FORM 10-Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark one) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 2001 ------------- 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 it's charter) Delaware 13-3115216 - ------------------------ ------------------------------------ (State of incorporation) (IRS Employer Identification Number) 711-2 Koehler Ave., Ronkonkoma, New York 11779 - -------------------------------------------------------------------------------- (Address of principal executive offices) (631) 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 September 13, 2001 - 2,655,000 shares.
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q The following information of the Registrant and its subsidiaries is submitted herewith: <TABLE> <CAPTION> PART I - FINANCIAL INFORMATION: Item 1. Financial Statements: Page ---- <S> <C> Introduction ..................................................................................1 Condensed Consolidated Balance Sheets - July 31, 2001 and January 31, 2001.....................2 Condensed Consolidated Statements of Income - Three Months and Six Months Ended July 31, 2001 and 2000....................................................3 Condensed Consolidated Statement of Stockholders' Equity for the Six Months Ended July 31, 2001.........................................................4 Condensed Consolidated Statements of Cash Flows - Six Months Ended July 31, 2001 and 2000...................................................................5 Notes to Condensed Consolidated Financial Statements...........................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........9 PART II - OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K..............................................................10 Signatures....................................................................................11 </TABLE>
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION --------------------- Item 1. Financial Statements: Introduction CAUTIONARY STATEMENTS This report may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are all statements other than statements of historical fact included in this report, including, without limitation, the statements under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position and liquidity, the Company's strategic alternatives, future capital needs, development and capital expenditures (including the amount and nature thereof), future net revenues, business strategies, and other plans and objectives of management of the Company for future operations and activities. Forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances. These statements are subject to a number of assumptions, risks and uncertainties, and factors in the Company's other filings with the Securities and Exchange Commission (the "Commission"), general economic and business conditions, the business opportunities that may be presented to and pursued by the Company, changes in law or regulations and other factors, many of which are beyond the control of the Company. Readers are cautioned that these statements are not guarantees of future performance, and the actual results or developments may differ materially from those projected in the forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. 1
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> July 31, January 31, ASSETS 2001 2001 (Unaudited) (Derived from audited financial statements) <S> <C> <C> Current Assets: Cash and cash equivalents.....................................................$1,250,796 $ 784,578 Accounts receivable, net of allowance for and doubtful accounts of $221,000 at July 31, 2001 and January 31, 2001 ..........................................8,306,629 10,858,288 Inventories ..................................................................22,825,090 22,710,083 Prepaid income taxes ............................................................236,345 461,113 Deferred income taxes ...........................................................624,000 624,000 Other current assets ............................................................686,278 660,777 ----------- ----------- Total current assets...........................................33,929,138 36,098,839 Property and equipment, net of accumulated depreciation of $3,972,000 at July 31, 2001 and $3,689,000 at January 31, 2001...........................................1,745,367 1,978,070 Excess of cost over fair value of net assets acquired, net of accumulated amortization of $286,000 at July 31, 2001 and $276,000 at January 31, 2001...................................................258,828 268,822 Other assets ....................................................................467,533 282,235 ----------- ----------- $36,400,866 $38,627,966 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable..............................................................$4,682,852 $ 6,490,447 Current portion of long-term liabilities......................................11,925,178 12,935,416 Accrued expenses and other current liabilities ..................................720,726 626,115 ----------- ----------- Total current liabilities.............................................17,328,756 20,051,978 Long-term liabilities .........................................................1,223,675 1,981,476 Deferred income taxes ............................................................58,000 58,000 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; 2,655,000 and 2,646,000 shares issued and outstanding at July 31, 2001 and January 31, 2001, respectively.............................26,550 26,460 Additional paid-in capital.....................................................6,174,781 6,140,221 Retained earnings ............................................................11,589,104 10,369,831 ----------- ----------- Total stockholders' equity ...........................................17,790,435 16,536,512 ----------- ----------- $36,400,866 $38,627,966 =========== =========== </TABLE> See notes to condensed consolidated financial statements. 2
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED July 31, July 31, 2001 2000 2001 2000 <S> <C> <C> <C> <C> Net Sales.....................................$17,932,070 $18,109,038 $37,366,593 $40,215,952 Cost of Goods Sold.............................14,719,315 14,890,382 30,756,775 33,642,967 ---------- ----------- ---------- ----------- Gross Profit....................................3,212,755 3,218,656 6,609,818 6,572,985 Operating Expenses..............................2,402,070 2,438,637 4,580,838 4,529,218 --------- ---------- --------- ---------- Operating Profit..................................810,685 780,019 2,028,980 2,043,767 Other Income, net ..................................4,576 9,286 11,505 19,278 Interest Expense.................................(228,288) (323,059) (497,493) (609,300) --------- --------- --------- ---------- Income before Income Taxes .....................586,973 466,246 1,542,992 1,453,745 Provision for Income Taxes.........................57,126 90,157 323,719 416,732 ------ ------- ------- -------- Net Income ......................................$529,847 $ 376,089 $1,219,273 $1,037,013 ======== ========= ========== ========== Net Income per common share: Basic........................................$.20 $ .14 $.46 $ .39 ==== ===== ==== ===== Diluted......................................$.20 $ .14 $.46 $ .39 ==== ===== ==== ===== Weighted average common shares outstanding: Basic...................................2,647,565 2,645,783 2,646,783 2,644,891 ========= ========== ========= ========== Diluted.................................2,671,854 2,673,841 2,666,921 2,665,523 ========= ========== ========= ========== </TABLE> See notes to condensed consolidated financial statements. 3
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) Six months ended July 31, 2001 <TABLE> <CAPTION> Additional Common stock paid-in Retained Shares Amount capital earnings Total ------ ------ ------- -------- ----- <S> <C> <C> <C> <C> <C> Balance, January 31, 2001 2,646,000 $26,460 $6,140,221 $10,369,831 $16,536,512 Net income 1,219,273 1,219,273 Exercise of stock options 9,000 90 34,560 34,650 ----------- ------- ---------- ----------- ----------- Balance, July 31, 2001 2,655,000 $26,550 $6,174,781 $11,589,104 $17,790,435 =========== ======= ========== =========== =========== </TABLE> See notes to condensed consolidated financial statements. 4
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> SIX MONTHS ENDED July 31, 2001 2000 ---- ---- <S> <C> <C> Cash Flows from Operating Activities: Net income ..........................................................................$1,219,273 $1,037,013 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for bad debts .................................................................68,727 21,000 Deferred income taxes ....................................................................-- 89,000 Depreciation and amortization...........................................................293,446 340,756 (Increase) decrease in accounts receivable...........................................2,482,932 (2,202) (Increase) decrease in inventories.....................................................(115,007) 2,193,742 (Increase) decrease in prepaid income taxes and other current assets.....................199,267 (174,558) (Increase) decrease in other assets....................................................(185,298) (204,913) (Increase) decrease in accounts payable, accrued expenses and other liabilities.....................................................(1,712,984) (2,569,668) ----------- ------------ Net cash provided by (used in) operating activities..........................................................................2,250,356 730,170 Cash Flows from Investing Activities: Purchases of property and equipment ....................................................(50,749) (597,384 ) Cash Flows from Financing Activities: Proceeds from exercise of stock options..................................................34,650 7,750 Net borrowings (reductions) under loan agreements....................................(1,459,838) 430,471 Repayments of term loan................................................................(308,201) (300,000) -------- --------- Net cash provided by (used in) financing activities..................................(1,733,389) 138,221 ----------- -------- Net increase (decrease) in cash.........................................................466,218 271,007 Cash and cash equivalents at beginning of period....................................... 784,578 650,541 ------- -------- Cash and cash equivalents at end of period...........................................$1,250,796 $ 921,548 ========== ========= Supplemental disclosures of cash flow information: Cash paid during period for: Interest...........................................................................$497,493 $ 609,300 ======== ========= Income taxes...................................................................... $175,000 $190,000 ========= ======== </TABLE> See notes to condensed consolidated financial statements. 5
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Business Lakeland Industries, Inc. and Subsidiaries (the "Company"), a Delaware corporation, organized in April 1982, is engaged primarily in the manufacture of personal safety protective work clothing. The principal market for the Company's products is the United States. No customer accounted for more than 10% of net sales during the six month periods ended July 31, 2001 and 2000. 2. Basis of Presentation The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments which are, in the opinion of management, necessary to present fairly the consolidated financial information required therein. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended January 31, 2001. The results of operations for the three-month and six-month periods ended July 31, 2001 and 2000 are not necessarily indicative of the results to be expected for the full year. 3. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Laidlaw, Adams & Peck, Inc., Lakeland Protective Wear, Inc. (a Canadian corporation) and Lakeland de Mexico S.A. de C.V. (a Mexican corporation) and Weifang Lakeland Safety Products, Co., Ltd. (a Chinese corporation). All significant intercompany accounts and transactions have been eliminated. 4. Inventories Inventories consist of the following: July 31, January 31, 2001 2001 ---- ---- Raw materials...................$5,071,120 $4,088,498 Work-in-process..................4,430,048 6,467,779 Finished goods................. 13,323,922 12,153,806 ----------- ---------- $ 22,825,090 $22,710,083 ================================ Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. 6
5. Earnings Per Share Basic earnings per share are based on the weighted average number of common shares outstanding without consideration of potential common shares. Diluted earnings per share are based on the weighted average number of common and potential common shares outstanding. The diluted earnings per share calculation takes into account the shares that may be issued upon exercise of stock options, reduced by the shares that may be repurchased with the funds received from the exercise based on the average price during the period. The following table sets forth the computation of basic and diluted earnings per share: <TABLE> <CAPTION> Three Months Ended Six Months Ended July 31, July 31, 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> Numerator Net income $ 529,847 $ 376,089 $1,219,273 $1,037,013 ========== ========== ========== ========== Denominator Denominator for basic earnings per share (Weighted-average shares) 2,647,565 2,645,783 2,646,783 2,644,891 Effect of dilutive securities: Stock options 24,289 28,058 20,138 20,632 ---------- ---------- ---------- ---------- Denominator for diluted earnings per share (adjusted weighted-average shares) and assumed conversions 2,671,854 2,673,841 2,666,921 2,665,523 ========== ========== ========== ========== Basic earnings per share $ .20 $ .14 $ .46 $ .39 ========== ========== ========== ========== Diluted earnings per share $ .20 $ .14 $ .46 $ .39 ========== ========== ========== ========== </TABLE> Excluded from the calculation of earnings per share are options to purchase 2,000 and 1,000 shares at July 31, 2001 and 2000, respectively, as their inclusion would have been anti dilutive. 6. Credit Facility At July 31, 2001, the balance outstanding under the Company's secured revolving credit facility, as amended on July 12, 2001, amounted to $10,850,578. This facility, which is based on a percentage of eligible accounts receivable and inventory, as defined, up to a maximum of $18 million, expires on July 31, 2002. Borrowings under the facility bear interest at a rate per annum equal to the one-month LIBOR rate, as defined, plus 2%. At July 31, 2001, the balance outstanding under the Company's term loan is $ 1,791,006. The term loan is payable in monthly installments of $89,500, plus interest payable at the 30-day commercial paper rate plus 2.45%. The credit facility and term loan are collateralized by substantially all of the assets of the Company and guaranteed by certain of the Company's subsidiaries. The credit facility and term loan contain financial covenants, including, but 7
not limited to, minimum levels of earnings and maintenance of minimum tangible net worth and other certain ratios at all times. At July 31,2001, the Company received a waiver for non-compliance of a certain covenant. 7. Major Supplier The Company purchased approximately 80% of its raw materials from one supplier under licensing agreements during the six month period ended July 31, 2001. The Company expects this relationship to continue for the foreseeable future. If required, similar raw materials could be purchased from other sources; although, the Company's competitive position in the marketplace could be affected. 8
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 2. Six months ended July 31, 2001 compared to the six months ended July 31, 2000. Net Sales. Net sales for the six months ended July 31, 2001 decreased $2,849,000 or 7.1% to $37,367,000 from $40,216,000 reported for the six months ended July 31,2000. The decrease in sales was principally attributable to general economic conditions and to the Company's filling customer orders in the month of January just prior to the February 1, 2001 sales price increase. Sales for the last month of the prior fiscal year were therefore higher than normal. This industry continues to be highly competitive. Gross Profit. Gross profit for the six months ended July 31, 2001 increased by $37,000 or .6% to $6,610,000 from $6,573,000 for the six months ended July 31, 2000. Gross profit as a percentage of net sales increased to 17.7% for the six months ended July 31, 2001 from 16.3% reported for the prior year, principally due to the increase in selling prices, offset partially by an increase in the cost of raw materials (from a major supplier). Operating Expenses. Operating expenses for the six months ended July 31, 2001increased by $52,000 or 1.1% to 4,581,000 or 12.3% of net sales from $4,529,000 or 11.3% of net sales for the six months ended July 31,2000. Operating expenses increased principally as a result of increased freight costs, R&D expense, and insurance expense. Interest Expense. Interest expense decreased primarily due to lower interest costs reflecting a decrease in average borrowings under the Company's credit facilities and decreasing interest rates. Income Tax Expense. The effective tax rate for the six months ended July 31, 2001 and 2000 of 20.98% and 28.67%, respectively, deviates from the Federal statutory rate of 34%, which is primarily attributable to differing foreign tax rates and state income taxes. Net Income. As a result of the foregoing, net income increased to $1,219,000 for the six months ended July 31, 2001 or 17.6% from net income of $1,037,000 for the six months ended July 31, 2000. Three months ended July 31, 2001 compared to the three months ended July 31, 2000. Net Sales. Net sales for three months ended July 31, 2001 decreased $177,000 or 1% to $17,932,000 from $18,109,000 reported for the three months ended July 31, 2000. The decrease in sales was principally attributable to overall economic conditions, partially offset by the February price increase. This industry continues to be highly competitive. Gross Profit. Gross profit for the quarter ended July 31, 2001 decreased by $6,000 or .2% to $3,213,000 from $3,219,000 for the quarter ended July 31, 2000. Gross profit as a percentage of net sales increased to 17.9% for the three months ended July 31, 2001 from 17.8% reported for the prior year, principally due to the increase in selling prices, offset by an increase in the cost of raw materials (from a major supplier). Operating Expenses. Operating expenses for the quarter ended July 31, 2001 decreased by $37,000 or 1.5% to $2,402,000 or 13.4% of net sales from $2,439,000 or 13.5% of net sales for the quarter ended July 31, 2000. Operating expenses decreased principally as a result of decreased expenses related to a decrease in sales volume. Interest Expense. Interest expense decreased primarily due to lower interest costs reflecting a decrease in average borrowing under the Company's credit facilities and decreasing interest rates. Income Tax Expense. The effective tax rate for the three months ended July 31, 2001 and 2000 of 9.7% and 19.3%, respectively, deviates from the Federal statutory rate of 34%, which is primarily attributable to differing foreign tax rates and state income taxes. Net Income. As a result of the foregoing, net income increased to $530,000 for the three months ended July 31, 2001 or 40.1% from net income of $376,000 for the three months ended July 31, 2000. 9
LIQUIDITY and CAPITAL RESOURCES Liquidity and Capital Resources. The Company's working capital is equal to $16,600,000 at July 31, 2001. The Company's primary sources of funds for conducting its business activities have been from cash flow provided by operations and borrowings under its credit facilities. The Company requires liquidity and working capital primarily to fund increases in inventories and accounts receivable associated with sales growth and, to a lesser extent, for capital expenditures. Net cash provided by operating activities was $2,250,000 for the six months ended July 31, 2001 and was due primarily to a decrease in accounts receivable of $2,483,000, offset by the decrease in accounts payable $1,713,000 and net income of $1,219,000. Net cash used in financing activities of $1,733,000 was primarily attributable to net borrowings of $1,460,000 during the six months in connection with the revolving credit facility, offset by repayments under the term loan of $308,000. The revolving credit facility permits the Company to borrow up to a maximum of $18 million. The revolving credit agreement expires on July 31, 2002 and has therefore been classified as a short-term liability in the accompanying balance sheet at July 31, 2001. Borrowings under the revolving credit facility amounted to approximately $10,851,000 at July 31, 2001. The $3 million term-loan agreement entered into in November 1999 has an outstanding balance of $1,791,000 and expires on March 31, 2003. The Company believes that cash flow from operations and the revolving credit facility will be sufficient to meet its currently anticipated operating, capital expenditures and debt service requirements for at least the next 12 months. Foreign Currency Activity. The Company's foreign exchange exposure is principally limited to the relationship of the U.S. Dollar to the Mexican Peso, the Chinese RMB and the Canadian Dollar. 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 July 31, 2001.
_________________SIGNATURES_________________ Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LAKELAND INDUSTRIES, INC. --------------------------- (Registrant) Date: September 13, 2001 /s/ Raymond J. Smith ------------------------------- Raymond J. Smith, President and Chief Executive Officer Date: September 13, 2001 /s/ James M. McCormick, ------------------------ James M. McCormick, Vice President and Treasurer (Principal Accounting Officer)