UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year endedJanuary 31, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to ______________
Commission File Number: 0-15535
LAKELAND INDUSTRIES, INC. |
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Delaware | 13-3115216 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
1525 Perimeter Parkway, Suite | 35806 | |
(Address of Principal Executive Offices) | (Zip Code) |
(Registrant'sRegistrant’s telephone number, including area code) (631) 981-9700(256) 350-3873
Securities registered pursuant to Section 12(b) of the Act:
Common Stock $0.01 Par Value
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | LAKE | NASDAQ |
(Title of Class)
Name of Exchange on which registered – NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
Not Applicable
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨☐ Nox ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes¨ ☐ Nox ☒
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. Yesx ☒ No¨ ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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). Yesx ☒ No¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this Chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨ ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company or an emerging growth company. See the definitiondefinitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated Filer | ☒ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-212b-2 of the Exchange Act) Yes ☐ No ☒
Yes¨Nox
As of July 31, 2015, theThe aggregate market value of the registrant’s commonvoting stock held by nonaffiliatesnon-affiliates as of the registrantJuly 31, 2021 was $69,848,519 based on the closing priceapproximately $205.2 million. As of the common stock as reported on the National Association of Securities Dealers Automated Quotation System National Market System.
Indicate the number ofApril 11, 2022, there were outstanding 8,555,672 shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.$0.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed pursuant to Regulation 14A of the Security Exchange Act of 1934 are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) of this Form 10-K.
LAKELAND INDUSTRIES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
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This Annual Report on Form 10-K contains forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks, uncertainties and assumptions as described from time to time in registration statements, annual reports and other periodic reports and filings of the Company filed with the Securities and Exchange Commission. All statements, other than statements of historical facts, which address the Company’s expectations of sources of capital or which express the Company’s expectation for the future with respect to financial performance or operating strategies, can be identified as forward-looking statements. As a result, there can be no assurance that the Company’s future results will not be materially different from those described herein as “believed,” “anticipated,” “estimated” or “expected,” “may,” “will” or “should” or other similar words which reflect the current views of the Company with respect to future events. We caution readers that these forward-looking statements speak only as of the date hereof. The Company hereby expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which such statement is based.
Lakeland Industries, Inc. (the “Company” or “Lakeland,” “we,” “our,” or “us”) was incorporated in the State of Delaware in 1986. Our executive office is located at 3555 Veterans Memorial Hwy,1525 Perimeter Parkway, Suite C, Ronkonkoma, New York 11779,325, Huntsville, AL 35806, and our telephone number is (631) 981-9700.(256) 350-3873. Our website is located at www.lakeland.com. Information contained on our website is not part of this report.
Overview
We manufacture and sell a comprehensive line of safety garmentsprotective clothing and accessories for the industrial and public protective clothing market. All Lakeland products either protect the wearer from something in their environment, or protect a product or process from the wearer. Our products must meet minimum performance requirements defined by industry best practice, and/or international or local standards.
Our products are sold globally by our in-house sales teams, our customer service group, our regional sales managers and authorized independent sales representatives to a global network of over 1,200 North American1,600 safety and millindustrial supply distributors. TheseOur authorized distributors in turn supply end user industrial customers,users, such as integrated oil, chemical/petrochemical, utilities, automobile, transportation, steel, glass, construction, smelting, munition plants,heavy and light industry, cleanroom, janitorial, pharmaceutical, mortuaries and high technology electronics manufacturers, as well as scientific, medical laboratories and medical laboratories.the utilities industries (electrical, natural gas, and water). In addition, we supply federal, state and local governmental agencies and departments, such as fire and law enforcement, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control.US Food and Drug Administration. Internationally, sales arewe sell to a mixture of end users directly, and to industrial distributors depending on the particular country and market. Sales are made tointo more than 4050 foreign countries, butthe majority of which are primarily ininto China, countries within the European Economic Community (“EEC”), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India and countries within Southeast Asia. In FY16 we had net sales of $99.6 million and $93.4 million in FY15. For purposes of this Form 10-K, (a) FY refers to a fiscal year ended January 31; for example, FY16FY22 refers to the fiscal year ended January 31, 2016.2022 and (b) Q refers to a quarter, for example Q4 FY 22 refers to the fourth quarter of the fiscal year ended January 31, 2022.
FY16 wasLakeland regards owning and operating its own manufacturing facilities as a yearsustainable strategic advantage. We believe that ownership of significant involvementmanufacturing is the keystone to building a resilient supply chain. Having five manufacturing locations in five countries, coupled with sourcing core raw materials from multiple suppliers in various countries, affords Lakeland with manufacturing capabilities and supply chain resilience that cannot be matched by Lakeland in combatting bothour competitors who use contractors. Owning our manufacturing provides us with the Ebola epidemic in Africa and the major outbreak of the avian virus (bird flu) in the US. The Company continued to ship chemical protective clothing on the large Ebola-related contract with an EEC member through April 2015. We were able to win this contract due to our ability to rapidly scale up production and tripling our capacityto meet emergency demand; shift production between locations in a matter of a few weeks. This ability was a direct result of our controlling our own production facilities rather than relying exclusively on contractors.
The bird flu struck poultry farms in the upper Midwest of the US hard in May 2015. Due to the Company’s rapid increases to manufacturing capacity for its response to the Ebola crisis, we were able to win major contracts for similar garments as we could commit to large quantity orders the same day we were called by customers. Not only did the Company win these large contracts, but we believe our ability to respond immediately and decisively made a significant impression on these customers, as evidenced by the increases in orders from many of these same customers during the balance of the fiscal year vs. the previous year. We feel both of these large scale viral emergencies materially enhanced Lakeland’s reputation and image within the industry, which should continue to benefit the Company going forward. Meanwhile smaller emergencies, such as oil and chemical spills from train derailments, occur regularly and are considered part of our baseline business. No company can predict when very large scale events like Ebola and the bird flu outbreaks will occur, but historically the Company has found that the large events tend to occur every two to three years. In Q4 FY16 demand for the Company’s products softened worldwide reflecting macroeconomic conditions. Industrial production declined in the US due to the strength of the dollar and job losses in the Energy sector, the continuing decline of the growth rate in China and the European growth rate hovering near zero. However, the Company expects, but there can be no assurance, demand for its products to increase in the US in the next two years as federal money appropriated for infectious disease preparedness in the 2015 Omnibus Appropriations Bill is allocated to the states and put out to bid in the marketplace. In addition, management believes, but there can be no assurance, that the Company will resume its growth trajectory as it continues to implement its strategy of adding sales people world-wide and takes advantage of its ability to compete in the industry by quickly scaling up production to meet event-driven opportunities.
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A key factor in our business model is having the labor intensive sewing operation for our limited use/disposable protective clothing lines in our facilities in Mexico and China. Our facilities and capabilities in China and Mexico allow access to a less expensive labor pool than is available in the United States and permit us to purchase certain raw materials at a lower cost than is available domestically. As we have increasingly shifted production to our facilities in Mexico and China, we have experienced improvements in the profit margins for these products.
On July 31, 2015, Lakeland and its then Brazilian subsidiary (“Lakeland Brazil”), completed a conditional closing of a Shares Transfer Agreement with Zap Comércio de Brindes Corporativos Ltda, a company owned by an existing Lakeland Brazil manager, entered into on June 19, 2015. Pursuant to the Shares Transfer Agreement, the Transferee has acquired all of the shares of Lakeland Brazil owned by the Company (see Note 15).
Our major product categories and their applications are described below:
We maintain manufacturing facilities in Alabama, Mexico, Brazil (through July 31, 2015), India, Argentina and China. We also have relationships with sewing subcontractors in Mexico, Argentina, and China which we can utilize for unexpected sales surges. Our international facilities allow us to take advantage of favorable labornew trade agreements, or avoid complications that may arise from trade disputes; and component costs, thereby increasingto maintain the highest levels of product quality.
By comparison, our profit marginscompetitors who utilize contractors to sew their garments, lack the ability to respond as quickly to emergency situations because contractor agreements typically require forecast lead-times in excess of 30 days. They typically deal with only one or two contractors in order to maximize their purchasing power, simplify their purchasing, and reduce freight out costs. While this works well during normal business conditions, they are at a disadvantage in the event of any changes in tariffs or export restrictions that may result from international trade disputes, or any supply disruptions due to public health emergencies, social unrest, or supply shortages.
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Our corporate strategy is to continue diversification of our manufacturing capability and product lines, and leverage it with real-time business intelligence provided by our new technology and information systems, allowing our sales team to focus on products manufactured in these facilities. These facilities also allow usand markets that provide improved margins as well as economic and seasonal insensitivity. In this manner we will be able to sell in those domestic markets, thereby avoiding high import tariffs in countries like Argentina, Indiadevelop products and China. The Company discontinued operations in its India glove manufacturing facility in FY12 but maintains a small sales and manufacturing facility in Delhi, India and may continue to experiment with manufacturing costs at this facility. As more fully described in Note 15, on July 31, 2015,services that will differentiate Lakeland well into the Company transferred shares of its Brazilian subsidiary to an officer of that company and no longer maintains operations in that country.
Industry Overviewfuture.
The last two weeks of FY20 and all of FY21 were dominated by response to the COVID-19 outbreak. The virus’ progression into a global pandemic continued to impact our business in FY22. We believe that COVID-19 demand will diminish in FY23, as vaccines continue to be widely available and as COVID-19 transforms from a pandemic threat to endemic. As COVID-19 demand, currently estimated at approximately 15% of revenue, decreases, we anticipate a continuation of an increase in our core businesses (industrial) that began in Q2 FY22 and continued through Q4 FY22. Through the second half of Q2 and through Q4 FY22 our core business sales have been recovering steadily. We anticipate that COVID-19 related sales will continue into the first half of FY23, however not at the levels experienced in FY22 as demand for immediate use diminishes and gives way to stockpiling demand and increased core business sales.
At present, raw materials supply appears to have caught up with demand, albeit at prices above pre-COVID-19 pricing. We anticipate raw material pricing to continue at inflated levels into FY23. Our future sales would be affected should there be an industry-wide shortage of necessary raw materials in the event of another rise or surge in COVID-19 cases. As noted, we did experience significant price increases for fabric during FY21 and managed our available manufacturing capacity to lower costs, and increase prices to meet customer demand at these higher input costs. While leading economic indicators indicate a relatively robust industrial work clothing market includes our limited use/disposable protective or safety clothing, our high-end chemical protective suits, our firefightingrecovery, potential headwinds to revenue as we emerge from pandemic sales include the possibility of a recession and heat protective apparel, gloves and our reusable woven garments.consumer stockpiled inventories.
The industrial protective safety clothing market inCompany is utilizing the United States has evolved overbusiness intelligence capability of its new technology and information systems to reorganize its global sales teams. We organized our sales personnel into four market-based, vertical teams. Our organization limits the past 46 years as a resultnumber of governmental regulations and requirements and commercial product development. In 1970, Congress enacted the Occupational Safety and Health Act, or OSHA, which requires employers to supply protective clothing in certain work environments. Certain states have also enacted worker safety laws that further supplement OSHA standards and requirements.
The advent of OSHA coincided with the development of light disposable fabrics, such as SMS (a three layered nonwoven) and Polypropylene which, for the first time, allowed for the economical production of lightweight, disposable protective clothing. The attraction of disposable garments grew in the late 1970s as a result of increases in labor and material costs of producing cloth garments and the promulgation of federal, state and local safety regulations. Also, in order to comply with World Trade Organization (“WTO”) entry requirements, foreign countries are beginning to adopt and imitate OSHA regulations, American National Standards Institute (“ANSI”) and Committee European de Normalization (“CE”) standards. Thus, these developing international markets are growing much more rapidly than the US markets.
International and Domestic Standards
Standards development, within both the US and global markets, continues to challenge manufacturers as the pace of change and adoption of new standards increase. This dynamic has been further complicated by the collapse of WTO talks to revise General Agreementproducts each salesperson focuses on Tariffs and Trade (“GATT”). This is leading to the establishment of new barriersspecific vertical they work in and allows them to trade within WTO requirements and an increasedevelop expertise in bilateral trade agreements. Complex and changing international standards play to Lakeland’s strengths when compared to most multinationals or smaller manufacturers.
Globally, standards for lower levels of protection are also changing rapidly. In 1996, the European Committee for Standardization (“CEN”) adopted a group of standards that collectively comprised the only standards available for chemical protective clothing for general industry. Because these standards established performance requirements for a wide range of chemical protective clothing, these standards have been adopted by many countries and multinational corporations outside of the European Union (“EU”) as minimum requirements. This is especially true in the Asian and Pacific markets where compliance with occupational health and safety standards is being driven by WTO membership. In addition to CE, ASTM International and the National Fire Protection Association (“NFPA”) are increasing the numbers of “Memorandums of Understanding” (“MOUs”) they have in place with foreign countries as they vie for relevance on the international stage. Developing nations that want WTO membership must establish worker safety laws as the USA did in 1970 with its OSHA laws. This trend is driving demand for our products internationally, particularly in fast Gross Domestic Product (“GDP”) growth countries, such as China, Chile, Australia and India.
A number of developing nations are now becoming active in their own standards development based on existing international standards. However, the primary goal of their standards writing activity is not focused on worker protection (that is provided for by the use of international standards), rather theyLakeland products within their specific market. This allows the Company to better focus marketing and sales efforts to drive growth in specific markets that are attempting to establish their own certification criteria that will protect their domestic markets or favor specific regional suppliers. This presents a new challenge in that now not only are we faced with multiple test methods and standards, butstrategic for the Company. Further we have utilized new Business Intelligence to continue to refine our sales compensation model to increase the percentage of sales compensation that is incentive based, while focusing sales on pricing discipline and margin retention.
Additionally, a major strategic companywide objective to accelerate growth throughout the Company is to push additional products and sales tools that are successful in the key US and China markets to the other international operations, which have traditionally carried smaller lines. To facilitate this, the Company is evaluating and redeploying sales and marketing assets into regions that offer the greatest potential for multiple certification processes. While this adds to product developmentsales and sales expenses, the additional cost is only incremental. The real challenge is in navigating the certification process itself. Lakeland, by virtue of its international manufacturing and sales operations, is in a unique position to capitalize on this complex dynamic.margin growth.
The international standards environment remains volatile. Canada has adopted its own version of ISO 16602 and EN/ISO 13982 for disposable and chemical protective clothing, CEN is currently in the process of revising its suite of standards and a number of countries continue efforts to bring their own national standards into harmony with International Standards Organization (“ISO”) standards. While standards harmonization is laudable, it is failing to make the standards landscape easier to navigate globally. Harmonization of standards and test methods does not necessarily translate into harmonization of certification and therein lays the problem. Europe with its PPE Directive, along with NFPA and ASTM Standards, have clearly defined processes for independent, third-party certification. Unfortunately, ISO Standards have no equivalent to the European PPE Directive and do not contain certification process requirements within the standards themselves as NFPA and ASTM Standards do. Unfortunately, countries seeking to comply with GATT provisions against “Technical Barriers to Trade” that select ISO Standards as their national standards have no guidance as to the certification process itself. Many of the countries are unwilling to accept certifications or test data from laboratories or notifying bodies that do not have operations within the boundaries of their own countries. As a result, more and more countries are developing their own certification protocols requiring use of domestic test houses and labs. The result of this movement is that while standards are being harmonized, the industry is not realizing the benefits of this harmonization in terms of testing and certification, cost reduction, or simplicity in labeling. While the WTO and ISO have been successful in removing national standards as technical barriers to trade, the national certification requirements have replaced standards as an equally formidable barrier to trade. We believe that Lakeland’s global footprint provides us with a sustainable advantage in selling Personal Protective Equipment (“PPE”) within this increasingly complex global market.
Business Strategy
Key elements of our strategy include:
· | Continued Development of Manufacturing Capability: It is critical that we increase our manufacturing capacity to meet our sales growth targets. We currently operate five manufacturing facilities in five countries, affording us a unique capability to take advantage of various trade agreements and to adjust our manufacturing as those agreements change. Lakeland is also committed to manufacturing R&D and invests in new equipment to improve efficiencies, improve quality, and maximize manufacturing flexibility. | |
· | Improve Sales & Marketing in Existing |
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· | Continued Emphasis on Customer Service. We continue to offer a high level of customer service to distinguish our products and to create customer loyalty. The extension of our technology and information systems beyond the United States and Canada to all Lakeland subsidiaries will provide us with the necessary business intelligence to better anticipate customer demand and improve our planning and customer service. We offer well-trained and experienced sales and support personnel, on-time delivery and accommodation of custom and rush orders. We also seek to advertise our Lakeland branded |
· | Introduce New | |
We own We have We continue to pursue |
· | Decrease Manufacturing Expenses by |
We continue to |
terms, as well as providing for continuity of supply. We are sourcing |
inventory levels. We are re-engineering many products to reduce the amount of raw materials used and reduce the direct labor |
Our Competitive StrengthsProducts
Our competitive strengths include:
Products
The following table summarizesis a description of our principalcore product lines, the raw materials used to manufacture them, their applications and end markets:offerings:
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Limited Use/Disposable Protective Clothing
We manufacture a complete line of limited use/disposable protective garments, including coveralls, laboratory coats, shirts, pants, hoods, aprons, sleeves, arm guards, caps and smocks. Limited use garments can also be coated or laminated to increase splash protection against harmful inorganic acids, bases and other hazardous liquid and dry chemicals. Limited use garments are made from several different nonwoven fabrics. We use spunbonded polypropylene (SBPP), spunbonded meltblow spunbond (SMS), hydroentangled woodpulp/polyester, and needlepunched fabrics. These fabrics including our premium lines,can be used alone or in combination with films of varying composition, and/or topical chemical treatments to make our own trademarked fabrics, such aslike Pyrolon® Plus 2, XT, Micromax®CRFR, CBFR MicroMax®, MicromaxMicroMax NS, CleanMax, Safegard®, Zonegard®, and ChemMax® 1, 2, 3, and 2 and TomTex®, which are made of spunlaced polyester, polypropylene, laminates, microporous films and derivatives.4, as well as our patented Interceptor fabric. We incorporate many seaming,sewing, heat sealing and taping techniques depending on the level of protection needed in the end use application.
Typical users of these garments include integrated oil/petrochemical refineries, chemical plants, and related installations, automotive manufacturers, pharmaceutical companies, construction companies, coal, gas and oil power generation utilities and telephone utility companies, laboratories, mortuaries and governmental entities. Numerous smaller industries use these garments for specific safety applications unique to their businesses. Additional applications include protection from viruses and bacteria, such as Ebola, AIDS, streptococcus, SARS, hepatitis, and hepatitis,COVID-19 at international hospitals, clinicsmedical facilities, laboratories, and emergency rescue sitessites. Clean manufactured and usesterilized versions of our MicroMAX NS product, trademarked CleanMax, is used in clean room environmentsaseptic laboratories to prevent human contamination inprotect both the manufacturing processes.wearer and the product from cross contamination.
Our limited use/disposable protective clothing products range in unit price from $0.19 for shoe covers to approximately $6.00-$14.00 for a light duty ChemMax® 1 serged or sealed seam laminated hood and booted coverall. Our largest selling item, a standard white Micromax NS ANSI standard or CE standard coverall, sells for approximately $2.00 to $3.75 per garment. By comparison, similar reusable cloth coveralls range in price from $35.00 to $90.00, exclusive of laundering, maintenance and shrinkage expenses.
We warehouse and sell our limited use/disposable garments primarily at our Alabama and China manufacturing facilities and secondarily from warehouses in Hull, United Kingdom; Toronto, Canada; Buenos Aires, Argentina; Santiago, Chile; Moscow, Russia; Ust-Kamenogorsk, Kazakhstan; and Las Vegas, Nevada. The Pennsylvania plant was closed in FY15 and all production was moved to Mexico, and the sales and administrative functions were moved to Alabama. The fabric is cut and sewn into required patterns at our two Chinese and one Mexican plant and shipped to all our sales points around the world. Our assembly facilities in China and Mexico cut, sew and package the finished garments and return them primarily to our Alabama plant, normally within 1 to 10 weeks, for immediate shipment to our North American customers.
In FY16 and FY15, there was no independent sewing contractor that accounts for more than 10% of our production of the limited use disposable garments or any of our other divisions. We believe that we can obtain adequate alternative production capacity in a normal situation should any of our independent contractors become unavailable.
High-End Chemical Protective Suits
We manufacture and sell heavy duty chemical protective chemical suits and protective apparel from our proprietary CRFR, ChemMax® 3, 4, Interceptor and other fabrics. These suits are worn by individuals on hazardous material teams and within general industry to provide protection from powerful, highly concentrated, and hazardous toxic and/or potentially lethal chemicalchemicals and biological toxins, such astoxins. These suits are useful against toxic wastes at Superfund sites, toxic chemical spills or biological discharges, chemical or biological warfare weapons (such as sarin, anthrax or ricin and mustard gas) and chemicals and petro-chemicals present during the cleaning of refineries and nuclear facilities, and volatile organic compounds (VOCs) in industrial applications, and protection from infectious disease agentsdiseases such as Avian Flu and Ebola. Our line of chemical protective clothing ranges in price from about $22-$1,300 per garment. The chemical suits can be used in conjunction with a fire protective shell
We believe that we manufacture to protect the user from both chemical and flash fire hazards. We have also introduced two patented garments approved by the National Fire Protection Agency (NFPA) for varying levels of protection:
The addition of Interceptor and ChemMax® 4 to our product line provides Lakeland with, we believe,offer the most complete and cost-effective line of chemical protective garments available on the market today. Garments are certified to both NFPA, CE, ISO, as well as other international standards where applicable in the Americas, and versions of allallowing us to offer products composed of these fabrics all over the world.
Our ChemMAX 3, 4 and Interceptor fabrics are supported by PermaSure®, an app based chemical database and permeation modeler that allows our customers to quickly determine the safe use time for supported Lakeland garments, under specific environmental conditions for over 4,000 chemicals. This powerful tool allows Lakeland customers to safely minimize the chemical protective clothing cost by not having to default to the most protective garments available because chemical data is not available, or because there is not time to consult with the manufacturer. PermaSure can be used to model response scenarios so that contingency plans for response can be put in place.
Durable Woven Garments
We manufacture and market a line of durable, launderable woven garments that complement our firefighting and heat protective offerings and provide alternatives to our limited use/disposable protective clothing lines. These products provide us access to the much larger woven industrial and health care-related markets. Woven garments are also CE certifiedfavored by customers for Europeancertain applications because of familiarity with and Pan Asian markets.acceptance of these fabrics. These products allow us to supply and satisfy a wider range of our end users’ safety needs.
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Our product lines include the following:
· | Electrostatic dissipative apparel used in electronics clean rooms; | |
· | Flame resistant (FR) meta aramid, para aramid and FR Cotton coveralls/pants/jackets used in petrochemical, refining operations, and electrical utilities; | |
· | Cotton and Polycotton coveralls, lab coats, pants and shirts; and | |
· | FR fabrics containing blends of cotton, Modacrylic, meta aramid, para aramid, and viscose. |
We manufacture higher end chemical protective clothing with taped seamswoven garments at our facilities in Alabama,China, Mexico and China. Using fabrics, such as ChemMax® 1, ChemMax® 2, ChemMax® 3, ChemMax® 4Argentina. We are continuing to relocate our woven protective coveralls and Interceptor, we design, cut, sewflame-retardant coveralls to our facilities in China, Mexico, Vietnam and seal these materials to meet customer purchase orders.India where lower fabric and labor costs allow increased profit margins.
Firefighting and Heat Protective Apparel
We manufacture an extensive line of UL/NFPA-certified structuredUL certified, NFPA compliant, structural firefighter protective apparel (turnout gear) for domestic and foreign fire departments,departments. Our turnout gear is available both in standard stock formpatterns and custom configurations.
We offer basic firefighter turnout/bunkerturnout gear in the Attack (A10) and Battalion (B1) styles. Introduced in 2013 are the Battalion (“B2”) style with advanced ergonomic features and the Stealth style, with innovative features new to the fire industry.
We also manufacture each of the above styles in our UL/NFPA-certifiedUL certified, NFPA compliant, Proximity line for Aircraft Rescue Fire Fighting (“ARFF”) with aluminized shells.
We manufacture full lines of Fire service extrication suits in FR cotton, UL/NFPA-certified Wild landUL certified, NFPA compliant Wildland firefighting apparel in multiple fabrics and Aluminized Kiln entry/Approach suits to protect industrial workers from extreme heat.heat encountered in foundry’s, boiler rooms, and direct fired ovens.
We manufacture fire suits (turnout gear) at our facilities in China Mexico and Alabama. Our fire suits range in price from about $800 for standard fire department turnout gear to $2,000 for custom gear.Mexico. Our Lakeland Fire® brand of firefighting apparel continues to benefit from ongoing research and development investment, as we seek to address the ergonomic needs of stressful occupations.
Reusable Woven Garments
We manufacture and market a line of reusable and washable woven garments that complement our firefighting and heat protective apparel offerings and provide alternatives to our limited use/disposable protective clothing lines and give us access to the much larger woven industrial and health care-related markets. Cloth reusable garments are favored by customers for certain uses or applications because of familiarity with and acceptance of these fabrics and woven cloth’s heavier weight, durability, longevity and comfort. These products allow us to supply and satisfy a wider range of safety and customer needs.
Our product lines include the following:
Our reusable woven garments range in price from $30 to $200 per garment. We manufacture woven cloth garments at our facilities in China, Mexico and Argentina. We are continuing to relocate highly repetitive sewing processes for our high volume, standard product lines, such as woven protective coveralls and fire retardant coveralls, to our facilities in China and Mexico where lower fabric and labor costs allow increased profit margins.
High Visibility Clothing
Lakeland ReflectiveLakeland’s High-Visibility Division manufactures and markets a comprehensive line of reflective apparel meeting the American National Standards Institute (ANSI) requirements.requirements as well as multiple national standards around the world. The line includes vests, T-shirts, sweatshirts, jackets, coats, raingear, jumpsuits, hats and gloves.
Fabrics available includinginclude solid and mesh fluorescent, polyester, both standardinherently FR and FR treated fabrics, and Modacrylic materials, which meet ASTM 1560 Test methodthe arc flash protective requirements for standard 70 Electric Arc Protection, are part of our offering. We introduceduse by electrical utilities. The mesh modacrylic fabric, with its inherent FR capability, has a breathable Modacrylic fabric and believe this fabric should have strong appeal in states where very hot weather affectsto utility workers working outsidein warmer climates during spring and summer months (heat prostration).
In FY14, we released a new series of
Our High Vis Polyurethane FR/ARC rated rainwear. This ARC rated rainwear is light in weight,light-weight, soft, flexible and providesbreathable, providing for a breathable, cooler garment. This product is intended for the Gas and Electrical Utility markets. The Lakeland ARC TECHARC-X FR/PU garment exceeds all of the required ASTM ARCarc flash and Flashflash fire ratings for the large Electric and Gas Utility market.
Our domestic vest production occurs in Alabamaour facilities in Mexico and is focused on custom vest requirements.China. Much of thethis manufacturing at this facility is focused onfor custom vest requirements.products. Many corporations and agencies, such as State Departments of Transportation and large electric utilities, develop custom specifications which they feel are more efficient in meeting their specific needs versus anthan off-the-shelf product. We can also can import a significant amountquantities of product from China and Mexico to meet the demand for items in high volume commodity markets.
In addition to ANSI Reflective items, Lakeland Hi-Visibility manufactures Nomex and FR cotton garments which have reflective trim attached as a part of their design criteria. These garments typically are used in rescue or extrication operations, such as those encountered withas a result of vehicular crash.accidents. Garments in this group are not as price sensitive as those in theother reflective categories. Consequently, they are made in our Alabama facility where we can react to customized needs and offer quicker customer response. Garments in this group can range in price from $200-$350.
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Gloves and Sleeves
We manufacture and sell specially designed glove and sleeve protective products made from Kevlar®, a cut and heat resistant fiber produced by DuPont, Spectra®, a cut resistant fiber made by Honeywell, and our proprietaryown patented engineered yarns. We are one of only nine companies licensed in North America to sell 100% Kevlar® gloves, which are high strength, lightweight, flexible and durable. Kevlar®These gloves offer a better overall level of protection, and lower worker injury rate, and are more cost effective than traditional leather, canvas or coated work gloves. Kevlar®These gloves which can withstand temperatures of up to 400°F and are cut resistant enough to allow workers to safely handle sharp or jagged unfinished sheet metal, are used primarily in the automotive, glass and metal fabrication industries. Our higher end string knit gloves range in price from about $40 to $170 for a dozen pair. We manufacture these string knit gloves primarily at our Mexican facility, enabling lower production and labor costs.
We have received patents for our Despro®Despro® and Despro®Despro® Plus products on manufacturing processes that provide greater cut and abrasion hand protection to the areas of a glove where it wears out prematurely in various applications.injury is most likely to occur. For example, the areas of the thumb, thumb crotch and index fingers are made of heavier yarn than the balance of the glove, providing increased wear protection and longer glove life, reducing overall glove costs. This proprietary manufacturing process allows us we believe, to produce our gloves more economically and provide a greater value to ourthe end user.
Quality
All of our manufacturing facilities are ISO 9001 or 9002 certified. ISO standards are internationally recognized quality manufacturing standards established by the International Organization for Standardization based in Geneva, Switzerland. To obtain our ISO registration, our factories were independently audited to test our compliance with the applicable standards.standards and norms. In order to maintain registration, our factories receive regular announced inspections by an independent certification organization. While ISO certification is advantageous in retaining CE certification of products, we believe that the ISO 9001 and ISO 9002 certifications help make us more competitive in the marketplace, as customers increasingly recognize the standard as an indication of product quality.conformity with industry best practices in manufacturing.
As we are increasingly sourcingsource more and more of our fabrics internationally and manufacture more products certified to various standards, we have installed a quality control laboratory atlaboratories in our China facility in 2012. This laboratory isand U.S. facilities. These laboratories are critical for ensuring that our incoming raw materials meet our quality requirements, for research and wedevelopment of new products or qualification of new fabrics, and evaluation of new products against international standards. We continue to add new capabilities to this facilitythese facilities to further guarantee product qualitymeet the requirements of new products and to aid in new product development.standards.
We have also added a new test lab in Decatur, Alabama. This lab was completed in FY16 and will be the primary facility to pre-test all NFPA certified garments. This lab includes an industrial washer and dryer, home washer and dryer, shower tester, Martindale abrasion tester, Crestron microscope, flame cabinet, and convection oven. This lab will ensure that garments submitted to Underwriter’s Laboratories (“UL”) for certification are assured to pass certification, thus reducing overall certification costs.
Marketing and Sales
Domestically, we employ a field sales force, organized in orderfour vertical sales groups (industrial sales, fire service, critical environment, and utilities), to better support customers and enhance marketing. We further leverage our in-house sales team with 60 independent sales representatives. These employees and representatives call onto a global network of over 1,000 industrial1,600 safety and fire serviceindustrial supply distributors nationwide to promote and sell our products. Distributorswho buy our products for resale and typically maintain inventory at the local level in order to assure quick response times and the ability to serve their customers properly. Our sales employees and independent representatives have consistent communication with end users and decision makers at the distribution level, thereby allowing us valuable feedback on market perception of our products, as well as information about new developments in our industry.
As a key competitive and marketing advantage, we manufacture nearly all the garments we sell in our own factories for better control of costs, quality and delivery. Our competitors rely largely on contractors, which is a major selling point in our favor, as customers are more comfortable dealing with the actual manufacturer.
We seek to maximize the efficiency of our established distribution network through direct promotion of our products at the end user level. We advertise primarily through trade publications, and our promotional activities include sales brochures, emails and our website. We exhibit at both regional and national trade shows, such as the National Safety Congress, the American Industrial Hygiene Association (AIHA), the American Society of Safety Engineers (ASSE), the CIOSH, the COS+H and the A+A show in Dusseldorf, Germany.
Product line expansion to higher value products is progressing in all global markets and is contributing to increased brand recognition, sales growth and profitability. We believe that future international growth is still sustainable in the coming year, based on our current estimates of market penetration, the introduction of higher value products and the opportunity to open new markets in which we do not yet have a presence.
Internationally, Lakeland has salespeoplesales representatives in 1821 countries outside of the US and product sales inselling products into more than 4050 countries. Internationally, ourOur sustainable market advantages continue to be our knowledge of global standards, the diversity of our product offering and the fact that we manufacture our own products. This providesWe provide our customers with high levelan exceptionally broad product selection, high quality, delivery and excellent customer service. There are no customers who accounted for 10% of sales or more in FY16 and in FY15.
Competition
We compete on the basis of our product quality, pricing, product availability, responsiveness to customers and manufacturing capability. Our business is highly competitive due to a few competitors who have monopolistic positions in the fabrics that are standards in the industry for disposable and high-end chemical suits. We believe that the barriers to entry in the disposable and reusable garments and gloves industries are relatively low as evidenced the by increasing availability of distributor private label product in the marketplace. We face competition in some of our other product markets from large established companies that have greater financial, research and development, sales and technical resources. Where larger competitors, such as DuPont, Kimberly Clark, Ansell and Honeywell, offer products that are directly competitive with our products, particularly as part of an established line of products, there can be no assurance that we can successfully compete for sales and customers. Larger competitors outside of our Disposable and Chemical Suit lines also may be able to benefit from economies of scale and technological innovation and may introduce new products that compete with our products.
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We are continually seeking sources for our raw materials in or near the various countries where we have manufacturing operations. Not only does this reduce freight costs, but it makes for a more robust supply chain that allows us to respond quickly.
Patents and Trademarks
We own 20 patents and have one patent in the application and approval process with the US Patent and Trademark Office. We own 56 trademarks and have six trademarks in the application and approval process. Our active U.S. patents expire between 2022 and 2037. Intellectual property rights that apply to our various products include patents, trade secrets, trademarks and, to a lesser extent, copyrights. We maintain an active program to protect our technology, filing for patent and trademark protection in multiple countries where our product may be “knocked off” or where there exist significant sales of our products. Information regarding risks associated with our proprietary technology and our intellectual property rights may be found in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.”
International and Domestic Standards
Globally, standards development continues to challenge Industrial protective clothing manufacturers. The pace of change and adoption of new standards continues to increase as standards for more hazards are added and deficiencies in existing standards are corrected. Complex and changing international standards play to Lakeland’s strengths when compared to most multinationals or smaller manufacturers. Lakeland currently sits on committees and/or works closely with groups involved in writing many international standards such as the American Society for Testing and Materials International (“ASTM”), the National Fire Protection Association (“NFPA”), International Safety Equipment Association (“ISEA”), the European Committee for Standardization (“CEN”), ISO, the China National Standards Board (“GB”) in China, and the Standards Australia and Standards New Zealand (“ASNZ”).
Globally, not only are the standards continuing to change, but the focus of standards activity is shifting. In response to increasing use of certification processes as a technical barrier to trade, standards writing bodies in the US and Europe have both concluded efforts to update and define conformity assessment (ANSI/ISEA 125 and the PPE Regulation respectively) within their own spheres of influence. Unfortunately, these are not “international standards” and can be easily ignored by other countries who wish to impose their own conformity assessment systems on importers. The result is an increasingly dynamic standards environment where not only are the standards changing, but the minimum requirements for conformity with the certification process itself are changing.
A number of developing nations are now becoming active in their own standards development based on existing international standards. However, we believe that the primary goal of their standards writing activity is not focused on worker protection (that is provided for by the use of international standards), rather they are attempting to establish their own certification criteria that will protect their domestic markets or favor specific regional suppliers. This presents a new challenge in that not only are we faced with multiple test methods and standards, but we have the potential for multiple certification processes. While this adds to product development and sales expenses, the additional cost is only incremental. The real challenge is in navigating the certification process itself. This is a significant impediment to entry for companies seeking to expand sales distribution globally. In many cases products preferred in one market are not acceptable in another and multiple conformity assessments are required for the same standard certification. This is both technically challenging and costly. Lakeland, by virtue of its international manufacturing and sales operations, is in a unique position to capitalize on this complex dynamic.
Government Regulation
We are governed by regulations that affect the manufacture, distribution, marketing and sale of its products. These policies differ among and within every country in which we operate. Changes in regulations, guidelines, procedural precedents and enforcement take place frequently and can impact the size, growth potential and profitability of products sold in each market.
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Suppliers and Materials
Our largest supplier was Precision Fabric Group from whom we purchased 9.5%It is our policy, whenever possible, to qualify multiple vendors for our fabrics and 7.8%bindings. We frequently distribute our purchases among the top two or three suppliers, based on pricing and delivery schedules, in order to keep multiple suppliers qualified and proficient in the manufacture of our total purchases in FY16 and FY15. We do not have long-term, formal trademark use agreements with any other suppliers of nonwoven fabricthe raw materials used by us in the production of our limited use/disposable protective clothing product lines.that we require. Materials, such as polypropylene, polyethylene, polyvinyl chloride, spunlaced polyester, melt blown polypropylene and their derivatives and laminates, are available from 30 or more major mills. FR fabrics are also available from a number of both domestic and international mills. The accessories used in the production of our disposable garments, such as thread, boxes, snaps and elastics, are obtained from unaffiliated suppliers. We currently use 25 suppliers located in the U.S. and internationally to supply our key fabrics. We have not experienced difficulty in obtaining our requirements for these commodity component items.
We have not experienced difficulty in obtaining materials, including cotton, polyester and nylon, used in the production of reusable nonwovens and commodity gloves. We obtain Honeywell Spectra® yarn, used in our super cut-resistant Dextra Guard gloves, and Kevlar®, used in the production of our specialty safety gloves, from independent mills that purchase the fibers from DuPont.
Materials used in our fire and heat protective suits include glass fabric, aluminized glass, Nomex®, aluminized Nomex®, Kevlar®, aluminized Kevlar® and polybenzimidazole, as well as combinations utilizing neoprene coatings. Traditional chemical protective suits are made of Viton®, butyl rubber and polyvinyl chloride, all of which are available from multiple sources. Advanced chemical protective suits are made from our proprietary ChemMax® 1, 2, 3, 4 and Interceptor®. We have not experienced difficulty obtaining any of these materials.
Competition
Our business is highly competitive due to large competitors who have monopolistic positions in the fabrics that are standards in the industry in disposable and high-end chemical suits. We believe that the barriers to entry in the reusable garments and gloves industries are relatively low. We face competition in some of our other product markets from large established companies that have greater financial, research and development, sales and technical resources. Where larger competitors, such as DuPont, Kimberly Clark, Ansell Edmont and Honeywell offer products that are directly competitive with our products, particularly as part of an established line of products, there can be no assurance that we can successfully compete for sales and customers. Larger competitors outside of our Disposable and Chemical Suit Lines also may be able to benefit from economies of scale and technological innovation and may introduce new products that compete with our products.
Seasonality
Our operations have historically been moderately seasonal, with higher sales generally occurring in March, April and May when scheduled maintenance on nuclear, coal, oil and gas fired utilities, chemical, petrochemical and smelting facilities, and other heavy industrial manufacturing plants occurs, primarily due to moderate spring temperatures and low energy demands. Sales decline during the warmer summer vacation months and gradually increase from Labor Day through February with slight declines during holidays, such as Christmas. As a result of this seasonality in our sales, we have historically experienced a corresponding seasonality in our working capital, specifically inventories, with peak inventories occurring between December and May, coinciding with lead times required to accommodate the spring maintenance schedules. We believe that by sustaining higher levels of inventory, we gain a competitive advantage in the marketplace. Certain of our large customers seek sole sourcing to avoid sourcing their requirements from multiple vendors whose prices, delivery times and quality standards differ.
In recent years, due to increased demand by first responders for our chemical suits and fire gear, our historical seasonal pattern has shifted. Governmental disbursements are dependent upon budgetary processes and grant administration processes that do not follow our traditional seasonal sales patterns. Due to the sizehigh cost of freight for our nonwoven fabrics, we also seek to find multiple sources that are local to our manufacturing to emergency demand and timing of these governmental orders,shift manufacturing between our net sales, results of operations, working capital requirements and cash flows can vary between different reporting periods. As a result, we expect to experience increased variability in net sales, net income, working capital requirements and cash flows on a quarterly basis.locations with greater ease.
Patents and TrademarksHuman Capital Management
We own 19 patents and have three patents in the application and approval process with the US Patent and Trademark Office. We own 22 Trademarks and have six Trademarks in the application and approval process. Intellectual property rights that apply to our various products include patents, trade secrets, trademarks and, to a lesser extent, copyrights. We maintain an active program to protect our technology by ensuring respect for our intellectual property rights.
Employees
As of January 31, 2016, we had 1,211 full-time employees, 1,090, or 91%,2022, the Company employed approximately 1,800 people worldwide, of whowhich approximately 100 were employed in our international facilities,the United States and 121, or 9%, of who1,700 were employed inoutside of the United States. Approximately 1,400 or 75% of our domestic facilities. An aggregate of 1,100 of international employees are members of unions in their respective countries. We are not currently a party to anyglobal workforce is covered by collective bargaining agreements or any other contracts with these unions. We believeworks councils. Overall, we consider our employee relations to be excellent.good. Our culture is important to our success.
Health and Safety The health and safety of our employees is of utmost important to us. We conduct regular self-assessments and audits to ensure compliance with our health and safety guidelines and regulatory requirements. Our ultimate goal is to achieve a level of work-related injuries as close to zero as possible through continuous investment in our safety programs. We provide protective gear (e.g. eye protection, masks and gloves) as required by applicable standards and as appropriate given employee job duties. Additionally, during the COVID-19 pandemic, we have invested heavily to help ensure the health of our employees. Through the use of education and awareness, provision of necessary PPE, and changes to our manufacturing sites and screening, we strive to make our workplaces a safe place for employees during the workday.
Hiring Practices We recruit the best people for the job without regard to gender, ethnicity or other protected traits and it is our policy to comply fully with all domestic, foreign and local laws relating to discrimination in the workplace.
Diversity and Inclusion Recognizing and respecting our global presence, we strive to maintain a diverse and inclusive workforce everywhere we operate. Almost 50% of our employees worldwide are female and, in the U.S., non-Caucasian employees account for more than 50% of the employee base. Our diversity and inclusion principles are also reflected in our employee training, in particular with respect to our policies against harassment and bullying and the elimination of bias in the workplace.
In addition, to support mental health and emotional well-being, all associates and their dependents worldwide have access to an Employee Assistance Program (“EAP”), at no cost to them. This includes access to visits with mental health care providers through the EAP.
Lakeland’s compensation philosophy strives to provide total compensation for all employees at the market median, utilizing base salary, cash incentives and, in some cases, equity grants to achieve this goal. We further strive to provide above-market compensation opportunities for associates who exceed goals and expectations. This approach to compensation is designed to help Lakeland attract, retain and motivate high-performing individuals who foster an innovative culture and drive business results.
Additional information about how we value our associates’ well-being, including our Global Human Rights Policy and our Global Workplace Health and Safety Policy, can be found in the Corporate Governance section of our corporate website. Nothing on our website, including our policies, or sections thereof, shall be deemed incorporated by reference into this Annual Report on Form 10-K or incorporated by reference into any of our other filings with the Securities and Exchange Commission.
Environmental Matters
We are subject to various foreign, federal, state and local environmental protection, chemical control, and health and safety laws and regulations, and we incur costs to comply with those laws. We own and lease real property, and certain environmental laws hold current or previous owners or operators of businesses and real property responsible for contamination on or originating from property, even if they did not know of, or were not responsible for the contamination. The presence of hazardous substances on any of our properties or the failure to meet environmental regulatory requirements could affect our ability to use or to sell the property, or to use the property as collateral for borrowing, and could result in substantial remediation or compliance costs. If hazardous substances are released from or located on any of our properties, we could incur substantial costs and damages.
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Although we have not in the past had any material costs or damages associated with environmental claims or compliance, and we do not currently anticipate any such costs or damages, we cannot guarantee that we will not incur material costs or damages in the future as a result of the discovery of new facts or conditions, acquisition of new properties, the release of hazardous substances, a change in interpretation of existing environmental laws or the adoption of new environmental laws.
Executive OfficersSeasonality
Our operations have historically been moderately seasonal, with higher sales generally occurring in March, April and May when scheduled maintenance on nuclear, coal, oil and gas fired utilities, chemical, petrochemical and smelting facilities, and other heavy industrial manufacturing plants occurs, primarily due to moderate spring temperatures and low Energy demands. Sales decline during the warmer summer vacation months and gradually increase from Labor Day through February with slight declines during holidays, such as Christmas. As a result of this seasonality in our sales, we have historically experienced a corresponding seasonality in our working capital, specifically inventories, with peak inventories occurring between December and May, coinciding with lead times required to accommodate the spring maintenance schedules. Certain of our large customers seek sole sourcing to avoid sourcing their requirements from multiple vendors whose prices, delivery times and quality standards differ.
In recent years, due to increased demand by first responders for our chemical suits and fire gear, our growing sales into the southern hemisphere, and our development of non-seasonal products like CleanMAX, our historical seasonal pattern has shifted. While we doubt that we will ever fully eliminate seasonality in our business, we continue our efforts to diminish its impact on revenues, operational results, working capital and cash flow, by focusing on sales into non-seasonal markets like clean rooms, electric utilities and the fire service markets.
Available Information
Our Internet address is www.Lakeland.com. We make the following filings available free of charge on the Investor Relations page on our website as soon as they have been electronically filed with or furnished to the Securities and Exchange Commission (“SEC”): our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the RegistrantSecurities Exchange Act of 1934, as well as our proxy statement. Information contained on our website is not part of this annual report on Form 10-K or our other filings with the SEC. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers like us who file electronically with the SEC.
Information about our Executive Officers
The following is a list of the names and ages of all of our executive officers indicating all positions and offices they hold with us as of April 21, 2016.2022.
Name | Age | Position | ||
Charles D. Roberson | 59 | Chief Executive Officer, President | ||
Allen E. Dillard | 62 | Chief Operating Officer and Chief Financial Officer | ||
Steven L. Harvey | 61 | |||
Executive Vice President |
Christopher J. RyanCharles D. Roberson has served as our Chief Executive Officer, and President since November 2003,and Secretary since April 1991, and a director since May 1986. Mr. Ryan was our Executive Vice President - Finance from May 1986 until becoming our President in November 2003. Mr. Ryan also worked as a Corporate Finance Partner at Furman Selz Mager Dietz & Birney, Senior Vice President-Corporate Finance at Laidlaw Adams & Peck, Inc., Managing-Corporate Finance Director of Brean Murray Foster Securities, Inc. and Senior Vice President-Corporate Finance of Rodman & Renshaw, respectively, between 1983-1991. Mr. Ryan hasFebruary 2020. Previously he served as a Director of Lessing, Inc., a privately held restaurant chain based in New York, from 1995-2008. Mr. Ryan received his BA from Stanford University, his MBA from Columbia Business School and his J.D. from Vanderbilt Law School.
Teri W. Hunthas served as our Chief Financial Officer since November 10, 2015 after serving as the Acting Chief Financial Officer of the Company since July 17, 2015. Ms. Hunt has also served as the Company’s Vice President of Finance since November 2010, before which time she served as Corporate Controller from November 2007 to November 2010. Prior to joining Lakeland Ms. Hunt served in multiple operational and financial management positions including Corporate Controller for a privately held yarn manufacturer, TNS Mills.
Stephen M. Bachelder has served as our Chief Operating Officer since November 2012 and a director since 2004.from July 2018. From February 20112009 to November 2012,July 2018, he served as Chairman ofwas our Board of Directors. From March 2011 until November 2012 he served as our National Sales Manager. Mr. Bachelder was an executive and President of Swiftview, Inc., a Portland, Oregon based software company, from 1999 to 2007. Swiftview, Inc. was sold to a private equity firm in October 2006. From 1991 to 1999 Mr. Bachelder ran a consulting firm advising technology companies in the Pacific Northwest. Mr. Bachelder was the president and owner of an apparel company, Bachelder Imports, from 1982 to 1991 and worked in executive positions for Giant Foods, Inc. and Pepsico, Inc. between 1976 and 1982. Mr. Bachelder is a 1976 Graduate of the Harvard Business School.
Charles D. Roberson has served as ourSenior Vice President, International Sales since March 2009.Sales. Mr. Roberson joined our Company in 2004 as Technical Marketing ManagerManager; was instrumental in development of our ChemMAX and Interceptor fabrics and represented Lakeland to various standards writing bodies, and later served as International Sales Manager. Prior to joining ourthe Company, Mr. Roberson was employed by Precision Fabrics Group, Inc. as a Market Manager from 1995-2001 and as a Nonwovens Manufacturing Manager from 1991-1995. He began his career as a manufacturing manager for Burlington Industries, Inc. in its Menswear Division from 1985-1991.
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Allen E. Dillard has served as our Chief Operating Officer since January 1, 2022 and Chief Financial Officer since August 2019. Mr. Dillard was Chief Financial Officer of Digium, Inc., a provider of telecommunications solutions from September 2015 to August 2019. Mr. Dillard served as Chief Executive Officer of Mobular Technologies, Inc., a technology solutions provider from September 2003 to September 2015. Mr. Dillard has also served as CFO/Treasurer for Nichols Research Corporation and Wolverine Tube, Inc. and was a senior manager at Ernst & Young.
Steven L. Harvey has been our Executive Vice President for Global Sales and Marketing since January 2021. From 2007 to 2018, Mr. Harvey was Vice-President of Global Sales and Service of Digium, Inc., a provider of telecommunications solutions. From 2003 to 2007, Mr. Harvey was employed by Adtran, Inc., a provider of networking and communications equipment as the Vice President of Sales, Enterprise and Competitive Service Providers, as the Vice President of Sales, Competitive Service Providers from 1998 to 2002 and as the Vice President of Sales, Enterprise from 1996 to 1998. Mr. Harvey was also an Executive Vice President of, and held various sales positions for, Data Processing Sciences, and began his career at The Procter & Gamble Company.
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Item 1A. Risk Factors
RISK FACTORS
You should carefully consider the following risks before investing in our common stock. These are not the only risks that we may face. If any of the events referred to below actually occur, our business, financial condition, liquidity and results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You should also refer to the other information in this Form 10-K and in the documents we incorporate by reference into this Form 10-K, including our consolidated financial statements and the related notes.
While as a smaller reporting company disclosure of risk factors is not required, the Company is voluntarily including such disclosures.
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Risks Related to Our Business and Industry and Other Matters
Covenants in our credit facilities may restrict our financial and operating flexibility.
As a result of the refinancing on June 28, 2013 and as amended on March 31, 2015 and June 3, 2015, we currently have a $15 million revolving credit facility, expiring June 2017. Our new credit facility requires, and any future credit facilities may also require, among others that we comply with specified financial covenants relating to fixed charge coverage, minimum consolidated earnings before interest, taxes, depreciation and amortization, and maximum capital expenditures. Our ability to satisfy these financial covenants can be affected by events beyond our control, and we cannot guarantee that we will meet the requirements of these covenants. These restrictive covenants could affect our financial and operational flexibility or impede our ability to operate or expand our business, including a limitation on annual investments and advances we can make to foreign subsidiaries. Default under our credit facilities would allow the lenders to declare all amounts outstanding to be immediately due and payable. Our lenders have a security interest in substantially all of our assets to secure the debt under our current credit facilities, and it is likely that our future lenders will have security interests in our assets. If our lenders declare amounts outstanding under any credit facility to be due, the lenders could proceed against our assets. Any event of default, therefore, could have a material adverse effect on our business.
We may be exposed to continuing and other liabilities arising from our discontinued Brazilian operations.
On July 31, 2015, we completed the sale of our Brazilian subsidiary (“Lakeland Brazil”) to a current officer of that company pursuant to the Shares Transfer Agreement. As part of the sale, in order to enable Lakeland Brazil to have sufficient funds to continue to operate for a period of at least two years following the closing date, we paid an aggregate of US $717,000, in cash, to Lakeland Brazil in the form of a capital raise, and agreed to fund an additional R$1,574,000(approximated $508,000), in cash, in form of a capital raise, all of which has been paid.
In addition, we may continue to be exposed to certain liabilities arising in connection with the prior operations of Lakeland Brazil, including, without limitation, from lawsuits pending in the labor courts in Brazil in which plaintiffs were seeking, as at July 31, 2015, a total of nearly US $8,000,000 in damages from our then Brazilian subsidiary. We believe many of these labor court claims are without merit and the amount of damages being sought is significantly higher than any damages which may have been incurred. Pursuant to the shares purchase agreement, we are required to fully fund amounts owed by Lakeland Brazil in connection with the then existing labor claims by Lana dos Santos and to pay amounts potentially owed for future labor claims up to an aggregate amount of $375,000 plus 60% of the excess of such amount until the earlier of (i) the date all labor claims against Lakeland Brazil deriving from events prior to the sale are settled, (ii) by our mutual agreement with Lakeland Brazil or (iii) on the two (2) year anniversary of closing of the sale. As of January 31, 2016, the Lana dos Santos claim was settled for $272,000 and $79,000 was paid in respect of other labor claims. With respect to continuing claims, $278,000 is being sought, of which management estimates the aggregate liability will be less than that amount.
We may also be exposed to VAT tax liabilities. On December 11, 2015, we entered into a Loan Agreement for VAT Payment with Lakeland Brazil pursuant to which we agree to provide Lakeland Brazil an amount of up to R$ 8,584,012 (approximately US $2.29 million) to settle Lakeland Brazil’s two largest outstanding VAT claims with the State of Bahia. The State of Bahia declared an amnesty beginning November 1, 2015 and expiring December 18, 2015 and we believe that settlement of the VAT claims under amnesty would benefit us in that it would eliminate these large VAT claims, which could render the continued viability of Lakeland Brazil immaterial to us. Such settlement may also eliminate the possibility of our sale of Lakeland Brazil being found fraudulent on the basis of evading VAT claims as well as eliminate the possibility of future encumbrance of our real estate by the State of Bahia subsequent to VAT claims. Lakeland Brazil completed the amnesty agreement with the State of Bahia on December 18, 2015.
We claimed a worthless stock deduction in connection with our exit from Brazil which has generated a tax benefit of approximately US $9.5 million. While along with our tax advisors we believe that this deduction is valid, there can be no assurance that the IRS will not challenge it and, if challenged, there is no assurance that the Company will prevail.
If we fail to maintain proper and effective internal controls or are unable to remediate a material weakness in our internal controls, our ability to produce accurate and timely financial statements could be impaired, and investors’ views of us could be harmed.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis involves substantial effort that needs to be reevaluated frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. We have documented and tested our internal controls and procedures for compliance with Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, which requires annual management assessment of the effectiveness of our internal control over financial reporting.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of January 31, 2016. In making this assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 (COSO). Based upon an evaluation performed, our management concluded that our disclosure controls and procedures were effective as of January 31, 2016 based on the remediation of the material weakness discussed in Item 9AControls and Procedures.
Since the Company qualifies as a smaller reporting company, an attestation report of management’s assessment of internal control by our independent auditors is not required.
We may need additional funds, and if we are unable to obtain these funds, we may not be able to expand or operate our business as planned.
Our operations require significant amounts of cash, and we may be required to seek additional capital, whether from sales of equity or by borrowing money, to fund acquisitions for the future growth and development of our business or to fund our operations and inventory, particularly in the event of a market downturn.
A number of factors could affect our ability to access future debt or equity financing, including:
Even if available, additional financing may be more costly than our current facility and may have adverse consequences. If additional funds are raised through the incurrence of debt, we will incur increased debt servicing costs and may become subject to additional restrictive financial and other covenants. We can give no assurance as to the terms or availability of additional capital. Although management believes it currently has sufficient capital following our equity financing in October 2014, if we do need additional capital in the future and are unsuccessful, it could reduce our net sales and materially adversely impact our earning capability and financial position.
Because we have incurred losses for the fiscal years ended January 31, 2013 and 2014 and for the fourth quarter ended January 31, 2016, there can be no assurance we will not incur losses in the future.
We have incurred losses in prior years, including net losses of $26.3 million for FY13 and $0.1 million for FY14. Such losses in FY13 and FY14 resulted mainly from losses sustained by us in Brazil, including for FY13 (a) the write-down in Brazil of goodwill and other intangibles, (b) a $7.9 million charge from our arbitration settlement in Brazil, and (c) the termination of our supply agreement with DuPont de Nemours. As a result of the losses we suffered from our Brazilian operations, in July 2015, we transferred all of our ownership of those operations to an officer of that company. Although we were profitable in FY15 and the first three quarters of FY16, we suffered a loss of $1.5 million in the fourth quarter of FY16 due to soft sales demand in the Energy sector, strengthening of the USD globally and overall slow economic conditions. As a result there can be no assurances that profitability will continue in the future.
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We are subject to risk as a result of our international manufacturing operations.
Because most of our products are manufactured at our facilities located in China, Vietnam, Mexico, Argentina and Mexico,India, our operations are subject to risk inherent in doing business internationally. Such risks include the adverse effects on operations from corruption, war, international terrorism, civil disturbances, political instability, governmentalgovernment activities such as border taxes and renegotiation of treaties, deprivation of contract and property rights and currency valuation changes.
Since 1978,There is inherent risk, based on the Chinese governmentcomplex relationships between China and the U.S., that political, diplomatic, military, or other events could result in business disruptions, including increased regulatory enforcement against companies, tariffs, trade embargoes, and export restrictions. Tariffs increase the cost of our products and the components and raw materials that go into making them. These increased costs adversely impact the gross margin that we earn on our products. Tariffs can also make our products more expensive for customers, which could make our products less competitive and reduce consumer demand. Countries may also adopt other measures, such as controls on imports or exports of goods, technology, or data, that could adversely impact the Company’s operations and supply chain and limit the Company’s ability to offer our products and services as designed. These measures can require us to take various actions, including changing suppliers and restructuring business relationships. Changing our operations in accordance with new or changed trade restrictions can be expensive, time-consuming, disruptive to our operations and distracting to management. Such restrictions can be announced with little or no advance notice, and we may not be able to effectively mitigate all adverse impacts from such measures. Political uncertainty surrounding trade and other international disputes could also have a negative effect on consumer confidence and spending. Any of these events could reduce customer demand, increase the cost of our products and services, or otherwise have a materially adverse impact on our customers’ and suppliers’ businesses and results of operations.
A terrorism attack, other geopolitical crisis, or widespread outbreak of an illness or other health issue, such as the COVID-19 Coronavirus outbreak, could negatively impact our domestic and/or international operations.
Our global operations are susceptible to global events, including acts or threats of war or terrorism, international conflicts, political instability, and natural disasters. The occurrence of any of these events could have an adverse effect on our business results and financial condition.
We are also susceptible to a widespread outbreak of an illness or other health issue, such as the COVID-19 coronavirus outbreak first reported in Wuhan, Hubei Province, China in December 2019, resulting in millions of confirmed cases identified around the world and in countries in which we conduct business. The outbreak has caused governments to implement quarantines, implement significant restrictions on travel, closed schools and work places, and implement work restrictions, all of which impaired normal business operations of numerous businesses. Globally air travel has been reforming itssignificantly interrupted as has air freight, ocean freight, and even truck deliveries.
The impact the invasion of Ukraine, including economic sanctions or additional war or military conflict, as well as potential responses to them by Russia, is currently unknown and political systems,they could adversely affect the Company’s business, supply chain, suppliers or customers. In addition, the continuation of the invasion of Ukraine by Russia could lead to other disruptions, instability and we expectvolatility in global markets and industries that could negatively impact the Company’s operations. It is not possible to predict the broader consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, the availability of raw materials, supplies, freight and labor, currency exchange rates and financial markets, all of which could impact the Company’s business, financial condition and results of operations.
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Pandemics or disease outbreaks, such as COVID-19, may cause unfavorable economic or market conditions which could impact demand patterns and/or disrupt global supply chains and manufacturing operations.
Collectively, these outcomes could materially and adversely affect our business, results of operations and financial condition. Pandemics or disease outbreaks such as COVID-19 could result in a widespread health crisis that could adversely affect the economies of developed and emerging markets, potentially resulting in an economic downturn that could affect customers’ demand for our products in certain industrial-based end-markets. The spread of pandemics or disease outbreaks may also disrupt the Company’s manufacturing operations, supply chain, or logistics necessary to continue. Although we believe that these reforms have hadimport, export and deliver products to our customers. During a positive effect on the economic development of Chinapandemic or crisis, applicable laws and have improvedresponse directives could, in some circumstances, adversely affect our ability to successfully operate our facilitiesplants, or to deliver our products in China, we cannot assure you that these reforms will continue or that the Chinese government will not take actions that impair our operations or assets in China. In addition, periods of international unresta timely manner. Some laws and directives may impedealso hinder our ability to manufacture goodsmove certain products across borders. Economic conditions can also influence order patterns. These factors could negatively impact our consolidated results of operations and cash flow. To date, while we have experienced some loss of employee time and reduced core business sales, we have not suffered significant negative effects due to COVID-19, and our manufacturing facilities have been able to operate without shutdown.
We have significant international operations and are subject to the risks of doing business in foreign countries. We have business operations in approximately 60 foreign countries. In FY22, more than half of our net sales were made by operations located outside the United States. Those operations are subject to various political, economic and other countries, such as Mexico presently,risks and uncertainties, which could have a material adverse effect on our business and resultsbusiness. These risks include the following:
· | unexpected changes in regulatory requirements; | |
· | changes in trade policy or tariff regulations; | |
· | changes in tax laws and regulations; | |
· | additional valuation allowances on deferred tax assets due to an inability to generate sufficient profit in certain foreign jurisdictions; | |
· | intellectual property protection difficulties or intellectual property theft; | |
· | difficulty in collecting accounts receivable; | |
· | complications in complying with a variety of foreign laws and regulations, some of which may conflict with U.S. laws; | |
· | foreign privacy laws and regulations; | |
· | trade protection measures and price controls; | |
· | trade sanctions and embargoes; | |
· | nationalization and expropriation; | |
· | increased international instability or potential instability of foreign governments; | |
· | effectiveness of worldwide compliance with Lakeland’s anti-bribery policy, the U.S. Foreign Corrupt Practices Act, and similar local laws; | |
· | difficulty in hiring and retaining qualified employees; | |
· | the ability to effectively negotiate with labor unions in foreign countries; | |
· | the need to take extra security precautions for our international operations; | |
· | costs and difficulties in managing culturally and geographically diverse international operations; and | |
· | pandemics and similar disasters. |
Any one or more of operations.
Our results of operationsthese risks could be negatively affected by potential fluctuations in foreign currency exchange rates.
Mosthave a negative impact on the success of our assembly arrangements with our foreign-based subsidiaries or third-party suppliers require payment to be made in US dollars or Euros. Any decrease in the value of the US dollar or the Euro in relation to foreign currencies could increase the cost of the services provided to us upon contract expirations or supply renegotiations. There can be no assurance that we will be able to increase product prices to offset any such cost increases,international operations and, any failure to do so couldthereby, have a material adverse effect on our business, financial condition andconsolidated results of operations.operations and financial condition.
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We are exposed to changes in foreign currency exchange rates as a result of our purchases and sales in other countries. To manage the volatility relating to foreign currency exchange rates, we seek to limit, to the extent possible, our non-US dollar denominated purchases and sales.
In connection with our operations in China, we purchase a significant amount of products from outside of the United States. However, our purchases in China are primarily made in the Chinese RenminBi. (“RMB”), the value of which had been largely pegged to the US dollar for the last decade. However, the Chinese RMB has been decoupled from the US dollar and allowed to float by the Chinese government and, therefore, we have been exposed to additional foreign exchange rate risk on our Chinese raw material and component purchases.
Our primary risk from foreign currency exchange rate changes is presently related to non-US dollar denominated sales in Canada and Europe and, to a smaller extent, in other South American countries. Our sales to customers in Canada are denominated in Canadian dollars, in Europe in Euros and British pounds and in China in RMB. If the value of the US dollar increases relative to the Canadian dollar, the Pound or the Euro, then our net sales could decrease as our products would be more expensive to these international customers because of changes in rate of exchange. Our sales from China are denominated in the Chinese RMB, US dollar and Euros. We manage the foreign currency risk through the use of rolling 90-day forward contracts against the Canadian dollar and Euros and through longer term cash flow hedges in China against the Euro. We do not hedge other currencies at this time. In the event that non-US dollar denominated international purchases and sales grow, exposure to volatility in exchange rates could have a material adverse impact on our financial results.
Our results of operations may vary widely from quarter to quarter.
Our quarterly results of operations have varied and are expected to continue to vary in the future. These fluctuations may be caused by many factors, including:
· | Currency volatility; |
· | Global |
· | Our expansion of international operations; |
· | Competitive pricing pressures; |
· | Seasonal buying patterns resulting from the cyclical nature of the business of some of our customers; |
· | Changes in the mix of products and services sold; |
· | The timing of introductions and enhancements of products by us or our competitors; |
· | Market acceptance of new products; |
· | Technological changes in fabrics or production equipment used to make our products; |
· | Availability of raw materials due to unanticipated demand or lack of precursors (oil and gas); | |
· | Changes in the mix of domestic and international sales; and |
· | Personnel |
These variations could negatively impact our stock price.
Rapid technologicalDisruption in our supply chain or our manufacturing or distribution operations could adversely affect our business.
Our ability to manufacture, distribute and sell products is critical to our operations. These activities are subject to inherent risks such as natural disasters, power outages, fires or explosions, labor strikes, terrorism, epidemics, pandemics (including the ongoing COVID-19 pandemic), import restrictions, regional economic, business, environmental or political events, governmental regulatory requirements or nongovernmental voluntary actions in response to global climate change could negatively affect salesor other concerns regarding the sustainability of our productsbusiness, which could disrupt our supply chain and impair our performance.
The rapid development of fabric technology continually affects our apparel applications and may directly impact the performance ofability to manufacture or sell our products. We cannot assure you that we will successfully maintainThis interruption, if not mitigated in advance or improve the effectiveness ofotherwise effectively managed, could adversely impact our existing products, nor can we assure you that we will successfully identify new opportunities or continue to have the needed financial resources to develop new fabric or apparel manufacturing techniques in a timely or cost-effective manner. In addition, products manufactured by others may render our products obsolete or noncompetitive. If any of these events occur, our business, prospects, financial condition and operating results will be materially and adversely affected.of operations, as well as require additional resources to address.
Because we do not have long-term commitments from many of our customers, we must estimate customer demand, and errors in our estimates could negatively impact our inventory levels and net sales.
Our sales are generally made on the basis of individual purchase orders, which may later be modified or canceled by the customer, rather than on long-term commitments. We have historically been required to place firm orders for fabrics and components with our suppliers prior to receiving an order for our products, based on our forecasts of customer demands. Our sales process requires us to make multiple demand forecast assumptions, each of which may introduce error into our estimates, causing excess inventory to accrue or a lack of manufacturing capacity when needed. If we overestimate customer demand, we may allocate resources to manufacturing products that we may not be able to sell when we expect to or not at all. As a result, we would have excess inventory, which would negatively impact our financial results. Conversely, if we underestimate customer demand or if insufficient manufacturing capacity is available, we would lose sales opportunities, lose market share and damage our customer relationships. On occasion, we have been unable to adequately respond to delivery dates required by our customers because of the lead time needed for us to obtain required materials or to send fabrics to our assembly facilities in China, Vietnam, India, and Mexico.
We must recruitface competition from other companies, a number of which have substantially greater resources than we do.
Four of our competitors, DuPont, Honeywell, Ansell and retain skilled employees, includingKimberly Clark, have substantially greater financial, marketing and sales resources than we do. In addition, we believe that the barriers to entry in the disposable and reusable garments and gloves markets are relatively low. We cannot assure you that our senior management,present competitors or competitors that choose to succeedenter the marketplace in our business.the future will not exert significant competitive pressures.
Our operations are substantially dependent upon key personnel.
Our performance is substantially dependent on the continued services and performance of our senior management and certain other key personnel, including Christopher J. Ryan,Charles D. Roberson, our Chief Executive Officer, President and Secretary, Teri Hunt,Allen E. Dillard, our Chief Operating Officer and Chief Financial Officer, and Stephen Bachelder,Steven L. Harvey, our Chief Operating Officer.Executive Vice President for Global Sales and Marketing. The loss of services of any of our executive officers or other key employees could have a material adverse effect on our business, financial condition and results of operations. In addition, any future expansion of our business will depend on our ability to identify, attract, hire, train, retain and motivate other highly skilled managerial, marketing, customer service and manufacturing personnel, and our inability to do so could have a material adverse effect on our business, financial condition and results of operations.
Technological change could negatively affect sales of our products and our performance.
The rapid development of fabric technology continually affects our apparel applications and may directly impact the performance of our products. We cannot assure you that we will successfully maintain or improve the effectiveness of our existing products, nor can we assure you that we will successfully identify new opportunities or continue to have the needed financial resources to develop new fabric or apparel manufacturing techniques in a timely or cost-effective manner. In addition, products manufactured by others may render our products obsolete or noncompetitive.
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Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information and adversely impact our reputation and results of operations.
We rely on information technology systems to process, transmit and store electronic information, and to manage or support a limited numbervariety of suppliersbusiness processes and manufacturersactivities. These systems may be materially impacted and/or disrupted by information security incidents such as ransomware, malware, viruses, phishing, social engineering, human error or malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes or other unforeseen events. Security breaches of our systems or security breaches of third parties’ systems on which we rely to process, store, or transmit electronic information, could result in the misappropriation, destruction or unauthorized disclosure of confidential information or personal data.
We employ comprehensive measures to prevent, detect, address and mitigate cybersecurity threats (including access controls, data encryption, vulnerability assessments, management training, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems). However, our security measures may be inadequate to prevent security breaches and our business operations and reputation could be materially adversely affected by these events and any resulting federal and state fines and penalties, legal claims or proceedings. There are also significant costs associated with a data breach, including investigation costs, remediation and mitigation costs, notification costs, attorneys’ fees, and the potential for specific fabrics,reputational harm and we may not be able to obtain substitute suppliers and manufacturers on terms that are as favorable, or at all, if our supplies are interrupted.
Our business is dependentlost revenues due to a significant degree upon close relationshipsloss in confidence. We cannot predict the costs to comply with vendors and our ability to purchase raw materials at competitive prices. The loss of key vendor supportthese laws or the costs associated with a potential data breach, which could have a material adverse effect on our business, results of operations, financial position and cash flows, and our business reputation. As cyber threats continue to evolve, we may be required to expend significant capital and other resources to protect against the threat of security breaches or to mitigate and alleviate problems caused by security incidents. While no cybersecurity attack to date has had a material impact on our financial condition, results of operations or liquidity, the threat remains.
Data privacy and cash flows. We do notsecurity laws relating to the handling of personal information are evolving across the world and may be drafted, interpreted or applied in a manner that results in increased costs, legal claims, fines against us, or reputational damage.
As a global organization, we are subject to data privacy and security laws and regulations in numerous jurisdictions as a result of having access to and processing personal and/or sensitive data in the course of our business.
For example, in the United States, individual states regulate data breach notification requirements as well as more general privacy and security requirements. Certain of these laws grant individuals various rights with respect to personal information, and we may be required to expend significant resources to comply with these laws. Further, all 50 states and the District of Columbia have multiyear supply contractsadopted data breach notification laws that impose, in varying degrees, an obligation to notify affected persons and/or state regulators in the event of a data breach or compromise, including when their personal information has or may have been accessed by an unauthorized person. Some state breach notification laws may also impose physical and electronic security requirements regarding the safeguarding of personal information. Violation of state privacy, security, and breach notification laws can trigger significant monetary penalties. In addition, certain states’ privacy, security, and data breach laws, including, for example, the California Consumer Privacy Act (“CCPA”)(amended, effective January 1, 2023 as the California Privacy Rights Act), include private rights of action that may expose us to private litigation regarding our privacy and security practices and significant damages awards or settlements in civil litigation.
Compliance with the varying data privacy regulations across the United States and around the world may require expenditures and changes in our business models. In addition, government enforcement actions can be costly and interrupt the regular operation of our business, and data breaches or violations of data privacy laws can result in fines, reputational damage and civil lawsuits, any of which may adversely affect our finished goodsbusiness, reputation and financial statements.
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Our success depends in part on our proprietary technology, and if we fail to successfully obtain or fabric suppliers. There canenforce our intellectual property rights, our competitive position may be no assurance that we will be able to acquire raw materials and components at competitive prices or on competitive terms in the future.harmed.
Other than our purchases of Kevlar® and Nomex® fabrics, both of which we bought either directly and indirectly from DuPont since 1986, we generally use standard fabrics and components in our products.
We rely on nonaffiliated suppliersour portfolio of issued and manufacturers forpending patent applications in the supply of these fabricsU.S. and components that are incorporated in our products. If such suppliers or manufacturers experience financial, operational, manufacturing capacity or quality assurance difficulties, or if there isother countries to protect a disruption in our relationships, we will be required to locate alternative sources of supply. We cannot assure you that we will be able to locate such alternative sources. In addition, we do not have any long-term contracts with anylarge part of our suppliers for any ofintellectual property and our competitive position; however, these components. Our inabilitypatents may be insufficient to obtain sufficient quantities of these components, if and as required in the future,protect our intellectual property rights because our patents may result in:
We deal in countries where corruption is an obstacle.
We must comply with American laws such as the Foreign Corrupt Practices Act (FCPA) and Sarbanes-Oxley and also with recently passed anticorruption legislation in the U.K. Some of our competitors and customers in foreign jurisdictions may not adherebe sufficiently broad to such legislation. As a result, we believe that we lose sales orders dueprevent third parties from producing competing products similar in design to our strict adherence to such regulations.products and foreign patents protections may be more limited than those provided under U.S. patents and intellectual property laws.
We face competition from other companies,may not be afforded the protection of a numberpatent if our currently pending or future patent filings do not result in the issuance of which have substantially greater resourcespatents or we fail to apply for patent protection. We may fail to apply for a patent if our personnel fail to disclose or recognize new patentable ideas or innovations. Remote working can decrease the opportunities for our personnel to collaborate, thereby reducing the opportunities for effective invention disclosures and patent application filings. We may choose not to file a foreign patent application if the limited protections provided by a foreign patent outweigh the costs to obtain it. Our foreign patent portfolio is less extensive than we do.our U.S. portfolio.
Three
Our inability to maintain the proprietary nature of our competitors, DuPont, Honeywelltechnology through patents, copyrights or trade secrets would impair our competitive advantages and Kimberly Clark, have substantially greater financial, marketing and sales resources than we do. In addition, we believe that the barriers to entry in the disposable and reusable garments and gloves markets are relatively low. We cannot assure you that our present competitors or competitors that choose to enter the marketplace in the future will not exert significant competitive pressures. Such competition could have a material adverse effect on our net salesoperating results, financial condition and results of operations.
Somefuture growth prospects. In particular, a failure to protect our intellectual property rights might allow competitors to copy our technology or create counterfeit or pirated versions of our sales are to foreign buyers,products, which exposes us to additional risks.
We derived approximately 43.3% of our net sales from customers located in foreign countries in FY16. We intend to seek to increase the amount of foreign sales we make in the future. The additional risks of foreign sales include:
Some or all of these risks may negatively impact our results of operations and financial condition.
A significant reduction in government funding for preparations for terrorist incidents could adversely affect our net sales.reputation, pricing and market share.
As a general matter, a significant portion of our sales growth to our distributors is dependent upon resale by those distributors to customers that are funded in large part by federal, state
Acquisitions and local government funding. Specifically, depending on the year, approximately 20% of our high-end chemical suit sales are dependent on government funding. Congress passed the 2001 Assistance to Firefighters Grant Program and the Bioterrorism Preparedness and Response Act of 2002. Both of these Acts provide for funding to fire and police departments and medical and emergency personnel to respond to terrorist incidents. Appropriations for these Acts by the federal governmentinvestments could be reduced or eliminated altogether. Any such reduction or elimination of federal funding, or any reductions in state or local funding, could cause sales of our products purchased by fire and police departments and medical and emergency personnel to decline.unsuccessful.
We may be subject to product liability claims, and insurance coverage could be inadequate or unavailable to cover these claims.
We manufacture products used for protection from hazardous or potentially lethal substances, such as chemical and biological toxins, fire, viruses and bacteria. The products that we manufacture are typically used in applications and situations that involve high levels of risk of personal injury. Failure to use our products for their intended purposes, failure to use our products properly or the malfunction of our products could result in serious bodily injury to or death of the user. In such cases, we may be subject to product liability claims arising from the design, manufacture or sale of our products. If these claims are decided against us, and we are found to be liable, we may be required to pay substantial damages, and our insurance costs may increase significantly as a result. We cannot assure you that our insurance coverage would be sufficient to cover the payment of any potential claim. In addition, we cannot assure you that this or any other insurance coverage will continue to be available or, if available, that we will be able to obtain it at a reasonable cost. Any material uninsured loss could have a material adverse effect on our financial condition, results of operations and cash flows.
Environmental laws and regulations may subject us to significant liabilities.
Our US operations, including our manufacturing facilities, are subject to federal, state and local environmental laws and regulations relating to the discharge, storage, treatment, handling, disposal and remediation of certain materials, substances and wastes. Any violation of any of those laws and regulations could cause us to incur substantial liability to the Environmental Protection Agency, the state environmental agencies in any affected state or to any individuals affected by any such violation. Any such liability could have a material adverse effect on our financial condition and results of operations.
Our directors and executive officers have the ability to exert significant influence on our Company and on matters subject to a vote of our stockholders.
As of January 31, 2016, our directors and executive officers beneficially owned or could vote approximately 8.06% of the outstanding shares of our common stock. As a result of their ownership of common stock and their positions in our Company, our directors and executive officers are able to exert significant influence on our Company and on matters submitted to a vote by our stockholders. In particular, as of January 31, 2016, Christopher J. Ryan, our chief executive officer, president and secretary and a director, beneficially owned or votes approximately 5.9% of our common stock. The ownership interests of our directors and executive officers, including Mr. Ryan, could have the effect of delaying or preventing a change of control of our Company that may be favored by our stockholders generally.
Provisions in our restated certificate of incorporation and by-laws and Delaware law could make a merger, tender offer or proxy contest difficult.
Our restated certificate of incorporation contains classified board provisions, authorized preferred stock that could be utilized to implement various “poison pill” defenses and a stockholder authorized, but as yet unused, Employee Stock Ownership Plan (“ESOP”), all of which may have the effect of discouraging a takeover of Lakeland, which is not approved by our board of directors. Further, we are subject to the antitakeover provisions of Section 203 of the Delaware General Corporation Law, which prohibit us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in the prescribed manner.
Acquisitions could be unsuccessful.
In the future, subject to capital constraints, we may seek to acquire selected safety products lines or safety-related businesses or other businesses, which will complement our existing products. Our ability to acquire these businesses is dependent upon many factors, including our management’s relationship with the owners of these businesses, many of which are small and closely held by individual stockholders. In addition, we will be competing for acquisition and expansion opportunities with other companies, many of which have greater name recognition, marketing support and financial resources than us, which may result in fewer acquisition opportunities for us, as well as higher acquisition prices. There can be no assurance that we will be able to identify, pursue or acquire any targeted business and, if acquired, there can be no assurance that we will be able to profitably manage additional businesses or successfully integrate acquired business into our Company without substantial costs, delays and other operational or financial problems.
If we proceed with additional acquisitions for cash, we may use a substantial portion of our available line of credit (if available) in order to consummate any such acquisition. We may also seek to finance any such acquisition through debt or equity financings, and there can be no assurance that such financings will be available on acceptable terms or at all. If consideration for an acquisition consists of equity securities, our stockholders could be diluted. If we borrow funds in order to finance an acquisition, we may not be able to obtain such funds on terms that are favorable to us. In addition, such indebtedness may limit our ability to operate our business as we currently intend because of restrictions placed on us under the terms of the indebtedness and because we may be required to dedicate a substantial portion of our cash flow to payments on the debt instead of to our operations, which may place us at a competitive disadvantage.
Acquisitions involve a number of special risks in addition to those mentioned above, including the diversion of management’s attention to the assimilation of the operations and personnel of the acquired companies, the potential loss of key employees of acquired companies, potential exposure to unknown liabilities, adverse effects on our reported operating results and the amortization or write-down of acquired intangible assets. We cannot assure you that any acquisition by us will or will not occur, that if an acquisition does occur that it will not materially and adversely affect our results of operations or that any such acquisition will be successful in enhancing our business. To the extent that we are unable to manage growth efficiently and effectively or are unable to attract and retain additional qualified management personnel, our business, financial condition and results of operations could be materially and adversely affected.
Cybersecurity incidents could disruptOn October 18, 2021, the Company made a strategic investment of $2.8 million in Inova Design Solutions Ltd. (doing business operations, result inas Bodytrak®) as a step toward entering the loss of critical and confidential information and adversely impact our reputation andConnected Worker Market for “Smart PPE.”
Financial Risks
Our results of operations.operations could be negatively affected by potential fluctuations in foreign currency exchange rates.
Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our information technology (“IT”) systems to sophisticated and targeted measures known as advanced persistent threats. While we employ comprehensive measures to prevent, detect, address and mitigate these threats (including access controls, data encryption, vulnerability assessments, continuous monitoring
Most of our IT networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially resultassembly arrangements with our foreign-based subsidiaries or third-party suppliers require payment to be made in U.S. dollars or the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident include reputational damage, litigation with third parties, diminutionChinese Renminbi (“RMB”). Any decrease in the value of the US dollar or RMB in relation to foreign currencies could increase the cost of the services provided to us upon contract expirations or supply renegotiations. There can be no assurance that we will be able to increase product prices to offset any such cost increases, and any failure to do so could have a material adverse effect on our investment in research, development and engineering, and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitivenessbusiness, financial condition and results of operations.
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We are also exposed to foreign currency exchange rate risks as a result of our sales to customers in foreign countries in the amount of $70.8 million in FY22. Our sales in these countries are usually denominated in the local currency. If the value of the US dollar increases relative to these local currencies, and we are unable to raise our prices proportionally, then our profit margins could decrease because of the exchange rate change.
We are exposed to changes in foreign currency exchange rates as a result of our purchases and sales in other countries. To manage the volatility relating to foreign currency exchange rates, we seek to limit, to the extent possible, our non-US dollar denominated purchases and sales.
In connection with our operations in China, we purchase a significant amount of products from outside of the United States. However, our purchases in China are primarily made in the RMB, the value of which has floated for the last 5 years, therefore we have been exposed to additional foreign exchange rate risk on our Chinese raw material and component purchases.
Our primary risk from foreign currency exchange rate changes is presently related to non-US dollar denominated sales in China, Canada and Europe and, to a smaller extent, in South American countries and in Russia. Our sales to customers in Canada are denominated in Canadian dollars, in Europe in Euros and British pounds, and in China in RMB and US dollars. If the value of the US dollar increases relative to the Canadian dollar, the Pound, the Euro, or the RMB then our net sales could decrease as our products would be more expensive to these international customers because of changes in rate of exchange. We manage the foreign currency risk, when appropriate, through the use of rolling 90-day forward contracts against the Canadian dollar and Euro and through cash flow hedges in the US against the RMB and the Euro. We do not hedge other currencies at this time. In the event that non-US dollar denominated international purchases and sales grow, exposure to volatility in exchange rates could have a material adverse impact on our financial results.
Covenants in our credit facilities may restrict our financial and operating flexibility.
As a result of the Loan Agreement the Company entered into on June 25, 2020 and amended June 18, 2021, we currently have a $25.0 million revolving credit facility, expiring June 25, 2025. Our credit facility requires, and any future credit facilities may also require, among others that we comply with specified financial covenants relating to fixed charge coverage and investment in acquisitions. Our ability to satisfy these financial covenants can be affected by events beyond our control, and we cannot guarantee that we will meet the requirements of these covenants.
Additionally, in July 2017, the United Kingdom Financial Conduct Authority announced that it would stop compelling banks to submit interest rates for the calculation of the London Interbank Offered Rate (“LIBOR”) after 2021. Although we do not have any outstanding debt under our credit facility, were we to draw on it, the outstanding amounts would bear interest at fluctuating interest rates on an approved replacement benchmark. We continue to monitor this matter and evaluate the related risks and potential impact of LIBOR’s expiration. Any indebtedness that we incur may be indexed to a replacement benchmark, such as the Secured Overnight Financing Rate (“SOFR”). Any such change could cause the effective interest rate under an agreement, including our Loan Agreement, and our overall interest expense to increase, adversely affecting our cash flows and results of operations.
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We may need additional funds, and if we are unable to obtain these funds, we may not be able to expand or operate our business as planned.
Our operations require significant amounts of cash, and we may be required to seek additional capital, whether from sales of equity or by borrowing money, to fund acquisitions for the future growth and development of our business or to fund our operations and inventory, particularly in the event of a market downturn.
A number of factors could affect our ability to access future debt or equity financing, including:
· | Our financial condition, strength and credit rating; | |
· | The financial markets’ confidence in our management team and financial reporting; | |
· | General economic conditions and the conditions in the homeland security and Energy sectors; and | |
· | Capital markets conditions |
Even if available, additional financing may be more costly than our current facility and may have adverse consequences. If additional funds are raised through the incurrence of debt, we will incur increased debt servicing costs and may become subject to additional restrictive financial and other covenants. We can give no assurance as to the terms or availability of additional capital. Although management believes it currently has sufficient capital, if we do need additional capital in the future and are unsuccessful, it could reduce our net sales and materially adversely impact our earning capability and financial position.
Legal and Regulatory Risks
We deal in countries where corruption is an obstacle.
We must comply with American laws such as the Foreign Corrupt Practices Act (FCPA) and Sarbanes-Oxley and also with anticorruption legislation in the U.K. Some of our competitors and customers in foreign jurisdictions may not adhere to such legislation. As a result, we believe that we lose sales orders due to our strict adherence to such regulations.
We are subject to various U.S. and foreign tax laws and any changes in these laws related to the taxation of businesses and resolutions of tax disputes could adversely affect our results of operations.
The U.S. Congress, the Organization for Economic Co-operation and Development (or, OECD) and other government agencies in jurisdictions in which we invest or do business have maintained a focus on issues related to the taxation of multinational companies. The OECD has changed numerous long-standing tax principles through its base erosion and profit shifting (“BEPS”) project which could adversely impact our effective tax rate.
We are subject to regular review and audit by both foreign and domestic tax authorities. While we believe our tax positions will be sustained, the final outcome of tax audits and related litigation may differ materially from the tax amounts recorded in our consolidated financial statements, which could have a material adverse effect on our consolidated results of operations, financial condition and cash flows.
We may be subject to product liability claims, and insurance coverage could be inadequate or unavailable to cover these claims.
We manufacture products used for protection from hazardous or potentially lethal substances, such as chemical and biological toxins, fire, viruses and bacteria. The products that we manufacture are typically used in applications and situations that involve high levels of risk of personal injury. Failure to use our products for their intended purposes, failure to use our products properly or the malfunction of our products could result in serious bodily injury or death of the user. In such cases, we may be subject to product liability claims arising from the design, manufacture or sale of our products. If these claims are decided against us, and we are found to be liable, we may be required to pay substantial damages, and our insurance costs may increase significantly as a result. We cannot assure you that our insurance coverage would be sufficient to cover the payment of any potential claim. In addition, we cannot assure you that this or any other insurance coverage will continue to be available or, if available, that we will be able to obtain it at a reasonable cost. Any material uninsured loss could have a material adverse effect on our financial condition, results of operations and cash flows.
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Environmental laws and regulations may subject us to significant liabilities.
Our US operations, including our manufacturing facilities, are subject to federal, state and local environmental laws and regulations relating to the discharge, storage, treatment, handling, disposal and remediation of certain materials, substances and wastes. Any violation of any of those laws and regulations could cause us to incur substantial liability to the Environmental Protection Agency, the state environmental agencies in any affected state or to any individuals affected by any such violation. If hazardous substances are released from or located on any of our properties, we could incur substantial costs and damages. Any such liability could have a material adverse effect on our financial condition and results of operations.
Provisions in our restated certificate of incorporation and by-laws and Delaware law could make a merger, tender offer or proxy contest difficult.
Our restated certificate of incorporation contains classified board provisions, authorized preferred stock that could be utilized to implement various “poison pill” defenses and a stockholder authorized, but as yet unused, Employee Stock Ownership Plan (“ESOP”), all of which may have the effect of discouraging a takeover of Lakeland, which is not approved by our board of directors. Further, we are subject to the antitakeover provisions of Section 203 of the Delaware General Corporation Law, which prohibit us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in the prescribed manner.
Risks Relating to Our Common Stock
The market price of our common stock may fluctuate widely.
The market price of our common stock could be subject to significant fluctuations in response to quarter-to-quarter variations in our operating results, announcements of new products or services by us or our competitors and other events or factors. For example, a shortfall in net sales or net income, or an increase in losses, from levels expected by securities analysts or investors, could have an immediate and significant adverse effect on the market price of our common stock. Volume fluctuations that have particularly affected the market prices of many micro and small capitalization companies have often been unrelated or disproportionate to the operating performance of these companies. These fluctuations, as well as general economic and market conditions, may adversely affect the market price for our common stock.
Our common stock is an equity interest and therefore subordinated to our indebtedness.
Payments of the principal and interest under the notes issued under the loan agreements entered into in connection with our senior financing are secured by liens on, and security interests in, substantially all of our and our subsidiaries’ present and after-acquired assets. In the event of our liquidation, dissolution or winding up, our common stock would rank below all debt and creditor claims against us. As a result, holders of our common stock will not be entitled to receive any payment or other distribution of assets upon our liquidation, dissolution or winding up until after all of our obligations to our debt holders and creditors have been satisfied.
We are precluded from paying and do not anticipate paying any dividends to our common stockholders in the near future.
We are prohibited from declaring or paying any dividends to our common stockholders without the prior consent of our senior and junior lenders. Further, we have not paid dividends on our common stock since August 2006 and we do not anticipate, if permitted, paying any dividends in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing operations.
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ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
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Our principal executive office is located at 1525 Perimeter Parkway Suite 325, Huntsville, AL 35806 United States. We own or lease our primary facilities. We own our manufacturing locations in AnQui City, China and Jerez, Mexico. We lease our manufacturing locations in Buenos Aires, Argentina, Noida, India, and Xuan Trung Commune, Vietnam.
We believe that all of our owned and leasedfacilities, including the manufacturing facilities, are in good repair and in suitable condition for the operations we conduct in each of them. Each manufacturing facility is well maintained and capable of supporting higher levels of production. The table below sets forth certain information about our principal facilities.purposes for which they are used.
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(1) We own the buildings in which we conduct the majority of our manufacturing operations in China and lease the land underlying the buildings from the Chinese government. We have 31 years remaining under the leases with respect to the AnQui City facilities.
* A small amount of manufacturing is done locally, but most sales are made in other Lakeland facilities.
Our facilities in Alabama, Mexico, China, Argentina and Brazil contain equipment used for the design, development, manufacture and sale of our products. Our operations in Canada, United Kingdom, Chile, Hong Kong, Russia, India and Kazakhstan are primarily sales and warehousing operations receiving goods for resale from our manufacturing facilities around the world. We had $2.20 million and $2.30 million of net property and equipment located in the US; $2.37 million and $2.70 million in China; $2.11 million and $2.17 million in Mexico as of January 31, 2016 and 2015, respectively.
From time to time, we are a party to litigation arising in the ordinary course of our business. We are not currently a party to any litigation or other legal proceedings that we believe could reasonably be expected to have a material adverse effect on our results of operations, financial condition or cash flows. See Notes 9 and 15 related to legal matters in respect of our former subsidiary in Brazil and its relation to the Company.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
N/A
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ITEM 5.5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is currently traded on the Nasdaq Global Market under the symbol “LAKE.” The following table sets forth for the periods indicated the high and low closing sales prices for our common stock as reported by the Nasdaq National Market.
Price Range of Common Stock | ||||||||
High | Low | |||||||
Fiscal 2016 | ||||||||
First Quarter | $ | 10.43 | $ | 7.83 | ||||
Second Quarter | 12.74 | 8.81 | ||||||
Third Quarter | 15.34 | 8.66 | ||||||
Fourth Quarter | 14.96 | 10.86 | ||||||
Fiscal 2015 | ||||||||
First Quarter | $ | 7.27 | $ | 6.25 | ||||
Second Quarter | 7.90 | 6.15 | ||||||
Third Quarter | 29.00 | 5.52 | ||||||
Fourth Quarter | 13.78 | 8.50 |
Holders-
HoldersOn April 8, 2022 there were 36 registered holders of our Common Stock, approximately 48shares of record, are entitled to one (1) vote for each share held on all matters submitted to a votecommon stock. This number of registered holders does not represent the stockholders. No cumulative voting with respect to the electionactual number of directors is permitted by our Articles of Incorporation. The Common Stock is not entitled to preemptive rights and is not subject to conversion or redemption. Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to stockholders are distributable ratably among the holders of the Common Stock after payment of liquidation preferences, if any, on any outstanding stock that may be issued in the future having prior rights on such distributions and payment of other claims of creditors. Each share of Common Stock outstanding as of the date of this Annual Report is validly issued, fully paid and nonassessable.
Dividend Policy
In the past, we have declared dividends in stock to our stockholders. We paid a 10% dividend in additional sharesbeneficial owners of our common stock because shares are frequently held in “street name” by securities dealers and others for the benefit of individual owners who have the right to holders of record on July 31, 2002, July 31, 2003, April 30, 2005 and August 1, 2006. We may pay stock dividends in future years at the discretion of our board of directors and consent of our lenders.vote their shares.
Dividend Policy
We have never paid any cash dividends on our common stock, and we currently intend to retain any future earnings for use in our business. We are prohibited from declaring or paying any dividends to our common stockholders without the prior consent of our lenders. The payment and rate of future cash or stock dividends, if any, or stock repurchase programs are subject to the discretion of our board of directors and will depend upon our earnings, financial condition, capital or contractual restrictions under our credit facilities and other factors. In addition,
Issuer Purchase of Equity Securities
Period |
| Total Number of Shares Purchased |
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| Average Price Paid per Share |
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| Total Number of Shares Purchased as Part of Publicly Announced Programs |
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| Maximum Dollar Amount of Shares that May Yet Be Purchased Under the Programs |
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November 1 – November 30 |
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| — |
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| $ | — |
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| — |
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| $ | 4,105,179 |
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December 1 – December 31 |
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| 38,505 |
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| $ | 21.14 |
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| 38,505 |
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| $ | 3,289,897 |
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January 1 – January 31 |
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| 120,934 |
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| $ | 20.55 |
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| 120,934 |
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| $ | 804,106 |
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Total |
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| 159,439 |
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| $ | 20.67 |
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| 159,439 |
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| $ | 804,106 | (1) |
(1)Represents the paymentamount remaining under the Existing Share Repurchase Program (as defined below) as of cash dividends is restricted by the termsJanuary 31, 2022. Effective as of April 7, 2022, we are authorized to repurchase an additional $5 million of our current senior loan agreement.
ITEM 6.Selected Financial Datacommon stock upon the repurchase of the remaining amount under the Existing Share Repurchase Program.
The following selected consolidated financial data asOn February 17, 2021, the Company’s board of and for our FY16, FY15, FY14, FY13 and FY12 has been derived from our audited consolidated financial statements. You should read the information set forth below in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included in this Form 10-K.
While as a smaller reporting company disclosure of Selected Financial Data is not required, the Company is voluntarily including such disclosures.
Summary of Operations | ||||||||||||||||||||
Year Ended January 31, | ||||||||||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||||||
2016 | 2015* | 2014* | 2013* | 2012* | ||||||||||||||||
Income Statement Data: | ||||||||||||||||||||
Net sales from continuing operations | 99,646 | $ | 93,419 | $ | 84,173 | $ | 78,260 | $ | 80,625 | |||||||||||
Operating profit (loss) from continuing operations | 11,812 | 6,691 | 4,053 | 579 | 2,227 | |||||||||||||||
Arbitration judgment in Brazil | — | — | — | (7,874 | ) | — | ||||||||||||||
Income (loss) from continuing operations before income taxes | 10,907 | 2,898 | 2,679 | (8,538 | ) | 1,728 | ||||||||||||||
Income tax expense (benefit) | 3,117 | (8,188 | ) | (2,851 | ) | 4,127 | 145 | |||||||||||||
Net income (loss) from continuing operations | 7,790 | 11,086 | 5,530 | (12,665 | ) | 1,583 | ||||||||||||||
Net income (loss) on discontinued operations net of tax | (3,936 | ) | (2,687 | ) | (5,650 | ) | (13,624 | ) | (1,960 | ) | ||||||||||
Earnings (loss) per share from continuing operations - basic | $ | 1.09 | $ | 1.78 | $ | 0.97 | $ | (2.39 | ) | $ | 0.30 | |||||||||
Earnings (loss) per share from continuing operations – diluted | $ | 1.07 | $ | 1.75 | $ | 0.96 | $ | (2.39 | ) | $ | 0.30 | |||||||||
Weighted average common shares outstanding | ||||||||||||||||||||
Basic | 7,171,965 | 6,214,303 | 5,689,230 | 5,290,332 | 5,224,552 | |||||||||||||||
Diluted | 7,254,340 | 6,325,525 | 5,771,226 | 5,290,332 | 5,356,114 | |||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Current assets | $ | 69,655 | $ | 68,635 | $ | 65,481 | $ | 60,605 | $ | 70,441 | ||||||||||
Total assets | 88,260 | 93,208 | 80,483 | 80,051 | 99,138 | |||||||||||||||
Current liabilities | 19,958 | 26,222 | 26,835 | 27,761 | 9,312 | |||||||||||||||
Long-term liabilities | 786 | 3,730 | 9,171 | 8,801 | 19,061 | |||||||||||||||
Stockholders’ equity | 67,516 | 63,256 | 44,477 | 43,489 | 70,765 |
* Restated for discontinued operations
Repurchase of Securities
We repurchased our Common Stock during FY09, FY10, FY11 and FY12. The Company initiateddirectors approved a stock repurchase program on February 21, 2008, andunder which the Company mayrepurchase up to $5 million of its outstanding common stock. On July 6, 2021, the Board of Directors authorized an increase in the Company’s current stock repurchase program under which the Company may repurchase up to an additional $5 million of its outstanding common stock (the “Existing Share Repurchase Program”). Shares repurchased 125,322in FY22 totaled 430,463 shares at a cost of $9.2 million leaving $0.8 million remaining under the stock repurchase program at January 31, 2022. On April 7, 2022, the Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to $5 million of its outstanding common stock (the “New Share Repurchase Program”). The New Share Repurchase Program will become effective upon the completion of the Existing Share Repurchase Program, which has approximately $800,000 remaining for repurchases as of April 14, 2010.21, 2022. The Company initiated a second stock repurchase program on December 7, 2010, andNew Share Repurchase Program has repurchased 231,119 shares through February 9, 2011. There were no further stock repurchases.expiration date but may be terminated by the Board of Directors at any time.
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We do not have any other share repurchase programs.
ITEM 6. [RESERVED]
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
You should read the following summary together with the more detailed business information and consolidated financial statements and related notes that appear elsewhere in this Form 10-K and in the documents that we incorporate by reference into this Form 10-K. This document may contain certain “forward-looking” information within the meaning of the Private Securities Litigation Reform Act of 1995. This information involves risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements.
Overview In this Form 10-K, (a) “FY” means fiscal year; thus for example, FY22 refers to the fiscal year ended January 31, 2022 and (b) “Q” refers to a quarter; thus, for example, Q4 FY22 refers to the fourth quarter of the fiscal year ended January 31, 2022.
Revision of Prior Period Financial Statements
In FY16, operating profit increased in the US before corporate expenses from $7.27 million in FY15 to $11.38 million in FY16 and increased in China from $4.12 million in FY15 to $4.69 million in FY16. This is largely due to the improvements in sales of Lakeland branded products and Ebola related sales in the chemical and disposables divisions and the bird flu. Consolidated operating income for continuing operations was $11.8 in FY16 compared to $7.0 million in FY15 and management believes the challenges related to the former subsidiary in Brazil have been terminatedconnection with the successful transferpreparation of sharesthe consolidated financial statements for the fiscal year ended January 31, 2022, the Company identified errors in its previously filed annual consolidated financial statements and unaudited quarterly consolidated financial statements. The errors were not material to any individual prior quarterly or annual period. For further details, refer to Note 1. Business and Summary of Significant Accounting Policies: Restatement For Correction of Immaterial Errors in Previously Issued Consolidated Financial Statements in our consolidated financial statements included in Part II. Item 8. of this subsidiaryForm 10-K. Accordingly, we have revised prior period financial results contained in FY16 as discussed in detail in Note 15.this Form 10-K to correct the effect of these errors for the corresponding periods. Management’s discussion and analysis included herein is based on the revised financial results for the year ended January 31, 2021.
The PPE market continues to grow worldwide as developing countries increasingly adopt the protection standards of North America and Europe, and standards in the more developed countries become more stringent and cover more types of workers. Management believes Lakeland is uniquely positioned to take advantage of these trends with its presence in many major and high growth potential markets worldwide. However, Management also understands that significant investment in these markets is required for the Company to realize its goals for growth in revenue and income as our many markets continue to evolve and attract more competition.Overview
Consequently, the Company’s improvements in operating income, cash availability, and business outlook have been of critical importance by making possible multiple investments in our operations and organization that had been deferred during the past few challenging years. Additional personnel in sales and marketing have been hired worldwide in order to increase penetration in existing markets and pursue new sales channels. New equipment has been purchased to increase manufacturing capacity and efficiency as well as to replace older equipment. New accounting and operations software is being installed to improve processes, planning, and access to sales, financial, and manufacturing data. New technologies in fabrics and manufacturing are being explored. Management believes the Company’s ability to compete for the global opportunities in its industry are being enhanced.
We manufacture and sell a comprehensive line of safety garmentsindustrial protective clothing and accessories for the global industrial and public protective clothing markets.market. Our products are sold globally by our in-house sales forceteams, our customer service group, and authorized independent sales representatives to a network of over 1,600 global safety and millindustrial supply distributors. Our authorized distributors and end users internationally. These distributors in turn supply end user industrial customers,users, such as integrated oil, utilities, chemical/petrochemical, automobile, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical, and high technology electronics manufacturers.manufacturers, as well as scientific, medical laboratories and the utilities industry. In addition, we supply federal, state and local governmental agencies and departments, domestically and internationally, such as municipal fire and police departments,law enforcement, airport crash rescue units, the military,Department of Defense, the Department of Homeland Security and the Centers for Disease ControlControl. Internationally, we sell to a mixture of end users directly, and stateto industrial distributors depending on the particular country and privately owned utilitiesmarket. In addition to the United States, sales are made to more than 50 foreign countries, the majority of which were into China, countries within the European Economic Community (“EEC”), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India and integrated oil companies.countries within Southeast Asia.
We are continually monitoring the potential financial impact of the Russian invasion of Ukraine on our operations. For FY22, sales in Russia were approximately 2.5% of our consolidated sales and sales into Ukraine were not significant.
We had net sales of $118.4 million in FY22 and $159.0 million in FY21.
We have operated facilities in Mexico since 1995 and in China since 1996. Beginning in 1995, we moved the labor intensive sewing operation for our limited use/disposable protective clothing lines to these facilities. Our facilities and capabilities in China and Mexico allow access to a less expensive labor pool than is available in the United States and permit us to purchase certain raw materials at a lower cost than they are available domestically. As we have increasingly moved production ofWe added manufacturing operations in Vietnam and India in fiscal 2019, to offset increasing manufacturing costs in China and further diversify our productsmanufacturing capabilities. Our China operations will continue primarily manufacturing for the Chinese market and other markets where duty advantages exist. Manufacturing expansion is not only necessary to our facilities in Mexico and China, we have seen improvements in the profit marginscontrol rising costs, it is also necessary for these products. Lakeland to achieve its growth objectives.
Our net sales from continuing operations, attributable to customers outside the United States were $43.1$70.8 million and $43.3$88.4 million in FY16for the fiscal years ended January 31, 2022 and FY15,2021, respectively.
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Response to COVID-19 Outbreak
Our strategy for responding to the COVID-19 outbreak evolved from prior “black swan” events. These events have been disruptive for the users of our products and contributed little in terms of sustainable business improvement or growth for the suppliers. Any business gains attributable to these events were limited to short-term increases in sales volume and price increases associated with capacity expansion and expedited deliveries. In responding to COVID-19 Lakeland sought a new approach. Throughout COVID-19 we focused our attention on our existing business, adding new customers, and increasing market penetration by prioritizing service to our existing industrial end users and seeking new customers who were experiencing supply shortages. We sought to service the COVID-19 market to the extent that Lakeland had excess capacity after servicing existing and new industrial customers. We believe that focusing on the industrial market first and the pandemic market second, is a sound strategy for increasing market penetration in a post COVID-19 environment. Even though we were successful in selling to more than 500 new distributors and end users, 75% of whom were outside of the U.S. market, excess pipeline inventory and freight delays have proven a significant headwind. We anticipate R&D expensesthat excess inventory will decline steadily as intermittent surges in COVID-19 cases continue and that industrial growth will continue to improve internationally as we transition from an emergency COVID-19 response to a business environment where COVID-19 is a diminished, but persistent component of sales.
Our manufacturing flexibility allows us to rapidly shift capacity between product lines and alter our product offering so that we can maximize throughput of critical products. In the case of COVID-19 we shifted our sewing capacity heavily to disposable and chemical garments; increased daily working hours; and ran a 7-day work week until market supply caught up with demand. We rationalized our product offerings and eliminated SKUs that did not meet our profitability goals, did not create a competitive advantage or were detrimental to manufacturing efficiencies due to changes over time. Because we own our manufacturing facilities, Lakeland was able to make these changes within the first couple of months of the pandemic.
The last two weeks of FY20 and all of FY21 and FY22, were impacted by our COVID-19 response strategy. As the pandemic progressed in FY21, we saw reductions in industrial activity due to lockdowns and work restrictions that resulted in diminished sales into petrochemicals, the utility sector, and industrial segments like automotive and airlines. Our second and third quarters of FY21 were the peak quarters for Personal Protective Equipment (PPE) pandemic sales. In Q4 FY21 we began to see a softening in demand for COVID-19 related sales, and a return of general industrial demand that continued into Q4 FY22. As the COVID-19 pandemic wanes, demand for associated PPE is falling, but the decline is being offset in part by an increase in industrial activity and associated industrial demand for PPE. COVID-19 related demand was estimated to be $300,000approximately 30% to 35% of FY21 revenue and accounted for an estimated 15% of FY22 sales.
While we saw, and noted, an initial recovery in FY17 comparedthe industrial markets in the U.S. in FY22, we now believe that the strength of the recovery was magnified by freight delays extending order leadtimes leading distributors and end users to $165,000place more orders as industrial activity surged. As these delayed shipments arrived throughout FY22, an excess of inventory was created in FY16,U.S. distribution channels. As stated earlier, we believe that intermittent surges in COVID-19 cases and the subsequent high rates of hospitalizations in the U.S. will draw down this inventory as somefreight delays continue. We believe that industrial activity in developed regions of the world is likely to continue to increase as vaccination levels increase and therapeutics improve, lessening reliance on shutdowns or lockdowns to control virus spread. As stated previously, we believe that developing regions of the world that are less prepared and have less robust medical care, will be slower in industrial recovery. We do not anticipate a slower industrial recovery in developing regions to negatively impact our growth potential primarily because the regional dispersion of our R&Dsales favors the developed regions of the world by a significant margin.
As noted above, as freight delayed orders arrived through late Q1 and the remainder of FY22, PPE manufacturing has caught up to current COVID-19 demand. Raw materials and finished goods pricing have declined from their pandemic-inflated levels, but increased freight costs and lack of availability of some precursors threaten to limit if not reverse the downward trend. Our future sales would be affected should there be an industry-wide shortage of necessary raw materials in the event of another rise or surge in COVID-19 cases, including any surges due to COVID-19 variants such as the delta or omicron variants. As previously noted, we did experience significant price increases for fabric during FY21 and managed our available manufacturing capacity to lower costs, and increased prices, to meet customer demand.
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In FY22 we did not experience any significant manufacturing shutdowns or closures of any of our facilities due to COVID-19. Employee absence due to potential exposure or quarantine of the neighborhood in which they live is a persistent problem, but has not resulted in the shutdown of any facilities. We have not experienced any manufacturing capacity issues due to inability to source raw materials, government quarantine, or shelter-in-place orders, or due to COVID-19 outbreaks in any of our factories, however there can be no assurance that this will involve equipment purchases,continue to be the case. In addition, we cannot predict any potential incremental cost that may be associated with any federal, state or local vaccine mandates or related testing protocol. While current economic indicators and industry data indicate an industrial market recovery, potential headwinds to revenue as we emerge from pandemic sales include the possibility of a recession and consumer stockpiled inventories that may temper demand within our regular markets in FY23.
While we have not experienced any raw materials shortages in our Asian manufacturing operations, we are experiencing some issues with U.S. sourced raw materials due to labor and precursor shortages affecting our higher margin product lines. In both Asia and the U.S., increasing labor and freight costs, as well as inflationary pressures threaten to drive raw material costs.costs up and may negatively impact our gross margins. Where we can, we will seek to recover increased costs with corresponding price increases.
Additionally, we have experienced, along with most other companies across many industries, the macro-economic impact of a challenging employment environment related to hiring and retaining employees and wage inflation. We are gradually increasingexpect that these hiring, retention, and wage inflation challenges, as well as challenges related to maintaining our R&D efforts ascurrent workforce, will continue into FY23. These hiring, retention, and cost challenges may negatively affect our ability to grow our business performance permits.and keep our best employees or increase our cost of operations.
Critical Accounting Policies and Estimates
Our discussion
Revenue Recognition. Substantially all the Company’s revenue is derived from product sales, which consist of sales of the Company’s personal protective wear products to distributors. The Company considers purchase orders to be a contract with a customer. Contracts with customers are considered to be short-term when the time between order confirmation and analysissatisfaction of our financial conditionthe performance obligations is equal to or less than one year, and resultsvirtually all of operationsthe Company’s contracts are short-term. The Company recognizes revenue for the transfer of promised goods to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. The Company typically satisfies its performance obligations in contracts with customers upon shipment of the goods. Generally, payment is due from customers within 30 to 90 days of the invoice date, and the contracts do not have significant financing components. The Company elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. Shipping and handling costs associated with outbound freight are included in operating expenses, and for the years ended in FY22 and FY21 aggregated approximately $2.9 million and $3.9 million, respectively. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue.
The transaction price includes estimates of variable consideration, related to rebates, allowances, and discounts that are reductions in revenue. All estimates are based upon our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally acceptedon the Company’s historical experience, anticipated performance, and the Company’s best judgment at the time the estimate is made. Estimates for variable consideration are reassessed each reporting period and are included in the United Statestransaction price to the extent it is probable that a significant reversal of America. The preparationcumulative revenue recognized will not occur upon resolution of our financial statementsuncertainty associated with the variable consideration. All the Company’s contracts have a single performance obligation satisfied at a point in conformity with accounting principles generally acceptedtime and the transaction price is stated in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses and disclosure of contingent assets and liabilities. We base estimates on our past experience and on various other assumptions that we believe to be reasonable under the circumstances, and we periodically evaluate these estimates.contract, usually as quantity times price per unit.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition. The Company derives its sales primarily from its limited use/disposable protective clothing and secondarily from its sales of firefighting and heat protective apparel, high-end chemical protective suits, gloves and arm guards and reusable woven garments. Sales are recognized when goods are shipped, at which time title and the risk of loss pass to the customer. Payment terms are generally net 30 days for United States sales and net 90 days for international sales.
Inventories. Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost (on a first-in, first-out or moving average basis) or market. Inventory is written downnet realizable value. Allowances are recorded for slow-moving, obsolete or unusable inventory. We assess our inventory for estimated obsolescence or unmarketable inventory and write down the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future sales and supply on-hand, if necessary. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. In FY22 and FY21, we recorded approximately $0.6 million in write-downs of inventory and $0.1 million in inventory adjustments in FY21.
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Allowance for Doubtful Accounts. Trade accounts receivable are stated at the amount the Company expects to collect.
Income Taxes. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts:
Customer creditworthiness, past transaction history with the customer, current economic industry trends and changes in customer payment terms. Past due balances over 90 days and other less creditworthy accounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.
Income Taxes and Valuation Allowances. We areis required to estimate ourits income taxes in each of the jurisdictions in which we operateit operates as part of preparing ourthe consolidated financial statements. This involves estimating the actual current tax in addition to assessing temporary differences resulting from differing treatments for tax and financial accounting purposes. These differences, together with net operating loss carryforwards and tax credits, are recorded as deferred tax assets or liabilities on ourthe Company’s consolidated balance sheet. A judgment must then be made of the likelihood that any deferred tax assets will be realizedrecovered from future taxable income. A valuation allowance may be required to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event we determine that we may not be able to realize all or part of our deferred tax asset in the future, or that new estimates indicate that a previously recorded valuation allowance is no longer required, an adjustment to the deferred tax asset is charged or credited to net income in the period of such determination.
Uncertain Tax Positions.In the event the Company determines that it may not be able to realize all or part of ourits deferred tax assetsasset in the future, or that new estimates indicate that a previously recorded valuation allowance is no longer required, an adjustment to the deferred tax asset is charged or credited to income in the period of such determination. In FY22 and FY21, we recorded a valuation allowance of approximately $0.8 million and $1.0 million, respectively.
The Company recognizes tax positions that meet a “more likely than not” minimum recognition threshold. If necessary, the Company recognizes interest and penalties associated with tax matters as part of the income tax provision and would include accrued interest and penalties with the related tax liability in the consolidated balance sheets.
27
Valuation of Goodwill and Other Intangible Assets.Goodwill and indefinite lived, intangible assets are tested for impairment at least annually; however, these tests may be performed more frequently when events or changes in circumstances indicate the carrying amount may not be recoverable. Goodwill and other intangibles impairmentNet Income Per Share.Basic net income per share is evaluated utilizing a two-step process as required by US generally accepted accounting principles (“US GAAP”). Factors that the Company considers important that could identify a potential impairment include: significant underperformance relative to expected historical or projected future operating results; significant changes in the overall business strategy; and significant negative industry or economic trends. The Company measures any potential impairment on a projected discounted cash flow method. Estimating future cash flows requires the Company’s management to make projections that can differ materially from actual results.
Impairment of Long-Lived Assets. The Company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances indicate the carrying value may not be recoverable. The carrying value of a long-lived asset is considered impaired when the total projected undiscounted cash flows from the asset are separately identifiable and are less than its carrying value. In that event, a loss is recognized based on the amount by whichweighted average number of common shares outstanding without consideration of common stock equivalents. Diluted net income per share is based on the carrying value exceeds the fair valueweighted average number of the long-lived asset.
Foreign Currency Risks.common shares and common stock equivalents. The functional currency for the United Kingdom is the Euro; the trading company in China, the RMB; the Canadian Real Estate, the Canadian dollar;diluted net income per share calculation takes into account unvested restricted shares and the Russian operation,shares that may be issued upon exercise of stock options and warrants, reduced by shares that may be repurchased with the Russian Ruble and Kazakhstan Tenge. All other operations havefunds received from the US dollar as its functional currency.exercise, based on the average price during the fiscal year.
Self-Insured Liabilities. We have a self-insurance program for certain employee health benefits. The cost of such benefits is recognized as expense based on claims filed in each reporting period and an estimate of claims incurred but not reported during such period. Our estimate of claims incurred but not reported is based upon historical trends. If more claims are made than were estimated or if the costs of actual claims increase beyond what was anticipated, reserves recorded may not be sufficient, and additional accruals may be required in future periods. We maintain separate insurance to cover the excess liability over set single claim amounts and aggregate annual claim amounts.
Loss Contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been or is probable of being incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
28
Significant Balance Sheet Fluctuation January 31, 2016,2022, as Compared to January 31, 20152021
Balance Sheet Accounts. Borrowings under the revolving credit facilityCash increased by $3.8$0.1 million, primarily as a result of $12.8 million of cash generated from operations offset by $9.2 million in share repurchases, $2.8 million in equity investment and $0.8 million in capital improvements. Operating cashflow changes were driven by a decline in accounts receivable of $6.7 million due to collections and reduced revenue in FY22. Inventory increased $4.4 million driven by investment in inventory to reduce the impact on our supply chain of a global slowdown in freight deliveries. Accounts payable, accrued compensation, and other accrued expenses decreased $5.0 million due to a loandecrease in purchasing activity and lower variable compensation caused by lower sales and profitability in FY22.
On October 18, 2021, the Company made to our former Brazilian subsidiary to allow it to make the VAT payment for Brazil discussed in detail in Note 9 and inventory net of reserves increased $3.7 million, concentrated in the USA and China, as management built a strategic stockpileinvestment of $2.8 million in Inova Design Solutions Ltd. (doing business as Bodytrak®) as a groundbreaking step toward entering the Connected Worker Market for quick delivery anywhere in the world during periods“Smart PPE.” Bodytrak’s unique ear-based sensor platform uses precise physiological measurements and cloud-based analytics to automate health, safety and performance monitoring, making it an ideal complement to Lakeland’s portfolio of high demand and particularly as compared to FY15 yearend inventory which was severely depleted by the Company’s response to the Ebola Crisis in the 4th quarter of that year. In Q4FY16 the Company started receiving customer inquiries for prepared sovereign country stockpiles for future Pandemics. Assets of discontinued operations decreased $6.3 million, liabilities of discontinued operations decreased $6.3 million, current maturity of the arbitration settlement decreased $1.0 million and accrued arbitration award in Brazil decreased $2.9 million with the transfer of shares of Brazil discussed in detail in Note 15. Assets held for sale increased $1.1 million as the building and land in Brazil were transferred to corporate after the transfer of shares discussed in Note 15. Accounts payables decreased $3.5 million and accounts receivables decreased $1.8 million as sales orders related to the Ebola and bird flu crises were completed.industrial protective solutions.
Year Ended January 31, 2016, Compared to the Year Ended January 31, 2015
Results of Operations
The following table setstables set forth our external sales by our product lines, and geographic regions and our historical results of continuing operations as a percentage of our net sales from operations, for the years and three-months ended January 31, 20162022 and 2015, as a percentage of our net sales from operations.2021.
For the Year | For the Three Months | |||||||||||||||
Ended January 31, Audited | Ended January 31, Unaudited | |||||||||||||||
2016 | 2015* | 2016 | 2015* | |||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of goods sold | 63.5 | % | 66.1 | % | 70.6 | % | 62.3 | % | ||||||||
Gross profit | 36.5 | % | 33.9 | % | 29.4 | % | 37.7 | % | ||||||||
Operating expenses | 24.6 | % | 26.5 | % | 30.8 | % | 25.7 | % | ||||||||
Operating profit (loss) | 11.9 | % | 7.5 | % | (1.5 | )% | 11.9 | % | ||||||||
Other income, net | (0.1 | )% | (2.5 | )% | (0.1 | )% | (0.1 | )% | ||||||||
Interest expense | (0.8 | )% | (1.8 | )% | (1.0 | )% | (0.7 | )% | ||||||||
Income (loss) before tax | 10.9 | % | 3.1 | % | (2.6 | )% | 11.2 | % | ||||||||
Income tax expense (benefit) | 3.1 | % | (8.8 | )% | (2.2 | )% | (36.0 | )% | ||||||||
Net income (loss) | 7.8 | % | 11.9 | % | (0.4 | )% | 47.1 | % |
Three Months Ended January 31, (Unaudited) |
|
| Year Ended January 31, |
| ||||||||||||
2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||
External Sales by Product Line: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Disposables |
| $ | 14.1 |
|
| $ | 23.1 |
|
| $ | 67.2 |
|
| $ | 103.8 |
|
Chemical |
|
| 5.5 |
|
|
| 6.4 |
|
|
| 24.5 |
|
|
| 31.2 |
|
Fire |
|
| 2.3 |
|
|
| 2.8 |
|
|
| 8.2 |
|
|
| 7.5 |
|
Gloves |
|
| 0.5 |
|
|
| 1.2 |
|
|
| 2.2 |
|
|
| 3.1 |
|
High Visibility |
|
| 1.8 |
|
|
| 0.8 |
|
|
| 5.6 |
|
|
| 4.4 |
|
High Performance Wear |
|
| 0.9 |
|
|
| 0.7 |
|
|
| 3.6 |
|
|
| 2.3 |
|
Wovens |
|
| 1.7 |
|
|
| 1.9 |
|
|
| 7.1 |
|
|
| 6.7 |
|
Consolidated external sales |
| $ | 26.8 |
|
| $ | 36.9 |
|
| $ | 118.4 |
|
| $ | 159.0 |
|
26 |
Table of Contents |
*As restated for discontinued operations
Three Months Ended January 31, (Unaudited) |
|
| Year Ended January 31, |
| ||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
External Sales by region: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
USA |
| $ | 11.2 |
|
| $ | 16.0 |
|
| $ | 47.6 |
|
| $ | 70.6 |
|
Other foreign |
|
| 2.1 |
|
|
| 2.0 |
|
|
| 7.1 |
|
|
| 9.0 |
|
Europe (UK) |
|
| 1.5 |
|
|
| 4.0 |
|
|
| 10.3 |
|
|
| 16.8 |
|
Mexico |
|
| 0.8 |
|
|
| 1.8 |
|
|
| 4.1 |
|
|
| 5.7 |
|
Asia |
|
| 7.4 |
|
|
| 7.4 |
|
|
| 29.8 |
|
|
| 31.2 |
|
Canada |
|
| 1.4 |
|
|
| 2.7 |
|
|
| 8.2 |
|
|
| 13.6 |
|
Latin America |
|
| 2.4 |
|
|
| 3.0 |
|
|
| 11.3 |
|
|
| 12.1 |
|
Consolidated external sales |
| $ | 26.8 |
|
| $ | 36.9 |
|
| $ | 118.4 |
|
| $ | 159.0 |
|
|
| Three Months Ended January 31, (Unaudited) |
|
| Year Ended January 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of goods sold |
|
| 60.8 | % |
|
| 51.6 | % |
|
| 57.0 | % |
|
| 50.1 | % |
Gross profit |
|
| 39.2 | % |
|
| 48.4 | % |
|
| 43.0 | % |
|
| 49.9 | % |
Operating expenses |
|
| 35.0 | % |
|
| 23.9 | % |
|
| 29.5 | % |
|
| 22.3 | % |
Operating profit |
|
| 4.2 | % |
|
| 24.5 | % |
|
| 13.6 | % |
|
| 27.6 | % |
Other income, net |
|
| 0.5 | % |
|
| 0.0 | % |
|
| 0.1 | % |
|
| 0.0 | % |
Interest expense |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
Income (loss) before tax |
|
| 4.7 | % |
|
| 24.5 | % |
|
| 13.7 | % |
|
| 27.6 | % |
Income tax expense |
|
| 2.8 | % |
|
| 3.6 | % |
|
| 4.1 | % |
|
| 5.4 | % |
Net income |
|
| 1.9 | % |
|
| 20.9 | % |
|
| 9.6 | % |
|
| 22.2 | % |
Net Sales.Net sales of continuing operations increased $6.2 million, or 6.7%,decreased to $99.6$118.4 million for the year ended January 31, 2016, from $93.42022 compared to $159.0 million for the year ended January 31, 2015.2021, a decrease of $40.6 million. Sales increases were due in part to an increase in sales of specialty protective suits worn by healthcare workers and others in view of Ebola and the bird flu crises and otherwise overall strengthening of the Company’s operations. External sales in China remained level at $14.1 million while sales in the UK increased by $0.1US decreased $23.0 million or 1%, mainly as a result of volume increases associated with the Company’s Ebola crisis response offset by currency devaluations32.6% primarily due to decreases in the year. Russianumber of direct container shipments in the US, and Kazakhstanlower sales combineddriven by COVID-19 demand. Sales to the Asian market decreased $0.3by $1.4 million or 19% as4.5% due to lower COVID-19 demand. Sales to the currencies in these countries was devaluedEuropean market decreased by $6.5 million or 38.7% driven by reduced COVID-19 demand and the economy softened.inventory overhang at our customers. Canada sales decreased by $5.4 million or 39.7% due to lower direct container shipments. Latin America sales decreased $0.4$0.8 million or 7.0%, primarily6.6% due to currency devaluationlower COVID-19 demand. Sales into the Mexican market decreased $1.6 million or 28.1% driven by lower COVID-19 demand. Our other foreign markets accounted for $1.9 million of decreased sales or 21.1% due to lower COVID-19 demand. Sales of our disposable and chemical product line were impacted due to a large sale of productsreduction in FY15. US domesticdirect container sales of disposablesdriven by COVID-19 demand and continued softness in demand from our industrial markets. Other product lines such as fire, high performance, and wovens, increased by $1.9$2.0 million and chemical sales increased by $5.4 million mainly due to sales volume associatedstrengthening demand in those markets. Sales were affected by customers over-ordering in prior periods, resulting in excess channel inventories, and shipping delays with the Company’s Ebola and bird flu crises responses. Fire protection salesocean freight carriers.
Gross Profit. Gross profit decreased $0.5 million, glove sales decreased $0.2 million, wovens sales decreased $0.2 million and reflective sales increased by $0.1 million for an overall external sales gain in the US of $6.5$28.4 million, or 12.9%. Numbers may not add due to rounding.
For purposes of the Management’s Discussion, the reference to “Q” shall mean “Quarter.” Thus “Q4” means the fourth quarter of the applicable fiscal year.
29
Gross Profit.Gross profit for continuing operations increased $4.6 million, or 14.6%35.8%, to $36.3$50.9 million for the year ended January 31, 2015,2022, from $31.7$79.3 million for the year ended January 31, 2015.2021. Gross profit as a percentage of net sales increaseddecreased to 36.5%43.0% for the year ended January 31, 2016,2022 from 33.9%49.9% for the year ended January 31, 2015. The major2021. Gross profit performance in FY 21 benefited from higher volumes including direct container shipments, related factory utilization and an improving product mix with pricing power. Major factors driving the changesdecline in gross margins in FY22, were:
· |
· |
· |
Operating ExpensesExpense. Operating expenses of continuing operations decreased $0.2 million, or 1.0%, to $24.51.4% from $35.4 million for the year ended January 31, 2016, from $24.72021 to $34.9 million for the year ended January 31, 2015. As2022. Operating expenses as a percentage of net sales operating expenses decreased to 24.6%was 29.5% for the year ended January 31, 2016 from 26.5%2022, as compared to 22.3% for the year ended January 31, 2015. The primary factors comprising the decrease in operating2021. Operating expenses in the year ended January 31, 2016 included a $0.2 million decrease in commissionswere down primarily due to Ebola commissionsreductions in FY15, a $0.5 million increase in freight out and customs as a result of higher levels of expedited freight associated with the bird flu sales volume, a $0.1 million decrease in expenses associated with the co-op program, a $0.1 million increase in travel and entertainment expenses, a $0.2 million increase in sales salaries primarily in the USA, a decrease of $0.6 million in equity compensation due to a one-time noncash charge of $1.0 millionlower sales freight out expenses, and currency translation offset by increases in FY15administrative salaries for equity compensation associated with changing the performance level of the restricted stock plan from zero to maximum, a decrease in professional fees of $0.3 million due to additional audit procedures performednew staff and the change in accounting firms in FY15, a $0.7 million increase in payroll administration resulting from administrative hires in the areas of manufacturing operations, planning and IT and $0.3 million decrease in amortization due to the extinguishment of the subordinated debt in FY15.technology expenses..
27 |
Table of Contents |
Operating Profit/(Loss)Profit.Operating profit of continuing operations increased by $4.9 milliondecreased to $11.8 million from $7.0 million for the prior year. Operating profit as a percentage of net sales increased for the year ended January31, 2016 to 11.9% from 7.5% for the year ended January 31, 2015 primarily as a result of USA sales into the bird flu pandemic and generally strong sales volume and overall improvement in worldwide operations and efficiencies.
Interest Expense. Interest expense decreased by $0.9$16.0 million for the year ended January 31, 2016, compared to2022, from $43.8 million for the year ended January 31, 20152021, due to the extinguishmentimpacts detailed above. Operating margin decreased to 13.6% for the year ended January 31, 2022, compared to 27.6% for the year ended January 31, 2021.
Interest Expense. Interest expenses was less than $0.1 million for the year ended January 31, 2022 compared to $0.1 million for the year ended January 31, 2021. The Company did not drawdown any of the subordinated debt in FY14.its available line of credit during FY22.
Other Income (Expense).Other expenses decreased $2.3 million mainly from charges associated with the early extinguishment of the subordinated debt in FY15.
Income Tax Expense. Expense.Income tax expense consists of federal, state and foreign income taxes. Income tax expense from continuing operations increased $11.4was $4.8 million and included $0.7 million associated with the GILTI component of the Tax Act of 2017 for the year ended January 31, 2022, as compared to a netan income tax expense of $3.2$8.5 million, including $1.9 million associated with the GILTI component, for the year ended January 31, 2021. All international subsidiaries impacted the GILTI component of income tax expense.
Net Income. Net income decreased to $11.4 million for the year ended January 31, 2016,2022 from a benefit of $8.2million for the year ended January 31, 2015 as income taxes in FY16 include a non-cash charge of $0.8 million for the dividend paid by Weifang its Chinese subsidiary in May 2015 and FY15 income taxes included a $9.5million benefit associated with the Brazil worthless stock deduction discussed further in Note 15.
Net Income (Loss). Net income from continuing operations decreased $3.3 million to $7.8$35.3 million for the year ended January 31, 2016,2021.
Fourth Quarter Results
Net sales and net income were $26.8 million and $0.5 million, respectively, for Q4 FY22, as compared to $36.9 million and $7.7 million, respectively, for Q4 FY21.
Factors affecting Q4 FY22 results of operations included:
· | Decreased sales due to COVID-19 demand in the U.S. and Asia. | |
· | Margins were impacted by lower sales and increased freight costs. |
Liquidity and Capital Resources
At January 31, 2022, cash and cash equivalents were approximately $52.7 million and working capital was approximately $108.9 million. Cash and cash equivalents increased $0.1 million and working capital increased $1.7 million from $11.1January 31, 2021 reflecting positive earnings and the Company’s focus on working capital efficiencies.
Of the Company’s total cash and cash equivalents of $52.7 million as of January 31, 2022, cash held in Latin America of $1.9 million, cash held in Hong Kong of $2.1 million, cash held in the UK of $1.0 million, cash held in Vietnam of $1.1 million, cash held in India of $0.9 million and cash held in Canada of $1.4 million would not be subject to additional US tax in the event such cash was repatriated due to the change in the US tax law as a result of the 2017 Tax Cuts and Jobs Act (the “Tax Act”). In the event the Company repatriated cash from China, of the $30.0 million balance at January 31, 2022 there would be an additional 10% withholding tax incurred in that country. The Company strategically employs a dividend plan subject to subsidiary profitability, cash requirements and withholding taxes. During FY22 the Company’s subsidiaries in Canada, Uruguay and Hong Kong declared and paid dividends of $2.6 million, $1.0 million and $4.4 million. Withholding taxes totaling $0.2 million are included in income tax expense. No dividends were proposed by management or declared by our Board of Directors for our China subsidiary in FY22 or FY21.
Net cash provided by operating activities of $12.8 million for the year ended January 31, 2015. The decrease in net income2022 was primarily a result of the income tax benefit associated with the Brazil worthless stock deduction of $9.5 million in FY15 discussed further in Note 15. Net income in FY16 was positively impacted by overall improvements in worldwide operations and strong sales volume.
Fourth Quarter Results
Factors affecting Q4 FY16 results of continuing operations included:
Costs Associated with Exit or Disposal Activities and Subsequent Discontinued Operations
On July 31, 2015, (the “Closing Date”), Lakeland and Lake Brasil Industria E Comercio De Roupas E Equipamentos De Protecao Individual LTDA (the Company’s former Brazilian subsidiary and herein after referred to as “Lakeland Brazil”), completed a conditional closing of a Shares Transfer Agreement (the “Shares Transfer Agreement”) with Zap Comércio de Brindes Corporativos Ltda (“Transferee”), a company owned by an existing Lakeland Brazil manager, entered into on June 19, 2015. Pursuant to the Shares Transfer Agreement, the Transferee has acquired all of the shares of Lakeland Brazil owned by the Company.
In order to help enable Lakeland Brazil to have sufficient funds to continue to operate for a period of at least two years following the Closing Date, the Company provided funding to Lakeland Brazil in the aggregate amount of US $717,000, in cash, in the form of a capital raise, and agreed to provide an additional R$1,574,000 (approximately US $508,000) (the “Additional Amount”), in the form of a capital raise, to be utilized by Lakeland Brazil to pay off certain specified liabilities and other potential contingent liabilities. Pursuant to the Shares Transfer Agreement, the Company paid R$992,000 (approximately US $320,000) of the Additional Amount, in cash, on July 1, 2015 and issued a non-interest bearing promissory note for the balance (R$582,000) (approximately US $188,000) on the Closing Date which was paid to Lakeland Brazil in two (2) installments of (i) R$288,300 (approximately US $93,000) which was paid on August 1, 2015, and (ii) R$294,500 (approximately US $95,000) on September 1, 2015. Such amounts were based on the currency rates on the date the Shares Transfer Agreement was signed, June 25, 2015; any differences to the actual amounts are insignificant. The Shares Transfer Agreement also provides that the Company shall fully fund any amounts owed by Lakeland Brazil in connection with certain existing labor claims by Lana dos Santos, as previously disclosed, and, in addition, all amounts potentially owed for future labor claims up to an aggregate amount of $375,000 (the “Cap”) and 60% of such amounts in excess of the Cap until the earlier of (i) the date all labor claims against Lakeland Brazil deriving from events which occurred prior to the Closing Date are settled, (ii) by mutual agreement of the Company and Lakeland Brazil or (iii) on the two (2) year anniversary of the Closing Date. As of January 31, 2016, $351,000 of this has been paid including the Lana Dos Santos case, all approximating the reserves set aside by the Company. With respect to continuing claims, $278,000 is being sought, of which management estimates the aggregate liability will be less than that amount.
Regarding the VAT tax issue, the State of Bahia declared an amnesty beginning November 1, 2015 and expiring December 18, 2015. The Company entered into a Loan Agreement for VAT Payment, dated December 11, 2015 (the “Loan Agreement”), with Lakeland Brazil for the amount of R$ 8,584,012. (approximately US $2.29 million) for the purpose of the Company providing funds necessary for Lakeland Brazil to settle the two largest outstanding VAT claims with the State of Bahia.
As disclosed in previous SEC filings, the Company may be exposed to certain liabilities arising in connection with the prior operations of Lakeland Brazil, including, without limitation, from lawsuits pending in the labor courts in Brazil and VAT taxes. Settlement of the VAT claims under amnesty would benefit the Company in that it eliminates these large VAT claims, which the Company believes will render the continued viability of Lakeland Brazil immaterial to the Company. It should also eliminate the possibility of the sale of Lakeland Brazil being found fraudulent on the basis of evading VAT claims and would subsequently eliminate the possibility of future encumbrance of the real estate by the State of Bahia subsequent to VAT claims. Lakeland Brazil has completed the amnesty agreement with the State of Bahia on December 18, 2015.
Even after the sale, we may continue to be exposed to certain liabilities arising in connection with the prior operations of our former Brazilian subsidiary, including, without limitation, from lawsuits that were pending in the labor courts in Brazil in which plaintiffs were seeking a total of nearly US $8,000,000 in damages from our Brazilian subsidiary. We believe many of these labor court claims are without merit and the amount of damages being sought is significantly higher than any damages which may have been incurred. As disclosed above, many of these matters have been resolved and management believes the risk has been substantially reduced, but not yet eliminated. See Note 9 with respect to the VAT taxes.
Finally, in connection with this exit, we claimed a worthless stock deduction in FY15 which the Company anticipates will generate of tax benefit of approximately US $9.5 million. While the Company and its tax advisors believe that this deduction is valid, there can be no assurance that the IRS will not challenge it and, if challenged, there is no assurance that the Company will prevail.
Increase sales and profits related to Ebola and bird flu sales
The Company experienced a significant increase in sales and profits in FY16 Q1 and FY16 Q2 related to sales for Ebola and bird flu products. These product sales will be at significantly lower levels until federal funds are made available for the preparedness market.
Liquidity and Capital Resources
Cash Flows
As of January 31, 2016, we had cash and cash equivalents of $7.0million and working capital of $43.7million, an increase of $0.3 million and $1.3million, respectively, from January 31, 2015. We have operations in many foreign jurisdictions which may place restrictions on repatriation of cash to the US. We are planning various strategies to mitigate this issue. Our primary sources of funds for conducting our business activities have been from cash flow provided by (used in) operations and borrowings under our credit facilities described below. Substantially all of our cash is overseas, and international cash management is affected by local requirements. We require liquidity and working capital primarily to fund increases in inventories and accounts receivable associated with our net sales and, to a lesser extent, for capital expenditures. The increases in cash and cash equivalents were primarily due to the changesnet income of $11.4 million, non-cash expenses of $4.3 million for deferred taxes, depreciation and amortization, and stock compensation, and decrease in our inventory and accounts payable position described below. Net cash usedreceivable due to lower sales activity of $6.7 million offset by operating activities of $.5million for the year ended January 31, 2016 was due primarily to an increase in net inventories of $4.2 for a strategic pandemic stockpile,$4.4 million and a decrease in accounts payablespayable, accrued expenses and other liabilities of $3.3$5.2 million as materials purchases were reduced after large volume purchases in FY15 for Ebola orders and in early FY16 for bird flu orders and with the full payment of the arbitration settlement of $3.8 million and a reserve against the note receivable from the former Brazil subsidiary for doubtful collectability of $2.3 million offset by depreciation and amortization of $1.0 million, a reduction in accounts receivables of $1.4 million as Ebola and bird flu orders were completed, a noncash charge of $0.6 million for the FY15 restricted stock plan and a reduction in prepaid VAT of $0.6 million mostly in Argentina and the UK.
due to lower sales volume. Net cash used in investing activities of $0.4million and $0.9$3.6 million in the years ended January 31, 2016 and 2015, respectively, was due to the sale of the New York executive offices in FY16 and an increase in production capacity in one of our China factories in FY15 for the purchases of property and equipment. Net cash provided by financing activities for the year ended January 31, 20162022 reflects the Company’s $2.8 million investment in Bodytrak®) as a groundbreaking step toward entering the Connected Worker Market for “Smart PPE.” Purchases in property and equipment were $0.8 million as the Company optimized capital expenditures in the year for the ERP project, leasehold improvements for our new corporate headquarters, and equipment purchases in Mexico and China. Net cash used in financing activities was $9.8 million for the year ended January 31, 2022 due to the purchase of $9.2 million of our common stock.
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Net cash provided by operating activities of $40.7 million for the year ended January 31, 2021 was primarily due to new borrowingsnet income of $35.3 million, non-cash expenses of $6.8 million for deferred taxes, depreciation and amortization, and stock compensation, decrease in net inventories of $0.8 million and an increase in accounts payable, accrued expenses and other liabilities of $3.5 million, offset in part by a $4.0 million increase to accounts receivable due to a higher sales volumes in the fourth quarter as compared to prior year and an increase in other current assets of $1.7 million due to an increase in amounts due from HSBC under the revolving credit agreement,UK factoring agreement. Net cash used in investing activities of $1.7 million for the year ended January 31, 2021 reflects purchases in property and equipment as the Company optimized capital expenditures in the year for the ERP project, the set-up of manufacturing facilities in Vietnam and India, the enhancement of IT infrastructure, and equipment purchases in Mexico and China. Net cash used in financing activities was $1.3 million for the year ended January 31, 2021, primarily due to the repayment of $1.2 million term loan with SunTrust Bank as part of the transition to the new borrowings in China and Argentina andLoan Agreement with Bank of America.
On June 25, 2020, we entered into a note receivable fromLoan Agreement (the “Loan Agreement”) with Bank of America (“Lender”). The Loan Agreement provides the former Brazilian subsidiary related to payment of VAT liability.
Credit Facility
We currently have one Senior credit facility: $15Company with a secured $12.5 million revolving credit facility, which commencedincludes a $5.0 million letter of credit sub-facility. The Company may request from time to time an increase in the revolving credit loan commitment of up to $5.0 million (for a total commitment of up to $17.5 million). Borrowing pursuant to the revolving credit facility is subject to a borrowing base amount calculated as (a) 80% of eligible accounts receivable, as defined, plus (b) 50% of the value of acceptable inventory, as defined, minus (c) certain reserves as the Lender may establish for the amount of estimated exposure, as reasonably determined by the Lender from time to time, under certain interest rate swap contracts. The borrowing base limitation only applies during periods when the Company’s quarterly funded debt to EBITDA ratio, as defined, exceeds 2.00 to 1.00. The credit facility will mature on June 28, 2013,25, 2025. Borrowings under the revolving credit facility bear interest at a rate per annum equal to the sum of which we had $9.5the LIBOR Daily Floating Rate (“LIBOR”), plus 125 basis points. LIBOR is subject to a floor of 100 basis points. All outstanding principal and unpaid accrued interest under the revolving credit facility is due and payable on the maturity date. On a one-time basis, and subject to there not existing an event of default, the Company may elect to convert up to $5.0 million of borrowingsthe then outstanding principal of the revolving credit facility to a term loan facility with an assumed amortization of 15 years and the same interest rate and maturity date as the revolving credit facility. The Loan Agreement provides for an annual unused line of credit commitment fee, payable quarterly, of 0.25%, based on the difference between the total credit line commitment and the average daily amount of credit outstanding under the facility during the preceding quarter.
On June 18, 2021, the Company entered into an Amendment No. 1 to Loan Agreement (the “Amendment”) with the Lender, which modifies certain terms of the Company’s existing Loan Agreement with the Lender. The Amendment increases the credit limit under the Loan Agreement’s senior secured revolving credit facility from $12.5 million to $25.0 million. The Amendment also amends the covenant in the Loan Agreement that restricts acquisitions by the Company or its subsidiaries in order to allow, without the prior consent of the Lender, acquisitions of a business or its assets if there is no default under the Loan Agreement and the aggregate consideration does not exceed $7.5 million for any individual acquisition or $15.0 million on a cumulative basis for all such acquisitions.
The Loan Agreement requires the Company to maintain a Funded Debt to EBITDA (as each such term is defined in the Loan Agreement) ratio of 3.0 to 1.0 or less and a Basic Fixed Charge Coverage Ratio (as defined in the Loan Agreement) of at least 1.15 to 1.0. The Loan Agreement also contains customary covenants, including covenants that, among other things, limit or restrict the Company’s and/or the Company’s subsidiaries ability, subject to certain exceptions and qualifications, to incur liens or indebtedness, or merge, consolidate or sell or otherwise transfer assets. The Company was in compliance with all of its debt covenants as of January 31, 2016, expiring on June 30, 2017, at a current per annum rate2022. As of 4.25%. Maximum availability in excess of amount outstanding at January 31, 2016,2022, the Company had no borrowings under the Loan Agreement, and there was $5.5 million. Our current$25 million of additional available credit facility requires, and any future credit facilities may also require, that we comply with specified financial covenants relating to earnings before interest, taxes, depreciation and amortization and others relating to fixed charge coverage ratio and limits on capital expenditures and investments in foreign subsidiaries. Our ability to satisfy these financial covenants can be affected by events beyond our control, and we cannot guarantee that we will meetunder the requirements of these covenants. These restrictive covenants could affect our financial and operational flexibility or impede our ability to operate or expand our business. Default under our credit facilities would allow the lenders to declare all amounts outstanding to be immediately due and payable. Our lenders, including Development Bank of Canada (“BDC”), have a security interest in substantially all of our US and Canadian assets and pledges of 65% of the equity of the Company’s foreign subsidiaries, outside Canada which is 100%. If our lenders declare amounts outstanding under any credit facility to be due, the lenders could proceed against our assets. Any event of default, therefore, could have a material adverse effect on our business. This financing is described more fully in Note 5 to the Financial Statements. Loan Agreement.
We believe that our current availabilitycash, cash equivalents, borrowing capacity under our Credit Facility, coupled with our anticipated operatingLoan Agreement and the cash and cash management strategy, isto be generated from expected product sales will be sufficient to covermeet our projected operating and investing requirements for at least the next twelve months. However, our liquidity needs forassumptions may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect.
Stock Repurchase Program. On February 17, 2021, the next 12 months. On March 31, 2015Company’s Board of Directors approved a stock repurchase program under which the Company andmayrepurchase up to $5 million of its wholly-owned subsidiary, Lakeland Protective Wear Inc., entered intooutstanding common stock. On July 6, 2021, the Board of Directors authorized an increase in the Company’s current stock repurchase program under which the Company may repurchase up to an additional $5 million of its outstanding common stock (the “Existing Share Repurchase Program”). Shares repurchased in FY22 totaled 430,463 shares at a First Amendmentcost of $9.2 million leaving $0.8 million remaining under the Existing Share Repurcahse Program at January 31, 2022.
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On April 7, 2022, the Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to Loan and Security Agreement with AloStar Bank$5 million of Commerce relating to their senior revolving credit facility. Pursuant toits outstanding common stock (the “New Share Repurchase Program”). The New Share Repurchase Program will become effective upon the Amendment, the parties agreed to (i) reduce the rate of interest on the revolving loans by 200 basis points and correspondingly lower the minimum interest rate floor from 6.25% to 4.25% per annum, and (ii) extend the maturity datecompletion of the credit facility to June 28, 2017.Existing Share Repurchase Program, which has approximately $800,000 remaining for repurchases as of April 21, 2022. The New Share Repurchase Program has no expiration date but may be terminated by the Board of Directors at any time.
Since the equity raise and repayment of subordinated debt in October 2014, the prevailing interest expense has decreased substantially.
Capital Expenditures
Expenditures.Our capital expenditures for FY22 of $0.8 million principally relate to capital purchases for our manufacturing facilities in FY16Vietnam and India, the enhancement of$0.8 millionprincipally related to additions for IT infrastructure, and equipment purchases in Mexico and the Enterprise Resource Planning (“ERP”) implementation in the USA and additional manufacturing equipment in China.US. We anticipate FY17FY23 capital expenditures to be approximately $1.0 million.There are no further specific plans for material$3.0 million as we continue to deploy our ERP solution globally, invest in strategic capacity expansion, and replace existing equipment in the normal course of operations. We expect to fund the capital expenditures in FY17.from our cash flow from operations.
Recent Accounting DevelopmentsPronouncements
The Company considers the applicabilitySee Note 1 – Business and impactSignificant Accounting Policies of all accounting standards updates (“ASUs”). Management has determined that recent accounting developments are either not applicable or have a minimal impact on the consolidated financial statements. Management periodically reviews new accounting standards that are issued. In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted for annual periods after December 31, 2016. This guidance permits the usestatements in Part II Item 8 of one of two retrospective transition methods. The Company has neither selected a transition method, nor determined the effects that the adoption of the pronouncement may have on its consolidated financial statements.this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
While asAs a smaller reporting company, disclosure of risk factorsthe Company is not required to provide the Companyinformation required by this Item and therefore, no disclosure is voluntarily including such disclosures.required under Item 7A for the Company.
We are exposed to changes in foreign currency exchange rates as a result of our purchases and sales in other countries. To manage the volatility relating to foreign currency exchange rates, we seek to limit, to the extent possible, our non-US dollar denominated purchases and sales.
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In connection with our operations in China, we purchase a significant amount of products from outside of the United States. However, our purchases in China are primarily made in Chinese RMB, the value of which had been largely pegged to the US dollar for the last decade. However, the Chinese RMB has been decoupled from the US Dollar and allowed to float by the Chinese government and, therefore, we have been exposed to additional foreign exchange rate risk on our Chinese raw material and component purchases.
Our primary risk from foreign currency exchange rate changes is presently related to non-US dollar denominated sales in Canada, Europe and in other South American countries. Our sales to customers in Canada are denominated in Canadian dollars and in Europe in Euros and British pounds. If the value of the US dollar increases relative to the Canadian dollar, the Pound or the Euro, then our net sales could decrease as our products would be more expensive to these international customers because of changes in rate of exchange. Our sales from China are denominated in the Chinese RMB, US dollar and Euros. We manage the foreign currency risk through the use of rolling 90-day forward contracts against the Canadian dollar and Euros and through longer term cash flow hedges in China against the Euro and on specific contracts in the UK between the pound and the euro. We do not hedge other currencies at this time. As non-US dollar denominated international purchases and sales grow, exposure to volatility in exchange rates could have a material adverse impact on our financial results. The only significant unhedged foreign exchange exposure we have is the Argentine peso. Other unhedged currency exposure is not significant. If the Argentina exchange rate varied either way by +/- 10%, it would not be significant so long as prices could be raised to account for more expensive garments.
Interest Rate Risk
We are exposed to interest rate risk with respect to our credit facilities, which have variable interest rates based upon the London Interbank Offered Rate. At January 31, 2016, we had $9.5 million in borrowings outstanding under this credit facility. If the interest rate applicable to this variable rate debt rose 1% in the year ended January 31, 2016, our interest expense would have increased only 0.25% due to the floor of 6.25% (reduced to 4.25%). If the effective interest rate rose 0.25 percentage point over 4.25%, it would increase interest expense by an insignificant amount.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
To the shareholders and the Board of Directors
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Lakeland Industries, Inc. and
We have also audited, in accordance with the Basis for These financial statements are the responsibility of the
We conducted our audits in accordance with the standards of the
Inventories – Refer to Notes 1 and 2 to the financial statements Critical Audit Matter Description
The
Given the significant judgments made by management to evaluate the net realizable value of certain of its inventory products, performing audit procedures to evaluate the reasonableness of management’s assumptions related to those inventory adjustments required a high degree of auditor judgment and How the Our audit procedures related to valuation of slow moving, excess and obsolete inventory included, among others:
We have served as the Company’s auditor since 2020.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors
We have audited the internal control over financial reporting of Lakeland Industries, Inc. and subsidiaries (the “Company”) as of January 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of
We conducted our audit in accordance with the standards of the
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. /s/
Memphis, Tennessee April
Lakeland Industries, Inc.and Subsidiaries CONSOLIDATED STATEMENTS OF For the Years Ended January 31,
($000’s) except share information
The accompanying notes are an integral part of these consolidated financial statements.
Lakeland Industries, Inc.and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended January 31, ($000)’s
The accompanying notes are an integral part of these consolidated financial statements.
Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS
($000’s) except share information
The accompanying notes are an integral part of these consolidated financial statements.
Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the Years Ended January 31,
Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended January 31, 2022 and 2021 ($000’s)
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Lakeland Industries, Inc. and Subsidiaries (“
Basis of Presentation The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The following is a description of the Company’s significant accounting policies.
Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet date, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. It is reasonably possible that events could occur during the upcoming year that could change such estimates. Cash and Cash Equivalents The Company
Inventories Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost (on a first-in, first-out or moving average basis) or
Property and Equipment Property and equipment is stated at
Impairment of Long-Lived Assets The Company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances indicate the carrying value may not be recoverable. The Company measures any potential impairment on a projected undiscounted cash flow method. Estimating future cash flows requires the Company’s management to make projections that can differ materially from actual results. The carrying value of a long-lived asset is considered impaired when the total projected undiscounted cash flows from the asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset.
Revenue Recognition
The Company has seven revenue generating reportable geographic segments under ASC Topic 280 “Segment Reporting” and derives its sales primarily from its limited use/disposable protective clothing and secondarily from its sales of reflective clothing, high-end chemical protective suits, firefighting and heat protective apparel, reusable woven garments and gloves and arm guards. The Company believes disaggregation of revenue by geographic region and product line best depicts the nature, amount, timing, and uncertainty of its revenue and cash flows (see table below). Net sales by geographic region and by product line are included below:
Advertising Costs Advertising costs are expensed as incurred
Stock-Based Compensation The Company records the cost of stock-based compensation plans based on the fair value of the award on the grant date. For awards that contain a vesting provision, the cost is recognized over the requisite service period (generally the vesting period of the equity award) which approximates the performance period. For awards based on services already rendered, the cost is recognized immediately.
Income Taxes The Company is required to estimate its income taxes in each of the jurisdictions in which it operates as part of preparing the consolidated financial statements. This involves estimating the actual current tax in addition to assessing temporary differences resulting from differing treatments for tax and financial accounting purposes. These differences, together with net operating loss carryforwards and tax credits, are recorded as deferred tax assets or liabilities on the Company’s consolidated balance sheet. A judgment must then be made of the likelihood that any deferred tax assets will be recovered from future taxable income. A valuation allowance may be required to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines that it may not be able to realize all or part of its deferred tax asset in the future, or that new estimates indicate that a previously recorded valuation allowance is no longer required, an adjustment to the deferred tax asset is charged or credited to income in the period of such determination.
The Company recognizes tax positions that meet a “more likely than not” minimum recognition threshold. If necessary, the Company recognizes interest and penalties associated with tax matters as part of the income tax provision and would include accrued interest and penalties with the related tax liability in the consolidated balance sheets.
Foreign Operations and Foreign Currency Translation The Company maintains manufacturing operations in Mexico, India, Argentina, Vietnam and the People’s Republic of China and can access independent contractors in
Pursuant to US GAAP, assets and liabilities of the Company’s foreign operations with functional currencies, other than the US dollar, are translated at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average rates prevailing during the periods. Translation adjustments are reported in accumulated other comprehensive loss, a separate component of stockholders’ equity.
Fair Value of Financial Instruments US GAAP defines fair value, provides guidance for measuring fair value and requires certain disclosures utilizing a fair value hierarchy which is categorized into three levels based on the inputs to the valuation techniques used to measure fair value. The
There were no foreign currency forward or hedge contracts at January 31, 2022 or January 31, 2021. The financial instruments
Recent Accounting Pronouncements The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued. Recently Adopted Accounting Standards In 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The new guidance simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the tax basis of goodwill after a business combination, and the recognition of deferred tax liabilities for outside basis differences. The new guidance also changes the calculation of the income tax impact of hybrid taxes and the methodology for calculating income taxes in an interim period. We adopted this standard as of January 31, 2021 on either a prospective basis, or through a modified retrospective approach, as required by the standard. There was no cumulative effect adjustment recorded to retained earnings as the amount was not material. The effects of this standard on our financial position, results of operations and cash flows were not material. New Accounting Pronouncements Not Yet Adopted In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting in response to the risk of cessation of the London Interbank Offered Rate (LIBOR). This amendment provides for optional expedients and exceptions for applying generally accepted accounting principles to contracts and hedging relationships that are affected by LIBOR and other reference rates. The ASU generally allows for a hedge accounting to continue if the hedge was highly effective or met other standards prior to reference rate reform. Entities are permitted to apply the amendments to all contracts, cash flow and net investment hedge relationships that exist as of March 12, 2020. The relief provided in this ASU is only available for a limited time, generally through December 31, 2022. Our debt agreement that utilizes LIBOR has not yet discontinued the use of LIBOR and, therefore, this ASU is not yet effective for us. To the extent our debt arrangements change to another accepted rate, we will utilize the relief available in this ASU. No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s consolidated financial statements.
Restatement For Correction of Immaterial Errors in Previously Issued Consolidated Financial Statements In connection with the preparation of the consolidated financial statements for the fiscal year ended January 31, 2022, the Company identified errors in its previously filed annual consolidated financial statements and unaudited quarterly consolidated financial statements. The errors were not material to any individual prior quarterly or annual period. The prior period
In accordance with SEC Staff Accounting Bulletin 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements (codified as Topic 1-N), the Company concluded that the correction of the errors was not material to any of its previously issued annual or interim financial statements. The Company has revised its previously issued consolidated financial statements contained in this Annual Report on Form 10-K to correct the effect of these immaterial errors for the corresponding periods. Accordingly, for these prior periods we revised the affected line items of our consolidated balance sheets, consolidated statements of income and comprehensive income, consolidated statements of stockholders’ equity, and consolidated statements of cash flows. The correction of the errors resulted in a $1.4 million decrease in retained earnings as of January 31, 2020. The effects of the correction of immaterial errors on the impacted accounts within the Consolidated Balance Sheets were as follows (in thousands):
The effects of the correction of immaterial errors on the impacted accounts within the Consolidated Statements of Income were as follows (in thousands):
The effects of the correction of immaterial errors on the impacted accounts within the Consolidated Statements of Cash Flows were as follows (in thousands):
2. INVENTORIES
Inventories
3. PROPERTY AND EQUIPMENT, NET
Property and equipment
4. INVESTMENTS On October 18, 2021, the Company entered into an Investment Agreement (the “Investment Agreement”) with Inova Design Solutions Ltd, a private limited company incorporated under the laws of England and Wales and headquartered in the United Kingdom, doing business as Bodytrak® (“Bodytrak”), and the other parties thereto, pursuant to which Bodytrak agreed to issue and sell to the Company 508,905 cumulative convertible series A shares of Bodytrak (“Series A Shares”) in exchange for a payment by the Company of £2,000,000 ($2.8 million). The closing of this minority investment transaction occurred on October 18, 2021. Bodytrak provides wearable monitoring solutions for customers in industrial health, safety, defense and first responder markets wanting to achieve better employee health and performance. Bodytrak’s solution is provided as a platform as a service (PaaS), delivering real-time data and cloud-based analytics, and hardware that includes a patented earpiece for, physiological monitoring and audio communications.
The For the period October 18, 2021 (date of investment) through January 31,
On June 25, 2020, the Company entered into a Loan Agreement (the “Loan Agreement”) with Bank of America (“Lender”). The Loan Agreement provides the Company with a secured (i) $12.5 million revolving credit facility, which includes a $5.0 million letter of credit sub-facility. The Company may request from time to time an increase in the revolving credit loan commitment of up to $5.0 million (for a total commitment of up to $17.5 million). Borrowing pursuant to the revolving credit facility is subject to a borrowing base amount calculated as (a) 80% of eligible accounts receivable, as defined, plus (b) 50% of the
On June 18, 2021, the Company entered into an Amendment No. 1 to Loan Agreement (the “Amendment”) with the Lender, which modifies certain terms of the Company’s existing Loan Agreement with the Lender. The Amendment increases the credit limit under the Loan Agreement’s senior secured revolving credit facility from $12.5 million to $25.0 million. The Amendment also amends the covenant in the Loan Agreement that restricts acquisitions by the Company or its subsidiaries in order to allow, without the prior consent of the Lender, acquisitions of a business or its assets if there is
The Company made certain representations and warranties to the Lender in the
As of January 31, 2022, the Company had no borrowings outstanding on the letter of credit sub-facility and no borrowings outstanding under the
Borrowings in UK On December
On December 31,
Credit Risk Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents, and trade receivables. Concentration of credit risk with respect to trade receivables is generally diversified due to the large number of entities comprising the Company’s The Company’s foreign financial depositories are Bank of America; China
No customer accounted for more than 10% of net sales during FY22 and
No vendor accounted for more than 10% of purchases during FY22 and FY21.
7. STOCKHOLDERS’ EQUITY On June 21, 2017, the On June 16, 2021, the An aggregate of 840,000 shares of the Company’s common stock
The Company recognized total stock-based compensation costs, which are reflected in operating expenses (in 000’s):
Restricted Stock Under the 2017 Plan, as described above, the Company awarded performance-based and service-based shares of
The actual number of The compensation cost is based on the fair value at the grant date, is recognized over the requisite performance/service period using the straight-line method, and is periodically adjusted for the probable number of shares to be awarded. As of January 31,
On February 17, 2021, the Company’s Board of Directors approved a stock repurchase program under which the Company
On April 7, 2022, the Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to $5 million of its outstanding common stock (the “New Share Repurchase Program”). The
The provision for income taxes is based on the following pretax income (loss):
The following is a reconciliation of the effective income tax rate to the Federal statutory rate:
The tax effects of temporary cumulative differences which give rise to deferred tax assets
Tax Reform On December 22, 2017, federal tax reform legislation was enacted in the United States, resulting in significant changes from previous tax law. The 2017 Tax Cuts and Jobs Act (the Tax Act) reduced the federal
Income Tax The Company is subject to US federal income tax, as well as income tax in multiple US state and local jurisdictions and a number of foreign jurisdictions.
Chinese tax authorities have performed limited reviews on all Chinese subsidiaries as of tax years 2008
Change in Valuation Allowance We record net deferred tax assets to the
January 31,
9. NET INCOME PER SHARE
10.
The Company is exposed to foreign currency risk. Management has commenced a derivative instrument program to partially offset this risk by purchasing forward contracts to sell the Canadian Dollar and the Euro other than the cash flow hedge discussed below. Such contracts are largely timed to expire with the last day of the fiscal quarter, with a new contract purchased on the first day of the following quarter, to match the operating cycle of the Company. We designated the forward contracts as derivatives but not as hedging instruments, with loss and gain recognized in current earnings.
The Company accounts for its foreign exchange derivative instruments by recognizing all derivatives as either assets or liabilities at fair value, which may result in additional volatility in
We have We enter into forward contracts with financial institutions to manage our currency exposure related to net assets and liabilities denominated in foreign currencies. Those forward contract derivatives, not designated as hedging instruments,
11. COMMITMENTS AND CONTINGENCIES Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been or is probable of being incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed. General litigation contingencies The Company is involved in various litigation proceedings arising during the normal course of business which, in the opinion of the management of the Company, will not have a material effect on the Company’s financial position, results of operations or cash flows; however, there can be no assurance as to the ultimate outcome of these matters. As of January 31, 2022, to the best of the Company’s knowledge, there were no significant outstanding claims or litigation. Leases We The Company determines if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty. All of the Company’s real estate leases are classified as operating leases. Most of our real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term for an additional four to five years. The exercise of lease renewal options is at the Company’s discretion. The Company evaluates renewal options at lease inception and on an ongoing basis, and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.
Lease cost The components of lease expense are included on the consolidated statement of operations as follows (in 000’s):
Weighted-average lease terms and discount rates are as follows:
Supplemental cash flow
Maturity of Maturity of lease liabilities as
12. SEGMENT
Domestic and international sales from continuing operations are as follows in millions of dollars:
We manage our operations by evaluating each of our geographic locations. Our US operations include
The
These corrections decreased cost of goods sold by $0.1 million for the quarters ended October 31, 2021 and July 31, 2021 and $0.4 million for the quarter ended April 30, 2021. These corrections increased income tax expense by $0.03 million for the quarter ended October 31, 2021, decreased income tax expense by $0.3 million for the quarter ended July 31, 2021 and increased income tax expense by $0.03 million for the quarter ended April 30, 2021. These corrections increased net income by $0.1 million for the quarter ended October, 31, 2021 and increased net income by $0.4 million for the quarters ended July 31, 2021 and April 30, 2021. Basic EPS increased $0.01 for the quarter ended October 31, 2021,by $0.05 for the quarters ended July 31, 2021 and April 30, 2021. Diluted EPS increased $0.01 for quarter ended October 31, 2021, increased $0.05 for the quarter ended July 31, 2021 and increased $0.04 for the quarter April 30, 2021. These corrections decreased cost of goods sold by $0.1 million for the quarters ended October 31, 2020, July 31, 2020 and April 30, 2020. These corrections increased cost of goods sold by $0.2 million for the quarter ended January 31, 2021. These corrections decreased income tax expense by $0.05 million for the quarters ended January 31, 2021, October, 31, 2020, July 31, 2020 and April 30, 2020. These corrections decreased net income by $0.1 million for the quarter ended January 31, 2021. These corrections increased net income by $0.1 million for the quarters ended October, 31, 2020, July 31, 2020 and April 30, 2020. Basic EPS decreased $0.02 for the quarter ended January 31, 2021. Basic EPS increased $0.02 for the quarters ended October 31, 2020, July 31, 2020 and April 30, 2020. Diluted EPS decreased $0.02 for the quarter ended January 31, 2021. Diluted EPS increased $0.02 for the quarters ended October 31, 2020 and April 30, 2020 and increased $0.01 for the quarter ended July 31, 2020. Quarterly results are not necessarily indicative of a full year’s operations because of various factors. The following tables
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on their evaluation
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining
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.
Management
Changes in Internal Control over Financial Reporting There
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None.
PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ITEM 11. EXECUTIVE COMPENSATION
The information required by Part III: Item 10, Directors, Executive Officers and Corporate Governance; Item 11, Executive Compensation; Item 13, Certain Relationships and Related Transactions and Director Independence; and Item 14, Principal Accountant Fees and Services is included in and incorporated by reference to Lakeland’s definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in
ITEM 12.
The information regarding security ownership of certain beneficial owners and management that is required to be included pursuant to this Item 12 is included in and incorporated by reference to Lakeland’s definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in
Equity Compensation Plans
The following sets forth information relating to Lakeland’s equity compensation plans as of January 31,
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE ITEM 14, PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by Part III: Item 10, Directors, Executive Officers and Corporate Governance; Item 11, Executive Compensation; Item 13, Certain Relationships and Related Transactions and Director Independence; and Item 14, Principal Accountant Fees and Services is included in and incorporated by reference to Lakeland’s definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in June 2022, to be filed with the Securities and Exchange Commission within 120 days following the end of Lakeland’s fiscal year ended January 31, 2022.
PART IV ITEM 15.
ITEM 16. FORM 10-K SUMMARY
None.
_________________SIGNATURES_________________ Pursuant to the requirements of Section 13 or 15(d) 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
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