FORM 10-Q - QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2000
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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(Exact name of Registrant as specified in it's charter)
Delaware 13-3115216
- ------------------------------ ----------------------
(State of incorporation) (IRS Employer
Identification Number)
711-2 Koehler Ave., Ronkonkoma, New York 11779
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(Address of principal executive offices)
(631) 981-9700
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.01 par value, outstanding at September 13, 2000 - 2,646,000
shares.
LAKELAND INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-Q
The following information of the Registrant and its subsidiaries is
submitted herewith:
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements:
Page
----
Introduction ...............................................................................1
Condensed Consolidated Balance Sheets - July 31, 2000 and January 31, 2000.....................2
Condensed Consolidated Statements of Income - Three Months
and Six Months Ended July 31, 2000 and 1999....................................................3
Condensed Consolidated Statement of Stockholders' Equity
for the Six Months Ended July 31, 2000.........................................................4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended July 31, 2000 and 1999...................................................................5
Notes to Condensed Consolidated Financial Statements...........................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........8
PART II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K...............................................................9
Signatures ..............................................................................10
LAKELAND INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements:
Introduction
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and reflect all adjustments which are, in
the opinion of management, necessary to present fairly the consolidated
financial information required therein. Certain information and note disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended January 31, 2000.
The results of operations for the three-month and six-month periods ended
July 31, 2000 and 1999 are not necessarily indicative of the results to be
expected for the full year.
CAUTIONARY STATEMENTS
This report may include "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements are all statements other than
statements of historical fact included in this report, including, without
limitation, the statements under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position and liquidity, the Company's strategic
alternatives, future capital needs, development and capital expenditures
(including the amount and nature thereof), future net revenues, business
strategies, and other plans and objectives of management of the Company for
future operations and activities.
Forward-looking statements are based on certain assumptions and analyses
made by the Company in light of its experience and its perception of historical
trends, current conditions, expected future developments and other factors it
believes are appropriate under the circumstances. These statements are subject
to a number of assumptions, risks and uncertainties, and factors in the
Company's other filings with the Securities and Exchange Commission (the
"Commission"), general economic and business conditions, the business
opportunities that may be presented to and pursued by the Company, changes in
law or regulations and other factors, many of which are beyond the control of
the Company. Readers are cautioned that these statements are not guarantees of
future performance, and the actual results or developments may differ materially
from those projected in the forward-looking statements. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by these
cautionary statements.
1
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, January 31,
ASSETS 2000 2000
(Unaudited) (Derived from audited
financial statements)
Current Assets:
Cash and cash equivalents........................................$921,548 $650,541
Accounts receivable, net of allowance for
and doubtful accounts of $221,000 and $200,000 at
July 31, 2000, January 31, 2000, respectively.................8,360,679 8,379,477
Inventories ...................................................20,273,653 22,467,395
Deferred income taxes ............................................572,000 661,000
Other current assets .............................................476,256 301,698
------- -------
Total current assets..................................30,604,136 32,460,111
Property and equipment, net of accumulated
depreciation of $3,395,000 at July 31, 2000
and $3,064,000 at January 31, 2000............................2,118,586 1,851,964
Excess of cost over fair value of net assets
acquired, net of accumulated amortization
of $266,000 at July 31, 2000 and
$256,000 at January 31, 2000....................................278,816 288,810
Other assets......................................................374,278 169,365
------- -------
$33,375,816 $34,770,250
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...............................................$2,011,961 $4,242,874
Current portion of long-term liabilities.......................12,125,151 11,719,681
Accrued expenses and other current liabilities....................299,913 638,668
------- -------
Total current liabilities.................................14,437,025 16,601,223
Long-term liabilities ..........................................2,433,644 2,708,643
Deferred income taxes .............................................55,000 55,000
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $.01 par;
1,500,000 shares authorized; none issued
Common stock, $.01 par;
10,000,000 shares authorized;
2,646,000 and 2,644,000 shares issued and outstanding
at July 31, 2000 and January 31, 2000, respectively..............26,460 26,440
Additional paid-in capital......................................6,140,221 6,132,491
Retained earnings..............................................10,283,466 9,246,453
---------- ---------
Total stockholders' equity................................16,450,147 15,405,384
---------- ----------
$33,375,816 $34,770,250
=========== ===========
See notes to condensed consolidated financial statements.
2
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
July 31, July 31,
2000 1999 2000 1999
Net Sales..........................................$18,109,038 $13,940,948 $40,215,952 $29,396,610
Cost of Goods Sold..................................14,890,382 11,758,063 33,642,967 24,621, 953
---------- ---------- ---------- -----------
Gross Profit.........................................3,218,656 2,182,885 6,572,985 4,774,657
Operating Expenses...................................2,438,637 1,883,100 4,529,218 3,540,867
--------- --------- --------- ---------
Operating Profit.......................................780,019 299,785 2,043,767 1,233,790
------- ------- --------- ---------
Other Income, net .......................................9,286 14,985 19,278 29,277
Interest Expense......................................(323,059) (169,082) (609,300) (338,175)
--------- --------- --------- ---------
Income before Income Taxes ..........................466,246 145,688 1,453,745 924,892
Provision for Income Taxes..............................90,157 60,000 416,732 335,000
------ ------ ------- -------
Net Income ...........................................$376,089 $85,688 $1,037,013 $589,892
======== ======= ========== ========
Net Income per common share:
Basic................................................$.14 $.03 $.39 $.22
==== ==== ====
Diluted..............................................$.14 $.03 $.39 $.22
==== ==== ==== ====
Weighted average common shares outstanding:
Basic...........................................2,645,783 2,660,500 2,644,891 2,660,500
========= ========= ========= =========
Diluted.........................................2,673,841 2,689,760 2,665,523 2,686,502
========= ========= ========= =========
See notes to condensed consolidated financial statements.
3
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Six months ended July 31, 2000
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
Balance, January 31, 2000 2,644,000 $26,440 $6,132,491 $9,246,453 $15,405,384
Net income 1,037,013 1,037,013
Exercise of Stock Options 2,000 20 7,730 7,750
-------- ------ ---------- ----------- -----------
Balance, July 31, 2000 2,646,000 $26,460 $6,140,221 $10,283,466 $16,450,147
========= ======= ========== =========== ===========
See notes to condensed consolidated financial statements.
4
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
July 31,
2000 1999
---- ----
Cash Flows from Operating Activities:
Net Income ...........................................................$1,037,013 $589,892
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for bad debts ..................................................21,000
Deferred income taxes.....................................................89,000
Depreciation and amortization.............................................340,756 236,063
Decrease(increase) in accounts receivable................................(2,202) 159,249
Decrease (increase) in inventories.....................................2,193,742 (860,569)
Increase in other current assets........................................(174,558) (167,575)
Decrease (increase) in other assets.................................... (204,913) 58,221
Increase (decrease) in accounts payable, accrued
expenses and other liabilities......................................(2,569,668) 1,010,125
----------- ---------
Net cash provided by operating
activities.............................................................730,170 1,025,406
Cash Flows from Investing Activities:
Purchases of property and equipment ....................................(597,384) (567,155)
Cash Flows from Financing Activities:
Proceeds from exercise of stock options....................................7,750 -
Net borrowings (reductions) under line of credit agreement...............430,471 (1,164,570)
Repayments of term loan.................................................(300,000)
--------- -----------
Net cash provided by (used in) financing activities......................138,221 (1,164,570)
------- -----------
Net increase (decrease) in cash......................................... 271,007 (706,319)
Cash and cash equivalents at beginning of period...................... 650,541 1,436,083
-------- ---------
Cash and cash equivalents at end of period..............................$921,548 $729,764
======== ========
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest............................................................$327,203 $282,071
======== ========
Income taxes........................................................$190,000 $370,000
======== ========
See notes to condensed consolidated financial statements.
5
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Business
Lakeland Industries, Inc. and Subsidiaries (the "Company"), a Delaware
corporation, organized in April 1982, is engaged primarily in the
manufacture of personal safety protective work clothing. The principal
market for the Company's products is the United States. No customer
accounted for more than 10% of net sales during the six month periods ended
July 31, 2000 and 1999.
B. Principles of Consolidation
The accompanying condensed consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries, Laidlaw, Adams &
Peck, Inc., Lakeland Protective Wear, Inc. (a Canadian corporation) and Lakeland
de Mexico S.A. de C.V. (a Mexican corporation) and Weifang Lakeland Safety
Products, Co., Ltd. (a Chinese corporation). All significant intercompany
accounts and transactions have been eliminated.
C. Inventories:
Inventories consist of the following:
July 31, January 31,
2000 2000
---- ----
Raw materials....................$3,467,940 $3,180,556
Work-in-process...................6,803,118 5,538,608
Finished goods...................10,002,595 13,748,231
---------- ----------
$20,273,653 $22,467,395
=========== ============
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method.
D. Earnings Per Share:
Basic earnings per share are based on the weighted average number of
common shares outstanding without consideration of potential common shares.
Diluted earnings per share are based on the weighted average number of
common and potential common shares outstanding. The diluted earnings per
share calculation takes into account the shares that may be issued upon
exercise of stock options, reduced by the shares that may be repurchased
with the funds received from the exercise, based on the average price
during the period.
6
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Six Months Ended
July 31, July 31,
2000 1999 2000 1999
---- ---- ---- ----
Numerator
Net income $376,089 $85,688 $1,037,013 $589,892
======== ======= ========== ========
Denominator
Denominator for basic earnings per share
(Weighted-average shares) 2,645,783 2,660,500 2,644,891 2,660,500
Effect of dilutive securities:
Stock options 28,058 29,260 20,632 26,002
------ ------ ------ ------
Denominator for diluted earnings per share
(adjusted weighted-average shares) and
assumed conversions 2,673,841 2,689,760 2,665,523 2,686,502
========= ========= ========= =========
Basic earnings per share $.14 $.03 $.39 $.22
==== ==== ==== ====
Diluted earnings per share $.14 $.03 $.39 $.22
==== ==== ==== ====
Excluded from the calculation of earnings per share are options to
purchaser 1,000 shares at July 31, 2000 and 1999, as their inclusion would have
been antidilutive.
E. Credit Facility:
At July 31, 2000, the balance outstanding under the Company's secured
$13 million revolving credit facility amounted to $11,475,151. This facility is
collateralized by substantially all of the assets of the Company, guaranteed by
certain of the Company's subsidiaries and expires on November 30, 2000.
Borrowings under the facility bear interest at a rate per annum equal to the
one-month LIBOR or the 30-day commercial paper rate, as defined, plus 1.75%. The
Company is presently in the process of negotiating the renewal of the facility.
At July 31, 2000, the balance outstanding under the Company's five year term
loan is $2,600,000. The term loan is payable in monthly installments of $50,000,
plus interest payable at the 30-day commercial paper rate, plus 2.45%. The
credit facility and term loan are collateralized by substantially all the assets
of the Company and guaranteed by certain of the Company's subsidiaries. The
credit facility and term loan require the Company to maintain a minimum tangible
net worth, at all times.
F. Major Supplier
The Company purchased approximately 74.4% of its raw materials from one
supplier under licensing agreements during the six month period ended July 31,
2000. The Company expects this relationship to continue for the foreseeable
future. If required, similar raw materials could be purchased from other
sources; although, the Company's competitive position in the marketplace could
be affected..
G. Subsequent Events
On August 1, 2000 the Company's secured revolving credit facility was
increased from $13 million to $14 million. A debt to EBITDA Ratio Covenant and a
new minimum Tangible Net Worth Covenant was added with this amendment, until the
line is renegotiated in November 2000.
7
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
Six months ended July 31, 2000 compared to the six months ended July 31,
1999.
Net Sales. Net sales for the six months ended July 31, 2000 increased
$10,819,000 or 36.8% to $40,216,000 from $29,397,000 for the six months ended
July 31, 1999. The increase in sales was principally attributable to the
Company's ability to increase its production capacity, maintain adequate
inventory levels, and the withdrawal of a major competitor from the Tyvek TM
markets. This industry continues to be highly competitive.
Gross Profit. Gross profit for the six months ended July 31, 2000
increased by $1,798,000 or 37.7% to $6,573,000 or 16.3% of net sales from
$4,775,000 or 16.2% of net sales for the six months ended July 31, 1999. The
gross profit remained constant as a result of manufacturing efficiencies, due to
the use of automated equipment, and due to higher sales volume. These factors
were offset by an increase in the cost of raw materials (from major supplier in
February 2000) without a corresponding increase in selling prices.
Operating Expenses. Operating expenses for the six months ended July
31, 2000 increased by $988,000 or 27.9% to $4,529,000 or 11.3% of net sales from
$3,541,000 or 12% of net sales for the six months ended July 31, 1999. The
increase in operating expenses is principally a result of higher cost of
freight, sales commissions, use of temporary help due to higher sales volume,
and increased travel, R&D and currency fluctuation expenses.
Interest Expense. Interest expense for the six months ended July 31,
2000 increased by $271,000 or 80% to $609,000 from $338,000 for the six months
ended July 31, 1999. Interest expense increase was principally due to higher
interest costs reflecting an increase in average borrowings under the Company's
credit facility and increasing interest rates.
Income Tax Expense. The effective tax rate for the six months ended
July 31, 2000 and 1999 of 29% and 36%, respectively, deviates from the Federal
statutory rate of 34%, mainly attributable to differing foreign tax rates and
exemptions as well as state income taxes.
Net Income. As a result of the foregoing, net income for the six months
ended July 31, 2000 increased by $447,000 or 75.8% to $1,037,000 from $590,000
for the six months ended July 31, 1999.
Three months ended July 31, 2000 compared to the three months ended July
31, 1999.
Net Sales. Net sales for the three months ended July 31, 2000 increased
$4,168,000 or 29.9% to $18,109,000 from $13,941,000 for the three months ended
July 31, 1999. The increase in sales was principally attributable to the
Company's ability to increase its production capacity, maintain adequate
inventory levels, and to the withdrawal of a major competitor from the Tyvek TM
markets.
Gross Profit. Gross profit for the three months ended July 31, 2000
increased by $1,036,000 or 47.5% to $3,219,000 or 17.8% of net sales from
2,183,000 or 15.7% of net sales for the three months ended July 31, 1999. The
gross profit increased as a result of manufacturing efficiencies, due to the use
of automated equipment, and due to higher sales volume. These factors were
offset by an increase in the cost of raw materials (from a major supplier in
February 2000) without a corresponding increase in selling prices.
Operating Expenses. Operating expenses for the three months ended July
31, 2000 increased by $556,000 or 29.5% to $2,439,000 or 13.5% of net sales from
$1,883,000 or 13.5% of net sales for the three months ended July 31, 1999. The
increase in operating expenses is principally as a result of higher cost of
freight, sales commissions, use of temporary help due to higher sales volume,
and increased travel.
Interest Expense. Interest expense for the three months ended July 31,
2000 increased by $154,000 or 91% to $323,000 from $169,000 for the three months
ended July 31, 1999. Interest expense increase was principally due to higher
interest costs reflecting an increase in average borrowings under the Company's
credit facility and increasing interest rates.
Income Tax Expense. The effective tax rate for the three months ended
July 31, 2000and 1999 of 19% and 41%, respectively, deviates from the Federal
statutory rate of 34%, mainly attributable to differing foreign tax rates and
exemptions as well as state income taxes.
Net Income. As a result of the foregoing, net income for the three
months ended July 31, 2000 increased by $290,000 or 337% to $376,000 from
$86,000 for the three months ended July 31, 1999.
8
LIQUIDITY and CAPITAL RESOURCES
Liquidity and Capital Resources. The Company's working capital is equal to
$16,167,000 at July 31, 2000. The Company's primary sources of funds for
conducting its business activities have been from cash flow provided by
operations and borrowings under its credit facilities. The Company requires
liquidity and working capital primarily to fund increases in inventories and
accounts receivable associated with sales growth and, to a lesser extent, for
capital expenditures.
Net cash provided by operating activities was $730,000 for the quarter
ended July 31, 2000 and was due primarily to a decrease in inventories of
$2,194,000 offset by the decrease in accounts payable $2,570,000 and net income
of $1,037,000.
Net cash used in financing activities of $138,000 was primarily
attributable to net borrowings of $430,000 during the quarter in connection with
the revolving credit facility offset by repayments under the term loan of
$300,000.
The revolving credit facility permits the Company to borrow up to a maximum
of $14 million. The revolving credit agreement expires on November 30, 2000 and
has therefore been classified as a short-term liability in the accompanying
balance sheet at July 31, 2000. Borrowings under the revolving credit facility
amounted to approximately $11,475,000 at July 31, 2000. The five year $3 million
term-loan agreement entered into in November 1999 has an outstanding balance of
$2,600,000 and expires on October 31, 2004.
The Company believes that cash flow from operations and the revolving
credit facility will be sufficient to meet its currently anticipated operating,
capital expenditures and debt service requirements for at least the next 12
months.
Foreign Currency Activity. The Company's foreign exchange exposure is
principally limited to the relationship of the U.S. Dollar to the Canadian
Dollar.
Item 6. Exhibits and Reports on Form 8-K:
a - 10(k) Employment agreement between the Company and Christopher J.
Ryan, dated February, 2000. 10(r) Employment agreement between the
Company and James M. McCormick, dated February 1,2000.
b - No reports on Form 8-K were filed during the three month period
ended July 31, 2000.
9
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.
LAKELAND INDUSTRIES, INC.
---------------------------
(Registrant)
Date: September 13, 2000 /s/ Raymond J. Smith
-------------------------------------
Raymond J. Smith,
President and Chief Executive Officer
Date: September 13, 2000 /s/ James M. McCormick
--------------------------------------
James M. McCormick,
Vice President and Treasurer
(Principal Accounting Officer)
10