014 |
| 2013 | ||
Net cash provided by (used by): |
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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 operations was $10.0 million and $2.3 million inoperating activities for the first three months of fiscal quarter2015 was $9.5 million, a decrease of 2014 and 2013, respectively.$0.5 million over the same fiscal period in 2014. The increasedecrease was primarily due primarily to a $5.5 millionan increase in receivable collections as a resultcash paid for income taxes of system go-live normalization following the Company’s IT platform enhancement and other favorable working capital changes of $2.2$0.3 million.
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Cash used by investing activities for the first three months of fiscal quarter2015 was $1.7 million, a decrease of 2014$1.2 million over the same fiscal period of 2014. The difference was $3.6 million comparedprimarily due to the prior year’s first fiscal quarter amount of $2.4 million. The primary difference was due to a small acquisition of a small German distributor on behalf of the Medical Products segment for $1.8 million.
Financing activities for the first fiscal quarter of 2014 were comprised primarily of long-term borrowings on the credit agreement of $14.0 million compared to the previous year’s first fiscal quarter borrowings of $4.3 million, offset by $13.0 million of repayments 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, and no repayments in the previous year’s first fiscal quarter. The Company had $31.0$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 quarter of2015 and 2014, and 2013, the Company fundedpaid cash dividends of $5.3 million and $5.2 million, respectively, or $0.55 per share, for cash dividends declared in each fourth fiscal quarter of 2013 and 2012.
Non-GAAP Financial Measures
The tables below include financial measures of EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per Diluted Share. These are non-GAAP measures. Management believes that such measures supplement evaluations using operating income, net income, and diluted earnings per share and other GAAP measures, and are a useful indicator for investors. These indicators can help readers gain a meaningful understanding of the Company’s core operating results and future prospects without the effect of non-recurring and non-cash items and the Company’s ability to generate cash flows from operations that are available for taxes, capital expenditures, and debt repayment. Investors should recognize that these non-GAAP measures might not be comparable to similarly titled measures of other companies. These measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flows or liquidity prepared in accordance with GAAP.million.
The Company uses these non-GAAP financial measures for internal budgetingexpects to meet short-term liquidity requirements (including capital expenditures) through net cash from operating activities and other managerial purposes, such as when publicly providingcash on hand. As of December 31, 2014, long-term liquidity requirements consist primarily of obligations under the Company’s business outlook and as a measurement for potential acquisitions. A limitation associated with Adjusted EBITDA is that itlong-term debt obligations. The Company does not reflecthave any required debt repayments until August 2, 2018, when the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the Company’s business. Management evaluates the costs of such tangible and intangible assets through other financial measures such as capital expenditures. Management compensates for these limitations by also relying on the comparable GAAP financial measure of operating income, which includes depreciation and amortization.
These non-GAAP measures may be considered in addition to results prepared in accordance with GAAP, but they should not be considered a substitute for, or superior to, GAAP results.debt facility expires. The Company intends to continue to provide these non-GAAP financial measureswas in compliance with all covenants as part of its future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in the Company’s financial reporting.December 31, 2014.
A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is provided below:
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| Three Months Ended | ||||
| 2013 |
| 2012 | ||
Adjusted EBITDA |
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Net income attributed to Landauer, Inc. | $ | 3,051 |
| $ | 4,877 |
Add back: |
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Interest expense, net |
| 789 |
|
| 932 |
Depreciation and amortization |
| 3,894 |
|
| 3,450 |
Provision for income taxes |
| 1,496 |
|
| 2,274 |
Earnings before interest, taxes, depreciation and amortization (EBITDA) | $ | 9,230 |
| $ | 11,533 |
Adjustments: |
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|
|
Non-cash stock based compensation |
| 292 |
|
| 684 |
IT platform enhancements expenses |
| - |
|
| 178 |
Acquisition and reorganization costs |
| 111 |
|
| - |
Sub-total adjustments |
| 403 |
|
| 862 |
Adjusted EBITDA | $ | 9,633 |
| $ | 12,395 |
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Adjusted Net Income |
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Net income attributed to Landauer, Inc. | $ | 3,051 |
| $ | 4,877 |
Sub-total adjustments |
| 403 |
|
| 862 |
Income-taxes on adjustments |
| (127) |
|
| (268) |
Adjustments, net |
| 276 |
|
| 594 |
Adjusted, Net Income | $ | 3,327 |
| $ | 5,471 |
Adjusted Net Income per Diluted Share | $ | 0.35 |
| $ | 0.58 |
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Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q.
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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 20132014 through December 31, 2013.2014.
Forward-Looking Statements
Certain matters contained in this report including the information contained under the heading “Fiscal 2014 Outlook,” 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
17
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” and information contained inof the Company's Annual Report on Form 10-K for the year ended September 30, 20132014 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.
1823
Item 3.quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk, including changes in foreign currency exchange rates.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, 2013.2014. The Company believes there have been no material changes in the information provided from the end of the preceding fiscal year through December 31, 2013.2014.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report,December 31, 2014, an evaluation was performed under the supervision and with the participation of the Company’sour management, including theour Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) (the Company’s principal executive officer and principal financial officer, respectively), of the effectiveness of the design and operation of the Company’s disclosure“disclosure controls and proceduresprocedures” as defined in Rule 13(a)-15(e)Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended.
Based upon that evaluation, the Company’sour CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as a result of December 31, 2013 were effective.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 |
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· | 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:
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· | 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
There were no changes inWe have improved our process over the Company’s internal controlpreparation and review of our Consolidated Statement of Cash Flows to ensure completeness and accuracy over financial reportingthe transactions reported. We created new templates and supporting schedules that occurred duringfacilitate the quarterly period ended December 31, 2013 that have materially affected, or are reasonably likelypreparation of the Consolidated Statement of Cash Flows. We also enhanced our cash flow checklist to materially affect,identify the Company’s internal control over financial reporting.most common elements of operating, investing and financing activities, including nonrecurring transactions and adjustments.
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PART II OTHER INFORMATION
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, 2013,2014, if adversely determined, would have a material effect on its business, financial position, results of operations, or cash flows.
Information regarding risk factors areis set forth in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2013.2014. The Company believes there have been no material changes in the information provided from the end of the preceding fiscal year through December 31, 2013.2014.
1927
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, 20132014 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.
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Period | Total |
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| Average |
| Total Number of |
| Maximum |
October 1 - October 31, 2013 | 105 |
| $ | 51.26 |
| - |
| - |
November 1 - November 30, 2013 | 1,426 |
|
| 47.80 |
| - |
| - |
December 1 - December 31, 2013 | 3,260 |
|
| 52.16 |
| - |
| - |
Quarter ended December 31, 2013 | 4,791 |
| $ | 50.84 |
| - |
| - |
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Period | Total |
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| Average |
| Total Number of |
| Maximum |
October 1 - October 31, 2014 | 490 |
| $ | 32.74 |
| - |
| - |
November 1 - November 30, 2014 | - |
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| - |
| - |
| - |
December 1 - December 31, 2014 | - |
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| - |
| - |
| - |
Quarter ended December 31, 2014 | 490 |
| $ | 32.74 |
| - |
| - |
Item 3.Defaults Upon Senior Securities
Not Applicable
Item 4.Mine Safety Disclosures
Not Applicable
Not Applicable
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| Cer |
3.1 | Certificate of Incorporation of the Registrant, as amended through March 6, 2015 | |
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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) | |
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31.1* |
| Certification of |
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31.2* |
| Certification of |
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32.1* |
| Certification of |
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32.2* |
| Certification of |
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101.INS** |
| XBRL INSTANCE FILE |
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101.SCH** |
| XBRL SCHEMA FILE |
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101.CAL** |
| XBRL CALCULATION FILE |
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101.DEF** |
| XBRL DEFINITION FILE |
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101.LAB** |
| XBRL LABEL FILE |
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101.PRE** |
| XBRL PRESENTATION FILE |
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| * Filed herewith | |
| ** Furnished with the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, |
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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.
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| LANDAUER, INC. |
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Date: |
| /s/ |
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