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, 1999
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 Avenue, Ronkonkoma, New York 11779
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(Address of principal executive offices)
(516) 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 10, 1999 - 2,660,500 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, 1999 and January 31, 1999...........................2
Condensed Consolidated Statements of Income for the
Three Months Ended April 30, 1999 and 1998............................................................3
Condensed Consolidated Statement of Stockholders' Equity for the Three Months Ended April 30, 1999 ...4
Condensed Consolidated Statements of Cash Flows - Three Months Ended April 30, 1999
and 1998..............................................................................................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 ...............................................................None
Signatures.......................................................................................................9
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, 1999.
The results of operations for the three month periods ended April 30, 1999
and 1998 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 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
April 30, January 31,
ASSETS 1999 1999
(Unaudited) (Derived from audited
financial statements)
Current Assets:
Cash and cash equivalents......................................$1,495,266 $1,436,083
Accounts receivable, net of allowance for
doubtful accounts of $200,000 at April 30, 1999 and
January 31, 1999..............................................7,499,899 6,743,341
Inventories ...................................................16,068,436 16,110,910
Deferred income taxes ............................................567,000 567,000
Other current assets .............................................271,536 461,231
------- -------
Total current assets..................................25,902,137 25,318,565
Property and equipment, net of accumulated
depreciation of $2,675,000 at April 30, 1999
and $2,619,000 January 31, 1999...............................1,235,926 1,326,261
Excess of cost over fair value of net assets acquired,
net of accumulated amortization
of $241,000 at April 30, 1999 and
$236,000 at January 31, 1999....................................303,801 308,798
Other assets......................................................175,897 206,847
------- -------
$27,617,761 $27,160,471
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...............................................$2,580,877 $1,455,190
Current portion of long-term liabilities........................9,649,017 10,777,863
Accrued expenses and other current liabilities....................650,826 682,148
------- -------
Total current liabilities.................................12,880,720 12,915,201
Long-term liabilities ............................................452,329 464,762
Deferred income taxes..............................................56,000 56,000
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
2,660,500 shares.................................................26,605 26,605
Additional paid-in capital......................................6,199,656 6,199,656
Retained earnings...............................................8,002,451 7,498,247
--------- ---------
Total stockholders' equity............................... 14,228,712 13,724,508
----------- ----------
$27,617,761 $27,160,471
=========== ===========
See notes to condensed consolidated financial statements.
2
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
April 30,
1999 1998
Net Sales..............................................................$15,455,662 $16,041,697
Cost of Goods Sold......................................................12,863,890 12,862,963
---------- ----------
Gross Profit.............................................................2,591,772 3,178,734
Operating Expenses.......................................................1,657,767 1,708,760
--------- ---------
Operating Profit...........................................................934,005 1,469,974
Other Income/(expense), net ................................................14,292 12,833
Interest Expense..........................................................(169,093) (168,155)
--------- ---------
Income before income taxes.................................................779,204 1,314,652
Provision for income taxes.................................................275,000 513,000
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Net Income................................................................$504,204 $801,652
======== ========
Net income per common share
Basic...............................................................$.19 $.31
==== ====
Diluted.............................................................$.19 $.30
==== ====
Weighted average common shares outstanding
Basic...........................................................2,660,500 2,610,472
========= =========
Diluted.........................................................2,682,146 2,686,926
========= =========
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, 1999
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
--------- ------- ---------- ---------- -----------
Balance, January 31, 1999 2,660,500 $26,605 $6,199,656 $7,498,247 $13,724,508
Net income 504,204 504,204
--------- ------- ---------- ---------- -----------
Balance, April 30, 1999 2,660,500 $26,605 $6,199,656 $8,002,451 $14,228,712
========= ======= ========== ========== ===========
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,
1999 1998
---- ----
Cash Flows from Operating Activities:
Net Income ..............................................................$504,204 $801,652
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization..............................................140,540 118,188
Decrease (increase) in accounts receivable................................(756,558) (1,428,208)
Decrease (increase) in inventories..........................................42,474 1,065,133
Decrease (increase) in other current assets................................189,695 (24,001)
Decrease (increase) in other assets.........................................30,950 30,497
Decrease in long term liability............................................(12,463) -
Increase (decrease) in accounts payable, accrued
expenses and other current liabilities.................................1,094,365 (1,190,136)
--------- -----------
Net cash provided by (used in) operating activities......................1,233,207 (626,875)
Cash Flows from Investing Activities -
Purchases of property and equipment - net..................................(45,178) (36,161)
Cash Flows from Financing Activities:
Net (reductions) borrowings under line of credit agreements.............(1,128,846) 927,942
----------- -------
Net increase in cash ..................................................59,183 264,906
Cash and cash equivalents at beginning of period.........................1,436,083 222,700
--------- -------
Cash and cash equivalents at end of period..............................$1,495,266 $487,606
========== ========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest.............................................................$114,544 $112,147
======== ========
Income taxes..........................................................$33,875 $241,000
======= ========
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 disposable and reusable 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, 1999 and 1998.
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. (formerly Fireland Industries, 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, formerly a division of the Company). All
significant intercompany accounts and transaction have been eliminated.
C. Inventories:
Inventories consist of the following:
April 30, January 31,
1999 1999
---- ----
Raw materials.............................................$3,214,905 $2,461,225
Work-in-process............................................5,194,365 3,618,901
Finished goods.............................................7,659,166 10,030,784
--------- ----------
$16,068,436 $16,110,910
=========== ============
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 stock.
Diluted earnings per share are based on the weighted average number of
common and potential common shares outstanding. The 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 at April 30.
1999 1998
---- ----
Numerator
Net income $504,204 $801,652
======== ========
Denominator
Denominator for basic earnings per share
(Weighted-average shares) 2,660,500 2,610,472
Effect of dilutive securities:
Stock options 21,646 76,454
------ ------
Denominator for diluted earnings per share
(adjusted weighted-average shares) and
assumed conversions 2,682,146 2,686,926
========= =========
Basic earnings per share $.19 $.31
==== ====
Diluted earnings per share $.19 $.30
==== ====
E. Revolving Credit Facility:
At April 30, 1999, the balance outstanding under the Company's secured
$16 million revolving credit facility amounted to $9,599,017. 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, 1999, however,
$3 million of this line expires on August 31, 1999. 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 facility requires the
Company to maintain a minimum tangible net worth, at all times. The Company is
presently in the process of negotiating the renewal of the facility.
F. Major
Supplier The Company purchased approximately 98.1% of its raw materials
from one supplier under licensing agreements during the three month period ended
April 30, 1999. 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.
7
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three months ended April 30, 1999 compared to the three months ended April
30, 1998:
Net Sales. Net sales for the three months ended April 30, 1999 decreased
$586,000 or 3.7% to $15,456,000 from $16,042,000 reported for the three months
ended April 30, 1998. Decreased number of units sold and product mix of various
protective garment products in the current year are the principal reasons for
this downward movement in sales. This industry continues to be highly
competitive.
Gross Profit. Gross profit as a percentage of net sales decreased to 16.8%
for the three months ended April 30, 1999 from 19.8% reported for the prior
year, principally due to the decrease in unit sales and the sales of certain
products with lower margins.
Operating Expenses. Operating expenses as a percentage of net sales
remained at 10.7% for three months ended April 30, 1999 and 1998.
Interest Expense. Interest expense remained constant, as outstanding loan
balances remained approximately the same during each period.
The effective tax rate for the three months ended April 30, 1999 and 1998
of 35% and 39%, respectively, deviates from the Federal statutory rate of 34%,
mainly attributable to state income taxes.
As a result of the foregoing, operating results decreased to net income of
$504,000 for the three months ended April 30, 1999 from net income of $802,000
for the three months ended April 30, 1998.
LIQUIDITY and CAPITAL RESOURCES
Lakeland has historically met its cash requirements through funds generated
from operations and borrowings under a revolving credit facility. On December
12, 1997, the Company entered into a new $16 million facility ($3 million of
this line expires on August 31, 1999) with a financial institution. The $13
million facility matures on November 30, 1999 and is currently under renewal
negotiation. Interest charges under this credit facility are calculated on
various optional formulas using LIBOR or the 30-day commercial paper rates, as
defined. The Company's April 30, 1999 balance sheet shows a strong current ratio
and working capital position and management believes that its positive financial
position, together with its credit facility (upon renewal) will provide
sufficient funds for operating purposes for the next twelve months.
Risks Associated with the Year 2000
The Year 2000 issue is the result of computer programs which were written
using two digits rather than four to define the applicable year. For example,
date-sensitive software may recognize a date using "00" as the Year 1900, rather
than the Year 2000. Such misrecognition could result in system failures or
miscalculations causing disruptions of operations, including among others, a
temporary inability to process transactions, send invoices or engage in similar
normal business activities.
The Company has substantially completed its program to prepare computer
systems and applications for the Year 2000. The Company expects to incur minimal
additional internal staff costs, consulting and other expenses related to
enhancements necessary to complete the systems for the Year 2000. Management
believes that the estimated costs to complete the program will not be material
to the Company.
In addition, the Company has inquired of its major suppliers,,
including Dupont, about their progress in identifying and addressing problems
related to the Year 2000. Such suppliers, including Dupont, have informed the
Company that they do not anticipate problems in their business operations due to
Year 2000 compliance issues.. The Company is currently unable to determine the
extent to which Year 2000 issues will affect its other suppliers failure to
remediate any of their Year 2000 problems. Although no assurance can be given
that all of the Company's major suppliers' systems will be Year 2000 compliant,
the Company believes that the risk is not significant.
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, 1999
8
_________________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 10, 1999 /s/ Raymond J. Smith
-------------------------------------
Raymond J. Smith,
President and Chief Executive Officer
Date: June 10, 1999 James M. McCormick
-------------------------------------
James M. McCormick,
Vice President and Treasurer
(Principal Accounting Officer)
9