-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GXX9HeBvmC96cGeJns63a043otemgSGnHDNq2HkfGuEmOUO7ARhTMHliunoAGegj eD3B7xiw9/wrPgCEcKOR4A== 0000914317-03-002745.txt : 20030912 0000914317-03-002745.hdr.sgml : 20030912 20030912130623 ACCESSION NUMBER: 0000914317-03-002745 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030731 FILED AS OF DATE: 20030912 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAKELAND INDUSTRIES INC CENTRAL INDEX KEY: 0000798081 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 133115216 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15535 FILM NUMBER: 03893384 BUSINESS ADDRESS: STREET 1: 711-2 KOEHLER AVENUE CITY: RONKONKOMA STATE: NY ZIP: 11779 BUSINESS PHONE: 5169819700 MAIL ADDRESS: STREET 1: 711- 2 KOEHLER AVENUE CITY: RONKONKOMA STATE: NY ZIP: 11779 10-Q 1 form10q-54235_lakeland.txt 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, 2003 ------------- 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 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 by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act), YES [_] NO [X] 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 12, 2003 - 3,269,025 shares. 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 - July 31, 2003 (unaudited) and January 31, 2003..............2 Condensed Consolidated Statements of Income - Three Months and Six Months Ended July 31, 2003 and 2002 (unaudited).............................................3 Condensed Consolidated Statement of Stockholders' Equity for the Six Months Ended July 31, 2003 (unaudited)..................................................4 Condensed Consolidated Statements of Cash Flows - Six Months Ended July 31, 2003 and 2002 (unaudited)............................................................5 Notes to Condensed Consolidated Financial Statements................................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............10 Item 3. Quantitative and Qualitative Disclosures About Market Risk.........................................11 Item 4. Controls and Procedures............................................................................12 PART II - OTHER INFORMATION: Item 4. Submission of Matters to a Vote of Security Holders ...................................................................................12 Item 6. Exhibits and Reports on Form 8-K .................................................................12 Signatures Page ...................................................................................13 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002...........................14
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
July 31, January 31, ASSETS 2003 2003 (Unaudited) ----------- ----------- Current Assets: Cash and cash equivalents................................................ $ 2,086,207 $ 1,474,135 Accounts receivable, net of allowance for doubtful accounts of $290,000 and $343,000 at July 31, 2003 and January 31, 2003, respectively ...................... 11,777,123 10,364,188 Inventories ............................................................. 22,752,936 25,470,044 Deferred income taxes ................................................... 1,001,133 1,001,133 Other current assets .................................................... 706,120 549,564 ----------- ----------- Total current assets ........................................... 38,323,519 38,859,064 Property and equipment, net of accumulated depreciation of $4,111,000 at July 31, 2003 and $3,708,000 at January 31, 2003 .................................... 3,552,682 3,356,835 Other assets ............................................................ 824,795 606,835 ----------- ----------- Total Assets ................................................... $42,700,996 $42,822,734 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable......................................................... $ 3,932,466 $ 3,014,038 Current portion of long-term liabilities ................................ 13,935,643 16,657,882 Accrued expenses and other current liabilities .......................... 1,065,635 1,262,175 ----------- ----------- Total current liabilities .......................................... 18,933,744 20,934,095 Long-term liabilities ................................................... 518,739 514,572 Deferred income taxes ................................................... 14,643 14,643 ----------- ----------- Total Liabilities ......................................... 19,467,126 21,463,310 ----------- ----------- 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; 3,269,025 and 2,969,107 shares issued and outstanding at July 31, 2003 and January 31, 2003, respectively ................... 32,690 29,691 Additional paid-in capital .............................................. 11,853,398 8,762,673 Retained earnings ....................................................... 11,347,782 12,567,060 ----------- ----------- Total stockholders' equity ......................................... 23,233,870 21,359,424 ----------- ----------- Total Liabilities and Stockholders' Equity ......................... $42,700,996 $42,822,734 =========== ===========
See notes to condensed consolidated financial statements. 2 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED July 31, July 31, 2003 2002 2003 2002 ---- ---- ---- ---- Net sales........................................ $23,289,944 $18,964,284 $47,114,830 $39,607,468 Cost of goods sold............................... 18,596,614 15,321,155 38,325,684 31,790,454 ----------- ----------- ----------- ----------- Gross profit..................................... 4,693,330 3,643,129 8,789,146 7,817,014 Operating expenses............................... 3,209,938 2,706,856 5,833,100 5,434,803 ----------- ----------- ----------- ----------- Operating profit................................. 1,483,392 936,273 2,956,046 2,382,211 Other income, net ............................... 29,784 30,620 45,226 40,503 Interest expense................................. (143,201) (169,166) (280,997) (344,828) ----------- ----------- ----------- ----------- Income before income taxes .................... 1,369,975 797,727 2,720,275 2,077,886 Provision for income taxes....................... 379,829 239,209 865,829 623,209 ----------- ----------- ----------- ----------- Net income ...................................... $ 990,146 $ 558,518 $ 1,854,446 $ 1,454,677 =========== =========== =========== =========== Net income per common share*: Basic....................................... $ .30 $ .17 $ .57 $ .45 =========== =========== =========== =========== Diluted..................................... $ .30 $ .17 $ .57 $ .44 =========== =========== =========== =========== Weighted average common shares outstanding*: Basic....................................... 3,268,867 3,262,799 3,266,431 3,258,439 =========== =========== =========== =========== Diluted..................................... 3,276,480 3,273,721 3,270,976 3,272,264 =========== =========== =========== ===========
*Adjusted for the 10% stock dividend to shareholders of record on July 31, 2003 and 2002. 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, 2003
Additional Common stock paid-in Retained Shares Amount capital earnings Total ------ ------ ------- -------- ----- Balance, January 31, 2003 2,969,107 $ 29,691 $ 8,762,673 $ 12,567,060 $ 21,359,424 Net income .............. 1,854,446 1,854,446 Exercise of stock options 5,500 55 19,945 20,000 10% stock dividend ...... 294,418 2,944 3,070,780 (3,073,724) -- --------- ------------ ------------ ------------ ------------ Balance, July 31, 2003 .. 3,269,025 $ 32,690 $ 11,853,398 $ 11,347,782 $ 23,233,870 ========= ============ ============ ============ ============
See notes to condensed consolidated financial statements. 4 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED July 31, 2003 2002 ---- ---- Cash Flows from Operating Activities: Net income ...................................................................... $1,854,446 $ 1,454,677 Adjustments to reconcile net income to net cash provided by operating activities: Provision for bad debts ......................................................... (53,000) 233,549 Depreciation and amortization ................................................... 403,100 333,986 (Increase) decrease in accounts receivable ...................................... (1,359,935) 297,368 Decrease in inventories ........................................................ 2,717,108 3,050,533 (Increase) decrease in other current and non-current assets ..................... (374,516) 171,477 Increase (decrease) in accounts payable, accrued expenses and other liabilities ................................................ 726,110 (1,040,101) ---------- ----------- Net cash provided by operating activities .................................................................... 3,913,313 4,501,489 ---------- ----------- Cash Flows from Investing Activities: Purchases of property and equipment ............................................. (598,947) (774,735) ---------- ----------- Net cash used in investing activities ........................................... (598,947) (774,735) ---------- ----------- Cash Flows from Financing Activities: Proceeds from exercise of stock options ......................................... 19,945 19,662 Net payments under loan agreements............................................... (2,722,239) (2,946,503) ---------- ----------- Net cash used in financing activities............................................ (2,702,294) (2,926,841) ---------- ----------- Net increase in cash ............................................................ 612,072 799,913 Cash and cash equivalents at beginning of period ................................ 1,474,135 1,760,635 ---------- ----------- Cash and cash equivalents at end of period....................................... $2,086,207 $ 2,560,548 ========== ===========
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, 2003 and 2002. 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 ("GAAP") 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, 2003. The results of operations for the three-month and six-month periods ended July 31, 2003 and 2002 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., (a Delaware Corporation) Lakeland Protective Wear, Inc. (a Canadian corporation), Lakeland de Mexico S.A. de C.V. (a Mexican corporation), Weifang Lakeland Safety Products, Co., Ltd. (a Chinese corporation), Qing Dao May Tung Healthcare Co., Ltd. ( a Chinese corporation), and Lakeland Industries Europe Ltd. (a U.K. Corporation). All significant intercompany accounts and transactions have been eliminated. 4. Inventories Inventories consist of the following: July 31, January 31, 2003 2003 ---- ---- Raw materials.................... $ 8,268,907 $ 7,839,144 Work-in-process.................. 2,236,451 1,656,942 Finished goods................... 12,247,578 15,973,958 ---------- ---------- $22,752,936 $25,470,044 =========== =========== Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. 6 5. Stockholders' Equity (a) Stock split On April 28, 2003 and June 24, 2002, the Company announced a 10% stock dividend to shareholders of record on July 31, 2003 and 2002, respectively, with a distribution date of August 31, 2003 and August 30, 2002. Share and per share amounts have been restated to reflect the stock split for all periods presented. (b) 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:
Three Months Ended Six Months Ended July 31, July 31, 2003 2002 2003 2002 ---- ---- ---- ---- Numerator Net income $ 990,146 $ 558,518 $1,854,446 $1,454,677 ========== ========== ========== ========== Denominator for basic earnings per share (Weighted-average shares) 3,268,867 3,262,799 3,266,431 3,258,439 Effect of dilutive securities: Stock options 7,613 10,922 4,545 13,825 ---------- ---------- ---------- ---------- Denominator for diluted earnings per share (adjusted weighted-average shares) 3,276,480 3,273,721 3,270,976 3,272,264 ========== ========== ========== ========== Basic earnings per share $ .30 $ .17 $ .57 $ .45 ========== ========== ========== ========== Diluted earnings per share $ .30 $ .17 $ .57 $ .44 ========== ========== ========== ==========
Excluded from the calculation of earnings per share are options to purchase 8,910 and 1,210 shares at July 31, 2003 and 2002, respectively, as they were not exercisable or their inclusion would have been anti dilutive. 6. Credit Facility At July 31, 2003, the balance outstanding under the Company's secured $18 million revolving credit facility amounted to $13,935,643. This facility, which is based on a percentage of eligible accounts receivable and inventory, as defined, has been renewed and expires on July 31, 2004. Borrowings under the facility bear interest at a rate per annum equal to the one-month LIBOR plus 2%. The credit facility is collateralized by substantially all of the assets of the Company and guaranteed by certain of the Company's subsidiaries. The credit facility contains 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, for which the Company is in compliance. 7. Major Supplier The Company purchased approximately 72.3% and 73.0% of its raw materials from DuPont for the six months ended July 31, 2003 and 2002, respectively. The Company has been purchasing such raw materials from DuPont for over twenty years, and as one of its largest customers in Tyvek, considers its relationship with this supplier to be excellent. 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 adversely affected. 7 8. Stock Based Compensation The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123"As amended by SFAS No.148 "Accounting for Stock Based Compensation Transaction and Disclosure"). The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans and does not recognize compensation expense for its employee stock-based compensation plans when awards are issued at a stock price that is at or above the current market price at the time of the grant. All stock-based awards were fully vested at January 31, 2003. During the six months ended July 31, 2003 option shares were granted to three directors, upon election or re-election at the Company's Annual Meeting held on June 18, 2003. These options are not exercisable for six months, accordingly, no pro-forma compensation expense based on fair value exists for the six months ended July 31, 2003 and 2002. 9. Impact of Recently Issued Accounting Standards In May 2003, the FASB issued SFAS No.150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected included mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other asstes and certain obligations that can be settled with shares of stock. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The initial adoption of SFAS No. 150 on August 1, 2003 is not expected to hacve any impact on the Company's consolidated financial statements. The FASB issued Interpretation No.45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Inbebtedness of Others' and Interpretation of FASB Statements No. 5,57 and 107 and Rescission of FASB Interpretation No. 34. This interpretation expands on the existing accounting guidance and disclosure requirements for most guarantees, including indemnifications. It requires that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the of the obligations it assumes under that guarantee if that amount is reasonably estimable, and must disclose that information in its interim and annual financial statements. The provisions for initial recognition and measurement of the liability are to be applied on a prospective basis to guarantees issued or modified on or after January 1, 2003. The Company's initial adoption of this statement on January 1, 2003, did not have an impact on its results of operations, financial position, or cash flows. Guarantees issued or modified after January 1, 2003, will be recognized at their fair value in the Company's financial 8 statements. The Company has not issued any guarantees as of July 31, 2003. In January 2003, the Financial Accounting Standards Board ("FASB") issued interpretation No. 46, "Consolidation of Variable Interest Equities,"("FIN 46") which provides guidance on identifying and assessing interests in variable interest entities to decide whether to consolidate that entity. FIN 46 requires consolidation of existing unconsolidated variable interest entities if the entities do not effectively disperse risk among parties involved. The Company adopted the provisions of FIN 46 during the first quarter of 2003, as required, for any variable interest entities created after January 31, 2003. The adoption of this provision of FIN 46 did not have an impact on the Company's consolidated financial position and results of operations. The Company is required to adopt the provisions of FIN 46 for variable interests acquired before February 1, 2003 in the third quarter of 2003. The adoption thereof is not anticipated to have a material impact on the Company's consolidated financial position and results of operations. 9 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Item 2. Six months ended July 31, 2003 compared to the six months ended July 31, 2002. Net Sales. Net sales for the six months ended July 31, 2003 increased $7,507,000, (or 18.9%), to $47,115,000 from $39,607,000 reported for the six months ended July 31, 2002. The increase in sales was principally attributable to improving economic conditions, and partially to SARS related garment demand at our Toronto, Canada and Chinese subsidiaries and to the sales price increase effective May 12, 2003. Gross Profit. Gross profit for the six months ended July 31, 2003, increased by $972,000, (or 12.4%) to $8,789,000 from $7,817,000 for the six months ended July 31, 2002. Gross profit as a percentage of net sales decreased to 18.7% for the six months ended July 31, 2003 from 19.7% reported for the prior year's period partially due to an increase in the price of raw materials, an increase in inventory reserves, payroll and payroll taxes. The principal factor affecting gross profit margins was that commencing March 1, 2003 the Company incurred an increase in the price of raw materials from DuPont, but could not impose a price increase on its products using these DuPont raw materials until May 12, 2003 due to market conditions. Operating Expenses. Operating expenses for the six months ended July 31, 2003 increased by $398,000 (or 7.3%) to $5,833,000, (or 12.4% of net sales) from $5,435,000, (or 13.7% of net sales) for the six months ended July 31, 2002. Operating expenses increased principally as a result of an increase in payrolls, commissions, travel, medical expenses, partially offset by a decrease in the allowance for bad debts, R&D expense and VAT refunds received at the China locations. Interest Expense. Interest expense for the six months ended July 31, 2003 decreased by $64,000 or (18.6%) to $281,000 from $345,000 for the six months ended July 31, 2002. This decrease was primarily due to a decrease in average borrowings under the Company's credit facility and to decreasing interest rates. Income Tax Expense. The effective tax rate for the six months ended July 31, 2003 and 2002 of 31.8% and 30%, respectively, deviates from the Federal statutory rate of 34.0%, which is primarily attributable to differing foreign tax rates and tax refunds, and state income taxes. Net Income. As a result of the foregoing, net income increased to $1,854,000 (or 27.4%) for the six months ended July 31, 2003, from net income of $1,455,000 for the six months ended July 31, 2002. Three months ended July 31, 2003 compared to the three months ended July 31, 2002. Net Sales. Net sales for the three months ended July 31, 2003 increased $4,326,000, (or 22.8%) to $23,290,000 from $18,964,000 reported for the three months ended July 31, 2002. The increase in sales was principally attributable to improving economic conditions, to SARS related garment demand at our Toronto, Canada and Chinese subsidiaries and to the sales price increase effective May 12, 2003. Gross Profit. Gross profit for the three months ended July 31, 2003, increased by $1,050,000, (or 28.8%) to $4,693,000 from $3,643,000 for the three months ended July 31, 2002. Gross profit as a percentage of net sales increased to 20.15% for the three months ended July 31, 2003 from 19.2% reported for the prior year's period. The principal factor affecting gross profit margins was that the Company imposed a sales price increase on its products on May 12, 2003. During the three months ended July 31, 2003 an increase in inventory reserves was recorded. Operating Expenses. Operating expenses for the three months ended July 31, 2003 increased by $503,000 (or 18.6%) to $3,210,000, (or 13.8% of net sales) from $2,707,000, (or 14.3% of net sales) for the three months ended July 31, 2002. Operating expenses increased principally as a result of an increase in commissions, payrolls, professional fees, and insurance expenses, offset partially by VAT refunds received at the China locations. Interest Expense. Interest expense for the three months ended July 31, 2003 decreased by $26,000 (or 15.3%) to $143,000 from $169,000 for the three months ended July 31, 2002. This decrease was primarily due to a decrease in average borrowings under the Company's credit facility and to decreasing interest rates. Income Tax Expense. The effective tax rate for the three months ended July 31, 2003 and 2002 of 27.7% and 30% respectively, deviates from the Federal statutory rate of 34.0%, which is primarily attributable to differing foreign tax rates and tax refunds, and state income taxes. Net Income. As a result of the foregoing, net income increased to $990,000 (or 77%) for the three moths ended July 31, 2003, from net income of $559,000 for the three months ended July 31, 2002. 10 LIQUIDITY and CAPITAL RESOURCES - ------------------------------- Liquidity and Capital Resources. The Company's working capital is equal to $19,390,000 at July 31, 2003. 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 $3,913,000 for the six months ended July 31, 2003 and was due primarily to an increase in accounts receivables of $1,360,000 a decrease in inventories of $2,717,000 and net income from operations of $1,854,000, and by an increase in accounts payable, accrued expenses and other liabilities of $726,000. Net cash used in investing activities of $599,000 for the six months ended July 31, 2003 was primarily attributable to construction costs in China. Net cash used in financing activities of $2,702,000 for the six months ended July 31, 2003 was primarily attributable to net payments 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, 2004 and has therefore been classified as a short-term liability in the accompanying balance sheet at July 31, 2003. Borrowings under the revolving credit facility amounted to approximately $13,936,000 at July 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 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. The Company is in compliance with all covenants under its credit agreement as of July 31, 2003. The Company made its last principal and interest payment on its $3 million term loan facility in April 2003, thereby extinguishing all long-term bank debt. Product Liability Claims have been de minimus over the last 10 years and those claims made have all been dismissed, except one that was settled in 1993 and paid by the Company's insurer. In fiscal 2004 the Company has $5 million of product liability insurance with a $10,000 deductible per occurrence. Presently only one product liability suit is outstanding. The Company's total exposure on this suit is $2,500. Suits are generally in the nature of minor chemical or fire burns where the garments are misused or plaintiffs mistakenly sue the Company, when indeed the Company's products are not involved. All costs of administering and litigating claims is handled by attorneys appointed and paid by the Company's insurer, other than the deductible amount per occurrence, which has ranged from $2,500 to $10,000 over the last 10 years. As of July 31, 2003, the company has $2,086,207 in cash and an unused credit line of $4,064,357. Capital spending plans for fiscal 2004 include the last payment of $94,500 on the Company's 53,300 square foot facility in An Qui, China and $249,200 on its 90,400 square foot facility in Jiaozhou, China; the latter amount to a construction company upon completion in Summer 2003. New capital equipment expenditures for the remainder of fiscal 2004 are not expected to exceed $450,000. A reserve for a bond posting and settlement was recorded at January 31, 2003 in the amount of $48,000, relating to a dispute with Mexican officials over custom's law for companies in the maquiladora program. Fiscal 2003 included a reserve for a Canadian customs dispute of which approximately $12,000 remains. The Company has received notice from both government agencies that the disputes have been settled that no additional payments are required for these disputes. Item 3. Quantitative and Qualitative Disclosures About Market Risk Foreign Currency Activity and Interest Rates - -------------------------------------------- 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. There have been no material changes to our market risks as disclosed in our Annual Report of Form 10-K for the year ended January 31, 2003. Market Risk - ----------- The Company is exposed to market risk, including changes in interest rates and currency exchange rates. To 11 manage the volatility relating to these exposures, the Company seeks to limit, to the extent possible its non-U.S. dollar denominated purchases and sales. Foreign exchange risk occurs principally only with regard to its Canadian, and United Kingdom subsidiary sales. Impact of Recently Issued Accounting Standards ---------------------------------------------- In May 2003, the FASB issued SFAS No.150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected included mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The initial adoption of SFAS No. 150 on August 1, 2003 is not expected to hacve any impact on the Company's consolidated financial statements. The FASB issued Interpretation No.45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others' and Interpretation of FASB Statements No. 5,57 and 107 and Rescission of FASB Interpretation No. 34. This interpretation expands on the existing accounting guidance and disclosure requirements for most guarantees, including indemnifications. It requires that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the of the obligations it assumes under that guarantee if that amount is reasonably estimable, and must disclose that information in its interim and annual financial statements. The provisions for initial recognition and measurement of the liability are to be applied on a prospective basis to guarantees issued or modified on or after January 1, 2003. The Company's initial adoption of this statement on January 1, 2003, did not have an impact on its results of operations, financial position, or cash flows. Guarantees issued or modified after January 1, 2003, will be recognized at their fair value in the Company's financial statements. The Company has not issued any guarantees as of July 31, 2003. In January 2003, the Financial Accounting Standards Board ("FASB") issued interpretation No. 46, "Consolidation of Variable Interest Equities,"("FIN 46") which provides guidance on identifying and assessing interests in variable interest entities to decide whether to consolidate that entity. FIN 46 requires consolidation of existing unconsolidated variable interest entities if the entities do not effectively disperse risk among parties involved. The Company adopted the provisions of FIN 46 during the first quarter of 2003, as required, for any variable interest entities created after January 31, 2003. The adoption of this provision of FIN 46 did not have an impact on the Company's consolidated financial position and results of operations. The Company is required to adopt the provisions of FIN 46 for variable interests acquired before February 1, 2003 in the third quarter of 2003. The adoption thereof is not anticipated to have a material impact on the Company's consolidated financial position and results of operations. Foreign Exchange Risk Management - -------------------------------- As a multinational corporation, the Company is exposed to changes in foreign exchange rates. As the Company's non-denominated U.S. dollar international sales grow, exposure to volatility in exchange rates could have an adverse impact on the Company's financial results. The Company's risk from exchange rate changes is presently related to non-dollar denominated sales in Canada and the United Kingdom. Interest Rate Risk - ------------------ The Company is exposed to interest rate change market risk with respect to its credit facility with a financial institution which is priced based upon LIBOR. At July 31, 2003, $13,936,000 was outstanding under the term-loan and revolving credit facilities. Changes in the above described interest rates during fiscal 2004 will have a positive or negative effect on the Company's interest expense. Each 1% fluctuation in the above rates will increase or decrease interest expense for the Company by approximately $139,360. Each 1% fluctuation in interest rates earned would not increase or decrease interest income on these deposits by a significant amount. Item 4. Controls and Procedures Pursuant to rules adopted by the SEC as directed by Section 302 of the Sarbanes-Oxley Act of 2002, the Company has performed an evaluation of its disclosure controls and procedures (as defined by Exchange Act Rules 13a-4) within 90 days of the date of the filing of this report. Based on this evaluation, the Company's Chief Executive Officer and Principal Accounting Offer have concluded that these procedures are effective in ensuring that information required to be disclosed by the Company is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. In addition, there have not been any significant changes in internal controls or other factors that could significantly affect internal controls subsequent to the date of the Company's most recent evaluation. PART II. OTHER INFORMATION Items 1 - 3 and 5 are not applicable. Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of shareholders of the company (the "Annual Meeting") was held on June 18, 2003 in Ronkonkoma, New York. The Company had 2,972,407 shares of common stock outstanding as of April 25, 2003, the record date for the Annual Meeting. Proposal 1 - Election of Director The candidate listed below was duly elected to the Board of Directors at the Annual Meeting by the tally indicated. Candidate Votes in Favor Votes Withheld --------- -------------- -------------- John J. Collins, Jr. 2,854,949 32,148 Eric O. Hallman 2,854,949 32,148 Michael E. Cirenza 2,854,909 32,688 Proposal 2 - Ratification of Auditors for fiscal 2003 and 2004: Votes in Favor Votes Against Abstain -------------- ------------- ------- Pricewaterhouse Coopers LLP 2,880,014 5,130 1,953 Item 6. Exhibits and Reports on Form 8-K: a - None b - On June 10, 2003 the Company filed a Form 8-K relating to the results of operations for the 1st Quarter Ended April 30, 2003. On June 24, 2003 The Company filed a Form 8-K relating to the July 31, 2003 1 for 10 Stock distribution. 12 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 12, 2003 /s/ Raymond J. Smith --------------------------------------- Raymond J. Smith, President and Chief Executive Officer Date: September 12, 2003 /s/ Christopher J. Ryan --------------------------------------- Christopher J. Ryan, Executive Vice President, Secretary and General Counsel Date: September 12, 2003 /s/ James M. McCormick --------------------------------------- James M. McCormick, Treasurer (Principal Accounting Officer) 13 EX-31 3 exhibit31.txt Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 And Securities and Exchange Commission Release 34-46427 I, Raymond J. Smith, the president and chief executive officer of Lakeland Industries, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Lakeland Industries, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrar's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in registrant's internal controls; and The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: September 12, 2003 /s/Raymond J. Smith ------------------------------------- Raymond J. Smith President and Chief Executive Officer 14 EX-31.1 4 exhibit31-1.txt Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 And Securities and Exchange Commission Release 34-46427 I, James M. McCormick, the principal accounting officer of Lakeland Industries, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Lakeland Industries, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made not misleading with respect to the period covered by the report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report fairly present in all material respects the financial condition, result of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made know to us by others within those entities particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrar's ability to record process, summarize and report financial data and have identified for the registrant's auditors and material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in registrant's internal controls; and The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: September 12,2003 /s/James M. McCormick ------------------------------ James M. McCormick Treasurer (Principal Accounting Officer) 15 EX-31.2 5 exhibit31-2.txt Certification of Executive Vice President, Secretary and General Counsel Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 And Securities and Exchange Commission Release 34-46427 I, Christopher J. Ryan, Executive Vice President, Secretary and General Counsel of Lakeland Industries, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Lakeland Industries, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made not misleading with respect to the period covered by the report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report fairly present in all material respects the financial condition, result of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made know to us by others within those entities particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrar's ability to record process, summarize and report financial data and have identified for the registrant's auditors and material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in registrant's internal controls; and The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: September 12,2003 /s/Christopher J. Ryan --------------------------------------- Christopher J. Ryan Executive Vice President, Secretary and General Counsel 16 -----END PRIVACY-ENHANCED MESSAGE-----