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 April 30, 2002 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission File Number: 0-15535 LAKELAND INDUSTRIES, INC. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 13-3115216 - ------------------------ ------------------------------------ (State of incorporation) (IRS Employer Identification Number) 711-2 Koehler Avenue, 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 June 14, 2002 - 2,691,950 shares.
<TABLE> <CAPTION> LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q The following information of the Registrant and its subsidiaries is submitted herewith: <S> <C> PART I - FINANCIAL INFORMATION: Item 1. Financial Statements: Page ---- Introduction .........................................................................................1 Condensed Consolidated Balance Sheets - April 30, 2002 and January 31, 2002...........................2 Condensed Consolidated Statements of Income for the Three Months Ended April 30, 2002 and 2001............................................................3 Condensed Consolidated Statement of Stockholders' Equity - Three Months Ended April 30, 2002..........4 Condensed Consolidated Statements of Cash Flows - Three Months Ended April 30, 2002 and 2001..............................................................................................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...................................................................None Signatures ....................................................................................................10 </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 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. 1
<TABLE> <CAPTION> LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS April 30, January 31, 2002 2002 (Unaudited) (Derived from audited financial statements) <S> <C> <C> Current Assets: Cash and cash equivalents ........................... $ 2,039,154 $ 1,760,635 Accounts receivable, net of allowance for doubtful accounts of $400,000 at April 30, 2002 and $221,000 at January 31, 2002 ...................... 10,303,298 9,600,738 Inventories ......................................... 25,704,823 26,529,150 Prepaid income taxes ................................ -- 242,029 Deferred income taxes ............................... 888,000 888,000 Other current assets ................................ 664,385 524,274 ----------- ----------- Total current assets ....................... 39,599,660 39,544,826 Property and equipment, net of accumulated depreciation of $3,258,000 at April 30, 2002 and $3,113,000 January 31, 2002 ................... 2,227,618 2,218,459 Other assets ........................................ 684,119 654,200 ----------- ----------- $42,511,397 $42,417,485 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable .................................... $ 3,007,417 $ 4,759,373 Current portion of long-term liabilities ............ 17,950,348 17,028,032 Accrued expenses and other current liabilities ...... 1,185,018 991,021 ----------- ----------- Total current liabilities ...................... 22,142,783 22,778,426 Long-term liabilities ............................... 442,501 609,105 Deferred income taxes ............................... 303,000 303,000 Commitments and Contingencies Stockholders' Equity Preferred stock, $.01 par; authorized 1,500,000 shares (none issued) Common stock, $.01 par; authorized 10,000,000 shares; issued and outstanding 2,684,600 shares at April 30, 2002 and at January 31, 2002 ........................ 26,846 26,846 Additional paid-in capital .......................... 6,360,741 6,360,741 Retained earnings ................................... 13,235,526 12,339,367 ----------- ----------- Total stockholders' equity ..................... 19,623,113 18,726,954 ----------- ----------- $42,511,397 $42,417,485 =========== =========== </TABLE> See notes to condensed consolidated financial statements. 2
<TABLE> <CAPTION> LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED April 30, 2002 2001 ---- ---- <S> <C> <C> Net sales .............................................. $ 20,643,184 $ 19,434,522 Cost of goods sold ..................................... 16,469,299 16,037,460 ------------ ------------ Gross profit ........................................... 4,173,885 3,397,062 Operating expenses ..................................... 2,727,947 2,178,767 ------------ ------------ Operating profit ....................................... 1,445,938 1,218,295 Other income, net ...................................... 9,883 6,929 Interest expense ....................................... (175,662) (269,205) ------------ ------------ Income before income taxes ............................. 1,280,159 956,019 Provision for income taxes ............................. 384,000 266,593 ------------ ------------ Net Income ............................................. $ 896,159 $ 689,426 ============ ============ Net income per common share Basic ............................................... $ .33 $ .26 ======= ======= Diluted ............................................. $ .33 $ .26 ======= ======= Weighted average common shares outstanding Basic ......................................... 2,684,600 2,646,000 ========= ========= Diluted ....................................... 2,698,425 2,661,987 ========= ========= </TABLE> See notes to condensed consolidated financial statements 3
<TABLE> <CAPTION> LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) Three months ended April 30, 2002 Additional Common stock paid-in Retained Shares Amount capital earnings Total ------ ------ ------- -------- ----- <S> <C> <C> <C> <C> <C> Balance, January 31, 2002 2,684,600 $ 26,846 $ 6,360,741 $12,339,367 $18,726,954 Net income .............. -- -- -- 896,159 896,159 --------- ----------- ----------- ----------- ----------- Balance, April 30, 2002 . 2,684,600 $ 26,846 $ 6,360,741 $13,235,526 $19,623,113 ========= =========== =========== =========== =========== </TABLE> See notes to condensed consolidated financial statements. 4
<TABLE> <CAPTION> LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) THREE MONTHS ENDED April 30, 2002 2001 ---- ---- <S> <C> <C> Cash flows from operating activities: Net income ................................................ $ 896,159 $ 689,426 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Bad debt expense .......................................... 179,714 Depreciation and amortization ............................. 161,933 147,477 (Increase) decrease in accounts receivable ................ (882,274) 433,454 (Increase) decrease in inventories ........................ 824,327 (162,420) (Increase) decrease in other current assets ............... 101,918 345,092 (Increase) decrease in other assets ....................... (46,021) (88,606) Increase (decrease) in accounts payable, accrued expenses and other current liabilities and long-term liabilities ............................... (1,545,459) (2,073,982) ---------- ---------- Net cash (used in) provided by operating activities ....... (309,703) (709,559) Cash flows from investing activities - Purchases of property and equipment ....................... (154,990) (29,041) Cash flows from financing activities: Net borrowings under loan agreements ...................... 743,212 990,402 ----------- ----------- Net increase (decrease) in cash ........................... 278,519 251,802 Cash and cash equivalents at beginning of period .......... 1,760,635 784,578 ----------- ----------- Cash and cash equivalents at end of period ................ $ 2,039,154 $ 1,036,380 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest ............................................. $ 175,662 $ 175,068 =========== =========== Income taxes ......................................... $ 7,500 $ 0 =========== =========== </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 three month periods ended April 30, 2002 and 2001. 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, 2002. The results of operations for the three month periods ended April 30, 2002 and 2001 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), Lakeland de Mexico S.A. de C.V. (a Mexican corporation) and Weifang Lakeland Safety Products, Co., Ltd. (a Chinese corporation). All significant inter-company accounts and transactions have been eliminated. 6
4. Inventories: Inventories consist of the following: April 30, January 31, 2002 2002 ---- ---- Raw materials.................... $8,346,817 $6,248,990 Work-in-process.................. 2,495,434 3,997,470 Finished Goods................... 14,862,572 16,282,690 ----------- ----------- $25,704,823 $26,529,150 =========== =========== Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. 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 at April 30. <TABLE> <CAPTION> 2002 2001 Numerator <S> <C> <C> Net income $ 896,159 $ 689,426 ========= ========= Denominator Denominator for basic earnings per share (Weighted-average shares) 2,684,600 2,646,000 Effect of dilutive securities: Stock options 13,825 15,987 --------- --------- Denominator for diluted earnings per share (adjusted weighted-average shares) and assumed conversions 2,698,425 2,661,987 ========= ========= Basic earnings per share $.33 $.26 ==== ==== Diluted earnings per share $.33 $.26 ==== ==== </TABLE> Options to purchase 1,000 and 3,000 shares of the Company's common stock have been excluded for the three months ended April 30, 2002 and 2001, respectively, as their inclusion would be antidilutive. 7
6. Revolving Credit Facility: At April 30, 2002, the balance outstanding under the Company's secured $18 million revolving credit facility amounted to $16,965,295. This facility, which is based on a percentage of eligible accounts receivable and inventory, as defined, expires on July 31, 2002. Borrowings under the facility bear interest at a rate per annum equal to the one-month LIBOR plus 2%. The Company is presently in the process of negotiating the renewal of the facility. At April 30, 2002, the balance outstanding under the Company's five year term loan is $985,053. The term loan is payable in monthly installments of $89,550, 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 not limited to, minimum levels of earnings and maintenance of minimum tangible net worth and other certain ratios at all times. 7. Major Supplier The Company purchased approximately 79.4% of its raw materials from one supplier under licensing agreements during the three month period ended April 30, 2002. 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 Three months ended April 30, 2002 compared to the three months ended April 30, 2001: Net Sales. Net sales for the three months ended April 30, 2002 increased $1,209,000 or 6.2 % to $20,643,000 from $19,435,000 reported for the three months ended April 30, 2001. The increase in sales was principally attributable to the Company's April 1, 2002 price increase and an improving economy. This industry continues to be highly competitive. Gross Profit. Gross profit for the quarter ended April 30, 2002 increased by $777,000 or 22.9% to $4,174,000 from $3,397,000 for the quarter ended April 30, 2001. Gross profit as a percentage of net sales increased to 20.2% for the three months ended April 30, 2002 from 17.5% reported for the prior year, principally due to the increase in selling prices, and a decrease in labor, freight and insurance costs. Commencing in March, the Company incurred an increase in the cost of raw materials (from a major supplier), which will have an effect on margins for the remainder of this fiscal year. Operating Expenses. Operating expenses for the quarter ended April 30, 2002 increased by $549,000 or 25.2% to $2,728,000 or 13.2 % of net sales, from $2,179,000 or 11.2% of net sales, for the quarter ended April 30, 2001. Operating expenses increased principally as a result of increased commissions and salaries, R&D expense, insurance expense and bad debt 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 three months ended April 30, 2002 and 2001 of 30% and 27.9%, 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 $896,000 for the three months ended April 30, 2002 or 30% from net income of $689,000 for the three months ended April 30, 2001. LIQUIDITY and CAPITAL RESOURCES Liquidity and Capital Resources. The Company's working capital is equal to $17,457,000 at April 30, 2002. 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 used in operating activities was $310,000 for the quarter ended April 30, 2002 and was due primarily to an increase in accounts receivables of $883,000 a decrease in inventories of $824,000 and net income from operations of $896,000, offset by a decrease in accounts payable, accrued expenses and other current liabilities and long-term liabilities of $1,545,000. Net cash provided by financing activities of $743,000 was primarily attributable to net borrowings during the quarter in connection with the term loan and revolving credit facility. 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 April 30, 2002. Borrowings under the revolving credit facility amounted to approximately $16,965,000 at April 30, 2002. The $3 million term-loan agreement entered into in November 1999 has an outstanding balance of $985,000 and expires on March 31,2003. The Company believes that cash flow from operations and the revolving credit facility (upon renewal) will be sufficient to meet its currently anticipated operating, capital expenditures and debt service requirements for at least the next twelve months. Historically, the Company has been able to renew its credit facility on acceptable terms, however there can be no assurance that such financing will continue to be available. Foreign Currency Activity The Company's foreign exchange exposure is principally limited to the relationship of the U.S. Dollar to the Mexican Peso, Canadian Dollar and the Chinese RMB. 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 April 30, 2002 9
SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LAKELAND INDUSTRIES, INC. ------------------------- (Registrant) Date: June 14, 2002 /s/ Raymond J. Smith ------------------------------------- Raymond J. Smith, President and Chief Executive Officer Date: June 14, 2002 /s/ James M. McCormick ------------------------------------- James M. McCormick, Vice President and Treasurer (Principal Accounting Officer) 10