Form 10-Q LAKELAND INDUSTRIES INC For: Oct 31
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| (Mark one) |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended |
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:
|
(Exact name of Registrant as specified in its charter) |
| ||
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
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| ||
(Address of Principal Executive Offices) |
| (Zip Code) |
(Registrant's telephone number, including area code) (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ☐ | ☒ | |
Nonaccelerated filer | ☐ | Smaller reporting company | |
Emerging growth company |
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class |
| Outstanding at December 2, 2022 |
Common Stock, $0.01 par value per share |
| |
LAKELAND INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-Q
The following information of the Registrant and its subsidiaries is submitted herewith:
| 2 |
| Table of Contents |
LAKELAND INDUSTRIES, INC.
AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000’s except for share and per share information)
|
| Three Months Ended October 31, |
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| Nine Months Ended October 31, |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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Net sales |
| $ |
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| $ |
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| $ |
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| $ |
| ||||
Cost of goods sold |
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Gross profit |
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Operating expenses |
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Operating profit |
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Other income (expense), net |
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| ( | ) |
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| ( | ) |
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| ( | ) |
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| ( | ) |
Interest expense |
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| ( | ) |
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| ( | ) |
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| ( | ) |
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| ( | ) |
Income before taxes |
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Income tax expense |
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Net income |
| $ |
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| $ |
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| $ |
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| $ |
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Net income per common share: |
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Basic |
| $ |
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| $ |
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| $ |
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| $ |
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Diluted |
| $ |
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| $ |
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| $ |
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| $ |
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Weighted average common shares outstanding: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
| Table of Contents |
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
($000’s)
|
| Three Months Ended October 31, |
|
| Nine Months Ended October 31, |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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Net income |
| $ |
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| $ |
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| $ |
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| $ |
| ||||
Other comprehensive income (loss): |
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Foreign currency translation adjustments |
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| ( | ) |
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| ( | ) |
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Comprehensive income (loss) |
| $ | ( | ) |
| $ |
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| $ | ( | ) |
| $ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
| Table of Contents |
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000’s except for share information)
ASSETS |
| October 31, |
|
| January 31, |
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| 2022 |
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| 2022 |
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Current assets |
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Cash and cash equivalents |
| $ |
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| $ |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Inventories |
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Prepaid VAT and other taxes |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Operating leases right-of-use assets |
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Deferred tax assets |
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Other assets |
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Investments |
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Total assets |
| $ |
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| $ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable |
| $ |
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| $ |
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Accrued compensation and benefits |
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Other accrued expenses |
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Income tax payable |
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Current portion of operating lease liabilities |
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Total current liabilities |
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Deferred income taxes |
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Long-term portion of operating lease liabilities |
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Total liabilities |
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Commitments and contingencies |
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Stockholders’ equity |
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Preferred stock, $ |
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Common stock, $ |
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Treasury stock, at cost; |
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| ( | ) |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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| ( | ) |
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| ( | ) |
Total stockholders' equity |
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Total liabilities and stockholders' equity |
| $ |
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| $ |
| ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
| Table of Contents |
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(000’s except for share information)
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| Additional |
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| Accumulated Other |
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| Common Stock |
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| Treasury Stock |
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| Paid-in |
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| Retained |
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| Comprehensive |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Earnings |
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| Loss |
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| Total |
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| ($000’s) |
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| ($000’s) |
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| ($000’s) |
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| ($000’s) |
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| ($000’s) |
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| ($000’s) |
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Balance, January 31, 2021 |
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| $ |
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| ( | ) |
| $ | ( | ) |
| $ |
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| $ |
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| $ | ( | ) |
| $ |
| |||||
Net income |
|
| — |
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| — |
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| Other comprehensive loss |
|
| — |
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| — |
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Stock-based compensation: |
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Restricted Stock Issued |
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| — |
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Restricted Stock Plan |
|
| — |
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| — |
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| ||||||
Return of shares in lieu of payroll withholding |
|
| — |
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| — |
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| ( | ) |
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| ( | ) | ||||
Treasury stock purchased |
|
| — |
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| ( | ) |
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| ( | ) |
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| ( | ) | ||||
Balance, October 31, 2021 |
|
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| $ |
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| ( | ) |
| $ | ( | ) |
| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Balance, July 31, 2021 |
|
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| $ |
|
|
| ( | ) |
| $ | ( | ) |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||||
Net income |
|
| — |
|
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|
|
| — |
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| ||||||
Other comprehensive income |
|
| — |
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| — |
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Stock-based compensation: |
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Restricted stock issued |
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| — |
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| |||||||
Restricted stock plan |
|
| — |
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|
| — |
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| ||||||
Return of shares in lieu of payroll withholding |
|
| — |
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| — |
|
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| ( | ) |
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| ( | ) | ||||
Treasury stock purchased |
|
| — |
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| ( | ) |
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| ( | ) |
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| ( | ) | ||||
Balance, October 31, 2021 |
|
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| $ |
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| ( | ) |
| $ | ( | ) |
| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Balance, January 31, 2022 |
|
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| $ |
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| ( | ) |
| $ | ( | ) |
| $ |
|
| $ |
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| $ | ( | ) |
| $ |
| |||||
Net income |
|
| — |
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| — |
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Other comprehensive loss |
|
| — |
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| — |
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| ( | ) |
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| ( | ) | ||||
Stock-based compensation: |
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Restricted stock issued |
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| — |
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| |||||||
Restricted stock plan |
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| — |
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| — |
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Return of shares in lieu of payroll withholding |
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| — |
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| — |
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| ( | ) |
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| ( | ) | ||||
Treasury stock purchased |
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| — |
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| ( | ) |
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| ( | ) |
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| ( | ) | ||||
Balance, October 31, 2022 |
|
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| $ |
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| ( | ) |
| $ | ( | ) |
| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Balance, July 31, 2022 |
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| $ |
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| ( | ) |
| $ | ( | ) |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||||
Net income |
|
| — |
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| — |
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Other comprehensive loss |
|
| — |
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| — |
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| ( | ) |
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| ( | ) | ||||
Stock-based compensation: |
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Restricted stock issued |
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| — |
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| — |
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Restricted stock plan |
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| — |
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| — |
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Return of shares in lieu of payroll withholding |
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| — |
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| — |
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Treasury stock purchased |
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| — |
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| ( | ) |
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| ( | ) |
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| ( | ) | ||||
Balance, October 31, 2022 |
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| $ |
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| ( | ) |
| $ | ( | ) |
| $ |
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| $ |
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| $ | ( | ) |
| $ |
| |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
| Table of Contents |
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000’s)
|
| Nine Months Ended October 31, |
| |||||
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| 2022 |
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| 2021 |
| ||
Cash flows from operating activities: |
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Net income |
| $ |
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| $ |
| ||
Adjustments to reconcile net income to net cash (used in) provided by operating activities |
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Provision for doubtful accounts |
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| ( | ) | |
Deferred income taxes |
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Depreciation and amortization |
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Stock based and restricted stock compensation |
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(Gain) loss on disposal of property and equipment |
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Equity in loss of equity investment |
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Non-cash operating lease expense |
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(Increase) decrease in operating assets |
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Accounts receivable |
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| ( | ) |
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Inventories |
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| ( | ) |
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| ( | ) |
Prepaid VAT and other taxes |
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| ( | ) |
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Other assets |
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| ( | ) |
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Increase (decrease) in operating liabilities |
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Accounts payable |
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| ( | ) | |
Accrued expenses and other liabilities |
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| ( | ) | |
Operating lease liabilities |
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| ( | ) |
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| ( | ) |
Net cash (used in) provided by operating activities |
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| ( | ) |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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| ( | ) |
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| ( | ) |
Investments |
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| ( | ) |
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| ( | ) |
Net cash (used in) investing activities: |
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| ( | ) |
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| ( | ) |
Cash flows from financing activities: |
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Purchase of treasury stock under stock repurchase program |
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| ( | ) |
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| ( | ) |
Shares returned to pay employee taxes under restricted stock program |
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| ( | ) |
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| ( | ) |
Net cash (used in) financing activities |
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| ( | ) |
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| ( | ) |
Effect of exchange rate changes on cash and cash equivalents |
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| ( | ) |
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| |
Net increase (decrease) in cash and cash equivalents |
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| ( | ) |
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|
| |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
| ||
Cash and cash equivalents at end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
Cash paid for taxes |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities |
|
|
|
|
|
|
|
|
Leased assets obtained in exchange for operating lease liabilities |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
| Table of Contents |
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
1. Business
Lakeland Industries, Inc. and Subsidiaries (“Lakeland,” the “Company,” “we,” “our” or “us”), a Delaware corporation organized in April 1986, manufacture and sell a comprehensive line of industrial protective clothing and accessories for the industrial and public protective clothing market. Our products are sold globally by our in-house sales teams, our customer service group, and authorized independent sales representatives to a network of over 1,600 global safety and industrial supply distributors. Our authorized distributors supply end users, such as integrated oil, chemical/petrochemical, automobile, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical, and high technology electronics manufacturers, as well as scientific, medical laboratories and the utilities industry. In addition, we supply federal, state and local governmental agencies and departments, such as fire and law enforcement, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control. Internationally, we sell to a mixture of end users directly, and to industrial distributors depending on the particular country and market. Sales are made to more than 50 countries, the majority of which were into China, countries within the European Economic Community (“EEC”), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India and countries within Southeast Asia.
2. Basis of Presentation
The condensed consolidated financial statements of the Company are unaudited. These condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state the Company's results. Intercompany accounts and transactions have been eliminated. The results reported in these condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire fiscal year ending January 31, 2023, or for any future period. The January 31, 2022, Condensed Consolidated Balance Sheet data was derived from the audited Consolidated Balance Sheet, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto as of January 31, 2022 and 2021, and for each of the two years in the period ended January 31, 2022, included in our most recent annual report on Form 10-K filed on April 21, 2022.
In this Form 10-Q, (a) “FY” means fiscal year; thus for example, FY23 refers to the fiscal year ending January 31, 2023, (b) “Q” refers to quarter; thus, for example, Q3 FY23 refers to the third quarter of the fiscal year ending January 31, 2023, (c) “Balance Sheet” refers to the unaudited condensed consolidated balance sheet, and (d) “Statement of Operations” refers to the unaudited condensed consolidated statement of operations.
3. Investments
On October 18, 2021, the Company entered into an Investment Agreement (the “Investment Agreement”) with Inova Design Solutions Ltd, a private limited company incorporated under the laws of England and Wales and headquartered in the United Kingdom, doing business as Bodytrak® (“Bodytrak”), and the other parties thereto, pursuant to which Bodytrak agreed to issue and sell to the Company
| 8 |
| Table of Contents |
On April 28, 2022, the Company, under the terms of the Investment Agreement, acquired an additional
Bodytrak provides wearable monitoring solutions for customers in industrial health, safety, defense and first responder markets wanting to achieve better employee health and performance. Bodytrak’s solution is provided as a platform as a service (PaaS), delivering real-time data and cloud-based analytics, and hardware that includes a patented earpiece for physiological monitoring and audio communications.
For the three and nine months ended October 31, 2022, the Company recognized losses of $
4. Inventories
Inventories consist of the following (in $000s):
|
| October 31, 2022 |
|
| January 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Raw materials |
| $ |
|
| $ |
| ||
Work-in-process |
|
|
|
|
|
| ||
Finished goods |
|
|
|
|
|
| ||
Excess and obsolete adjustments |
|
| ( | ) |
|
| ( | ) |
|
| $ |
|
| $ |
| ||
| 9 |
| Table of Contents |
5. Long-Term Debt
Revolving Credit Facility
On June 25, 2020, the Company entered into a Loan Agreement (the “Loan Agreement”) with Bank of America (“Lender”). The Loan Agreement provides the Company with a secured $
On June 18, 2021, the Company entered into an Amendment No. 1 to Loan Agreement (the “Amendment”) with the Lender, which modifies certain terms of the Company’s existing Loan Agreement. The Amendment increases the credit limit under the Loan Agreement’s senior secured revolving credit facility from $
Other than the changes described above, the terms and conditions of the Loan Agreement remain in full force and effect.
As of October 31, 2022, the Company had no borrowings outstanding on the letter of credit sub-facility and no borrowings outstanding under the revolving credit facility.
Borrowings in UK
There were no borrowings outstanding under the Company’s existing credit facility with HSBC Bank at October 31, 2022 and January 31, 2022. Amounts due to the Company, under the facility with HSBC Invoice Finance (UK) Ltd., of $
6. Concentration of Risk
Credit Risk
Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents, and trade receivables. Concentration of credit risk with respect to trade receivables is generally diversified due to the large number of entities comprising the Company’s customer base and their dispersion across geographic areas principally within the United States. The Company routinely addresses the financial strength of its customers and, as a consequence, believes that its receivable credit risk exposure is limited. The Company does not require customers to post collateral.
The Company’s foreign financial depositories are Bank of America; China Construction Bank; Bank of China; China Industrial and Commercial Bank; HSBC (UK); Rural Credit Cooperative of Shandong; Postal Savings Bank of China; Punjab National Bank; HSBC in India, Argentina and UK; Raymond James in Argentina; TD Canada Trust; Banco Itaú S.A., Banco Credito Inversione in Chile; Banco Mercantil Del Norte SA in Mexico; ZAO KB Citibank Moscow in Russia, and JSC Bank Centercredit in Kazakhstan. The Company monitors its financial depositories by their credit rating which varies by country. In addition, cash balances in banks in the United States of America are insured by the Federal Deposit Insurance Corporation subject to certain limitations. There was approximately $
| 10 |
| Table of Contents |
Major Customer
One customer, Aramsco, accounted for more than
Major Supplier
No vendor accounted for more than
7. Stockholders’ Equity
On June 21, 2017, the stockholders of the Company approved the Lakeland Industries, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). The executive officers and all other employees and directors of the Company, including its subsidiaries, are eligible to participate in the 2017 Plan. The 2017 Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”), except that with respect to all non-employee directors, the Committee shall be deemed to include the full Board. The 2017 Plan provides for the grant of equity-based compensation in the form of stock options, restricted stock, restricted stock units, performance shares, performance units, or stock appreciation rights (“SARs”).
On June 16, 2021, the stockholders of the Company approved Amendment No. 1 (the “Amendment”) to the 2017 Plan. The Amendment increases the number of shares of common stock, par value $
An aggregate of
The Company recognized total stock-based compensation costs, which are reflected in operating expenses (in $000’s):
|
| Three Months Ended October 31, |
|
| Nine Months Ended October 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
2017 Plan: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total restricted stock and stock option programs |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Total income tax expense recognized for stock-based compensation arrangements |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| 11 |
| Table of Contents |
Restricted Stock and Restricted Stock Units
Under the 2017 Plan, as described above, the Company awarded performance-based and service-based shares of restricted stock and restricted stock units to eligible employees and directors. The following table summarizes the activity under the 2017 Plan for the nine months ended October 31, 2022 and 2021. This table reflects the amount of awards granted at the number of shares that would be vested if the Company were to achieve the maximum performance level under the December 2019, April 2020, June 2021, April 2022 and June 2022 grants.
|
| Performance- Based |
|
| Service- Based |
|
| Total |
|
| Weighted Average Grant Date Fair Value |
| ||||
Outstanding at January 31, 2022 |
|
|
|
|
|
|
|
|
|
| $ |
| ||||
Awarded |
|
|
|
|
|
|
|
|
|
| $ |
| ||||
Vested |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Outstanding at October 31, 2022 |
|
|
|
|
|
|
|
|
|
| $ |
| ||||
|
| Performance- Based |
|
| Service- Based |
|
| Total |
|
| Weighted Average Grant Date Fair Value |
| ||||
Outstanding at January 31, 2021 |
|
|
|
|
|
|
|
|
|
| $ |
| ||||
Awarded |
|
|
|
|
|
|
|
|
|
| $ |
| ||||
Vested |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
| |
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Outstanding at October 31, 2021 |
|
|
|
|
|
|
|
|
|
| $ |
| ||||
The actual number of shares of common stock of the Company, if any, to be earned by the award recipients is determined over a three year performance measurement period based on measures that include Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”) margin, revenue growth, and free cash flow for the April 2020 and June 2021 grants and revenue growth and EBITDA margin for the April 2022 and June 2022 grants. The performance targets have been set for each of the Minimum, Target, and Maximum levels. The actual performance amount achieved is determined by the Committee and may be adjusted for items determined to be unusual in nature or infrequent in occurrence, at the discretion of the Committee.
The compensation cost is based on the fair value at the grant date, recognized over the requisite performance/service period using the straight-line method, and periodically adjusted for the probable number of shares to be awarded. As of October 31, 2022, unrecognized stock-based compensation expense totaled $1.8 million pursuant to the 2017 Plan based on outstanding awards under the 2017 Plan. This expense is expected to be recognized over approximately two years.
Stock Repurchase Program
On February 17, 2021, the Company’s Board of Directors approved a stock repurchase program under which the Company may repurchase up to $
| 12 |
| Table of Contents |
On April 7, 2022, the Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to $
Shares repurchased in Q3 FY23 totaled
8. Income Taxes
The Company’s provision for income taxes for the three and nine months ended October 31, 2022 and 2021 is based on the estimated annual effective tax rate, in addition to discrete items.
The Company's effective tax rate for the third quarter of FY23 was
In Q2 FY23 the Company changed its permanent reinvestment assertions for its Chinese operations due to increased volatility of the Chinese yuan and an updated evaluation of investment strategies. The Company recorded $
The Company's effective tax rate for the nine months ended October 31, 2022 was
The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. The valuation allowance was $
| 13 |
| Table of Contents |
9. Net Income Per Share
The following table sets forth the computation of basic and diluted net income per share as follows (in $000s except per share amounts):
|
| Three Months Ended October 31, |
|
| Nine Months Ended October 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income per share (weighted-average shares which exclude shares in the treasury, 1,330,694 and 780,266 at October 31, 2022 and 2021, respectively |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Effect of dilutive securities from restricted stock plan |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Denominator for diluted net income (loss) per share (adjusted weighted average shares) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic net income (loss) per share |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Diluted net income (loss) per share |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
10. Contingencies
Certain conditions may exist as of the date the condensed consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been or is probable of being incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s condensed consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
General litigation contingencies
The Company is involved in various litigation proceedings arising during the normal course of business which, in the opinion of the management of the Company, will not have a material effect on the Company’s financial position, results of operations or cash flows; however, there can be no assurance as to the ultimate outcome of these matters. As of October 31, 2022, to the best of the Company’s knowledge, there were no significant outstanding claims or litigation.
| 14 |
| Table of Contents |
11. Segment Reporting
We manage our operations by evaluating each of our geographic locations. Our US operations include a facility in Alabama (primarily the distribution to customers of the bulk of our products and the light manufacturing of our chemical, woven, reflective, and fire products). The Company also maintains one manufacturing company in China (primarily disposable and chemical suit production), a manufacturing facility in Mexico (primarily disposable, reflective, fire and chemical suit production), a manufacturing facility in Vietnam (primarily disposable production) and a small manufacturing facility in India. Our China facilities produce the majority of the Company’s products and China generates a significant portion of the Company’s international revenues. We evaluate the performance of these entities based on operating profit, which is defined as income before income taxes, interest expense and other income and expenses. We have sales forces in the USA, Canada, Mexico, Europe, Latin America, India, Russia, Kazakhstan and China, which sell and distribute products shipped from the United States, Mexico, India or China.
The table below represents information about reported segments for the three and nine month periods noted therein:
|
| Three Months Ended October 31, |
|
| Nine Months Ended October 31, |
| ||||||||||
|
| (in millions of dollars) |
|
| (in millions of dollars) |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
USA Operations (including Corporate) |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Other foreign |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Europe (UK) |
|
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Mexico |
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Asia |
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Canada |
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|
| ||||
Latin America |
|
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|
| ||||
Less intersegment sales |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Consolidated sales |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
External Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USA Operations (including Corporate) |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Other foreign |
|
|
|
|
|
|
|
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|
|
|
| ||||
Europe (UK) |
|
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|
|
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|
| ||||
Mexico |
|
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|
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|
| ||||
Asia |
|
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| ||||
Canada |
|
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| ||||
Latin America |
|
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| ||||
Consolidated external sales |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| 15 |
| Table of Contents |
Intersegment Sales: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
USA Operations (including Corporate) |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Other foreign |
|
|
|
|
|
|
|
|
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|
|
| ||||
Mexico |
|
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|
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|
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|
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|
| ||||
Asia |
|
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|
| ||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consolidated intersegment sales |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
| Three Months Ended October 31, |
|
| Nine Months Ended October 31, |
| ||||||||||
|
| (in millions of dollars) |
|
| (in millions of dollars) |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Operating Profit (Loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
USA Operations (including Corporate) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Other foreign |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Europe (UK) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Mexico |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Asia |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Canada |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Intersegment profit (loss) |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Consolidated operating profit |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
| October 31, 2022 |
|
| January 31, 2022 |
| ||
|
| (in millions of dollars) |
| |||||
Total Assets: |
|
|
|
|
|
| ||
USA Operations (including Corporate) |
| $ |
|
| $ |
| ||
Other foreign |
|
|
|
|
|
| ||
Europe (UK) |
|
|
|
|
|
| ||
Mexico |
|
|
|
|
|
| ||
Asia |
|
|
|
|
|
| ||
Canada |
|
|
|
|
|
| ||
Latin America |
|
|
|
|
|
| ||
Consolidated assets |
| $ |
|
| $ |
| ||
| 16 |
| Table of Contents |
The table below presents external sales by product line:
|
| Three Months Ended October 31, (in millions of dollars) |
|
| Nine Months Ended October 31, (in millions of dollars) |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
External Sales by product lines: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Disposables |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Chemical |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Fire |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gloves |
|
|
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|
| ||||
High Visibility |
|
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| ||||
High Performance Wear |
|
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|
| ||||
Wovens |
|
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|
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|
| ||||
Consolidated external sales |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
12. Subsequent Event
On December 2, 2022 the Company acquired UK-based Eagle Technical Products Limited (“Eagle”) in an all-cash transaction valued at approximately $
| 17 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following discussion and analysis should be read in conjunction with the historical financial statements and other financial information included elsewhere in this quarterly report on Form 10-Q. This Form 10-Q may contain certain forward-looking statements. When used in this Form 10-Q or in any other presentation, statements which are not historical in nature, including the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” “project”, “plan,” “seek,” “will,” “may,” “might,” “would,” “could” and similar expressions, are intended to identify forward-looking statements. They also include statements containing a projection of sales, earnings or losses, capital expenditures, dividends, capital structure or other financial terms.
The forward-looking statements in this Form 10-Q are based upon our management’s beliefs, assumptions and expectations of our future operations and economic performance, taking into account the information currently available to us. These statements are not statements of fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations are:
| · | we are subject to risk as a result of our international manufacturing operations and are subject to the risk of doing business in foreign countries; |
| · | a terrorist attack, other geopolitical crisis, or widespread outbreak of an illness or other health issue, such as the COVID-19 pandemic, could negatively impact our domestic and/or international operations; |
| · | our results of operations could be negatively affected by potential fluctuations in foreign currency exchange rates; |
| · | the implementation of our Enterprise Resource Planning ("ERP") system had, and may in the future as we implement ERP into foreign operations have, an adverse effect on operating results; |
| · | we have manufacturing and other operations in China which may be adversely affected by tariff wars and other trade maneuvers; |
| · | our results of operations may vary widely from quarter to quarter; |
| · | some of our sales are to foreign buyers, which exposes us to additional risks; |
| · | we deal in countries where corruption is an obstacle; |
| · | we are exposed to tax expense risks; |
| · | because we do not have long-term commitments from many of our customers, we must estimate customer demand, and errors in our estimates could negatively impact our inventory levels and net sales; |
| · | we face competition from other companies, a number of which have substantially greater resources than we do; |
| · | our operations are substantially dependent upon key personnel; |
| · | cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information and adversely impact our reputation and results of operations; |
| · | we may be subject to product liability claims, and insurance coverage could be inadequate or unavailable to cover these claims; |
| · | environmental laws and regulations may subject us to significant liabilities; |
| · | our directors and executive officers have the ability to exert significant influence on us and on matters subject to a vote of our stockholders; |
| · | provisions in our restated certificate of incorporation and by-laws and Delaware law could make a merger, tender offer or proxy contest difficult; |
| · | acquisitions and investments could be unsuccessful; |
| · | we may not achieve the expected benefits from strategic acquisitions, investments, joint ventures, capital investments and other corporate transactions that we have pursued or may pursue; |
| · | we may need additional funds, and if we are unable to obtain these funds, we may not be able to expand or operate our business as planned; |
| · | rapid technological change could negatively affect sales of our products, inventory levels and our performance; and |
| · | the other factors referenced in this Form 10-Q, including, without limitation, in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the factors described under “Risk Factors” disclosed in our fiscal 2022 Form 10-K. |
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We believe these forward-looking statements are reasonable; however, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Furthermore, forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements after the date of this Form 10-Q, whether as a result of new information, future events or otherwise, except as may be required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 10-Q might not occur. We qualify any and all of our forward-looking statements entirely by these cautionary factors.
Business Overview
We manufacture and sell a comprehensive line of industrial protective clothing and accessories for the industrial and public protective clothing market. Our products are sold globally by our in-house sales teams, our customer service group, and authorized independent sales representatives to a network of over 1,600 global safety and industrial supply distributors. Our authorized distributors supply end users, such as integrated oil, chemical/petrochemical, automobile, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical, and high technology electronics manufacturers, as well as scientific, medical laboratories and the utilities industry. In addition, we supply federal, state and local governmental agencies and departments, such as fire and law enforcement, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control. Internationally, we sell to a mixture of end users directly, and to industrial distributors depending on the particular country and market. In addition to the United States, sales are made to more than 50 foreign countries, the majority of which were into China, the European Economic Community (“EEC”), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India and Southeast Asia.
We have operated facilities in Mexico since 1995 and in China since 1996. Beginning in 1995, we moved the labor intensive sewing operation for our limited use/disposable protective clothing lines to these facilities. Our facilities and capabilities in China and Mexico allow access to a less expensive labor pool than is available in the United States and permit us to purchase certain raw materials at a lower cost than they are available domestically. More recently we have added manufacturing operations in Vietnam and India to offset increasing manufacturing costs in China and further diversify our manufacturing capabilities. Our China operations will continue primarily manufacturing for the Chinese market and other markets where duty advantages exist. The Company is adding a new manufacturing facility in Monterrey, Mexico that we expect to be operational in FY 24. This new capacity will help shorten delivery times for the North American markets. Manufacturing expansion is not only necessary to control rising costs, it is also necessary for Lakeland to achieve its growth objectives.
On December 2, 2022 the Company acquired UK-based Eagle Technical Products Limited (“Eagle”) in an all-cash transaction valued at approximately $10.8 million subject to post-closing adjustments and potential future earnout payments. The acquisition enhances Lakeland’s product portfolio, particularly within fire service protective clothing and expands its sales presence in the Middle East and Europe.
Our net sales attributable to customers outside the United States were $14.4 million and $19.4 million for the three months ended October 31, 2022 and 2021, respectively and $46.7 million and $55.1 million for the nine months ended October 31, 2022 and 2021, respectively.
We are continually monitoring the potential financial impact of the Russian invasion of Ukraine on our operations. For the nine months ended October 31, 2022, sales in Russia were approximately 2.4% of our consolidated sales and sales into Ukraine were not significant. We do not have any capital assets in Russia.
We have not experienced any manufacturing capacity issues due to inability to source raw materials, government quarantine, or shelter-in-place orders, or due to COVID-19 outbreaks in any of our factories, however there can be no assurance that this will continue to be the case. In addition, we cannot predict any potential incremental cost that may be associated with any federal, state or local vaccine mandates or related testing protocol. While current economic indicators and industry data indicate an industrial market recovery, potential headwinds to revenue as we emerge from pandemic sales include the possibility of a recession and the continued presence of consumer stockpiled inventories that may temper demand within our regular markets in the remainder of FY23.
While we have not experienced any raw materials shortages in our Asian manufacturing operations, we are experiencing some issues with U.S. sourced raw materials due to labor and precursor shortages affecting our higher margin product lines. In both Asia and the U.S., increasing labor costs, as well as inflationary pressures threaten to drive raw material costs up and may negatively impact our gross margins. Where we can, we will seek to recover increased costs with corresponding price increases.
Additionally, we have experienced, along with most other companies across many industries, the macro-economic impact of a challenging employment environment related to hiring and retaining employees and wage inflation. We expect that these hiring, retention, and wage inflation challenges, as well as challenges related to maintaining our current workforce, will continue through the remainder of FY23. These hiring, retention, and cost challenges may negatively affect our ability to grow our business and keep our best employees or increase our cost of operations.
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Results of Operations
Three Months ended October 31, 2022, Compared to the Three Months Ended October 31, 2021
Net Sales. Net sales were $28.4 million for the three months ended October 31, 2022, a decrease of $1.6 million or 5.3% compared to $30.0 million for the three months ended October 31, 2021. Sales of our fire and high performance product lines increased by $2.5 million reflecting strengthening in the industrial markets. Our sales were negatively impacted by declines in our disposable product line by $4.1 million, though we were seeing continued increases in direct container activity in the third quarter.
Gross Profit. Gross profit for the three months ended October 31, 2022 was $12.3 million, a decrease of $0.5 million, or 3.9%, compared to $12.8 million for the three months ended October 31, 2021. Gross profit as a percentage of net sales improved to 43.3% for the three month period ended October 31, 2022, from 42.5% for the three months ended October 31, 2021. Gross profit performance in the fiscal 2023 period benefited from improving product mix with pricing power and lower freight rates.
Operating Expense.
Operating expenses increased 18.8% from $8.5 million for the three months ended October 31, 2021 to $10.1 million for the three months ended October 31, 2022. This increase is attributable to increases in freight out and selling expenses of $0.4 million, administrative expenses of $0.4 million and currency fluctuations of $0.8 million. Increase in currency expense is due primarily to the fluctuation in the Chinese yuan. Operating expenses in the quarter ended October 31, 2022 also included $0.2 million in severance expenses. Operating expenses as a percentage of net sales was 35.5% for the three months ended October 31, 2022, up from 28.4% for the three months ended October 31, 2021 primarily due to the increased costs noted above.
Operating Profit. Operating profit declined to $2.1 million for the three months ended October 31, 2022 from $4.2 million for the three months ended October 31, 2021, due to the impacts detailed above. Operating margins were 7.6% for the three months ended October 31, 2022, as compared to 14.1% for the three months ended October 31, 2021.
Income Tax Expense. Income tax expense consists of federal, state and foreign income taxes. Income tax expense was $0.7 million for the three months ended October 31, 2022, compared to $1.3 million for the three months ended October 31, 2021. The effective rate for the three months ended October 31, 2022, was 33.3%. The effective rate for the three months ended October 31, 2021 was 31.4%.
Net Income. Net income for the three months ended October 31, 2022 was $1.4 million, a decline of $1.5 million from net income of $2.9 million for the three months ended October 31, 2021. The decline was due to the factors discussed above.
Nine Months ended October 31, 2022, Compared to the Nine Months Ended October 31, 2021
Net Sales. Net sales were $83.8 million for the nine months ended October 31, 2022 as compared to $91.6 million for the nine months ended October 31, 2021, a decrease of $7.8 million or 8.5%. Our fire, high performance, high visibility and wovens product lines increased by $5.5 million in the aggregate reflecting strengthening in our industrial markets. Sales of our disposable and chemical product lines declined by $13.3 million in the nine months ended October 31, 2022, driven by diminishing COVID-19 demand.
For the nine months ended October 31, 2021 sales globally were driven by COVID-19 demand, as we realized significant increases in all markets for our disposable and chemical product lines.
Gross Profit. Gross profit was $35.0 million for the nine months ended October 31, 2022, a decrease of $5.4 million, or 13.4%, from $40.4 million for the nine months ended October 31, 2021. Gross profit as a percentage of net sales decreased to 41.7% for the nine months ended October 31, 2022, from 44.1% for the nine months ended October 31, 2021. Major factors driving gross margins were:
| · | Significant decreases in volumes driven by reduced COVID-19 demand. |
| · | Return to competitive pricing pressures as COVID-19 demand decreases. |
| · | Increases in freight rates beginning in FY22. |
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Operating Expense. Operating expenses increased $4.0 million, or 15.7%, to $29.5 million for the nine months ended October 31, 2022 from $25.5 million for the nine months ended October 31, 2021. Selling expenses were higher by $1.6 million due to increases in freight out and customs fees coupled with higher travel, advertising and trade show expenses as COVID-19 restrictions have lifted. General and administrative expenses increased by $2.6 million, driven by currency fluctuations accounting for $1.9 million of the increase due to the strengthening of the U.S. dollar primarily against the Chinese yuan. The remaining increase was due to increases in rent and technology costs. Operating expenses as a percentage of net sales was 35.2% for the nine months ended October 31, 2022, up from 27.8% for the nine months ended October 31, 2021.
Operating Profit. Operating profit decreased to $5.5 million for the nine months ended October 31, 2022 from $14.9 million for the nine months ended October 31, 2021, due to the impacts detailed above. Operating margins were 6.5% for the nine months ended October 31, 2022, as compared to 16.3% for the nine months ended October 31, 2021.
Income Tax Expense. Income tax expense consists of federal, state and foreign income taxes. Income tax expense was $3.6 million for the nine months ended October 31, 2022, compared to $4.0 million for the nine months ended October 31, 2021.
In Q2 FY23, the Company changed its’ permanent reinvestment assertions for its Chinese operations during the second quarter due to increased volatility of the Chinese yuan and geopolitical uncertainties. The Company recorded $2 million in withholding taxes for a planned repatriation during FY23. In Q1 FY23, the Company recorded deferred tax benefits of $0.2 million related to accruals for China social taxes. Excluding these discrete items the Company’s effective rate was 33.8% and 27.1% for the nine months ended October 31, 2022 and 2021, respectively.
Net Income. Net income decreased by $9.2 million to $1.7 million for the nine months ended October 31, 2022 from $10.9 million for the nine months ended October 31, 2021.
Significant Balance Sheet Fluctuation October 31, 2022, Compared to January 31, 2022
Cash decreased by $17.8 million due to cash used in operating activities of $5.2 million for the nine months ended October 31, 2022 primarily due to an increase in current assets of $12.5 million driven by a build in inventory to support customers by reducing delivery times and an increase in accounts receivable due to timing of sales, including direct containers, in the current quarter. Offsetting these increases were net income of $1.7 million, non-cash expenses of $4.6 million for deferred taxes, depreciation and amortization, stock compensation, and equity in loss of equity investment, and increase in current liabilities of $1.0 million.
The Company invested $1.3 million for the nine months ended October 31, 2022 in office and manufacturing equipment purchases and made an additional investments in Bodytrak of $3.1 million.
Net cash used in financing activities was $6.2 million for the nine months ended October 31, 2022, due to $5.4 million in shares repurchased and $0.8 million in shares returned to pay income taxes on shares vested under our equity compensation program.
Capital expenditures for the three and nine months ended October 31, 2022 were $0.8 million and $1.3 million, respectively.
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Liquidity and Capital Resources
At October 31, 2022, cash and cash equivalents were approximately $34.9 million and working capital was approximately $99.6 million. Cash and cash equivalents decreased $17.8 million and working capital decreased $9.0 million from January 31, 2022, primarily due to treasury stock purchases of $5.4 million, additional investments in Bodytrak of $3.1 million and $1.0 million of capital expenditures.
Of the Company’s total cash and cash equivalents of $34.9 million as of October 31, 2022, cash held in Latin America of $1.5 million, cash held in Russia and Kazakhstan of $1.2 million, cash held in the UK of $0.7 million, cash held in India of $0.6 million, cash held in Hong Kong of $0.2 million and cash held in Vietnam of $0.3 million would not be subject to additional US tax in the event such cash was repatriated due to the change in the US tax law as a result of the December 22, 2017 enactment of the 2017 Tax Cuts and Jobs Act (the “Tax Act”). When the Company repatriates cash from China, of the $25.9 million balance at October 31, 2022, there could be an additional 10% withholding tax incurred in that country. The Company expects to repatriate cash from China during FY 23, and in anticipation of doing so, has accrued a withholding tax expense of $2.0 million as of October 31, 2022.
Net cash used in operating activities of $5.2 million for the nine months ended October 31, 2022 was primarily due to an increase in current assets of $12.5 million partially offset by net income of $1.7 million, non-cash expenses of $4.6 million for deferred taxes, depreciation and amortization, stock compensation and equity in loss of equity investment, and increase in current liabilities of $1.0 million. The increase in current assets was driven by a build in inventory to support customers by reducing delivery times. We do not expect the inventory build to continue in the fourth quarter. Net cash used in investing activities of $4.1 million for the nine months ended October 31, 2022 reflects office and manufacturing equipment purchases and the additional investments in Bodytrak of $3.3 million. Net cash used in financing activities was $6.2 million for the nine months ended October 31, 2022, due to $5.4 million in shares repurchased under our share repurchase program and shares returned to pay income taxes on shares vested under our equity compensation program.
On December 2, 2022 the Company acquired Eagle in an all-cash transaction valued at approximately $10.8 million subject to post-closing adjustments and potential future earnout payments. The acquisition enhances Lakeland’s product portfolio, particularly within fire service protective clothing and expands its sales presence in the Middle East and Europe.
We believe our current cash balance and cashflow from operations will be sufficient to satisfy our projected working capital and planned capital expenditures for the foreseeable future.
On June 25, 2020, we entered into a Loan Agreement (the “Loan Agreement”) with Bank of America (“Lender”). The Loan Agreement provides the Company with a secured $12.5 million revolving credit facility, which includes a $5.0 million letter of credit sub-facility. The Company may request from time to time an increase in the revolving credit loan commitment of up to $5.0 million (for a total commitment of up to $17.5 million). Borrowing pursuant to the revolving credit facility is subject to a borrowing base amount calculated as (a) 80% of eligible accounts receivable, as defined, plus (b) 50% of the value of acceptable inventory, as defined, minus (c) certain reserves as the Lender may establish for the amount of estimated exposure, as reasonably determined by the Lender from time to time, under certain interest rate swap contracts. The borrowing base limitation only applies during periods when the Company’s quarterly funded debt to EBITDA ratio, as defined, exceeds 2.00 to 1.00. The credit facility will mature on June 25, 2025. Borrowings under the revolving credit facility bear interest at a rate per annum equal to the sum of the one-month LIBOR Daily Floating Rate (“LIBOR”), plus 125 basis points. LIBOR is subject to a floor of 100 basis points. All outstanding principal and unpaid accrued interest under the revolving credit facility is due and payable on the maturity date. The one-month LIBOR is expected to cease publication after June 30, 2023. The Loan Agreement provides that if the rate is not available for any reason, then the rate will be determined by such alternate method as reasonably selected by the Lender. On a one-time basis, and subject to there not existing an event of default, the Company may elect to convert up to $5.0 million of the then outstanding principal of the revolving credit facility to a term loan facility with an assumed amortization of 15 years and the same interest rate and maturity date as the revolving credit facility. The Loan Agreement provides for an annual unused line of credit commitment fee, payable quarterly, of 0.25%, based on the difference between the total credit line commitment and the average daily amount of credit outstanding under the facility during the preceding quarter.
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On June 18, 2021, the Company entered into an Amendment No. 1 to Loan Agreement (the “Amendment”) with the Lender, which modifies certain terms of the Company’s existing Loan Agreement with the Lender. The Amendment increases the credit limit under the Loan Agreement’s senior secured revolving credit facility from $12.5 million to $25.0 million. The Amendment also amends the covenant in the Loan Agreement that restricts acquisitions by the Company or its subsidiaries in order to allow, without the prior consent of the Lender, acquisitions of a business or its assets if there is no default under the Loan Agreement and the aggregate consideration does not exceed $7.5 million for any individual acquisition or $15.0 million on a cumulative basis for all such acquisitions.
The Loan Agreement requires the Company to maintain a Funded Debt to EBITDA (as each such term is defined in the Loan Agreement) ratio of 3.0 to 1.0 or less and a Basic Fixed Charge Coverage Ratio (as defined in the Loan Agreement) of at least 1.15 to 1.0. The Loan Agreement also contains customary covenants, including covenants that, among other things, limit or restrict the Company’s and/or the Company’s subsidiaries ability, subject to certain exceptions and qualifications, to incur liens or indebtedness, pay dividends, or merge, consolidate or sell or otherwise transfer assets. The Company was in compliance with all of its debt covenants as of October 31, 2022.
Other than the changes described above, the terms and conditions of the Loan Agreement remain in full force and effect.
Stock Repurchase Program. On February 17, 2021, the Company’s board of directors approved a stock repurchase program under which the Company may repurchase up to $5 million of its outstanding common stock. On July 6, 2021, the Board of Directors authorized an increase in the Company’s stock repurchase program under which the Company may repurchase up to an additional $5 million of its outstanding common stock (the “Existing Share Repurchase Program”). On April 7, 2022, the Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to $5 million of its outstanding common stock (the “New Share Repurchase Program”). The New Share Repurchase Program became effective upon the completion of the Existing Share Repurchase Program. The New Share Repurchase Program has no expiration date but may be terminated by the Board of Directors at any time. Shares repurchased in the three months ended October 31, 2022, totaled 194,839 shares at a cost of $2.3 million leaving $0.4 million remaining available for repurchase under the New Share Repurchase Program at October 31, 2022. On December 1, 2022, the Board of Directors authorized an increase in the Company’s stock repurchase program under which the Company may repurchase up to an additional $5 million of its outstanding common stock.
Capital Expenditures. Our capital expenditures for the first nine months of FY23 of $1.3 million principally relate to capital purchases for our manufacturing facilities in Mexico, Vietnam and India, enhancement of our global IT infrastructure and furnishing our new corporate headquarter office. We anticipate FY23 capital expenditures to be approximately $1.8 million as we continue to deploy our ERP solution globally, invest in strategic capacity expansion, and replace existing equipment in the normal course of operations. We expect to fund the capital expenditures from our cash flow from operations. The Company may also seek to expend funds in connection with acquisitions. On December 2, 2022 the Company acquired Eagle in an all-cash transaction valued at approximately $10.8 million subject to post-closing adjustments and potential future earnout payments. The Company paid the portion of the purchase price due at closing using available cash on hand.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. A summary of our significant accounting policies is included in Note 1 to our consolidated financial statements in our fiscal year 2022 Form 10-K. Certain of our accounting policies are considered critical, as these policies are the most important to the depiction of our financial statements and require significant, difficult, or complex judgments, often employing the use of estimates about the effects of matters that are inherently uncertain. Such policies are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our 2022 Form 10-K. There have been no significant changes in the application of our critical accounting policies during the nine months ended October 31, 2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item and therefore, no disclosure is required under Item 3 for the Company.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this Form 10-Q, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the third quarter of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On February 17, 2021, the Company’s board of directors approved a stock repurchase program under which the Company may repurchase up to $5 million of its outstanding common stock. On July 6, 2021, the Board of Directors authorized an increase in the Company’s then current stock repurchase program under which the Company may repurchase up to an additional $5 million of its outstanding common stock (the “Existing Share Repurchase Program”). On April 7, 2022, the Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to $5 million of its outstanding common stock (the “New Share Repurchase Program”). The New Share Repurchase Program became effective upon the completion of the Existing Share Repurchase Program. The New Share Repurchase Program has no expiration date but may be terminated by the Board of Directors at any time. On December 1, 2022, the Board of Directors authorized an increase in the Company’s stock repurchase program under which the Company may repurchase up to an additional $5 million of its outstanding common stock.
The common shares available for repurchase under the authorizations currently in effect may be purchased from time to time, with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations. Repurchases may be made on the open market or through privately negotiated transactions.
The following table sets forth purchases made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, of shares of the Company’s common stock during the third quarter of 2023:
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Programs |
|
| Maximum Dollar Amount of Shares that May Yet Be Purchased Under the Programs |
| ||||
August 1 – August 31 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 2,678,566 |
|
September 1 – September 30 |
|
| 59,603 |
|
| $ | 11.59 |
|
|
| 59,603 |
|
| $ | 1,987,878 |
|
October 1 – October 31 |
|
| 135,236 |
|
| $ | 12.01 |
|
|
| 135,236 |
|
| $ | 363,998 |
|
Total |
|
| 194,839 |
|
| $ | 11.88 |
|
|
| 194,839 |
|
| $ | 363,998 | (1) |
(1) Represents the amount remaining under the New Share Repurchase Program as of October 31, 2022.
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Item 6. Exhibits:
Exhibits:
* Filed herewith
† Furnished herewith
| ||
| ||
| ||
| ||
| ||
| ||
101* |
| The following financial statements from the Quarterly Report on Form 10-Q for the quarter ended October 31, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags. |
104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| LAKELAND INDUSTRIES, INC. (Registrant) |
|
|
|
|
Date: December 8, 2022 | /s/ Charles D. Roberson |
|
| Charles D. Roberson, Chief Executive Officer, President and Secretary (Principal Executive Officer and Authorized Signatory) |
|
|
|
|
Date: December 8, 2022 | /s/ Allen E. Dillard |
|
| Allen E. Dillard, Chief Operating and Financial Officer (Principal Financial Officer and Authorized Signatory) |
|
| 27 |
ATTACHMENTS / EXHIBITS
XBRL TAXONOMY EXTENSION SCHEMA
XBRL TAXONOMY EXTENSION LABEL LINKBASE
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
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