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 October 31, 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.
- - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3115216
- - -------------------------- ------------------------------------
(State of incorporation) (IRS Employer Identification Number)
711-2 Koehler Ave., Ronkonkoma, New York 11779
- - --------------------------------------------------------------------------------
(Address of principal executive offices)
(516) 981-9700
- - --------------------------------------------------------------------------------
(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 December 13,
1999 - 2,644,000 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 - October 31, 1999 and January 31, 1999...........................2
Condensed Consolidated Statements of Income - Three Months
and Nine Months Ended October 31, 1999 and 1998.........................................................3
Condensed Consolidated Statement of Stockholders' Equity for the
Nine Months Ended October 31, 1999......................................................................4
Condensed Consolidated Statements of Cash Flows - Nine Months
Ended October 31, 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............................................................................................ 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 consolidated 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 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 and nine-month periods ended
October 31, 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.
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, January 31,
ASSETS 1999 1999
(Unaudited) (Derived from audited
financial statements)
Current Assets:
Cash and cash equivalents........................................$874,250 $1,436,083
Accounts receivable, net of allowance for
doubtful accounts of $200,000 at October 31, 1999
at January 31, 1999.........................................7,212,572 6,743,341
Inventories ...................................................20,492,461 16,110,910
Deferred income taxes ............................................567,000 567,000
Other current assets .............................................508,702 461,231
------- -------
Total current assets..................................29,654,985 25,318,565
Property and equipment, net of accumulated
depreciation of $2,910,000 at October 31, 1999
and $2,619,000 at January 31, 1999............................1,834,331 1,326,261
Excess of cost over fair value of net
assets acquired, net of accumulated amortization
of $251,000 at October 31, 1999 and
$236,000 at January 31, 1999....................................293,807 308,798
Other assets......................................................114,066 206,847
------- -------
$31,897,189 $27,160,471
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...............................................$3,493,181 $1,455,190
Current portion of long-term liabilities..........................600,000 10,777,863
Accrued expenses and other current liabilities....................811,272 682,148
------- -------
Total current liabilities..................................4,904,453 12,915,201
Long-term liabilities .........................................12,180,146 464,762
Deferred income taxes .............................................56,000 56,000
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;
2,644,000 shares issued and outstanding at October 31, 1999,
2,660,500 shares
issued and outstanding at
January 31, 1999 ................................................26,440 26,605
Additional paid-in capital......................................6,132,491 6,199,656
Retained earnings...............................................8,597,659 7,498,247
--------- ---------
Total stockholders' equity................................14,756,590 13,724,508
---------- ----------
$31,897,189 $27,160,471
=========== ===========
2
See notes to condensed consolidated financial statements.
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
October 31 October 31
--------------------------------------------------------------
1999 1998 1999 1998
Net Sales..........................................$13,688,392 $11,357,050 $43,085,002 $41,253,166
Cost of Goods Sold..................................10,917,598 9,113,923 35,539,551 32,989,954
---------- --------- ---------- ----------
Gross Profit.........................................2,770,794 2,243,127 7,545,451 8,263,212
Operating expenses...................................1,767,504 1,478,798 5,308,371 4,923,421
--------- --------- --------- ---------
Operating Profit.....................................1,003,290 764,329 2,237,080 3,339,791
Other Income/(Expense), Net .............................4,891 22,586 34,168 44,465
Interest Expense......................................(200,661) (208,751) (538,836) (584,493)
--------- --------- --------- ---------
Income before income taxes ............................807,520 578,164 1,732,412 2,799,763
Provision for income taxes.............................298,000 223,000 633,000 1,091,000
------- ------- ------- ---------
Net Income............................................$509,520 $355,164 $1,099,412 $1,708,763
======== ======== ========== ==========
Net Income per common share:
Basic................................................$.19 $.13 $.41 $.65
==== ==== ==== ====
Diluted..............................................$.19 $.13 $.41 $.63
==== ==== ==== ====
Weighted average common shares outstanding:
Basic...........................................2,650,802 2,652,607 2,657,267 2,636,060
========= ========= ========= =========
Diluted.........................................2,661,615 2,688,122 2,678,206 2,691,123
========= ========= ========= =========
See notes to condensed consolidated financial statements.
3
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Nine months ended October 31, 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
Treasury stock purchased
and retired (16,500) (165) (67,165) - (67,330)
Net income 1,099,412 1,099,412
--------- ------- ---------- ---------- -----------
Balance, October 31, 1999 2,644,000 $26,440 $6,132,491 $8,597,659 $14,756,590
========= ======= ========== ========== ===========
See notes to condensed consolidated financial statements.
4
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
October 31,
1999 1998
Cash Flows from Operating Activities:
Net Income..............................................................$1,099,412 $1,708,763
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization..............................................384,457 354,214
Decrease (increase) in accounts receivable................................(469,231) 1,051,560
Decrease (increase) in inventories......................................(4,381,551) (1,496,056)
Decrease (increase) in other current assets................................(47,471) (191,303)
Decrease (increase) in other assets.........................................92,781 (176,160)
Increase (decrease) in accounts payable, accrued
expenses and other current liabilities.................................2,169,873 (2,397,958)
--------- -----------
Net cash used in operating
activities........................................................... (1,151,730) (1,146,940)
Cash Flows from Investing Activities:
Purchases of property and equipment ..................................... (877,536) (155,694)
Cash Flows from Financing Activities:
Proceeds from exercise of options................................. - 126,797
Purchase of Treasury Stock.................................................(67,330) -
Net borrowings under
line of credit agreement................................................1,534,763 2,339,182
--------- ---------
Net cash provided by financing activities................................1,467,433 2,465,979
--------- ---------
Net increase in cash and cash equivalents................................ (561,833) 1,163,345
Cash and cash equivalents at beginning of period........................ 1,436,083 222,700
--------- -------
Cash and cash equivalents at end of period................................$874,250 $1,386,045
======== ==========
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 nine month periods ended October 31, 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). All significant inter-company accounts and transactions have been
eliminated.
C. Inventories:
Inventories consist of the following:
October 31, January 31,
1999 1999
Raw materials.............................................$3,025,378 $2,461,225
Work-in-process............................................4,901,842 3,618,901
Finished goods............................................12,565,241 10,030,784
---------- ----------
$20,492,461 $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:
Three Months Ended Nine Months Ended
October 31, October 31,
1999 1998 1999 1998
---- ---- ---- ----
Numerator
Net income $509,520 $355,164 $1,099,412 $1,708,763
======== ======== ========== ==========
Denominator
Denominator for basic earnings per share:
(Weighted-average shares) 2,650,802 2,652,607 2,657,267 2,636,060
Effect of dilutive securities:
Stock options 10,813 35,515 20,939 55,063
------ ------ ------ ------
Denominator for diluted earnings per share
(adjusted weighted-average shares) and
assumed conversions 2,661,615 2,688,122 2,678,206 2,691,123
========= ========= ========= =========
Basic earnings per share $.19 $.13 $.41 $.65
==== ==== ==== ====
Diluted earnings per share $.19 $.13 $.41 $.63
==== ==== ==== ====
E. Revolving Credit Facility:
At October 31, 1999, the balance outstanding under the Company's secured
$13 million revolving credit facility amounted to $12,262,626. This facility,
which was to expire on November 30, 1999 has been renewed to November 30, 2000
is collateralized by all the assets of the Company and guaranteed by certain of
the Company's subsidiaries. The terms under the renewed revolving credit
facility are unchanged from the expired facility. On November 1, 1999, the
Company entered into a $3 million, five (5) year Term Loan with the same lender
and refinanced $3 million outstanding under the revolving credit agreement. The
Term Loan, which has terms similar to the revolving credit facility, requires
monthly principal payments of $50,000 with interest at the 30 day commercial
paper rate, as defined plus 2.45%. At October 31, 1999, such outstanding debt
has been classified as long-term (less current portion of $600,000) in the
accompanying condensed consolidated balance sheet based on the terms of such
refinancing.
F. Major Supplier
The Company purchased approximately 76.07% of its raw materials from
one supplier under several licensing agreements during the nine month period
ended October 31, 1999. The Company expects this relationship to continue for
the foreseeable future. If required, similar raw materials could be purchased
from other sources.
ITEM 2.
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Nine months ended October 31, 1999 compared to the nine months ended October 31,
1998.
Net Sales. Net sales for the nine months ended October 31, 1999
increased $1,832,000 or 4.4% to $43,085,000 from $41,253,000 for the nine months
ended October 31, 1998. The increase in sales was principally attributable to
recent improving market conditions and a better product mix. The prior year
period was aided by a price increase effective March 1, 1998.
Gross Profit. Gross profit for the nine months ended October 31, 1999
decreased by $718,000 or 8.7% to $7,545,000 or 17.5% of net sales from
$8,263,000 or 20% of net sales, for the nine months ended October 31, 1998. The
Gross profit decreased principally as a result of inefficiencies in
manufacturing due to the start up phase of new automated equipment and
significant plant expansion and relocation. This expansion and relocation was
substantially completed by the end of the first half of the current year and
contributed to a decrease in unit sales and lower margin product mix during the
first half of the current year.
Operating Expenses. Operating expenses for the nine months ended
October 31, 1999 increased by $385,000 or 7.8% to $5,308,000, or 12.3% of nets
sales, from $4,923,000, or 11.9% of net sales, for the nine months ended October
31,1998. Operating expenses as a percentage of net sales increased to 12.3% from
11.9% principally as a result of increased freight, commissions, payroll and
expenses related to the addition of in-house regional sales managers (commencing
in the fourth quarter of fiscal 1999).
Interest Expense. Interest expense for the nine months ended October
31, 1999 decreased by $45,000 or 7.7% to $539,000 from $584,000 for the nine
months ended October 31, 1998. The decrease in interest expense was mainly due
to lower interest costs reflecting a decrease in average borrowings under the
Company's credit facility, mostly during the first half of the current year.
Income Tax Expense. The effective tax rate for the nine months ended
October 31, 1999 and 1998 of 37% and 39%, respectively deviated from the Federal
statutory rate of 34%, and was mainly attributable to state and foreign income
taxes.
Net Income. As a result of the foregoing, net income for the nine
months ended October 31, 1999 decreased by $610,000 to net income of $1,099,000
from net income of $1,709,000 for the nine months ended October 31, 1998.
Three months ended October 31, 1999 compared to the three months ended October
31, 1998.
Net Sales. Net sales for the three months ended October 31, 1999
increased $2,331,000 or 20.5% to $13,688,000 from $11,357,000 for the three
months ended October 31, 1998. The increase in sales was due to significantly
improved market conditions and the ability to ship products once the expansion
and relocations were completed, and also a higher margin mix of products sold.
Gross Profit. Gross profit for the three months ended October 31, 1999
increased by $528,000 or 23.5% to $2,771,000 or 20.2% of net sales from
$2,243,000 or 19.7% of net sales, for the three months ended October 31, 1998.
Gross profit increased as a result of efficiencies achieved in manufacturing due
to additional automated equipment.
Operating Expenses. Operating expenses for the three months ended
October 31, 1999 increased by $289,000 or 19.5% to $1,768,000, or 12.9% of net
sales, from $1,479,000, or 13% of net sales, for the three months ended October
31,1998. Operating expenses, which as a percentage of net sales remained the
same, increased principally as a result of increased freight, commissions and
additional payroll and expenses related to in-house regional sales managers
hired in the current year.
Interest Expense. Interest expense for the three months ended October
31, 1999 decreased by $8,000 or 3.8% to $201,000 from $209,000 for the three
months ending October, 31, 1999. The decrease in interest expense was mainly due
to lower interest costs reflecting a decrease in average borrowings under the
Company's credit facility.
Income Tax Expense. The effective tax rate for the three months ended
October 31, 1999 and 1998 of 37% and 39%, respectively deviated from the Federal
statutory rate of 34%, and was mainly attributable to state and foreign income
taxes.
Net Income. As a result of the foregoing, net income for the three
months ended October 31, 1999 increased by $155,000 or 43% to net income of
$510,000 from net income of $355,000 for the three months ended October 31,
1998.
8
LIQUIDITY and CAPITAL RESOURCES
Liquidity and Capital Resources. The Company's working capital is equal to
$24,751,000 at October 31, 1999. The Company's primary sources of funds for
conducting its business activities have been from cash flow provided by
operations and borrowings under its revolving 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 $1,152,000 for the nine months
ended October 31, 1999 and was due primarily to an increase in inventories
partially offset by net income from operations and an increase in accounts
payable.
Net cash provided by financing activities of $1,467,000 was attributable
to borrowings under the revolving credit facility during the period.
The long-term revolving credit facility permits the Company to borrow up
to a maximum of $13 million. The agreement expires on November 30, 2000 and has
therefore been classified as a long-term liability in the accompanying balance
sheet at October 31, 1999. On November 1, 1999, the Company entered into a new
five (5) year Term Loan for $3 million which expires on October 31, 2004 and has
been classified as a long-term liability (less current portion of $600,000) in
the accompanying balance sheet at October 31, 1999. Borrowings under these
credit facilities amounted to approximately $12,263,000 million at October 31,
1999.
The Company believes that cash flow from operations, the term loan 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.
Year 2000 Compliance
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 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 about their
progress in identifying and addressing problems related to the Year 2000.
Certain of the Company's major suppliers have informed the Company that such
suppliers 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, or to the extent to
which it would be vulnerable to the 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 October 31, 1999.
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: December 13, 1999 Raymond J. Smith
----------------
Raymond J. Smith,
President and Chief Executive Officer
Date: December 13, 1999 James M. McCormick
------------------
James M. McCormick,
Vice President and Treasurer
(Principal Accounting Officer)
10