UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 31, 1998
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 Avenue, Ronkonkoma, New York 11779
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(516) 981-9700
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock, $.01 par value, outstanding at December 8, 1998
- - 2,660,500 shares.
<PAGE>
LAKELAND INDUSTRIES, INC.
AND SUBSIDIARIES
FORM 10-Q
The following information of the Registrant and its subsidiaries is
submitted herewith:
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements:
Introduction
Condensed Consolidated Balance Sheets - October 31, 1998 and January
31, 1998
Condensed Consolidated Statements of Income - Three Months and Nine
Months Ended October 31, 1998 and 1997
Condensed Consolidated Statement of Stockholders' Equity for the
Nine Months Ended October 31, 1998
Condensed Consolidated Statements of Cash Flows - Nine Months Ended
October 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
LAKELAND INDUSTRIES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Introduction
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and reflect all adjustments which are, in
the opinion of management, necessary to present fairly the consolidated
financial information required therein. Certain information and note disclosures
normally included in consolidated financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended January 31, 1998.
The results of operations for the three-month and nine-month periods ended
October 31, 1998 and 1997 are not necessarily indicative of the results to be
expected for the full year.
CAUTIONARY STATEMENTS
This report may include "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements are all statements other than
statements of historical fact included in this report, including, without
limitation, the statements under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position and liquidity, the Company's strategic
alternatives, future capital needs, development and capital expenditures
(including the amount and nature thereof), future net revenues, business
strategies, and other plans and objectives of management of the Company for
future operations and activities.
Forward-looking statements are based on certain assumptions and analyses
made by the Company in light of its experience and its perception of historical
trends, current conditions, expected future developments and other factors it
believes are appropriate under the circumstances. These statements are subject
to a number of assumptions, risks and uncertainties, and factors in the
Company's other filings with the Securities and Exchange Commission (the
"Commission"), general economic and business conditions, the business
opportunities that may be presented to and pursued by the Company, changes in
law or regulations and other factors, many of which are beyond the control of
the Company. Readers are cautioned that these statements are not guarantees of
future performance, and the actual results or developments may differ materially
from those projected in any forward-looking statements. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by these
cautionary statements.
<PAGE>
<TABLE>
<CAPTION>
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 31, January 31,
ASSETS 1998 1998
----------- -----------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents ............................. $ 1,386,045 $ 222,700
Accounts receivable, net of allowance for
doubtful accounts of $200,000 at October 31, 1998
at January 31, 1998 ............................... 5,901,978 6,953,538
Inventories ........................................... 17,354,108 15,858,052
Deferred income taxes ................................. 511,000 511,000
Other current assets .................................. 556,000 364,697
----------- -----------
Total current assets ......................... 25,709,131 23,909,987
Property and equipment, net of accumulated
depreciation of $2,505,000 at October 31, 1998
and $2,164,000 at January 31, 1998 .................. 1,207,149 1,392,346
Excess of cost over fair value of net
assets acquired, net of accumulated amortization
of $234,000 at October 31, 1998 and
$218,000 at January 31, 1998 ........................ 313,795 327,120
Other assets .......................................... 358,574 182,412
----------- -----------
$27,588,649 $25,811,865
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ...................................... $ 1,764,480 $ 4,294,241
Current portion of long-term liabilities .............. 50,000 50,000
Accrued expenses and other current liabilities ........ 794,133 662,330
----------- -----------
Total current liabilities ........................ 2,608,613 5,006,571
Long-term liabilities ................................. 11,555,851 9,216,669
Deferred income taxes ................................. 71,000 71,000
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;
2,660,500 and 2,610,472 shares issued and outstanding
at October 31, 1998 and January 31, 1998, respectively 26,605 26,105
Additional paid-in capital ............................ 6,199,655 6,073,358
Retained earnings ..................................... 7,126,925 5,418,162
----------- -----------
Total stockholders' equity ....................... 13,353,185 11,517,625
----------- -----------
$27,588,649 $25,811,865
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
October 31 October 31
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales ................................. $ 11,357,050 $ 11,092,427 $ 41,253,166 $ 35,041,304
Cost of Goods Sold ........................ 9,113,923 8,754,242 32,989,954 27,867,073
------------ ------------ ------------ ------------
Gross Profit .............................. 2,243,127 2,338,185 8,263,212 7,174,231
Operating expenses ........................ 1,478,798 1,635,451 4,923,421 4,708,270
------------ ------------ ------------ ------------
Income from Operations .................... 764,329 702,734 3,339,791 2,465,961
Other Income/(Expense), Net ............... 22,586 8,053 44,465 36,495
Interest Expense .......................... (208,751) (127,374) (584,493) (333,574)
------------ ------------ ------------ ------------
Income before income taxes ................ 578,164 583,413 2,799,763 2,168,882
Provision for income taxes ................ 223,000 225,999 1,091,000 870,342
------------ ------------ ------------ ------------
Net Income ................................ $ 355,164 $ 357,414 $ 1,708,763 $ 1,298,540
============ ============ ============ ============
Net Income per common share:
Basic ................................ $ .13 $ .14 $ .65 $ .51
============ ============ ============ ============
Diluted .............................. $ .13 $ .13 $ .63 $ .49
============ ============ ============ ============
Weighted average common shares outstanding:
Basic ................................ 2,652,607 2,575,466 2,636,060 2,561,389
============ ============ ============ ============
Diluted .............................. 2,688,122 2,656,962 2,691,123 2,629,791
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Nine months ended October 31, 1998
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 31, 1998 2,610,472 $ 26,105 $ 6,073,358 $ 5,418,162 $11,517,625
Exercise of stock options 50,028 500 126,297 126,797
Net income .............. 1,708,763 1,708,763
----------- ----------- ----------- ----------- -----------
Balance, October 31, 1998 2,660,500 $ 26,605 $ 6,199,655 $ 7,126,925 $13,353,185
=========== =========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
October 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income ..................................... $ 1,708,763 $ 1,298,540
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization .................. 354,214 276,505
Decrease (increase) in accounts receivable ..... 1,051,560 (342,015)
Decrease (increase) in inventories ............. (1,496,056) (4,383,935)
Decrease (increase) in other current assets .... (191,303) (219,001)
Decrease (increase) in other assets ............ (176,160) 175,237
Increase (decrease) in accounts payable, accrued
expenses and other current liabilities ....... (2,397,958) 2,105,140
----------- -----------
Net cash used in operating
activities ................................... (1,146,940) (1,089,529)
Cash Flows from Investing Activities:
Purchases of property and equipment ............ (155,694) (635,191)
Cash Flows from Financing Activities:
Proceeds from exercise of options .............. 126,797 92,738
Net borrowings under
line of credit agreement ...................... 2,339,182 1,800,000
----------- -----------
Net cash provided by financing activities ...... 2,465,979 1,892,738
----------- -----------
Net increase in cash ........................... 1,163,345 168,018
Cash and cash equivalents at beginning of period 222,700 504,940
----------- -----------
Cash and cash equivalents at end of period ..... $ 1,386,045 $ 672,958
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Business
Lakeland Industries, Inc. and Subsidiaries (the "Company"), a Delaware
corporation, organized in April 1982, is engaged primarily in the
manufacture of disposable and reusable protective work clothing. The
principal market for the Company's products is the United States. No
customer accounted for more than 10% of net sales during the nine month
periods ended October 31, 1998 and 1997.
B. Principles of Consolidation
The accompanying condensed consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries, Laidlaw,
Adams & Peck, Inc. (formerly Fireland Industries, Inc.), Lakeland
Protective Wear, Inc. (a Canadian corporation) and Lakeland de Mexico S.A.
de C.V. (a Mexican corporation). All significant inter-company accounts and
transactions have been eliminated.
C. Inventories:
Inventories consist of the following:
October 31, January 31,
1998 1998
---------- ---------
Raw materials................. $2,484,808 $2,672,719
Work-in-process............... 3,693,977 4,168,376
Finished goods................ 11,175,323 9,016,957
---------- ---------
$17,354,108 $15,858,052
=========== ============
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method.
D. Earnings Per Share:
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share", which requires public
companies to present basic earnings per share and , if applicable, diluted
earnings per share. In accordance with SFAS No. 128, all comparative
periods have been restated. Basic earnings per share are based on the
weighted average number of common shares outstanding without consideration
of potential common stock. Diluted earnings per share are based on the
weighted average number of common and potential common shares outstanding.
The calculation takes into account the shares that may be issued upon
exercise of stock options, reduced by the shares that may be repurchased
with the funds received from the exercise, based on the average price
during the period.
<PAGE>
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator
Net income ............................. $ 355,164 $ 357,414 $1,708,763 $1,298,540
========== ========== ========== ==========
Denominator
Denominator for basic earnings per share
(Weighted-average shares) .......... 2,652,607 2,575,466 2,636,060 2,561,389
Effect of dilutive securities:
Stock options ...................... 35,515 81,496 55,063 68,402
---------- ---------- ---------- ----------
Denominator for diluted earnings per share
(adjusted weighted-average shares) and
assumed conversions .................... 2,688,122 2,656,962 2,691,123 2,629,791
========== ========== ========== ==========
Basic earnings per share ........................ $ .13 $ .14 $ .65 $ .51
========== ========== ========== ==========
Diluted earnings per share ...................... $ .13 $ .13 $ .63 $ .49
========== ========== ========== ==========
</TABLE>
E. Revolving Credit Facility:
At October 31, 1998, the balance outstanding under the Company's
secured revolving credit facility amounted to $11,129,832. On May 1, 1998, the
facility credit line was increased from $10 million to $13 million. This
facility is collateralized by substantially all of the assets of the Company,
guaranteed by certain of the Company's subsidiaries and expires on November 30,
1999. Borrowings under the facility bear interest at a rate per annum equal to
the one month LIBOR or the 30-day commercial paper rate, as defined, plus 1.75%.
The facility requires the Company to maintain a minimum tangible net worth, at
all times. Effective September 23, 1998, a temporary increase was initiated on
this facility credit line for an additional $3 million. This temporary increase
expires on August 31, 1999 and effectively increases the total credit facility
credit line to $16 million. Subsequent to August 31, 1999 and until the line's
maturity date of November 30, 1999, the facility's credit line is $13 million.
Any amount borrowed under this temporary $3 million increase is required to be
repaid prior to August 31, 1999.
F. Major Supplier
The Company purchased approximately 77% of its raw materials from one
supplier under several licensing agreements during the nine month period ended
October 31, 1998. The Company expects this relationship to continue for the
foreseeable future. If required, similar raw materials could be purchased from
other sources.
<PAGE>
G. New Pronouncement, not yet adopted
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
About Pensions and Other Post-retirement Benefits", which will be effective for
the Company's fiscal year ending January 31, 1999. This statement standardizes
the disclosure requirements for pensions and other post- retirement benefits,
requires additional information on changes in the benefit obligation and fair
values of plan assets and eliminates certain disclosures that are no longer
useful. Adoption of SFAS No. 132 is not expected to have a material effect on
the Company's financial statements.
H. Subsequent Event
On November 20, 1998, the Company was notified that its application for
registration as a Chinese corporation was in effect and such status applied
retroactively to March 22, 1996 for corporate limited liability and Chinese tax
purposes.
<PAGE>
ITEM 2.
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Nine months ended October 31, 1998 compared to the nine months ended October 31,
1997.
Net sales for the nine month period ended October 31, 1998 increased
$6,211,862 or 17.7% to $41,253,166 from $35,041,304 for the nine month period
ended October 31, 1997. The increase in sales was principally attributable to
the Company's ability to increase unit shipments resulting from its ability to
increase its production capacity, maintain higher inventory levels and the
institution of a price increase on its Tyvek(TM) lines on March 1, 1998.
Gross profit for the nine months ended October 31, 1998 increased by
$1,088,981 or 15.2% to $8,263,212 or 20% of net sales, from $7,174,231 or 20.5%
of net sales, for the nine months ended October 31, 1997. Gross profit as a
percentage of sales decreased by .5% due to a reclassification of expenses
related to the Company's Mexican subsidiary and a portion of its insurance
expenses, formerly recorded in operating expenses, now recorded in Cost of Goods
Sold, partially offset by the price increase described above.
Operating expenses for the nine months ended October 31, 1998 increased
by $215,151 or 4.6%, to $4,923,421 or 11.9% of net sales, from $4,708,270, or
13.4% of net sales, for the nine months ended October 31, 1997. Operating
expenses as a percentage of net sales decreased to 11.9%, from 13.4% as a result
of the reclassification of expenses described above.
Net interest expense for the nine months ended October 31, 1998
increased by $250,919, or 75.2% to $584,493 from $333,574 for the nine months
ended October 31, 1997. The increase in net interest expense was mainly due to
higher interest costs reflecting an increase in average borrowings under the
Company's credit facility, to finance increased inventory levels.
The effective tax rates remained relatively constant, primarily
attributable to the federal statutory rate of 34% increased by state income
taxes and certain operating losses generating no current tax benefit.
As a result of the foregoing, net income for the nine months ended
October 31, 1998 increased by $410,223 or 31.6% to net income of $1,708,763 from
net income of $1,298,540 for the nine months ended October 31, 1997.
Three months ended October 31, 1998 compared to the three months ended October
31, 1997.
Net sales for the three month period ended October 31, 1998 increased
$264,623 or 2.4% to $11,357,050 from $11,092,427 for the three month period
ended October 31, 1997. The increase in sales was principally due to the
Company's ability to increase its production capacity and maintain higher
inventory levels and the institution of a price increase on its Tyvek(TM) lines
in March 1, 1998.
Gross profit for the three months ended October 31, 1998 decreased by
$95,058 or 4% to $2,243,127 or 19.8% of net sales, from $2,338,185 or 21.1% of
net sales, for the three months ended October 31, 1997. Gross profit as a
percentage of sales decreased by 1.3% due to a reclassification of expenses
related to the Company's Mexican subsidiary and a portion of its insurance
expenses, now being recorded in Costs of Goods Sold and sales price erosion due
to competitive conditions.
<PAGE>
Operating expenses for the three months ended October 31, 1998
decreased by $156,653 or 9.6% to $1,478,798 or 13% of net sales, from $1,635,451
or 14.7% of net sales, for the three months ended October 31, 1997. Operating
expenses as a percentage of net sales decreased to 13% from 14.7% as a result of
the reclassification of expenses described above and to a reclassification of
medical expense over funding to prepaid expense.
Net interest expense for the three months ended October 31, 1998
increased by $83,477, or 64% from $127,374 for the three months ended October
31, 1997. The increase in net interest expenses was mainly due to higher
interest costs reflecting an increase in average borrowings under the Company's
credit facility, to finance increased inventory levels.
The effective tax rates remained relatively constant, primarily
attributable to the federal statutory rate of 34% increased by state income
taxes and certain operating losses generating no current tax benefit.
As a result of the foregoing, net income for the three months ended
October 31, 1998 decreased by $2,250 or .6%, to net income of $355,164 from net
income of $357,414 for the three months ended October 31, 1997.
<PAGE>
LIQUIDITY and CAPITAL RESOURCES
Lakeland has historically met its cash requirements through funds
generated from operations and borrowings under a revolving credit facility. On
December 12, 1997, the Company entered into a new $13 million facility (as
amended on May 1, 1998) with a financial institution. This facility matures on
November 30, 1999. Interest charges under this credit facility are calculated on
various optional formulas using LIBOR or the 30-day commercial paper rates, as
defined. The Company's October 31, 1998 balance sheet shows a strong current
ratio and working capital position and management believes that its positive
financial position, together with this credit facility, and the temporary
increase in the credit facility from $13 million to $16 million (as described in
Note E of the notes to Condensed Consolidated Financial Statements), will
provide sufficient funds for operating purposes for the next twelve months.
Risks Associated with the Year 2000
The Year 2000 issue is the result of computer programs which were
written using two digits rather than four to define the applicable year. For
example, date-sensitive software may recognize a date using "00" as the Year
1900 rather than the Year 2000. Such misrecognition could result in system
failures or miscalculations causing disruptions of operations, including, among
others, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
The Company has substantially completed its program to prepare computer
systems and applications for the Year 2000. The Company expects to incur
additional internal staff costs as well as consulting and other expenses related
to enhancements necessary to complete the systems for the Year 2000. Management
believes that the estimated costs to modify or replace such applications are not
material to the Company.
In addition, the Company has inquired of its major suppliers, including
DuPont, about their progress in identifying and addressing problems related to
the Year 2000. Such suppliers, including DuPont, have informed the Company that
they do not anticipate problems in their business operations due to Year 2000
compliance issues. The Company is currently unable to determine the extent to
which Year 2000 issues will affect its suppliers, or the extent to which it
would be vulnerable to the suppliers' failure to remediate any of their Year
2000 problems. Although no assurance can be given that the Company's major
suppliers' systems will be Year 2000 compliant, the Company believes that the
risk is not significant. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Item 6. Exhibits and Reports on Form 8-K:
a - None
b - No reports on Form 8-K were filed during the three month period
ended October 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LAKELAND INDUSTRIES, INC.
(Registrant)
Date: December 8, 1998 Raymond J. Smith
----------------
Raymond J. Smith,
President and Chief Executive Officer
Date: December 8, 1998 James M. McCormick
------------------
James M. McCormick,
Vice President and Treasurer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> OCT-31-1998
<CASH> 1,386,045
<SECURITIES> 0
<RECEIVABLES> 5,901,978
<ALLOWANCES> 0
<INVENTORY> 17,354,108
<CURRENT-ASSETS> 25,709,131
<PP&E> 1,207,149
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,588,649
<CURRENT-LIABILITIES> 2,608,613
<BONDS> 0
0
0
<COMMON> 26,605
<OTHER-SE> 13,326,580
<TOTAL-LIABILITY-AND-EQUITY> 13,353,185
<SALES> 41,253,166
<TOTAL-REVENUES> 41,253,166
<CGS> 32,989,954
<TOTAL-COSTS> 4,923,421
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 584,493
<INCOME-PRETAX> 2,799,763
<INCOME-TAX> 1,091,000
<INCOME-CONTINUING> 1,708,763
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,708,763
<EPS-PRIMARY> .65
<EPS-DILUTED> .63
</TABLE>
