FORM 10-Q
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2000
----------------
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
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(Address of principal executive offices)
(631) 981-9700
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.01 par value, outstanding at December 14, 2000 - 2,646,000
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:
Page
Introduction ............................................... 1
Condensed Consolidated Balance Sheets-
October 31, 2000 and January 31, 2000 ..................... 2
Condensed Consolidated Statements of Income-
Three Months and Nine Months Ended October 31, 2000
and 1999................................................... 3
Condensed Consolidated Statements of Cash
Flows-Nine Months Ended October 31, 2000 and 1999.......... 4
Notes to Condensed Consolidated Financial Statements........ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 7
PART II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K............................ None
Signatures ............................................... 9
<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 financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended January 31, 2000.
The results of operations for the three-month and nine-month periods ended
October 31, 2000 and 1999 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 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
<PAGE>
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, January 31,
ASSETS 2000 2000
(Unaudited) (Derived from audited
financial statements)
Current Assets:
<S> <C> <C>
Cash and cash equivalents.................................. $1,203,315 $650,541
Accounts receivable, net of allowance for
and doubtful accounts of $221,000 at October 31, 2000
and $200,000 at January 31, 2000.......................... 7,849,633 8,379,477
Inventories ............................................... 24,017,639 22,467,395
Deferred income taxes ..................................... 572,000 661,000
Other current assets ...................................... 853,738 301,698
----------- -----------
Total current assets.............................. 34,496,325 32,460,111
Property and equipment, net of accumulated
depreciation of $3,551,000 at October 31, 2000
and $3,064,000 at January 31, 2000....................... 2,041,121 1,851,964
Excess of cost over fair value of net assets
acquired, net of accumulated amortization
of $271,000 at October 31, 2000 and
$256,000 at January 31, 2000............................. 273,819 288,810
Other assets............................................... 368,277 169,365
----------- -----------
$37,179,542 $34,770,250
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................... $6,664,627 $4,242,874
Current portion of long-term liabilities................... 11,151,466 11,719,681
Accrued expenses and other current liabilities............. 611,897 638,668
----------- -----------
Total current liabilities............................. 18,427,990 16,601,223
Long-term liabilities ..................................... 2,096,144 2,708,643
Deferred income taxes ..................................... 55,000 55,000
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;
2,646,000 shares issued and outstanding at October 31, 2000,
2,644,000 January 31, 2000............................... 26,460 26,440
Additional paid-in capital................................. 6,140,221 6,132,491
Retained earnings.......................................... 10,433,727 9,246,453
----------- -----------
Total stockholders' equity............................ 16,600,408 15,405,384
----------- -----------
$37,179,542 $34,770,250
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
October 31, October 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net Sales....................................... $15,761,937 $13,688,392 $55,977,890 $43,085,002
Cost of Goods Sold.............................. 13,352,630 10,917,598 46,995,597 35,539,551
---------- ---------- ---------- ----------
Gross Profit.................................... 2,409,307 2,770,794 8,982,293 7,545,451
Operating Expenses.............................. 1,951,746 1,767,504 6,480,965 5,308,371
---------- ---------- ---------- ----------
Operating Profit................................ 457,561 1,003,290 2,501,328 2,237,080
Other Income/(Expense), Net .................... 13,519 4,891 32,796 34,168
Interest Expense................................ (312,978) (200,661) (922,278) (538,836)
---------- ---------- ----------- -----------
Income before Income Taxes ................... 158,102 807,520 1,611,846 1,732,412
Provision for Income Taxes...................... 7,840 298,000 424,572 633,000
---------- ---------- ---------- ----------
Net Income ..................................... $150,262 $509,520 $1,187,274 $1,099,412
========== ========== ========== ==========
Net Income per common share:
Basic...................................... $.06 $.19 $.45 $.41
==== ==== ====
Diluted.................................... $.06 $.19 $.45 $.41
==== ==== ==== ====
Weighted average common shares outstanding:
Basic...................................... 2,646,000 2,650,802 2,645,261 2,657,267
========== ========== ========== ==========
Diluted.................................... 2,673,185 2,661,615 2,668,077 2,678,206
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
October 31,
2000 1999
---- ----
Cash Flows from Operating Activities:
<S> <C> <C>
Net Income .................................................... $1,187,274 $1,099,412
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for bad debts ....................................... 21,000 -
Deferred income tax ........................................... 89,000 -
Depreciation and amortization .............................. 502,671 384,457
Decrease(increase) in accounts receivable..................... 508,844 (469,231)
Decrease (increase) in inventories............................. (1,550,244) (4,381,551)
Increase in other current assets............................... (552,040) (47,471)
Decrease (increase) in other assets............................ (198,912) 92,781
Increase (decrease) in accounts payable, accrued
expenses and other liabilities............................... 2,394,982 2,169,873
---------- ----------
Net cash provided by (used in) operating
activities................................................... 2,402,575 (1,151,730)
Cash Flows from Investing Activities:
Purchases of property and equipment ............................ (676,837) (877,536)
Cash Flows from Financing Activities:
Proceeds from exercise of options............................... 7,750 -
Purchase of Treasury Stock...................................... - (67,330)
Repayment of term loan.......................................... (650,000) -
Net (reductions) borrowings under
line of credit agreement........................................ (530,714) 1,534,763
----------- ----------
Net cash (used in) provided by financing activities............. (1,172,964) 1,467,433
----------- ----------
Net increase in cash and cash equivalents....................... 552,774 (561,833)
Cash and cash equivalents at beginning of period................ 650,541 1,436,083
---------- ----------
Cash and cash equivalents at end of period...................... $1,203,315 $874,250
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<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
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 nine month periods ended October 31, 2000 and 1999.
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., Lakeland Protective Wear, Inc. (a Canadian corporation), Lakeland de
Mexico S.A. de C.V. (a Mexican corporation) and Weifang Lakeland Safety
Products, Co., Ltd. (a Chinese corporation). All significant intercompany
accounts and transactions have been eliminated.
C. Inventories:
Inventories consist of the following:
October 31, January 31,
2000 2000
---- ----
Raw materials................... $4,986,770 $3,180,556
Work-in-process................. 7,100,211 5,538,608
Finished goods.................. 11,930,658 13,748,231
----------- -----------
$24,017,639 $22,467,395
=========== ===========
Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out method.
D. Earnings Per Share:
Basic earnings per share are based on the weighted average number of common
shares outstanding without consideration of potential common 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.
5
<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,
2000 1999 2000 1999
---- ---- ---- ----
Numerator
<S> <C> <C> <C> <C>
Net income $150,262 $509,520 $1,187,274 $1,099,412
======== ======== ========== ==========
Denominator
Denominator for basic earnings per share
(Weighted-average shares) 2,646,000 2,650,802 2,645,261 2,657,267
Effect of dilutive securities:
Stock options 27,185 10,813 22,816 20,939
------ ------ ------ ------
Denominator for diluted earnings per share
(adjusted weighted-average shares) and
assumed conversions 2,673,185 2,661,615 2,668,077 2,678,206
========= ========= ========= =========
Basic earnings per share $.06 $.19 $.45 $.41
==== ==== ==== ====
Diluted earnings per share $.06 $.19 $.45 $.41
==== ==== ==== ====
</TABLE>
Excluded from the calculation of earnings per share are options to purchase
3,000 shares at October 31, 2000, and 1,000 shares at October 31, 1999, as those
options were not exercisable or that their inclusion would have been anti
dilutive.
E. Credit Facility:
At October 31, 2000, the balance outstanding under the Company's secured
$14 million revolving credit facility amounted to $10,503,158. This facility is
collateralized by substantially all of the assets of the Company, guaranteed by
certain of the Company's subsidiaries and expires on December 31, 2000.
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%. At
October 31, 2000, the balance outstanding under the Company's five year term
loan is $2,250,000. The term loan is payable in monthly installments of $50,000,
plus interest payable at the 30-day commercial paper rate, plus 2.45%. The
credit facility and term loan are collateralized by substantially all the assets
of the Company and guaranteed by certain of the Company's subsidiaries. The
credit facility and term loan require the Company to maintain a minimum tangible
net worth, at all times. On August 1, 2000 the Company's secured revolving
credit facility was increased from $13 Million to $14 Million. A debt to EBITDA
ratio covenant was added with this amendment.
On November 21, 2000 the Company received notice that the revolving credit
facility has been extended to December 31, 2000, to allow more time for review
of the renewal documents.
F. Major Supplier
The Company purchased approximately 75.2% and 76.1% for the nine months
ended October 31, 2000 and 1999, respectively, of its raw materials from one
supplier under several licensing agreements. 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.
6
<PAGE>
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
Nine months ended October 31, 2000 compared to the nine months ended
October 31, 1999.
Net Sales. Net sales for the nine months ended October 31, 2000 increased
$12,893,000 or 29.9% to $55,978,000 from $43,085,000 for the nine months ended
October 31, 1999. The increase in sales was principally attributable to the
Company's ability to increase its production capacity, maintain adequate
inventory levels, and the withdrawal of a major competitor from the Tyvek TM
markets, in which the Company secured certain business.
Gross Profit. Gross profit for the nine months ended October 31, 2000
increased by $1,437,000 or 19% to $8,982,000 or 16.1% of net sales from
$7,545,000 or 17.5% of net sales for the nine months ended October 31, 1999. The
gross profit percentage decreased as a result of an increase in the cost of raw
materials (from a major supplier in February 2000) without a corresponding
increase in selling prices, partially offset by manufacturing efficiencies, due
to the use of automated equipment, and due to higher sales volume.
Operating Expenses. Operating expenses for the nine months ended October
31, 2000 increased by $1,173,000 or 22.1% to $6,481,000 or 11.6% of net sales
from $5,308,000 or 12.3% of net sales for the nine months ended October 31,
1999. The increase in operating expenses is principally as a result of higher
cost of freight, sales commissions, use of temporary help due to higher sales
volume, medical expense and increased travel and show participation.
Interest Expense. Interest expense for the nine months ended October 31,
2000 increased by $383,000 or 71% to $922,000 from $539,000 for the three months
ended October 31, 1999. Interest expense increase was principally due to higher
interest costs reflecting an increase in average borrowings under the Company's
credit facility and increasing interest rates.
Income Tax Expense. The effective tax rate for the nine months ended
October 31, 2000 and 1999 of 26.4% and 36.5%, respectively, deviates from the
Federal statutory rate of 34%, mainly attributable to differing foreign tax
rates and exemptions as well as to state income taxes.
Net Income. As a result of the foregoing, net income for the nine months
ended October 31, 2000 increased by $88,000 to $1,187,000 from $1,099,000 for
the nine months ended October 31, 1999.
Three months ended October 31, 2000 compared to the three months ended
October 31, 1999.
Net Sales. Net sales for the three months ended October 31, 2000 increased
$2,074,000 or 15.2% to $15,762,000 from $13,688,000 for the three months ended
October 31, 1999. The increase in sales was principally attributable to the
Company's ability to increase its production capacity, maintain adequate
inventory levels, and to the withdrawal of a major competitor from the Tyvek TM
markets, in which the Company secured certain business.
Gross Profit. Gross profit for the three months ended October 31, 2000
decreased by $362,000 or 13.1% to $2,409,000 or 15.3% of net sales from
2,771,000 or 20.2% of net sales for the three months ended October 31, 1999. The
gross profit percentage decreased as a result of an increase in the cost of raw
materials (from a major supplier in February 2000) without a corresponding
increase in selling prices. This decrease was partially offset by manufacturing
efficiencies, due to the use of automated equipment, and to higher sales volume.
Operating Expenses. Operating expenses for the three months ended October
31, 2000 increased by $184,000 or 10.4% to $1,952,000 or 12.4% of net sales from
$1,768,000 or 12.9% of net sales for the three months ended October 31, 1999.
The increase in operating expenses is principally as a result of higher cost of
freight, sales commissions, use of temporary help due to higher sales volume,
and increased travel.
7
<PAGE>
Interest Expense. Interest expense for the three months ended October 31,
2000 increased by $112,000 or 56% to $313,000 from $201,000 for the three months
ended October 31, 1999. Interest expense increase was principally due to higher
interest costs reflecting an increase in average borrowings under the Company's
credit facility and increasing interest rates.
Income Tax Expense. The effective tax rate for the three months ended
October 31, 2000and 1999 of 5% and 36.9%, respectively, deviates from the
Federal statutory rate of 34%, mainly attributable to differing foreign tax
rates and exemptions as well as state income taxes.
Net Income. As a result of the foregoing, net income for the three months
ended October 31, 2000 decreased by $360,000 to $150,000 from $510,000 for the
three months ended October 31, 1999.
LIQUIDITY and CAPITAL RESOURCES
Liquidity and Capital Resources. The Company's working capital is equal to
$16,068,000 at October 31, 2000. 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 $2,403,000 for the period
ended October 31, 2000 and was primarily due to decrease in accounts receivable
of $509,000, increase in accounts payable of $2,395,000, net income of
$1,187,000 offset by an increase in inventories of $1,550,000.
Net cash used in financing activities of $1,173,000 was primarily
attributable to net reductions of $531,000 during the period in connection with
the revolving credit facility and repayments under the term loan of $650,000.
The revolving credit facility permits the Company to borrow up to a maximum
of $14 million. The revolving credit agreement expires on December 31, 2000 and
has therefore been classified as a short-term liability in the accompanying
balance sheet at October 31, 2000. Borrowings under the revolving credit
facility amounted to approximately $10,503,000 at October 31, 2000. The five
year $3 million term-loan agreement entered into in November 1999 has an
outstanding balance of $2,250,000 and expires on October 31, 2004.
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 Canadian
Dollar and the Chinese R.M.B.
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, 2000.
8
<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 15, 2000 /s/ Raymond J. Smith
-------------------------------------
Raymond J. Smith,
President and Chief Executive Officer
Date: December 15, 2000 /s/ James M. McCormick
-------------------------------------
James M. McCormick,
Vice President and Treasurer
(Principal Accounting Officer)
9
