LAKELAND INDUSTRIES, INC. You should read the following summary together with the more detailed business
information and consolidated financial statements and related notes that appear
elsewhere in this Form 10-K and in the documents that we incorporate by
reference into this Form 10-K. This document may contain certain
"forward-looking" information within the meaning of the Private Securities
Litigation Reform Act of 1995. This information involves risks and
uncertainties. Our actual results may differ materially from the results
discussed in the forward-looking statements. In this Form 10-K, (a) "FY" means
fiscal year; thus for example, FY23 refers to the fiscal year ended
Overview
We manufacture and sell a comprehensive line of industrial protective clothing
and accessories for the industrial and public protective clothing market. Our
products are sold globally by our in-house sales teams, our customer service
group, and authorized independent sales representatives to a network of over
1,600 global safety and industrial supply distributors. Our authorized
distributors supply end users, such as integrated oil, chemical/petrochemical,
automobile, steel, glass, construction, smelting, cleanroom, janitorial,
pharmaceutical, and high technology electronics manufacturers, as well as
scientific, medical laboratories and the utilities industry. In addition, we
supply federal, state and local governmental agencies and departments, such as
fire and law enforcement, airport crash rescue units, the
We had net sales of
We have operated facilities in
Our net sales attributable to customers outside
On
The cost to manufacture and distribute our products is influenced by the cost of raw materials, finished goods, labor, and transportation. During FY23, we have experienced continued inflationary pressure and higher costs as a result of the increasing cost of raw materials, finished goods, labor, transportation, and other administrative costs associated with the normal course of business. The increase in cost of raw materials and finished goods are due in part to a shortage in the availability of certain products, the higher cost of shipping, and inflation. We can only pass elevated costs onto customers in an effort to offset inflationary pressures on a limited basis. Future volatility of general price inflation and the impact of inflation on costs and availability of materials, costs for shipping and warehousing and other operational overhead could adversely affect our financial results.
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Impact of
The current conflict between
Our business in
Our sales into
COVID-19
The COVID-19 pandemic has had, and continues to have, a significant impact around the world, prompting governments and businesses to take unprecedented measures, such as restrictions on travel and business operations, temporary closures of businesses, and quarantine and shelter-in-place orders. The COVID-19 pandemic has at times significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets. The COVID-19 pandemic and the measures taken by many countries in response have affected and could in the future materially impact the Company's business, results of operations and financial condition.
Certain of the Company's materials suppliers and logistical service providers have experienced disruptions during the COVID-19 pandemic, resulting in supply shortages. Similar disruptions could occur in the future.
Critical Accounting Policies and Estimates
Revenue Recognition. Substantially all the Company's revenue is derived from
product sales, which consist of sales of the Company's personal protective wear
products to distributors. The Company considers purchase orders to be a contract
with a customer. Contracts with customers are considered to be short-term when
the time between order confirmation and satisfaction of the performance
obligations is equal to or less than one year, and virtually all of the
Company's contracts are short-term. The Company recognizes revenue for the
transfer of promised goods to customers in an amount that reflects the
consideration to which the Company expects to be entitled in exchange for those
goods. The Company typically satisfies its performance obligations in contracts
with customers upon shipment of the goods. Generally, payment is due from
customers within 30 to 90 days of the invoice date, and the contracts do not
have significant financing components. The Company elected to account for
shipping and handling activities as a fulfillment cost rather than a separate
performance obligation. Shipping and handling costs associated with outbound
freight are included in operating expenses, and for the years ended in FY23 and
FY22 aggregated approximately
The transaction price includes estimates of variable consideration, related to rebates, allowances, and discounts that are reductions in revenue. All estimates are based on the Company's historical experience, anticipated performance, and the Company's best judgment at the time the estimate is made. Estimates for variable consideration are reassessed each reporting period and are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur upon resolution of uncertainty associated with the variable consideration. All the Company's contracts have a single performance obligation satisfied at a point in time and the transaction price is stated in the contract, usually as quantity times price per unit.
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Inventories. Inventories include freight-in, materials, labor and overhead costs
and are stated at the lower of cost (on a first-in, first-out or moving average
basis) or net realizable value. Allowances are recorded for slow-moving,
obsolete or unusable inventory. We assess our inventory for estimated
obsolescence or unmarketable inventory and write down the difference between the
cost of inventory and the estimated net realizable value based upon assumptions
about future sales and supply on-hand, if necessary. If actual market conditions
are less favorable than those projected by management, additional inventory
write-downs may be required. In FY23 we recorded approximately
Income Taxes. The Company is required to estimate its income taxes in each of
the jurisdictions in which it operates as part of preparing the consolidated
financial statements. This involves estimating the actual current tax in
addition to assessing temporary differences resulting from differing treatments
for tax and financial accounting purposes. These differences, together with net
operating loss carryforwards and tax credits, are recorded as deferred tax
assets or liabilities on the Company's consolidated balance sheet. A judgment
must then be made of the likelihood that any deferred tax assets will be
recovered from future taxable income. A valuation allowance may be required to
reduce deferred tax assets to the amount that is more likely than not to be
realized. In the event the Company determines that it may not be able to realize
all or part of its deferred tax asset in the future, or that new estimates
indicate that a previously recorded valuation allowance is no longer required,
an adjustment to the deferred tax asset is charged or credited to income in the
period of such determination. In FY23 and FY22, we recorded a valuation
allowance of approximately
The Company recognizes tax positions that meet a "more likely than not" minimum recognition threshold. If necessary, the Company recognizes interest and penalties associated with tax matters as part of the income tax provision and would include accrued interest and penalties with the related tax liability in the consolidated balance sheets.
Business combinations. In accordance with the accounting guidance for business combinations, the Company uses the acquisition method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess of the purchase price over the estimated fair value of assets and liabilities is recorded as goodwill. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires knowledge of current market values, the values of assets in use, and often requires the application of judgment regarding estimates and assumptions. While the ultimate responsibility resides with management, for material acquisitions we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets, tangible long-lived assets, and contingent consideration. Acquired intangible assets, excluding goodwill, are valued using certain discounted cash flow methodologies based on future cash flows specific to the type of intangible asset purchased. Several significant assumptions and estimates were involved in the application of these valuation methods, including forecasted sales volumes and prices, royalty rates, costs to produce, tax rates, discount rates, attrition rates and working capital changes.
If the contingent consideration is deemed significant or absent an agreed upon payout amount, the initial measurement of contingent consideration and the corresponding liability is evaluated using the Monte Carlo Method. For this valuation method, management develops projections during the contingent consideration period utilizing various potential pay-out scenarios. Probabilities are applied to each potential scenario and the resulting values are discounted using a rate that considers weighted average cost of capital as well as a specific risk premium associated with the riskiness of the contingent consideration itself, the related projections, and the overall business. Should actual results increase or decrease as compared to the assumption used in our analysis, the fair value of the contingent consideration obligations will increase or decrease, up to the contracted limit, as applicable. Changes in the fair value of the contingent earn-out consideration could cause a material impact and volatility in our operating results.
Refer to Note 1, "Business and Summary of Significant Accounting Policies," and Note 5, "Acquisitions," to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the Company's business acquisitions.
Net Income Per Share. Basic net income per share is based on the weighted average number of common shares outstanding without consideration of common stock equivalents. Diluted net income per share is based on the weighted average number of common shares and common stock equivalents. The diluted net income per share calculation takes into account unvested restricted shares and the shares that may be issued upon exercise of stock options and warrants, reduced by shares that may be repurchased with the funds received from the exercise, based on the average price during the fiscal year.
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Significant Balance Sheet Fluctuation
Cash decreased by
The Company has made strategic investments of
Results of Operations
The following tables set forth our external sales by our product lines, and
geographic regions and our historical results of continuing operations as a
percentage of our net sales from operations, for the years and three-months
ended
Three Months Ended January 31,
(Unaudited) Year Ended January 31,
2023 2022 2023 2022
External Sales by
Product Line:
Disposables $ 13.9 $ 14.1 $ 55.2 $ 67.2
Chemical 4.8 5.5 22.2 24.5
Fire 5.5 2.3 14.7 8.2
Gloves 0.5 0.5 2.3 2.2
High Visibility 1.2 1.8 5.8 5.6
High Performance
Wear 1.2 0.9 5.0 3.6
Wovens 1.9 1.7 7.6 7.1
Consolidated
external sales $ 29.0 $ 26.8 $ 112.8 $ 118.4
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Three Months Ended January 31,
(Unaudited) Year Ended January 31,
2023 2022 2023 2022
External Sales by
region:
USA $ 11.9 $ 11.2 $ 49.0 $ 47.6
Other foreign 1.8 2.1 7.2 7.1
Europe (UK) 3.0 1.5 8.3 10.3
Mexico 0.8 0.8 3.7 4.1
Asia 5.6 7.4 24.7 29.8
Canada 2.1 1.4 9.1 8.2
Latin America 3.8 2.4 10.8 11.3
Consolidated
external sales $ 29.0 $ 26.8 $ 112.8 $ 118.4
Three Months Ended January 31,
(Unaudited) Year Ended January 31,
2023 2022 2023 2022
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 62.5 % 60.8 % 59.4 % 57.0 %
Gross profit 37.5 % 39.2 % 40.6 % 43.0 %
Operating expenses 37.2 % 35.0 % 35.7 % 29.5 %
Operating profit 0.3 % 4.2 % 4.9 % 13.6 %
Other income, net 0.3 % 0.5 % 0.0 % 0.1 %
Interest expense 0.0 % 0.0 % 0.1 % 0.0 %
Income before tax 0.6 % 4.7 % 4.8 % 13.7 %
Income tax expense (0.0 %) 2.8 % 3.2 % 4.1 %
Net income 0.6 % 1.9 % 1.6 % 9.6 %
Gross Profit. Gross profit decreased
· Inflationary pressure on certain materials
· Stronger dollar impacting revenue in key Asian and Latin American markets
· Pricing pressure on non-strategic products
· Writedown of the carrying value of certain inventory as freight rates
declined toward year-end
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Operating Expense. Operating expenses increased 15.6% from
Operating Profit. Operating profit decreased to
Interest Expense. Interest expenses was less than
Income Tax Expense. Income tax expense consists of federal, state and foreign
income taxes. Income tax expense was
Net Income. Net income decreased to
Fourth Quarter Results
Net sales and net income were
Factors affecting Q4 FY23 results of operations included:
· Improvement in sales primarily in the fire and industrial markets and due
to the Eagle acquisition
· Pricing pressure on non-strategic products
· Margins were negatively impacted by product mix and currency and the
write-down of the carrying value of certain inventory as freight rates
declined toward year-end
Liquidity and Capital Resources
At
Of the Company's total cash and cash equivalents of
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The Company strategically employs an intercompany dividend plan subject to
subsidiary profitability, cash requirements and withholding taxes. During FY23
the Company changed its' permanent reinvestment assertions for its Chinese
operations due to increased volatility of the Chinese yuan and an updated
evaluation of investment strategies. During FY23 the Company's subsidiaries in
Net cash used in operating activities of
Net cash provided by operating activities of
On
On
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The Loan Agreement requires the Company to maintain a Funded Debt to EBITDA (as
each such term is defined in the Loan Agreement) ratio of 3.0 to 1.0 or less and
a Basic Fixed Charge Coverage Ratio (as defined in the Loan Agreement) of at
least 1.15 to 1.0. The Loan Agreement also contains customary covenants,
including covenants that, among other things, limit or restrict the Company's
and/or the Company's subsidiaries ability, subject to certain exceptions and
qualifications, to incur liens or indebtedness, or merge, consolidate or sell or
otherwise transfer assets. The Company was in compliance with all of its debt
covenants as of
We believe that our current cash, cash equivalents, borrowing capacity under our Loan Agreement and the cash to be generated from expected product sales will be sufficient to meet our projected operating and investing requirements for at least the next twelve months. However, our liquidity assumptions may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect.
Stock Repurchase Program. On
Shares repurchased in FY23 totaled 390,989 shares at a cost of
On
Capital Expenditures. Our capital expenditures for FY23 of
Recently Adopted and Recently Issued Accounting Standards
No recently issued accounting pronouncements had or are expected to have a material impact on the Company's consolidated financial statements.
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