UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| (Mark one) |
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
| For the quarterly period ended |
OR
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:Commission File Number: 0-15535
LAKELAND INDUSTRIES, INC. |
(Exact name of Registrant as specified in its charter) |
Delaware |
| 13-3115216 |
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
|
|
|
(Address of Principal Executive Offices) |
| (Zip Code) |
(Registrant's telephone number, including area code) (256) 350-3873
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | LAKE | NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ☐ | Accelerated filer | ☒ |
Nonaccelerated 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 pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐Yes☐ No ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class |
| Outstanding at |
Common Stock, $0.01 par value per share |
|
|
LAKELAND INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-Q
The following information of the Registrant and its subsidiaries is submitted herewith:
2 |
Table of Contents |
LAKELAND INDUSTRIES, INC.
AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
($000’s except for share and per share information)
|
| Three Months Ended April 30, |
|
| Three Months Ended October 31, |
| Nine Months Ended October 31, |
| ||||||||||||||||
|
| 2021 |
| 2020 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||||
Net sales |
| $ | 34,092 |
| $ | 45,582 |
|
| $ | 30,032 |
| $ | 41,451 |
| $ | 91,590 |
| $ | 122,054 |
| ||||
Cost of goods sold |
|
| 19,706 |
|
|
| 23,438 |
|
|
| 17,399 |
|
|
| 19,763 |
|
|
| 51,853 |
|
|
| 60,882 |
|
Gross profit |
| 14,386 |
| 22,144 |
|
| 12,633 |
| 21,688 |
| 39,737 |
| 61,172 |
| ||||||||||
Operating expenses |
|
| 8,148 |
|
|
| 9,774 |
|
|
| 8,544 |
|
|
| 9,195 |
|
|
| 25,483 |
|
|
| 26,575 |
|
Operating profit |
| 6,238 |
| 12,370 |
|
| 4,089 |
| 12,493 |
| 14,254 |
| 34,597 |
| ||||||||||
Other income (expense), net |
| (12 | ) |
| 6 |
|
| (1 | ) |
| 12 |
| (14 | ) |
| 49 |
| |||||||
Interest expense |
|
| (1 | ) |
|
| (17 | ) |
|
| (2 | ) |
|
| (4 | ) |
|
| (7 | ) |
|
| (23 | ) |
Income before taxes |
| 6,225 |
| 12,359 |
|
| 4,086 |
| 12,501 |
| 14,233 |
| 34,623 |
| ||||||||||
Income tax expense |
|
| 1,584 |
|
|
| 3,725 |
|
|
| 1,294 |
|
|
| 3,237 |
|
|
| 4,242 |
|
|
| 7,386 |
|
Net income |
| $ | 4,641 |
|
| $ | 8,634 |
|
| $ | 2,792 |
|
| $ | 9,264 |
|
| $ | 9,991 |
|
| $ | 27,237 |
|
Net income per common share: |
|
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|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Basic |
| $ | 0.58 |
|
| $ | 1.08 |
|
| $ | 0.36 |
|
| $ | 1.16 |
|
| $ | 1.26 |
|
| $ | 3.41 |
|
Diluted |
| $ | 0.57 |
|
| $ | 1.07 |
|
| $ | 0.35 |
|
| $ | 1.14 |
|
| $ | 1.23 |
|
| $ | 3.36 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Basic |
| 7,989,215 |
| 7,972,423 |
|
| 7,849,591 |
| 7,979,902 |
| 7,942,162 |
| 7,976,228 |
| ||||||||||
Diluted |
| 8,143,805 |
| 8,044,849 |
|
| 7,998,965 |
| 8,123,848 |
| 8,095,025 |
| 8,110,435 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3 |
Table of Contents |
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
($000’s)
|
| Three Months Ended April 30, |
|
| Three Months Ended October 31, |
| Nine Months Ended October 31, |
| ||||||||||||||||
|
| 2021 |
| 2020 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net income |
| $ | 4,641 |
| $ | 8,634 |
|
| $ | 2,792 |
| $ | 9,264 |
| $ | 9,991 |
| $ | 27,237 |
| ||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Foreign currency translation adjustments |
|
| (55 | ) |
|
| (289 | ) |
|
| 69 |
|
|
| 216 |
|
|
| 5 |
|
| 225 |
| |
Comprehensive income |
| $ | 4,586 |
|
| $ | 8,345 |
|
| $ | 2,861 |
|
| $ | 9,480 |
|
| $ | 9,996 |
|
| $ | 27,462 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4 |
Table of Contents |
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000’s except for share information)
| April 30, |
| January 31, |
|
| October 31, |
| January 31, |
| |||||||
|
| 2021 |
| 2021 |
|
| 2021 |
| 2021 |
| ||||||
ASSETS |
|
|
|
|
| ASSETS | ||||||||||
Current assets |
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents |
| $ | 60,322 |
| $ | 52,596 |
|
| $ | 55,533 |
| $ | 52,596 |
| ||
Accounts receivable, net of allowance for doubtful accounts of $873 and $700 at April 30, 2021 and January 31, 2021, respectively |
| 19,184 |
| 21,702 |
| |||||||||||
Accounts receivable, net of allowance for doubtful accounts of $613 and $700 at October 31, 2021 and January 31, 2021, respectively |
| 16,879 |
| 21,702 |
| |||||||||||
Inventories |
| 43,881 |
| 43,833 |
|
| 47,042 |
| 43,833 |
| ||||||
Prepaid VAT and other taxes |
| 2,302 |
| 1,343 |
|
| 2,322 |
| 1,343 |
| ||||||
Other current assets |
|
| 3,462 |
|
|
| 4,134 |
|
|
| 3,113 |
|
|
| 4,134 |
|
Total current assets |
| 129,151 |
| 123,609 |
|
| 124,889 |
| 123,608 |
| ||||||
Property and equipment, net |
| 9,437 |
| 9,819 |
|
| 8,878 |
| 9,819 |
| ||||||
Operating leases right-of-use assets |
| 2,230 |
| 2,347 |
|
| 5,356 |
| 2,347 |
| ||||||
Deferred tax assets |
| 2,913 |
| 2,839 |
|
| 2,048 |
| 2,839 |
| ||||||
Prepaid VAT and other taxes |
| 329 |
| 329 |
| |||||||||||
Other assets |
| 118 |
| 112 |
|
| 1,198 |
| 1,312 |
| ||||||
Goodwill |
|
| 871 |
|
|
| 871 |
| ||||||||
Investments |
| 2,783 |
| ---- |
| |||||||||||
Total assets |
| $ | 145,049 |
|
| $ | 139,925 |
|
| $ | 145,152 |
|
| $ | 139,925 |
|
|
|
|
|
|
| |||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
Current liabilities |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable |
| $ | 7,267 |
| $ | 7,397 |
|
| $ | 6,426 |
| $ | 7,397 |
| ||
Accrued compensation and benefits |
| 3,259 |
| 3,902 |
|
| 3,030 |
| 3,902 |
| ||||||
Other accrued expenses |
| 2,660 |
| 1,793 |
|
| 2,192 |
| 1,793 |
| ||||||
Income tax payable |
| 2,315 |
| 1,534 |
|
| 913 |
| 1,534 |
| ||||||
Current portion of operating lease liabilities |
|
| 956 |
|
|
| 768 |
|
|
| 1,311 |
|
|
| 768 |
|
Total current liabilities |
| 16,457 |
| 15,394 |
|
| 13,872 |
| 15,394 |
| ||||||
Long-term portion of operating lease liabilities |
|
| 1,212 |
|
|
| 1,613 |
|
|
| 3,849 |
|
|
| 1,613 |
|
Total liabilities |
|
| 17,669 |
|
|
| 17,007 |
|
|
| 17,721 |
|
|
| 17,007 |
|
Commitments and contingencies |
| 0 |
| 0 |
|
|
|
|
|
| ||||||
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
| ||||||
Preferred stock, $0.01 par; authorized 1,500,000 shares (none issued) |
| 0 |
| 0 |
|
| ---- |
| ---- |
| ||||||
Common stock, $0.01 par; authorized 20,000,000 shares Issued 8,542,235 and 8,498,457; outstanding 8,032,993 and 7,984,518 at April 30, 2021 and January 31, 2021, respectively |
| 86 |
| 85 |
| |||||||||||
Treasury stock, at cost; 509,242 shares |
| (5,023 | ) |
| (5,023 | ) | ||||||||||
Common stock, $0.01 par; authorized 20,000,000 shares Issued 8,555,672 and 8,498,457; outstanding 7,775,406 and 7,984,518 at October 31, 2021 and January 31, 2021, respectively |
| 86 |
| 85 |
| |||||||||||
Treasury stock, at cost; 780,266 and 509,242 shares at October 31, 2021 and January 31, 2021, respectively |
| (10,910 | ) |
| (5,023 | ) | ||||||||||
Additional paid-in capital |
| 76,656 |
| 76,781 |
|
| 77,184 |
| 76,781 |
| ||||||
Retained earnings |
|
| 57,328 |
|
|
| 52,687 |
|
| 62,678 |
| 52,687 |
| |||
Accumulated other comprehensive loss |
|
| (1,667 | ) |
|
| (1,612 | ) |
|
| (1,607 | ) |
|
| (1,612 | ) |
Total stockholders' equity |
|
| 127,380 |
|
|
| 122,918 |
|
|
| 127,431 |
|
|
| 122,918 |
|
Total liabilities and stockholders' equity |
| $ | 145,049 |
|
| $ | 139,925 |
|
| $ | 145,152 |
|
| $ | 139,925 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5 |
Table of Contents |
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(000’s except for share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
| Accummulated |
|
| |||||||||||||||||||||||||||||||||||||
|
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| Additional |
|
|
| Other |
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
| ||||||||||||||||||||||||||||||||||||
|
| Common Stock |
| Treasury Stock |
| Paid-in |
| Retained |
| Comprehensive |
|
|
|
| Common Stock |
| Treasury Stock |
| Paid-in |
| Retained |
| Comprehensive |
|
| |||||||||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| Loss |
|
| Total |
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Loss |
| Total |
| |||||||||||||||||||||||
|
|
|
| ($000’s) |
|
|
| ($000’s) |
| ($000’s) |
| ($000’s) |
| ($000’s) |
| ($000’s) |
|
|
| ($000’s) |
|
| ($000’s) |
| ($000’s) |
| ($000’s) |
| ($000’s) |
| ($000’s) |
| ||||||||||||||||||||||||||||||||
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|
|
|
| ||||||||||||||||||||||||||||||
Balance, January 31, 2020 |
| 8,481,665 |
| $ | 85 |
| (509,242 | ) |
| $ | (5,023 | ) |
| $ | 75,171 |
| $ | 17,581 |
| $ | (2,762 | ) |
| $ | 85,052 |
|
| 8,481,665 |
| $ | 85 |
| (509,242 | ) |
| $ | (5,023 | ) |
| $ | 75,171 |
| $ | 17,581 |
| $ | (2,762 | ) |
| $ | 85,052 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| 0 |
| — |
| 0 |
| 0 |
| 27,237 |
| 0 |
| 27,237 |
| ||||||||||||||||||||||||||||||
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 8,634 |
|
| 0 |
|
| 8,634 |
|
| — |
| 0 |
| — |
| 0 |
| 0 |
| 0 |
| 225 |
| 225 |
| |||||||||||||||||
Other comprehensive loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (289 | ) |
|
| (289 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Restricted stock issued |
| 9,595 |
| — |
| — |
| — |
| ---- |
| — |
| — |
| ---- |
| |||||||||||||||||||||||||||||||||||||||||||||||
Restricted Stock Plan |
|
| 3,852 |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 143 |
|
|
| 0 |
|
|
| 0 |
|
|
| 143 |
|
| — |
| 0 |
| — |
| 0 |
| 1,186 |
| 0 |
| 0 |
| 1,186 |
| |||||||||||||||
Return of shares in lieu of payroll withholding |
| — |
| 0 |
| — |
| 0 |
|
| (79 | ) |
| 0 |
| 0 |
|
| (79 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Balance, October 31, 2020 |
|
| 8,491,260 |
|
| $ | 85 |
|
|
| (509,242 | ) |
| $ | (5,023 | ) |
| $ | 76,278 |
|
| $ | 44,818 |
|
| $ | (2,537 | ) |
| $ | 113,621 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Balance, April 30, 2020 |
|
| 8,485,517 |
|
| $ | 85 |
|
|
| (509,242 | ) |
| $ | (5,023 | ) |
| $ | 75,314 |
|
| $ | 26,215 |
|
| $ | (3,051 | ) |
| $ | 93,540 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Balance, January 31, 2021 |
| 8,498,457 |
| $ | 85 |
| (509,242 | ) |
| $ | (5,023 | ) |
| $ | 76,781 |
| $ | 52,687 |
| $ | (1,612 | ) |
| $ | 122,918 |
| ||||||||||||||||||||||||||||||||||||||
Balance, July 31, 2020 |
| 8,489,144 |
| $ | 85 |
| (509,242 | ) |
| $ | (5,023 | ) |
| $ | 75,494 |
| $ | 35,554 |
| $ | (2,753 | ) |
| $ | 103,357 |
| ||||||||||||||||||||||||||||||||||||||
Net Income |
| - |
| 0 |
| - |
| 0 |
| - |
| 4,641 |
| 0 |
| 4,641 |
|
| — |
| 0 |
| — |
| 0 |
| 0 |
| 9,264 |
| 0 |
| 9,264 |
| ||||||||||||||||||||||||||||||
Other comprehensive income |
| - |
| 0 |
| - |
| 0 |
| 0 |
| 0 |
| (55 | ) |
| (55 | ) |
| — |
| 0 |
| — |
| 0 |
| 0 |
| 0 |
| 216 |
| 216 |
| |||||||||||||||||||||||||||||
Stock-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
| ||||||||||||||||||||||||||||||
Restricted stock issued |
| 43,778 |
| 1 |
| - |
| 0 |
| 0 |
| 0 |
| 0 |
| 1 |
|
| 2,116 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||||||||||||||||||||||||||
Restricted stock plan |
| - |
| 0 |
| - |
| 0 |
| 336 |
| 0 |
| 0 |
| 336 |
|
| — |
| 0 |
| — |
| 0 |
| 808 |
| 0 |
| 0 |
| 808 |
| ||||||||||||||||||||||||||||||
Return of shares in lieu of payroll withholding |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| (461 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (461 | ) |
| — |
| 0 |
| — |
| 0 |
| (24 | ) |
| 0 |
| 0 |
| (24 | ) | ||||||||||||||
Balance, April 30, 2021 |
|
| 8,542,235 |
|
| $ | 86 |
|
|
| (509,242 | ) |
| $ | (5,023 | ) |
| $ | 76,656 |
|
| $ | 57,328 |
|
| $ | (1,667 | ) |
| $ | 127,380 |
| ||||||||||||||||||||||||||||||||
Balance, October 31, 2020 |
|
| 8,491,260 |
|
| $ | 85 |
|
|
| (509,242 | ) |
| $ | (5,023 | ) |
| $ | 76,278 |
|
| $ | 44,818 |
|
| $ | (2,537 | ) |
| $ | 113,621 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Balance, January 31, 2021 |
| 8,498,457 |
| $ | 85 |
| (509,242 | ) |
| $ | (5,023 | ) |
| $ | 76,781 |
| $ | 52,687 |
| $ | (1,612 | ) |
| $ | 122,918 |
| ||||||||||||||||||||||||||||||||||||||
Net Income |
| — |
| 0 |
| — |
| 0 |
| 0 |
| 9,991 |
| 0 |
| 9,991 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss |
| — |
| 0 |
| — |
| 0 |
| 0 |
| 0 |
| 5 |
| 5 | ||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock issued |
| 57,215 |
| 1 |
| — |
| 0 |
| 0 |
| 0 |
| 0 |
| 1 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock plan |
| — |
| 0 |
| — |
| 0 |
| 1,025 |
| 0 |
| 0 |
| 1,025 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Return of shares in lieu of payroll withholding |
| — |
| 0 |
| — |
| 0 |
|
| (622 | ) |
| 0 |
| 0 |
|
| (622 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Treasury stock purchased |
| — |
| 0 |
|
| (271,024 | ) |
|
| (5,887 | ) |
| ---- |
| ---- |
| ---- |
|
| (5,887 | ) | ||||||||||||||||||||||||||||||||||||||||||
Balance, October 31, 2021 |
|
| 8,555,672 |
|
| $ | 86 |
|
|
| (780,266 | ) |
| $ | (10,910 | ) |
| $ | 77,184 |
|
| $ | 62,678 |
|
| $ | (1,607 | ) |
| $ | 127,431 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Balance, July 31, 2021 |
| 8,542,372 |
| $ | 86 |
| (736,696 | ) |
| $ | (10,017 | ) |
| $ | 76,927 |
| $ | 59,886 |
| $ | (1,676 | ) |
| $ | 125,206 |
| ||||||||||||||||||||||||||||||||||||||
Net Income |
| — |
| 0 |
| — |
| 0 |
| 0 |
| 2,792 |
| 0 |
| 2,792 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income |
| — |
| 0 |
| — |
| 0 |
| 0 |
| 0 |
| 69 |
| 69 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock issued |
| 13,300 |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| |||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock plan |
| — |
| 0 |
| — |
| 0 |
| 418 |
| 0 |
| 0 |
| 418 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Return of shares in lieu of payroll withholding |
| — |
| 0 |
| — |
| 0 |
|
| (161 | ) |
| 0 |
| 0 |
|
| (161 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Treasury stock purchased |
| — |
| 0 |
|
| (43,570 | ) |
|
| (893 | ) |
| ---- |
| ---- |
| ---- |
|
| (893 | ) | ||||||||||||||||||||||||||||||||||||||||||
Balance, October 31, 2021 |
|
| 8,555,672 |
|
| $ | 86 |
|
|
| (780,266 | ) |
| $ | (10,910 | ) |
| $ | 77,184 |
|
| $ | 62,678 |
|
| $ | (1,607 | ) |
| $ | 127,431 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6 |
Table of Contents |
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000)’s
|
| Three Months Ended April 30, |
|
| Nine Months Ended October 31, |
| ||||||||||
|
| 2021 |
| 2020 |
|
| 2021 |
| 2020 |
| ||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 4,641 |
| $ | 8,634 |
|
| $ | 9,991 |
| $ | 27,237 |
| ||
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
| ||||||
Provision for doubtful accounts |
| 173 |
| 150 |
|
| (86 | ) |
| 315 |
| |||||
Deferred income taxes |
| (75 | ) |
| 2,314 |
|
| 790 |
| 3,194 |
| |||||
Depreciation and amortization |
| 499 |
| 453 |
|
| 1,470 |
| 1,425 |
| ||||||
Stock based and restricted stock compensation |
| 336 |
| 163 |
|
| 1,025 |
| 1,245 |
| ||||||
Gain on disposal of property and equipment |
| 17 |
| 7 |
| |||||||||||
Loss on disposal of property and equipment |
| 51 |
| 5 |
| |||||||||||
Non-cash operating lease expense |
| 117 |
| 214 |
|
| 229 |
| 267 |
| ||||||
(Increase) decrease in operating assets |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts receivable |
| 2,328 |
| (7,589 | ) |
| 4,792 |
| (9,249 | ) | ||||||
Inventories |
| (57 | ) |
| 6,656 |
|
| (3,234 | ) |
| (808 | ) | ||||
Prepaid VAT and other taxes |
| (959 | ) |
| (288 | ) |
| (979 | ) |
| (10 | ) | ||||
Other current assets |
| 634 |
| (1,199 | ) | |||||||||||
Other assets |
| 1,020 |
| (484 | ) | |||||||||||
Increase (decrease) in operating liabilities |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable |
| (128 | ) |
| (1,008 | ) |
| (965 | ) |
| 810 |
| ||||
Accrued expenses and other liabilities |
| 1,007 |
| 2,017 |
|
| (1,052 | ) |
| 4,365 |
| |||||
Operating lease liabilities |
|
| (214 | ) |
|
| (271 | ) |
|
| (461 | ) |
|
| (286 | ) |
Net cash provided by operating activities |
|
| 8,318 |
|
|
| 10,253 |
|
|
| 12,591 |
|
|
| 28,026 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Purchases of property and equipment |
|
| (135 | ) |
|
| (194 | ) |
|
| (581 | ) |
|
| (1,325 | ) |
Investments |
|
| (2,783 | ) |
| ---- |
| |||||||||
Net cash (used in) investing activities: |
|
| (3,364 | ) |
|
| (1,325 | ) | ||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Loan repayments, short-term |
| 0 |
| (1,181 | ) |
| ---- |
| (1,319 | ) | ||||||
Loan borrowings, short-term |
| 0 |
| 158 |
|
| ---- |
| 158 |
| ||||||
Purchase of treasury stock under stock repurchase program |
| (5,887 | ) |
| ---- |
| ||||||||||
Shares returned to pay employee taxes under restricted stock program |
|
| (461 | ) |
|
| (20 | ) |
|
| (622 | ) |
|
| (79 | ) |
Net cash (used in) financing activities |
|
| (461 | ) |
|
| (1,043 | ) |
|
| (6,509 | ) |
|
| (1,240 | ) |
Effect of exchange rate changes on cash and cash equivalents |
|
| 3 |
|
|
| (149 | ) |
|
| 219 |
|
|
| 119 |
|
Net increase in cash and cash equivalents |
| 7,726 |
| 8,867 |
|
|
| 2,937 |
|
|
| 25,580 |
| |||
Cash and cash equivalents at beginning of period |
|
| 52,596 |
|
|
| 14,606 |
|
|
| 52,596 |
|
|
| 14,606 |
|
Cash and cash equivalents at end of period |
| $ | 60,322 |
|
| $ | 23,473 |
|
| $ | 55,533 |
|
| $ | 40,186 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Supplemental disclosure of cash flow information: |
|
|
|
|
| |||||||||||
Supplemental disclosure of cash flow information: |
|
|
|
|
| |||||||||||
Cash paid for interest |
| $ | 1 |
|
| $ | 17 |
|
| $ | 7 |
|
| $ | 22 |
|
Cash paid for taxes |
| $ | 1,152 |
|
| $ | 861 |
|
| $ | 4,217 |
|
| $ | 2,376 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Noncash investing and financing activities |
|
|
|
|
|
|
|
|
|
| ||||||
Leased assets obtained in exchange for operating lease liabilities |
| $ | 268 |
|
| $ | 215 |
|
| $ | 3,238 |
|
| $ | 870 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7 |
Table of Contents |
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. | Business |
|
|
| Lakeland Industries, Inc. and Subsidiaries (“Lakeland,” the “Company,” “we,” “our” or “us”), a Delaware corporation organized in April 1986, manufacture and sell a comprehensive line of industrial protective clothing and accessories for the industrial and public protective clothing market. Our products are sold globally by our in-house sales teams, our customer service group, and authorized independent sales representatives to a network of over 1,600 global safety and industrial supply distributors. Our authorized distributors supply end users, such as integrated oil, chemical/petrochemical, automobile, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical, and high technology electronics manufacturers, as well as scientific, medical laboratories and the utilities industry. In addition, through distributors, 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. Internationally, we sell to a mixture of end users directly, and to industrial distributors depending on the particular country and market. Sales are made to more than 50 foreign countries, the majority of which were into China, the European Economic Community (“EEC”), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India and Southeast Asia. |
2. | Basis of Presentation |
|
|
| The condensed consolidated financial statements of the Company are unaudited. These condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state the Company's results. Intercompany accounts and transactions have been eliminated. The results reported in these condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire fiscal year ending January 31, 2022, or for any future period. The January 31, 2021, Condensed Consolidated Balance Sheet data was derived from the audited Consolidated Balance Sheet, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S. GAAP)
In this Form 10-Q, (a) “FY” means fiscal year; thus for example, FY22 refers to the fiscal year ending January 31, 2022, (b) “Q” refers to quarter; thus, for example, |
3. |
|
|
|
|
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. |
|
| April 30, 2021 |
|
| January 31, 2021 |
| ||
|
|
|
|
|
|
| ||
Raw materials |
| $ | 18,624 |
|
| $ | 18,941 |
|
Work-in-process |
|
| 794 |
|
|
| 409 |
|
Finished goods |
|
| 27,145 |
|
|
| 27,047 |
|
Excess and obsolete adjustments |
|
| (2,682 | ) |
|
| (2,564 | ) |
|
| $ | 43,881 |
|
| $ | 43,833 |
|
8 |
Table of Contents |
| The Series A Shares issued to the Company at the closing represent approximately 11.43% of Bodytrak’s total share capital. Under the terms of the Investment Agreement, the Company may also elect, within 30 months of the date of the initial investment, to acquire up to an additional 381,679 Series A Shares of Bodytrak for £1,500,000 (approximately $2.0 million at current exchange rates) assuming all 381,679 Series A Shares are acquired by the Company), which would result in the Company owning an aggregate of 18.42% of Bodytrak’s share capital, assuming no other shares are issued by Bodytrak. The investment in Bodytrak will be accounted for under the equity method given our board representation and the resulting ability to exercise significant influene. A substantial portion of our investment represents differences in our investment and our share of the underlying recognized net assets of Bodytrak. These differences are predominately attributable to non-amortizing intangible assets, including internally developed intellectual property, of Bodytrak. |
4. | Inventories |
Inventory is valued at the lower of cost or market using the first-in, first-out (FIFO) method. Inventories consist of the following (in $000s): |
|
| October 31, 2021 |
|
| January 31, 2021 |
| ||
|
|
|
|
|
|
| ||
Raw materials |
| $ | 17,988 |
|
| $ | 18,941 |
|
Work-in-process |
|
| 415 |
|
|
| 409 |
|
Finished goods |
|
| 31,420 |
|
|
| 27,047 |
|
Excess and obsolete adjustments |
|
| (2,781 | ) |
|
| (2,564 | ) |
|
| $ | 47,042 |
|
| $ | 43,833 |
|
5. | Long-Term Debt |
|
|
| Revolving Credit Facility 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 On June Other than the changes described above, the terms and conditions of the Loan Agreement remain in full force and effect.
As of
Prior to the execution of the Loan Agreement with Bank of America, the Company repaid a $1.2 million term loan that was outstanding under a similar agreement with SunTrust Bank. The Company has terminated the borrowing agreement with SunTrust Bank. |
9 |
Table of Contents |
Borrowings in UK
|
| Concentration of Risk |
|
|
| 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 customer base and their dispersion across geographic areas. The Company routinely addresses the financial strength of its customers and, as a consequence, believes that its receivable credit risk exposure is limited. The Company does not require customers to post collateral.
The Company’s foreign financial depositories are Bank of America; China Construction Bank; Bank of China; China Industrial and Commercial Bank; HSBC (UK); Rural Credit Cooperative of Shandong; Postal Savings Bank of China; Punjab National Bank; HSBC in India, Argentina and UK; Banco Nacion in Argentina; TD Canada Trust; Banco Itaú S.A., Santander in Chile; Banco Mercantil Del Norte SA in Mexico; ZAO KB Citibank Moscow in Russia, and JSC Bank Centercredit in Kazakhstan. The Company monitors its financial depositories by their credit rating which varies by country. In addition, cash balances in banks in the United States of America are insured by the Federal Deposit Insurance Corporation subject to certain limitations. There was approximately
Major Customer No customer accounted for more than 10% of net sales during the three months and nine months ended
Major Supplier No vendor accounted for more than 10% of purchases during the three months and nine months ended |
| Stockholders’ Equity |
|
|
| On June 21, 2017, the stockholders of the Company approved the Lakeland Industries, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). The executive officers and all other employees and directors of the Company, including its subsidiaries, are eligible to participate in the 2017 Plan. The 2017 Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”), except that with respect to all non-employee directors, the Committee shall be deemed to include the full Board. The 2017 Plan provides for the grant of equity-based compensation in the form of stock options, restricted stock, restricted stock units, performance shares, performance units, or stock appreciation rights (“ On June 16, 2021, the stockholders of the Company approved Amendment No. 1 (the “Amendment”) to the 2017 Plan. The Amendment increases the number of shares of common stock, par value $0.01per share (the “Common Stock”), of the Company reserved for issuance under the Plan by 480,000 shares.
An aggregate of
|
|
| Three Months Ended April 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
2017 Plan: |
|
|
|
|
|
| ||
Restricted Stock Program |
| $ | 306 |
|
| $ | 149 |
|
Stock Options |
|
| 30 |
|
|
| 14 |
|
Total stock based compensation |
| $ | 336 |
|
| $ | 164 |
|
Total income tax expense recognized for stock-based compensation arrangements |
| $ | 71 |
|
| $ | 34 |
|
10 |
Table of Contents |
| The Company recognized total stock-based compensation costs, which are reflected in operating expenses (in 000’s): |
|
| Three Months Ended October 31, |
|
| Nine Months Ended October 31, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
2017 Plan: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total restricted stock and stock option programs |
| $ | 418 |
|
| $ | 835 |
|
| $ | 1,025 |
|
| $ | 1,245 |
|
Total income tax expense recognized for stock-based compensation arrangements |
| $ | 108 |
|
| $ | 175 |
|
| $ | 266 |
|
| $ | 262 |
|
Restricted Stock Under the 2017 Plan, as described above, the Company awarded performance-based |
|
| Performance-Based |
| Service-Based |
| Total |
| Weighted Average Grant Date Fair Value |
|
| Performance- Based |
| Service-Based |
| Total |
| Weighted Average Grant Date Fair Value |
| ||||||||||||||
Outstanding at January 31, 2021 |
| 245,210 |
| 30,930 |
| 276,140 |
| $ | 13.24 |
|
| 245,210 |
| 30,930 |
| 276,140 |
| $ | 13.24 |
| ||||||||||||
Awarded |
| ---- |
| ---- |
| ---- |
|
|
|
| 23,101 |
| 38,071 |
| 61,172 |
| $ | 21.71 |
| |||||||||||||
Vested |
| (58,574 | ) |
| ---- |
| (58,574 | ) |
|
|
|
| (79,574 | ) |
| ---- |
| (79,574 | ) |
|
|
| ||||||||||
Forfeited |
| ---- |
| ---- |
| ---- |
|
|
|
| ---- |
| ---- |
| ---- |
|
|
|
| |||||||||||||
Outstanding at April 30, 2021 |
| 186,636 |
| 30,930 |
| 217,566 |
| $ | 12.13 |
| ||||||||||||||||||||||
Outstanding at October 31, 2021 |
|
| 188,737 |
|
| 69,001 |
|
| 257,738 |
| $ | 14.75 |
|
| The actual number of shares of common stock of the Company, if any, to be earned by the award recipients is determined over a three year performance measurement period based on measures that include Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”) margin, revenue growth, and free cash flow for the December 2019,
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
Stock Repurchase Program On |
11 |
Table of Contents |
| Income Taxes |
|
|
|
The Company's effective tax rate for the nine months ended October 31, 2021 was 29.8% which differs from the U.S. federal statutory rate of 21% primarily due to rate differentials in foreign tax jurisdictions and state income taxes. The Company recorded a discrete item related to the remeasurement of deferred taxes for $0.8 million of tax expense primarily as a result of the statutory change in the State of Alabama apportionment factor. The Company's effective tax rate for the nine months ended October 31, 2020 was 21.3% which differs from the U.S. statutory rate of 21% primarily due to Global Intangible Low-Taxed Income (“GILTI”) and an adjustment to reflect the recapture of U.S. NOL as a result of applying the GILTI high tax exclusion in tax years FY19 and FY20. The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. The valuation allowance was
|
| Net Income Per Share |
|
|
| The following table sets forth the computation of basic and diluted net income per share at |
|
| Three Months Ended April 30, |
|
| Three Months Ended October 31, |
| Nine Months Ended October 31, |
| ||||||||||||||||
|
| 2021 |
| 2020 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net income |
| $ | 4,641 |
|
| $ | 8,634 |
|
| $ | 2,792 |
|
| $ | 9,264 |
|
| $ | 9,991 |
|
| $ | 27,237 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Denominator for basic net income per share (weighted-average shares which exclude shares in the treasury, 509,242 at April 30, 2021 and 2020 |
| 7,989,215 |
| 7,972,423 |
| |||||||||||||||||||
Denominator for basic net income per share (weighted-average shares which exclude shares in the treasury, 780,266 and 509,242 at October 31, 2021 and 2020, respectively |
| 7,849,591 |
| 7,979,902 |
| 7,942,162 |
| 7,976,228 |
| |||||||||||||||
Effect of dilutive securities from restricted stock plan |
|
| 154,590 |
|
|
| 72,426 |
|
|
| 149,374 |
|
|
| 143,946 |
|
|
| 152,863 |
|
|
| 134,207 |
|
Denominator for diluted net income per share (adjusted weighted average shares) |
|
| 8,143,805 |
|
|
| 8,044,849 |
|
|
| 7,998,965 |
|
|
| 8,123,848 |
|
|
| 8,095,025 |
|
|
| 8,110,435 |
|
Basic net income per share |
| $ | 0.58 |
|
| $ | 1.08 |
|
| $ | 0.36 |
|
| $ | 1.16 |
|
| $ | 1.26 |
|
| $ | 3.41 |
|
Diluted net income per share |
| $ | 0.57 |
|
| $ | 1.07 |
|
| $ | 0.35 |
|
| $ | 1.14 |
|
| $ | 1.23 |
|
| $ | 3.36 |
|
| Contingencies |
|
|
|
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed. |
12 |
Table of Contents |
The Company’s Exit from Brazil On March 9, 2015, Lakeland Brazil, S.A. changed its legal form to a Limitada and changed its name to Lake Brasil Industria E Comercio de Roupas E Equipamentos de Protecao Individual LTDA (“Lakeland Brazil”).
Transfer of Shares Agreement On July 31, 2015, |
Although the Company formally completed the terms of the
Labor Claims in Brazil As disclosed in our periodic filings with the
In the civil matter filed five years ago in 2016, a former Lakeland Brazil manager is seeking approximately USD $700,000 he alleges is due to him against an unpaid promissory note. Lakeland has not been served with process and no decision on the merits has been issued in this case yet.
Lakeland Brazil may face new labor lawsuits in the short term as a result of the shutdown of its operations in March 2019. The Company has no obligation under the Shares Transfer Agreement to make any additional payments in connection with these potential new labor lawsuits. The Company also understands that under the labor laws of Brazil, a parent company may be held liable for the labor liabilities of a former Brazilian subsidiary in the case of fraud, misconduct, or under various theories.
Although the Company would have the right
|
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 |
| Segment Reporting |
|
|
| We manage our operations by evaluating each of our geographic locations. Our US operations include a facility in Alabama (primarily |
13 |
Table of Contents |
| The table below represents information about reported segments for the three and nine month periods noted therein: |
|
| Three Months Ended April 30, |
|
| Three Months Ended October 31, |
| Nine Months Ended October 31, |
| ||||||||||||||||
|
| (in millions of dollars) |
|
| (in millions of dollars) |
| (in millions of dollars) |
| ||||||||||||||||
|
| 2021 |
| 2020 |
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||||
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
USA Operations (including Corporate) |
| $ | 16.41 |
| $ | 24.13 |
|
| $ | 11.72 |
| $ | 17.43 |
| $ | 39.43 |
| $ | 57.11 |
| ||||
Other foreign |
| 2.46 |
| 3.04 |
|
| 2.22 |
| 3.39 |
| 7.23 |
| 8.81 |
| ||||||||||
Europe (UK) |
| 4.40 |
| 3.01 |
|
| 1.70 |
| 5.58 |
| 8.79 |
| 12.75 |
| ||||||||||
Mexico |
| 1.81 |
| 1.82 |
|
| 1.25 |
| 2.12 |
| 4.12 |
| 4.84 |
| ||||||||||
Asia |
| 18.19 |
| 20.02 |
|
| 21.85 |
| 23.25 |
| 59.31 |
| 67.42 |
| ||||||||||
Canada |
| 1.78 |
| 4.31 |
|
| 2.92 |
| 4.20 |
| 6.78 |
| 10.92 |
| ||||||||||
Latin America |
| 3.56 |
| 2.54 |
|
| 2.49 |
| 3.75 |
| 9.28 |
| 9.38 |
| ||||||||||
Less intersegment sales |
|
| (14.51 | ) |
|
| (13.29 | ) |
|
| (14.12 | ) |
|
| (18.27 | ) |
|
| (43.35 | ) |
|
| (49.18 | ) |
Consolidated sales |
| $ | 34.10 |
|
| $ | 45.58 |
|
| $ | 30.03 |
|
| $ | 41.45 |
|
| $ | 91.59 |
|
| $ | 122.05 |
|
External Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
USA Operations (including Corporate) |
| $ | 15.70 |
| $ | 23.11 |
|
| $ | 10.61 |
| $ | 17.04 |
| $ | 36.46 |
| $ | 54.60 |
| ||||
Other foreign |
| 1.58 |
| 2.30 |
|
| 1.69 |
| 2.72 |
| 5.02 |
| 7.04 |
| ||||||||||
Europe (UK) |
| 4.40 |
| 3.01 |
|
| 1.70 |
| 5.58 |
| 8.79 |
| 12.75 |
| ||||||||||
Mexico |
| 1.55 |
| 1.37 |
|
| 0.99 |
| 1.91 |
| 3.29 |
| 3.89 |
| ||||||||||
Asia |
| 5.64 |
| 9.05 |
|
| 9.83 |
| 6.36 |
| 22.40 |
| 23.80 |
| ||||||||||
Canada |
| 1.78 |
| 4.31 |
|
| 2.92 |
| 4.20 |
| 6.78 |
| 10.92 |
| ||||||||||
Latin America |
|
| 3.45 |
|
|
| 2.43 |
|
|
| 2.29 |
|
|
| 3.64 |
|
|
| 8.85 |
|
|
| 9.05 |
|
Consolidated external sales |
| $ | 34.10 |
|
| $ | 45.58 |
|
| $ | 30.03 |
|
| $ | 41.45 |
|
| $ | 91.59 |
|
| $ | 122.05 |
|
Intersegment Sales: |
|
|
|
|
| |||||||||||||||||||
USA Operations (including Corporate) |
| $ | 0.71 |
| $ | 1.02 |
| |||||||||||||||||
Other foreign |
| 0.88 |
| 0.74 |
| |||||||||||||||||||
Mexico |
| 0.26 |
| 0.45 |
| |||||||||||||||||||
Asia |
| 12.55 |
| 10.97 |
| |||||||||||||||||||
Latin America |
|
| 0.11 |
|
|
| 0.11 |
| ||||||||||||||||
Consolidated intersegment sales |
| $ | 14.51 |
|
| $ | 13.29 |
| ||||||||||||||||
Operating Profit (Loss): |
|
|
|
|
| |||||||||||||||||||
USA Operations (including Corporate) |
| $ | 0.27 |
| $ | 4.33 |
| |||||||||||||||||
Other foreign |
| 0.57 |
| 1.23 |
| |||||||||||||||||||
Europe (UK) |
| 1.60 |
| 0.46 |
| |||||||||||||||||||
Mexico |
| 0.05 |
| 0.22 |
| |||||||||||||||||||
Asia |
| 3.35 |
| 4.51 |
| |||||||||||||||||||
Canada |
| 0.47 |
| 1.13 |
| |||||||||||||||||||
Latin America |
|
| 0.90 |
|
|
| 0.57 |
| ||||||||||||||||
Less intersegment profit |
|
| (0.97 | ) |
|
| (0.08 | ) | ||||||||||||||||
Consolidated operating profit |
| $ | 6.24 |
|
| $ | 12.37 |
|
|
| April 30, 2021 |
| January 31, 2021 |
| |||||||||||||||||||
|
| (in millions of dollars) |
| |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total Assets: |
|
|
|
|
| |||||||||||||||||||
Intersegment Sales: |
|
|
|
|
|
|
|
|
| |||||||||||||||
USA Operations (including Corporate) |
| $ | 52.81 |
| $ | 52.31 |
|
| $ | 1.09 |
| $ | 0.39 |
| $ | 2.97 |
| $ | 2.50 |
| ||||
Other foreign |
| 8.65 |
| 8.37 |
|
| 0.54 |
| 0.67 |
| 2.22 |
| 1.77 |
| ||||||||||
Europe (UK) |
| 11.88 |
| 11.33 |
| |||||||||||||||||||
Mexico |
| 5.66 |
| 5.62 |
|
| 0.27 |
| 0.21 |
| 0.83 |
| 0.95 |
| ||||||||||
Asia |
| 49.93 |
| 47.29 |
|
| 12.02 |
| 16.90 |
| 36.91 |
| 43.62 |
| ||||||||||
Canada |
| 7.82 |
| 8.03 |
| |||||||||||||||||||
Latin America |
|
| 8.30 |
|
|
| 6.97 |
|
|
| 0.20 |
|
|
| 0.10 |
|
|
| 0.42 |
|
|
| 0.34 |
|
Consolidated assets |
| $ | 145.05 |
|
| $ | 139.92 |
| ||||||||||||||||
Consolidated intersegment sales |
| $ | 14.12 |
|
| $ | 18.27 |
|
| $ | 43.35 |
|
| $ | 49.18 |
|
14 |
Table of Contents |
|
|
| Three Months Ended October 31, |
|
| Nine Months Ended October 31, |
| ||||||||||
|
| (in millions of dollars) |
|
| (in millions of dollars) |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Operating Profit (Loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
USA Operations (including Corporate) |
| $ | (2.03 | ) |
| $ | 2.17 |
|
| $ | (2.88 | ) |
| $ | 7.86 |
|
Other foreign |
|
| 0.40 |
|
|
| 0.96 |
|
|
| 1.40 |
|
|
| 3.35 |
|
Europe (UK) |
|
| (0.04 | ) |
|
| 1.75 |
|
|
| 1.72 |
|
|
| 3.35 |
|
Mexico |
|
| (0.28 | ) |
|
| 0.11 |
|
|
| (0.61 | ) |
|
| 0.12 |
|
Asia |
|
| 4.96 |
|
|
| 6.04 |
|
|
| 11.34 |
|
|
| 15.51 |
|
Canada |
|
| 0.65 |
|
|
| 0.55 |
|
|
| 1.41 |
|
|
| 1.95 |
|
Latin America |
|
| 0.43 |
|
|
| 1.24 |
|
|
| 2.10 |
|
|
| 2.93 |
|
Intersegment profit (loss) |
| ---- |
|
|
| (0.33 | ) |
|
| (0.23 | ) |
|
| (0.47 | ) | |
Consolidated operating profit |
| $ | 4.09 |
|
| $ | 12.49 |
|
| $ | 14.25 |
|
| $ | 34.60 |
|
|
| Three Months Ended April 30, (in millions of dollars) |
| |||||
|
| 2022 |
|
| 2021 |
| ||
External Sales by product lines: |
|
|
|
|
|
| ||
Disposables |
| $ | 19.70 |
|
| $ | 31.21 |
|
Chemical |
|
| 8.26 |
|
|
| 8.88 |
|
Fire |
|
| 1.90 |
|
|
| 1.45 |
|
Gloves |
|
| 0.45 |
|
|
| 0.78 |
|
High Visibility |
|
| 1.30 |
|
|
| 1.35 |
|
High Performance Wear |
|
| 0.86 |
|
|
| 0.29 |
|
Wovens |
|
| 1.63 |
|
|
| 1.62 |
|
Consolidated external sales |
| $ | 34.10 |
|
| $ | 45.58 |
|
|
| October 31, 2021 |
|
| January 31, 2021 |
| ||
|
| (in millions of dollars) |
| |||||
Total Assets: |
|
|
|
|
|
| ||
USA Operations (including Corporate) |
| $ | 53.84 |
|
| $ | 52.31 |
|
Other foreign |
|
| 8.55 |
|
|
| 8.37 |
|
Europe (UK) |
|
| 9.35 |
|
|
| 11.33 |
|
Mexico |
|
| 5.31 |
|
|
| 5.62 |
|
Asia |
|
| 54.47 |
|
|
| 47.29 |
|
Canada |
|
| 5.42 |
|
|
| 8.03 |
|
Latin America |
|
| 8.21 |
|
|
| 6.97 |
|
Consolidated assets |
| $ | 145.15 |
|
| $ | 139.92 |
|
The table below presents external sales by product line:
|
| Three Months Ended October 31, (in millions of dollars) |
|
| Nine Months Ended October 31, (in millions of dollars) |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
External Sales by product lines: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Disposables |
| $ | 18.14 |
|
| $ | 25.78 |
|
| $ | 53.04 |
|
| $ | 80.77 |
|
Chemical |
|
| 5.15 |
|
|
| 9.71 |
|
|
| 19.01 |
|
|
| 24.77 |
|
Fire |
|
| 1.50 |
|
|
| 1.62 |
|
|
| 5.92 |
|
|
| 4.74 |
|
Gloves |
|
| 0.63 |
|
|
| 0.54 |
|
|
| 1.66 |
|
|
| 1.86 |
|
High Visibility |
|
| 1.65 |
|
|
| 1.40 |
|
|
| 3.81 |
|
|
| 3.70 |
|
High Performance Wear |
|
| 0.90 |
|
|
| 0.74 |
|
|
| 2.77 |
|
|
| 1.56 |
|
Wovens |
|
| 2.06 |
|
|
| 1.66 |
|
|
| 5.38 |
|
|
| 4.65 |
|
Consolidated external sales |
| $ | 30.03 |
|
| $ | 41.45 |
|
| $ | 91.59 |
|
| $ | 122.05 |
|
Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following discussion and analysis should be read in conjunction with the historical financial statements and other financial information included elsewhere in this quarterly report on Form 10-Q. This Form 10-Q may contain certain forward-looking statements. When used in this Form 10-Q or in any other presentation, statements which are not historical in nature, including the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” “project”, “plan,” “seek,” “will,” “may,” “might,” “would,” “could” and similar expressions, are intended to identify forward-looking statements. They also include statements containing a projection of sales, earnings or losses, capital expenditures, dividends, capital structure or other financial terms.
The forward-looking statements in this Form 10-Q are based upon our management’s beliefs, assumptions and expectations of our future operations and economic performance, taking into account the information currently available to us. These statements are not statements of fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations are:
| · | we are subject to risk as a result of our international manufacturing operations and are subject to the risk of doing business in foreign countries; |
| · | a terrorism attack, other geopolitical crisis, or widespread outbreak of an illness or other health issue, such as the COVID-19 pandemic, could negatively impact our domestic and/or international operations; |
| · | as a result of the COVID-19 pandemic, a recession or other negative economic conditions may result which |
| · | sales and operating profits for the |
| · | our results of operations could be negatively affected by potential fluctuations in foreign currency exchange rates; |
| · | the implementation of our "Enterprise Resource Planning ("ERP") system had, and may in the future as we implement ERP into foreign operations have, an adverse effect on operating results; |
| · | we have manufacturing and other operations in China which may be adversely affected by tariff wars and other trade maneuvers; |
| · | our results of operations may vary widely from quarter to quarter; |
| · | some of our sales are to foreign buyers, which exposes us to additional risks; |
| · | we deal in countries where corruption is an obstacle; |
| · | we are exposed to tax expense risks; |
| · | 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; |
| · | we face competition from other companies, a number of which have substantially greater resources than we do; |
| · | our operations are substantially dependent upon key personnel; |
| · | |
| cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information and adversely impact our reputation and | |
| · | we may be subject to product liability claims, and insurance coverage could be inadequate or unavailable to cover these claims; |
| · | environmental laws and regulations may subject us to significant liabilities; |
| · | our directors and executive officers have the ability to exert significant influence on us and on matters subject to a vote of our stockholders; |
| · | provisions in our restated certificate of incorporation and by-laws and Delaware law could make a merger, tender offer or proxy contest difficult; |
| · | acquisitions and investments could be unsuccessful; |
| · | we may not achieve the expected benefits from strategic acquisitions, investments, joint ventures, capital investments and other corporate transactions that we have pursued or may pursue; |
· | 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; | |
| · | rapid technological change could negatively affect sales of our products, inventory levels and our performance; |
| · | the other factors referenced in this Form 10-Q, including, without limitation, in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the factors described under “Risk Factors” disclosed in our fiscal 2021 Form 10-K. |
16 |
Table of Contents |
We believe these forward-looking statements are reasonable; however, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Furthermore, forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements after the date of this Form 10-Q, whether as a result of new information, future events or otherwise.otherwise, except as may be required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 10-Q might not occur. We qualify any and all of our forward-looking statements entirely by these cautionary factors.
Overview
We manufacture and sell a comprehensive line of industrial protective clothing and accessories for the industrial and public protective clothing market. Our products are sold globally by our in-house sales teams, our customer service group, and authorized independent sales representatives to a network of over 1,600 global safety and industrial supply distributors. Our authorized distributors supply end users, such as integrated oil, chemical/petrochemical, automobile, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical, and high technology electronics manufacturers, as well as scientific, medical laboratories and the utilities industry. 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. Internationally, we sell to a mixture of end users directly, and to industrial distributors depending on the particular country and market. In addition to the United States, sales are made to more than 50 foreign countries, the majority of which were into China, the European Economic Community (“EEC”), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India and Southeast Asia.
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. More recently we haveWe added manufacturing operations in Vietnam and India in fiscal 2019, to offset increasing manufacturing costs in China and further diversify our manufacturing 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 control rising costs, it is also necessary for Lakeland to achieve its growth objectives.
Our net sales attributable to customers outside the United States were $18.4$19.4 million and $22.5$24.4 million for the three months ended April 30,October 31, 2021 and 2020, respectively and $55.1 million and $67.5 million for the nine months ended October 31, 2021 and 2020, respectively.
Response to COVID-19 Outbreak
Our strategy for responding to the COVID-19 outbreak evolved from prior “black swan” events. These events have been very 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. We decided to focusThroughout 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 decidedsought 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 diminishingincreasing market penetration in a post COVID-19 environment. Even though we were successful in selling to more than 500 new distributrors and end users, 75% of whom were outside of the impactU.S. market, excess pipeline inventory and freight delays have proven a significant headwind. We anticipate that 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 dimisnished, but persistent component of any post-event recession and loss of COVID-19 related sales while accelerating our growth by developing new, permanent business that will remain after the “black swan” event passes.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 changechanges over times.time. Because we own our manufacturing facilities, Lakeland was able to make these changes within the first couple of months of the pandemic.
17 |
Table of Contents |
The last two weeks of FY20, all of FY21, and Q1 FY22the nine months ended October 31, 2021, 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 Q4FY21Q4 FY21 we began to see a softening in demand for COVID-19 related sales, and a return of general industrial demand that continued into Q1Q3 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 approximately 30% to 35% of FY21 revenue and accounted for an estimated 13%20% of Q1Q3 FY22 sales.
The increase in COVID-19 driven sales in Q3 FY22, (approximately 20%) compared to Q2 FY22 (approximately 13%) is a significant departure from our previous expectations for continuous quarter over quarter declines in COVID-19 demand as the pandemic winds down. We attribute this change primarily to regional differences in COVID-19 responses and preparation. Q3 FY22 saw a wave of COVID-19 outbreaks in Southeast Asia while Q2 FY22 was the height of the delta variant outbreak in the U.S. We believe that the quarter over quarter increase in COVID sales as a percent of revenue reflects how regional pandemic responses, specifically the percentage of the the population vaccinated and the quantities of PPE stockpiled, may lead to fluctuations in COVID-19 sales going forward. COVID-19 outbreaks in developing regions of the world are likely to result in greater demand than outbreaks in developed countries where vaccination levels and stockpiles are greater. Q2 FY22 saw the bulk of the delta variant outbreak in the U.S. but generated less demand than the Q3 FY22 outbreak of the same variant in Southeast Asia. We believe this trend is likely to repeat itself, with diminishing demand differences, as the pandemic runs its course to some persistent level with an indeterminant demand level similar to the seasonal flu. Our strategy in response to this development is unchanged as we are well positioned to address demand fluctuations around the world and have adequate inventory of finished good to respond, without delay, to these events as they unfold. Likewise, this development does not alter our internal growth projections as the net result of this trend is demand for our products exceeding our previous expectations.
While we saw, and noted, an initial recovery in the industrial markets in the U.S., we now believe that the strength of the recovery was magnified by freight delays extending order leadtimes leading distributors and end users to place more orders as industrial activity surged. As these delayed shipments arrived throughout the nine months ended October 31, 2021, an excess of inventory was created in 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 demand continuesinventory as freight delays continue. We believe that industrial activity in developed regions of the world is likely to decrease,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 continuationslower industrial recovery in developing regions to negatively impact our growth potential primarily because the regional dispersion of an increase in our industrial core businesses that began in Q2 FY21 and continued through Q1 FY22 with our sales also benefitting from repeatfavors the developed regions of the world by a significant margin.
As noted above, as freight delayed orders by new industrial customers that began using Lakeland during the pandemic. The negative impact of lock downshave arrived through late Q1, and stay at home orders peaked in Q2 FY21 with industrial business sales down by approximately 25%. Through the second halfall of Q2 FY21 and through Q1Q3 FY22, our core business sales have been recovering steadily. At present, we anticipate our core industrial sales will not only return, but as a result of our focus on increased market penetration and new product offerings we believe revenues will attain levels higher than pre-pandemic revenue levels.
We are not deviating from our growth strategy, rather we are looking to utilize the short-term, increased demand as a catalyst to accelerate attainment of growth objectives. The success of this strategy is clearly exemplified by our Q1 FY22 new customer order rate of approximately 68% of the more than 500 new customers we have developed.
Over the course of FY21, raw materials supply appears to havePPE manufacturing has caught up withto current COVID-19 demand. PricesRaw materials and finished goods pricing have declined, but remain above pre-COVID-19 pricing as we anticipated. We believe that raw materials prices will continue at inflated levels through FY22.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.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 at these higher prices. With the exceptiondemand.
In Q3 FY22 we did not experience any manufacturing shutdowns or closures of any of our India export manufacturing operation, which did not qualify for “essential status”facilities due to its export only restrictions, and whereCOVID-19. Employee absence due to potential exposure or quarantine of the neighborhood in which they live is a recent surgepersistent problem, but has led to government imposed lockdowns, wenot resulted in the shutdown of any facilties. 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 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 a robustan 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 the second halffourth quarter of FY22.
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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 up and may negatively impact our gross margins. Where we can, we will seek to recover increased costs with corresponding price increases.
Reference is made to “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021 and to “Forward-Looking Statements” above in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”. Offsetting these risks are changes to our sales environment, as a result of COVID-19, that we believe represent considerable upside to sales. We believe that once the pandemic subsides, there will be continued demand for establishing PPE stockpiles for the long-term. This stockpiling will be filled in part by inventory that is in the distribution channels as the pandemic ends.subsides. When specific governments will issue RFQs for additional product is unknown, but some RFQs are already pending release; others are expected to be released over the next several months. Additionally, we believe the private sector will also engage in stockpiling of PPE as supply channels catch up to demand. And finally, we are seeing the emergence of institutional cleaning as a new market segment as countries and states reopen and seek to prevent further infections. More recently we are seeing increased demand related to COVID-19 surges in Vietnam and India. For these reasons we are maximizing our manufacturing capacity in the near-term and evaluating expansion opportunities to allow us to further increase our industrial market penetration as our competitors abandon their industrial customers as they seek to maximize COVID-19 related sales. This strategy combined with new product development, manufacturing expansion, and the addition of key senior personnel also serves to prepare us for any economic slowdown that may occur as COVID-19 business ends and our industry transitions to a more traditional product mix.
Having successfully implemented the above strategy, as evidenced by significantlyrealized significant efficiency gains, resulting in increased market penetration in international markets, the addition of new customers, and realizing efficiency gainsprofitability, that we intend to make permanent, we are now focused on adding human and IT resources required to accelerate our growth rate in a post-COVID-19 environment. We believe that wehave emerged from FY21 a full year aheadand COVID-19 nearly twice as profitable as we were pre-COVID-19. This is evident when comparing Q3 FY20 (pre-COVID) to Q3 FY22. Sales revenues of our pre-COVID-19 growth plan,$30.0 million in Q3 FY22 exceeded Q3 FY20 sales of $27.5 million and net income more than doubled from $1.1 million in Q3 FY20 to $2.8 million in Q3 FY22. Going forward, we are committed to leveraging our position to accelerate growth in Critical Environment Markets such as pharmaceutical cleanrooms, isolation gowns, and Chemo-gowns; the Electric Utility Market; and towill continue improving efficiencies by rationalizing our product offering in non-Covidnon-COVID product lines. To do this we will be acquiring additional senior and middle managers with specific skills in Sales and Marketing, Quality Control, Supply Chain Management, and Industrial Engineering. These personnel will facilitate future manufacturing expansion.byexpansion by assuring that we have the skill sets necessary to meet our growth targets. In addition, we may pursue growth through acquistions.acquisitions.
On October 18, 2021, the Company made a strategic investment of $2.8 million in Inova Design Solutions Ltd. (doing business as Bodytrak®) as a groundbreaking step toward entering the Connected Worker Market for “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 industrial protective solutions.
Bodytrak (London, UK) 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.
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Significant Balance Sheet Fluctuation April 30,October 31, 2021, Compared to January 31, 2021
Cash increased by $7.7$2.9 million, primarily as a result of continued profitability and improved accounts receivable collection efficiency.generated $12.6 million of cash flow from operations offset by our investment of $2.8 million in Bodytrak, $5.9 million of share purchases under our treasury stock program. Accounts receivable decreased due to improved collections and lower sales levels compared to the previous quarter.prior year. Inventory increased less than $0.1 million.$3.2 million due to planned increases to offset freight delays, and reduced demand as compared to prior year. Accounts payable, accrued compensation, and other accrued expenses increased $0.1decreased $2.0 million. Capital expenditures for the three and nine months ended April 30,October 31, 2021 were $0.1 million.million and $0.6 million, respectively.
Three Months ended April 30,October 31, 2021, Compared to the Three Months Ended April 30,October 31, 2020
Reference is made to “Overview; Response to COVID-19 Outbreak” above which should be read in conjunction with this Section.
Net Sales.Sales. Net sales were $34.1$30.0 million for the three months ended April 30,October 31, 2021 a decrease of $11.5 million or 25.2%27.7% compared to $45.6$41.5 million for the three months ended April 30, 2020,October 31, 2020. Sales of our disposable and chemical product line were impacted in the firstthird quarter due to a reduction in direct container sales that were COVID-19 driven demand. As noted, it is anticipated thatby COVID-19 demand will continue to diminish.and continued softness in demand from our industrial markets. Other product lines such as fire, high performance, and wovens, which are primarily usedincreased by industrial customers, increased during the period$0.4 million due to strengthening demand in those markets. Sales were affected by customers over-ordering in prior periods, resulting in excess channel inventories, and shipping delays with ocean freight carriers.
Gross Profit.Profit. Gross profit for the three months ended April 30,October 31, 2021 was $14.4$12.6 million, a decrease of $7.8$9.1 million, or 35.0%41.9%, compared to $22.1$21.7 million for the three months ended April 30,October 31, 2020. Gross profit as a percentage of net sales decreased to 42.2%42.1% for the three month period ended April 30,October 31, 2021, from 48.6%52.3% for the three months ended April 30,October 31, 2020. Gross profit performance in the fiscal 2021 period benefited from higher volumes including direct container shipments, related factory utilization and an improving product mix with pricing power. Major factors driving the decline in gross margins in the three months ended October 31, 2021, were:
| · | Lower level of direct container sales in the current period. |
| · | Return to competitive pricing pressures as |
· | Increases in transportation costs. |
Operating Expense.Expense. Operating expenses decreased 17.3%7.6% from $9.8$9.2 million for the three months ended April 30,October 31, 2020 to $8.1$8.5 million for the three months ended April 30,October 31, 2021. This decrease is attributable to decreases in sales compensation, equity compensation, bad debt, and currency fluctuations offset by increases in travel and administrative expenses. Operating expenses as a percentage of net sales was 23.9%28.4% for the three months ended April 30,October 31, 2021, up from 21.4%22.2% for the three months ended April 30, 2020. Selling expenses were decreased, with decreases in sales compensation and commissions and freight outOctober 31, 2020 primarily due to the decrease inlower volume of sales. General and administrative expenses in total were essentially the same for each period which included a gain in currency fluctuations of $0.5 million in Q1 FY22 as compared to currency losses of $0.2 million in Q1 FY21. This currency gain was offset by compensation costs and licensing and depreciation associated with our ERP investment.
Operating Profit. Operating profit declined to $6.2$4.1 million for the three months ended April 30,October 31, 2021 from $12.4$12.5 million for the three months ended April 30,October 31, 2020, due to the impacts detailed above. Operating margins were 18.3%13.6% for the three months ended April 30,October 31, 2021, as compared to 27.1%30.1% for the three months ended April 30,October 31, 2020.
Interest Expense. Interest expense decreased slightly to less than $0.01 million for the three months ended April 30, 2021 from $0.02 million for the three months ended April 30, 2020 as a result of reduced borrowings.
Income Tax Expense. Income tax expense consists of federal, state and foreign income taxes. Income tax expense was $1.6$1.3 million for the three months ended April 30,October 31, 2021, compared to $3.7$3.2 million for the three months ended April 30, 2020,October 31, 2020. The decrease is due to the reduction in operating profit. pre-tax income. The effective rate for the three months ended October 31, 2021 was 31.7%. The effective rate for the three months ended October 31, 2020 was 25.9%.
Net Income.Net income decreased by $4.0$6.5 million to $4.6$2.8 million for the three months ended April 30,October 31, 2021 from income of $8.6$9.3 million for the three months ended April 30,October 31, 2020.
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Nine Months ended October 31, 2021, Compared to the Nine Months Ended October 31, 2020
Reference is made to “Overview; Response to COVID-19 Outbreak” above which should be read in conjunction with this Section.
Net Sales. Net sales were $91.6 million for the nine months ended October 31, 2021 as compared to $122.1 million for the nine months ended October 31, 2020, a decrease of 25.0%. Sales of our disposable and chemical product line declined by $33.5 million due to reduction in direct container sales driven by COVID-19 demand and continued softness in demand for industrial applications. As noted, it is anticipated that COVID-19 demand will continue to diminish. Other product lines such as fire, high performance and wovens, increased by $3.1 million in the aggregate during the period due to strengthening in those markets.
For the nine months ended October 31, 2020 sales globally were driven by COVID-19 demand, as we realized significant increases in all markets for our disposable and chemical product lines.
Gross Profit. Gross profit was $39.7 million for the nine months ended October 31, 2021, a decrease of $21.5 million, or 35.1%, from $61.2 million for the nine months ended October 31, 2020. Gross profit as a percentage of net sales decreased to 43.4% for the nine months ended October 31, 2021, from 50.1% for the nine months ended October 31, 2020. Major factors driving gross margins were:
· | Significant decreases in volumes driven by COVID-19 demand. | |
· | Decrease in direct container sales. | |
· | Return to competitive pricing pressures as COVID-19 demand decreases. | |
· | Increases in transportation costs. |
Operating Expense. Operating expenses declined $1.1 million, or 4.1%, to $25.5 million for the nine months ended October 31, 2021 from $26.6 million for the nine months ended October 31, 2020. This decrease was due to decreases in sales compensation, customer incentives, equity compensation, and currency fluctuations offset by increases in administrative expenses, technology licenses, and depreciation. Operating expenses as a percentage of net sales was 27.8% for the nine months ended October 31, 2021, up from 21.8% for the nine months ended October 31, 2020 primarily due to the lower volume of sales.
Operating Profit. Operating profit decreased to $14.3 million for the nine months ended October 31, 2021 from $34.6 million for the nine months ended October 31, 2020, due to the impacts detailed above. Operating margins were 15.6% for the nine months ended October 31, 2021, as compared to 28.3% for the nine months ended October 31, 2020.
Income Tax Expense. Income tax expense consists of federal, state and foreign income taxes. Income tax expense was $4.2 million for the nine months ended October 31, 2021, compared to $7.4 million for the nine months ended October 31, 2020. The decrease is mainly attributable to the decrease in operating profit. The Company recorded a discrete item related to the remeasurement of deferred taxes for $0.8million of tax expense primarily as a result of the statutory change in the State of Alabama apportionment factor. The effective rate for the nine months ended October 31, 2021 was 29.8%. The effective rate for the nine months ended October 31, 2020 was 21.3%.
Net Income. Net income decreased by $17.2 million to $10.0 million for the nine months ended October 31, 2021 from $27.2 million for the nine months ended October 31, 2020.
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Liquidity and Capital Resources
At April 30,October 31, 2021, cash and cash equivalents were approximately $60.3$55.5 million and working capital was approximately $112.7$111.0 million. Cash and cash equivalents increased $7.7$2.9 million and working capital increased $4.5$2.8 million from January 31, 2021, due to continued profitability and a focus on working capital efficiencies.efficiencies, partially offset by treasury stock purchases of $5.9 million and investment in Bodytrak of $2.8 million.
Of the Company’s total cash and cash equivalents of $60.3$55.5 million as of April 30,October 31, 2021, cash held in Latin America of $2.7$2.6 million, cash held in Russia and Kazakhstan of $0.7 million, cash held in the UK of $1.7$0.6 million, cash held in India of $1.2$0.9 million, cash held in Hong Kong of $7.0 million and cash held in CanadaVietnam of $4.7$2.0 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 December 22, 2017 enactment of the 2017 Tax Cuts and Jobs Act (the “Tax Act”). In the event the Company repatriated cash from China, of the $26.6$26.3 million balance at April 30,October 31, 2021 there would be an additional 10% withholding tax incurred in that country. The Company has strategically employed a dividend plan subject to declaration and certain approvals in which its Canadian subsidiary sends dividends to the US in the amount of 100% of the previous year’s earnings, the UK subsidiary sends dividends to the US in the amount of 50% of the previous year’s earnings.
Net cash provided by operating activities of $8.3$12.6 million for the threenine months ended April 30,October 31, 2021 was primarily due to net income of $4.6$10.0 million, non-cash expenses of $1.1$3.5 million, for deferred taxes, depreciation and amortization and stock compensation, and decrease in accounts receivablenet current assets of $2.3$1.6 million offset by a reduction in current liabilities of $2.5 million. Net cash used in investing activities of $0.1$3.4 million for the quarternine months ended April 30,October 31, 2021 reflects office and manufacturing equipment purchases.purchases and the investment in Bodytrak of $2.8 million. Net cash used in financing activities was $0.5$6.5 million for the quarternine months ended April 30,October 31, 2021, was due to $5.9 million in shares repurchased under our treasury stock buyback program and shares returned to pay income taxes on shares vested under our restricted stock program.
We believe our current cash balance and cashflow from operations will be sufficient to satisfy our projected working capital and planned capital expenditures for the foreseeable future.
On June 25, 2020, we entered into a Loan Agreement (the “Loan Agreement”) with Bank of America (“Lender”). The Loan Agreement provides the Company with a secured $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 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 25, 2025. Borrowings under the revolving credit facility bear interest at a rate per annum equal to the sum of the 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 the 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 October 31, 2021.
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Other than the changes described above, the terms and conditions of the Loan Agreement remain in full force and effect.
Stock Repurchase Program. On February 17, 2021, the Company’s board of directors approved a stock repurchase program under which the Company may repurchase up to $5,000,000$5 million of its outstanding common stock. The newOn July 6, 2021, the Board of Directors authorized an increase in the Company’s current stock repurchase program replacesunder which the prior program which had approximately $800,000 remaining for repurchases. There were no sharesCompany may repurchase up to an additional $5 million of its outstanding common stock. Shares repurchased in Q1 FY22.the nine months ended October 31, 2021 totaled 271,024 shares at a cost of $5.9 million leaving $4.1 million remaining under the stock repurchase program at October 31, 2021.
Capital Expenditures. Our capital expenditures for the first threenine months of FY22 of $0.1$0.6 million principally relate to capital purchases for our manufacturing facilities in Mexico, Vietnam and India, and the enhancement of our global IT infrastructure.infrastructure and furnishing our new corporate headquarter office. We anticipate FY22 capital expenditures to be approximately $3.0$1.0 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. The Company may also seek to expend funds in connection with acquisitions.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. A summary of our significant accounting policies is included in Note 1 to our consolidated financial statements in our fiscal year 2021 Annual Report. Certain of our accounting policies are considered critical, as these policies are the most important to the depiction of our financial statements and require significant, difficult or complex judgments, often employing the use of estimates about the effects of matters that are inherently uncertain. Such policies are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our 2021 Annual Report. There have been no significant changes in the application of our critical accounting policies during the Q1 FY2022.nine months ended October 31, 2021.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item and therefore, no disclosure is required under Item 3 for the Company.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this Form 10-Q, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange CommissionSEC rules and forms and (ii) accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the firstthird quarter of fiscal 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Items 1, 1A, 2, 3, 4Item 2. Unregistered Sales of Equity Securities and 5 are not applicable.Use of Proceeds
Issuer Purchases of Equity Securities
On February 17, 2021, the Company’s Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to $5,000,000 of its outstanding common stock. This new program replaced the prior program which had approximately $800,000 remaining for repurchases. On July 6, 2021, the Company’s Board of Directors authorized an increase in the Company’s current stock repurchase program under which the Company may repurchase up to an additional $5,000,000 of its outstanding common stock. The common shares available for repurchase under the authorizations currently in effect may be purchased from time to time, with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations. Repurchases may be made on the open market or through privately negotiated transactions.
The following table sets forth purchases made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, of shares of the Company’s common stock during the third quarter of 2022:
Period |
| Total Number of Shares Purchased (1) |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Programs (2) |
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| Maximum Dollar Amount of Shares that May Yet Be Purchased Under the Programs (2) |
| ||||
August 1 – August 31 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 5,000,000 |
|
September 1 – September 30 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 5,000,000 |
|
October 1 – October 31 |
|
| 56,870 |
|
| $ | 20.60 |
|
|
| 43,570 |
|
| $ | 4,105,179 |
|
Total |
|
| 56,870 |
|
| $ | $20.60 |
|
|
| 43,570 |
|
| $ | 4,105,179 |
|
(1) | Includes withholding of 13,300 restricted shares to cover taxes on vested restricted shares during the third quarter of FY22. |
(2) | The Company has repurchased a total of 271,024 shares of stock under this program as of the date of this filing for $5,894,726, inclusive of commissions. |
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Item 6. Exhibits:
Exhibits:
* Filed herewith
† Furnished herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| LAKELAND INDUSTRIES, INC. (Registrant) |
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Date: | /s/ Charles D. Roberson |
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| Charles D. Roberson, Chief Executive Officer, President and Secretary |
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Date: | /s/ Allen E. Dillard |
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| Allen E. Dillard, (Principal Financial Officer and Authorized Signatory) |
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