UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2002
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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 its charter)
Delaware 13-3115216
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(State of incorporation) (IRS Employer Identification Number)
711-2 Koehler Avenue, 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 June 14, 2002 - 2,691,950 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 - April 30, 2002 and January 31, 2002...........................2
Condensed Consolidated Statements of Income for the
Three Months Ended April 30, 2002 and 2001............................................................3
Condensed Consolidated Statement of Stockholders' Equity - Three Months Ended April 30, 2002..........4
Condensed Consolidated Statements of Cash Flows - Three Months Ended April 30, 2002
and 2001..............................................................................................5
Notes to Condensed Consolidated Financial Statements..................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................9
PART II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K...................................................................None
Signatures ....................................................................................................10
LAKELAND INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements:
Introduction
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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 any 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
ASSETS April 30, January 31,
2002 2002
(Unaudited) (Derived from audited
financial statements)
Current Assets:
Cash and cash equivalents ........................... $ 2,039,154 $ 1,760,635
Accounts receivable, net of allowance for
doubtful accounts of $400,000 at April 30, 2002 and
$221,000 at January 31, 2002 ...................... 10,303,298 9,600,738
Inventories ......................................... 25,704,823 26,529,150
Prepaid income taxes ................................ -- 242,029
Deferred income taxes ............................... 888,000 888,000
Other current assets ................................ 664,385 524,274
----------- -----------
Total current assets ....................... 39,599,660 39,544,826
Property and equipment, net of accumulated
depreciation of $3,258,000 at April 30, 2002
and $3,113,000 January 31, 2002 ................... 2,227,618 2,218,459
Other assets ........................................ 684,119 654,200
----------- -----------
$42,511,397 $42,417,485
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 3,007,417 $ 4,759,373
Current portion of long-term liabilities ............ 17,950,348 17,028,032
Accrued expenses and other current liabilities ...... 1,185,018 991,021
----------- -----------
Total current liabilities ...................... 22,142,783 22,778,426
Long-term liabilities ............................... 442,501 609,105
Deferred income taxes ............................... 303,000 303,000
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $.01 par; authorized
1,500,000 shares (none issued)
Common stock, $.01 par; authorized
10,000,000 shares; issued and outstanding
2,684,600 shares at April 30, 2002
and at January 31, 2002 ........................ 26,846 26,846
Additional paid-in capital .......................... 6,360,741 6,360,741
Retained earnings ................................... 13,235,526 12,339,367
----------- -----------
Total stockholders' equity ..................... 19,623,113 18,726,954
----------- -----------
$42,511,397 $42,417,485
=========== ===========
See notes to condensed consolidated financial statements.
2
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
April 30,
2002 2001
---- ----
Net sales .............................................. $ 20,643,184 $ 19,434,522
Cost of goods sold ..................................... 16,469,299 16,037,460
------------ ------------
Gross profit ........................................... 4,173,885 3,397,062
Operating expenses ..................................... 2,727,947 2,178,767
------------ ------------
Operating profit ....................................... 1,445,938 1,218,295
Other income, net ...................................... 9,883 6,929
Interest expense ....................................... (175,662) (269,205)
------------ ------------
Income before income taxes ............................. 1,280,159 956,019
Provision for income taxes ............................. 384,000 266,593
------------ ------------
Net Income ............................................. $ 896,159 $ 689,426
============ ============
Net income per common share
Basic ............................................... $ .33 $ .26
======= =======
Diluted ............................................. $ .33 $ .26
======= =======
Weighted average common shares outstanding
Basic ......................................... 2,684,600 2,646,000
========= =========
Diluted ....................................... 2,698,425 2,661,987
========= =========
See notes to condensed consolidated financial statements
3
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Three months ended April 30, 2002
Additional
Common stock paid-in Retained
Shares Amount capital earnings Total
------ ------ ------- -------- -----
Balance, January 31, 2002 2,684,600 $ 26,846 $ 6,360,741 $12,339,367 $18,726,954
Net income .............. -- -- -- 896,159 896,159
--------- ----------- ----------- ----------- -----------
Balance, April 30, 2002 . 2,684,600 $ 26,846 $ 6,360,741 $13,235,526 $19,623,113
========= =========== =========== =========== ===========
See notes to condensed consolidated financial statements.
4
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
April 30,
2002 2001
---- ----
Cash flows from operating activities:
Net income ................................................ $ 896,159 $ 689,426
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Bad debt expense .......................................... 179,714
Depreciation and amortization ............................. 161,933 147,477
(Increase) decrease in accounts receivable ................ (882,274) 433,454
(Increase) decrease in inventories ........................ 824,327 (162,420)
(Increase) decrease in other current assets ............... 101,918 345,092
(Increase) decrease in other assets ....................... (46,021) (88,606)
Increase (decrease) in accounts payable, accrued
expenses and other current liabilities
and long-term liabilities ............................... (1,545,459) (2,073,982)
---------- ----------
Net cash (used in) provided by operating activities ....... (309,703) (709,559)
Cash flows from investing activities -
Purchases of property and equipment ....................... (154,990) (29,041)
Cash flows from financing activities:
Net borrowings under loan agreements ...................... 743,212 990,402
----------- -----------
Net increase (decrease) in cash ........................... 278,519 251,802
Cash and cash equivalents at beginning of period .......... 1,760,635 784,578
----------- -----------
Cash and cash equivalents at end of period ................ $ 2,039,154 $ 1,036,380
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ............................................. $ 175,662 $ 175,068
=========== ===========
Income taxes ......................................... $ 7,500 $ 0
=========== ===========
See notes to condensed consolidated financial statements.
5
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. 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 three month periods ended April 30, 2002 and
2001.
2. Basis of Presentation
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 accounting principles generally accepted in the United States of
America 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, 2002.
The results of operations for the three month periods ended April 30,
2002 and 2001 are not necessarily indicative of the results to be expected for
the full year.
3. 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), Lakeland de
Mexico S.A. de C.V. (a Mexican corporation) and Weifang Lakeland Safety
Products, Co., Ltd. (a Chinese corporation). All significant inter-company
accounts and transactions have been eliminated.
6
4. Inventories:
Inventories consist of the following:
April 30, January 31,
2002 2002
---- ----
Raw materials.................... $8,346,817 $6,248,990
Work-in-process.................. 2,495,434 3,997,470
Finished Goods................... 14,862,572 16,282,690
----------- -----------
$25,704,823 $26,529,150
=========== ===========
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method.
5. 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.
The following table sets forth the computation of basic and diluted earnings per
share at April 30.
2002 2001
Numerator
Net income $ 896,159 $ 689,426
========= =========
Denominator
Denominator for basic earnings per share
(Weighted-average shares) 2,684,600 2,646,000
Effect of dilutive securities:
Stock options 13,825 15,987
--------- ---------
Denominator for diluted earnings per share
(adjusted weighted-average shares) and
assumed conversions 2,698,425 2,661,987
========= =========
Basic earnings per share $.33 $.26
==== ====
Diluted earnings per share $.33 $.26
==== ====
Options to purchase 1,000 and 3,000 shares of the Company's common stock have
been excluded for the three months ended April 30, 2002 and 2001, respectively,
as their inclusion would be antidilutive.
7
6. Revolving Credit Facility:
At April 30, 2002, the balance outstanding under the Company's
secured $18 million revolving credit facility amounted to $16,965,295. This
facility, which is based on a percentage of eligible accounts receivable and
inventory, as defined, expires on July 31, 2002. Borrowings under the facility
bear interest at a rate per annum equal to the one-month LIBOR plus 2%. The
Company is presently in the process of negotiating the renewal of the facility.
At April 30, 2002, the balance outstanding under the Company's five year term
loan is $985,053. The term loan is payable in monthly installments of $89,550,
plus interest payable at the 30-day commercial paper rate, plus 2.45%. The
credit facility and term loan are collateralized by substantially all of the
assets of the Company and guaranteed by certain of the Company's subsidiaries.
The credit facility and term loan contain financial covenants, including, but
not limited to, minimum levels of earnings and maintenance of minimum tangible
net worth and other certain ratios at all times.
7. Major Supplier
The Company purchased approximately 79.4% of its raw materials from
one supplier under licensing agreements during the three month period ended
April 30, 2002. 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.
8
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three months ended April 30, 2002 compared to the three months ended April 30,
2001:
Net Sales. Net sales for the three months ended April 30, 2002
increased $1,209,000 or 6.2 % to $20,643,000 from $19,435,000 reported for the
three months ended April 30, 2001. The increase in sales was principally
attributable to the Company's April 1, 2002 price increase and an improving
economy. This industry continues to be highly competitive.
Gross Profit. Gross profit for the quarter ended April 30, 2002
increased by $777,000 or 22.9% to $4,174,000 from $3,397,000 for the quarter
ended April 30, 2001. Gross profit as a percentage of net sales increased to
20.2% for the three months ended April 30, 2002 from 17.5% reported for the
prior year, principally due to the increase in selling prices, and a decrease in
labor, freight and insurance costs. Commencing in March, the Company incurred an
increase in the cost of raw materials (from a major supplier), which will have
an effect on margins for the remainder of this fiscal year.
Operating Expenses. Operating expenses for the quarter ended April
30, 2002 increased by $549,000 or 25.2% to $2,728,000 or 13.2 % of net sales,
from $2,179,000 or 11.2% of net sales, for the quarter ended April 30, 2001.
Operating expenses increased principally as a result of increased commissions
and salaries, R&D expense, insurance expense and bad debt expense.
Interest Expense. Interest expense decreased primarily due to lower
interest costs reflecting a decrease in average borrowings under the Company's
credit facilities and decreasing interest rates.
Income Tax Expense. The effective tax rate for the three months ended
April 30, 2002 and 2001 of 30% and 27.9%, respectively, deviates from the
Federal statutory rate of 34%, which is primarily attributable to differing
foreign tax rates and state income taxes.
Net Income. As a result of the foregoing, net income increased to
$896,000 for the three months ended April 30, 2002 or 30% from net income of
$689,000 for the three months ended April 30, 2001.
LIQUIDITY and CAPITAL RESOURCES
Liquidity and Capital Resources. The Company's working capital is
equal to $17,457,000 at April 30, 2002. 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 used in operating activities was $310,000 for the quarter
ended April 30, 2002 and was due primarily to an increase in accounts
receivables of $883,000 a decrease in inventories of $824,000 and net income
from operations of $896,000, offset by a decrease in accounts payable, accrued
expenses and other current liabilities and long-term liabilities of $1,545,000.
Net cash provided by financing activities of $743,000 was primarily
attributable to net borrowings during the quarter in connection with the term
loan and revolving credit facility.
The revolving credit facility permits the Company to borrow up to a
maximum of $18 million. The revolving credit agreement expires on July 31, 2002
and has therefore been classified as a short-term liability in the accompanying
balance sheet at April 30, 2002. Borrowings under the revolving credit facility
amounted to approximately $16,965,000 at April 30, 2002. The $3 million
term-loan agreement entered into in November 1999 has an outstanding balance of
$985,000 and expires on March 31,2003.
The Company believes that cash flow from operations and the revolving
credit facility (upon renewal) will be sufficient to meet its currently
anticipated operating, capital expenditures and debt service requirements for at
least the next twelve months. Historically, the Company has been able to renew
its credit facility on acceptable terms, however there can be no assurance that
such financing will continue to be available.
Foreign Currency Activity
The Company's foreign exchange exposure is principally limited to the
relationship of the U.S. Dollar to the Mexican Peso, Canadian Dollar and the
Chinese RMB.
Item 6. Exhibits and Reports on Form 8-K:
a - None
b - No reports on Form 8-K were filed during the three-month period
ended April 30, 2002
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: June 14, 2002 /s/ Raymond J. Smith
-------------------------------------
Raymond J. Smith,
President and Chief Executive Officer
Date: June 14, 2002 /s/ James M. McCormick
-------------------------------------
James M. McCormick,
Vice President and Treasurer
(Principal Accounting Officer)
10