NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
|
1.
|
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Business
Lakeland Industries, Inc. and
Subsidiaries (“Lakeland,” the “Company,” “we,” “our” or “us”), a Delaware
corporation organized in April 1986, manufactures and sells a comprehensive line of safety garments and accessories for the industrial
protective clothing market.
For purposes of these financial
statements, FY refers to a fiscal year ended January 31; thus, FY17 refers to the fiscal year ended January 31, 2017.
Basis
of Presentation
The Company prepares its financial
statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
The following is a description of the Company’s significant accounting policies.
Summary of Significant Accounting Policies
Principles
of Consolidation
The accompanying consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
Use
of Estimates and Assumptions
The preparation of consolidated
financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet date, and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. It is reasonably
possible that events could occur during the upcoming year that could change such estimates.
Cash
and Cash Equivalents
The Company considers highly
liquid temporary cash investments with original maturities of three months or less to be cash equivalents. Cash equivalents consist
of money market funds. The cost of cash equivalents approximates fair value. Cash and cash equivalents were approximately $10,365,000
at January 31, 2017 and $7,022,000 at January 31, 2016.
Accounts Receivable, net
Trade accounts receivable are
stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. The Company recognizes losses when information available
indicates that it is probable that a receivable has been impaired based on criteria noted above at the date of the consolidated
financial statements, and the amount of the loss can be reasonably estimated. Management considers the following factors when determining
the collectability of specific customer accounts: Customer creditworthiness, past transaction history with the customers, current
economic industry trends, changes in customer payment terms. Past due balances over 90 days and other less creditworthy accounts
are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate,
adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment,
the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances
that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation
allowance and a credit to accounts receivable.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
Inventories, net
Inventories include freight-in,
materials, labor and overhead costs and are stated at the lower of cost (on a first-in, first-out basis) or market. Provision is
made for slow-moving, obsolete or unusable inventory.
Property and Equipment
Property and equipment is stated
at cost. Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives on a straight-line basis. Leasehold improvements and leasehold costs are amortized over the
term of the lease or service lives of the improvements, whichever is shorter. The costs of additions and improvements which substantially
extend the useful life of a particular asset are capitalized. Repair and maintenance costs are charged to expense. When assets
are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the account,
and the gain or loss on disposition is reflected in operating income.
Goodwill
Goodwill represents the future
economic benefits arising from other assets acquired in a business combination that are not individually identified and separately
recognized. Goodwill is evaluated for impairment at least annually; however, this evaluation may be performed more frequently when
events or changes in circumstances indicate the carrying amount may not be recoverable. Factors that the Company considers important
that could identify a potential impairment include: significant changes in the overall business strategy and significant negative
industry or economic trends. Management assesses whether it is more likely than not that goodwill is impaired and, if necessary,
compares the fair value of the entity acquired to the carrying value. Fair value is generally determined by management either based
on estimating future discounted cash flows for the reporting unit or by estimating a sales price for the reporting unit based on
multiple of earnings. These estimates require the Company's management to make projections that can differ from actual results.
Impairment of Long-Lived Assets
The Company evaluates the carrying
value of long-lived assets to be held and used when events or changes in circumstances indicate the carrying value may not be recoverable.
The Company measures any potential impairment on a projected undiscounted cash flow method. Estimating future cash flows requires
the Company’s management to make projections that can differ materially from actual results. The carrying value of a long-lived
asset is considered impaired when the total projected undiscounted cash flows from the asset is less than its carrying value. In
that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset.
As of January 31, 2017 and January 31, 2016, no impairment was recorded.
Self-Insured Liabilities
We have a self-insurance program
for certain employee health benefits. The cost of such benefits is recognized as expense based on claims filed in each reporting
period and an estimate of claims incurred but not reported during such period. Our estimate of claims incurred but not reported
is based upon historical trends. If more claims are made than were estimated or if the costs of actual claims increase beyond what
was anticipated, reserves recorded may not be sufficient, and additional accruals may be required in future periods. We maintain
separate insurance to cover the excess liability over set single claim amounts and aggregate annual claim amounts.
Revenue
Recognition
The Company derives its sales
primarily from its limited use/disposable protective clothing and secondarily from its sales of high-end chemical protective suits,
firefighting and heat protective apparel, gloves and arm guards and reusable woven garments. Sales are recognized when goods are
shipped, at which time title and the risk of loss pass to the customer. Sales are reduced for sales returns and allowances. Payment
terms are generally net 30 days for United States sales and net 90 days for international sales.
Substantially, all of the Company's
sales are made through distributors. There are no significant differences across product lines or customers in different geographical
areas in the manner in which the Company's sales are made.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
Lakeland offers a growth rebate
to certain distributors each year on a calendar-year basis. Sales are traced on a monthly basis, and accruals are based on sales
growth over the prior year. The growth rebate accrual is adjusted either up or down on a monthly basis as a reduction (increase)
to revenue and an increase (reduction) to the accrual based on monthly sales trends as compared with prior year. Based on volume
and products purchased, distributors can earn anywhere from 1% to 6% in rebates in the form of either a quarterly or annual credit
to their account, depending on the specific agreement. In estimating the accrual needed, management tracks sales growth over the
prior year.
Our sales are generally final;
however, requests for return of goods can be made and must be received within 90 days from invoice date. No returns will be accepted
without a written authorization. Return products may be subject to a restocking charge and must be shipped freight prepaid. Any
special made-to-order items are not returnable. Customer returns have historically been insignificant.
Customer pricing is subject to
change on a 30-day notice; exceptions based on meeting competitors' pricing are considered on a case-by-case basis. Revenue is
recorded net of taxes collected from customers. The related taxes that are remitted to governmental authorities, with the collected
taxes recorded as current liabilities until remitted to the relevant government authority.
For larger orders, except in
its Lakeland Fire product line, the Company absorbs the cost of shipping and handling. For those customers who are billed the cost
of shipping and handling fees, such amounts are included in net sales. Shipping and handling costs associated with the outbound
freight are included in operating expenses and aggregated approximately $2.0 million in FY17 and $2.5 million in FY16.
Advertising
Costs
Advertising costs are expensed
as incurred and included in operating expenses on the consolidated statement of operations. Advertising and co-op costs amounted
to $342,000 and $326,000 in FY17 and FY16, respectively, net of a co-op advertising allowance received from a supplier.
Stock-Based Compensation
The Company records the cost
of stock-based compensation plans based on the fair value of the award on the grant date. For awards that contain a vesting provision,
the cost is recognized over the requisite service period (generally the vesting period of the equity award) which approximates
the performance period. For awards based on services already rendered, the cost is recognized immediately.
Research and Development Costs
Research and development costs
include labor, equipment and materials costs and are expensed as incurred and included in operating expenses. Research and development
expenses aggregated were approximately $463,000 and $165,000 in FY17 and FY16, respectively.
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.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
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.
Foreign Operations and Foreign
Currency Translation
The Company maintains manufacturing
operations in Mexico, India, Argentina and the People’s Republic of China and can access independent contractors in Mexico,
Argentina and China. It also maintains sales and distribution entities located in India, Canada, the U.K., Chile, China, Argentina,
Russia, Kazakhstan and Mexico. The Company is vulnerable to currency risks in these countries. The functional currency for the
United Kingdom subsidiary is the Euro; the trading company in China, the RMB; the Canadian Real Estate subsidiary, the Canadian
dollar; the Russian operation, the Russian Ruble, and the Kazakhstan operation the Kazakhstan Tenge. All other operations have
the US dollar as its functional currency.
Pursuant to US GAAP, assets
and liabilities of the Company’s foreign operations with functional currencies, other than the US dollar, are translated
at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average rates prevailing
during the periods. Translation adjustments are reported in accumulated other comprehensive loss, a separate component of stockholders’
equity. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the consolidated
statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.
Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the
functional currency are included in the results of operations as incurred.
Fair Value of Financial Instruments
US GAAP defines fair value, provides
guidance for measuring fair value and requires certain disclosures utilizing a fair value hierarchy which is categorized into three
levels based on the inputs to the valuation techniques used to measure fair value.
The following is a brief description
of those three levels:
|
Level 1:
|
Observable inputs such as quoted prices (unadjusted)
in active markets for identical assets or liabilities.
|
|
Level 2:
|
Inputs other than quoted prices that are observable for
the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active
markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
|
|
Level 3:
|
Unobservable inputs that reflect management’s own
assumptions.
|
Foreign currency forward and
hedge contracts are recorded in the consolidated balance sheets at their fair value as of the balance sheet dates based on current
market rates as further discussed in Note 11.
The financial instruments of
the Company classified as current assets or liabilities, including cash and cash equivalents, accounts receivable, short-term borrowings,
borrowings under revolving credit facility, accounts payable and accrued expenses, are recorded at carrying value, which approximates
fair value based on the short-term nature of these instruments.
The Company believes that the
fair values of its long-term debt approximates its carrying value based on the effective interest rate compared to the current
market rate available to the Company.
Earnings Per Share
Basic earnings per share are
based on the weighted average number of common shares outstanding without consideration of common stock equivalents. Diluted earnings
per share are based on the weighted average number of common shares and common stock equivalents. The diluted earnings per share
calculation takes into account unvested restricted shares and the shares that may be issued upon exercise of stock options, reduced
by shares that may be repurchased with the funds received from the exercise, based on the average price during the fiscal year.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
Reclassifications
Certain reclassifications have
been made to the prior year’s consolidated balance sheet to conform to the current year presentation. These reclassifications
have no effect on the accompanying consolidated financial statements.
Recent Accounting Pronouncements
The Company considers the applicability
and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that
are issued.
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU
2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer
of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in US GAAP when
it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The guidance also
requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer
contracts. In August 2015, the FASB issued ASU No. 2015-14, “Deferral of the Effective Date” (“ASU 2015-14”),
which defers the effective date for ASU 2014-09 by one year. For public entities, the guidance in ASU 2014-09 will be effective
for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods), which
means it will be effective for the Company’s fiscal year beginning February 1, 2018. In March 2016, the FASB issued
ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue versus Net)” (“ASU 2016-08”),
which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. In
April 2016, the FASB issued ASU No. 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”),
which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and
understandability of the license implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Narrow-Scope Improvements
and Practical Expedients” (“ASU 2016-12”), which amends the guidance on transition, collectability, noncash consideration
and the presentation of sales and other similar taxes. In December 2016, the FASB further issued ASU 2016-20, “Technical
Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” (“ASU 2016-20”), which makes
minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting
practice or create a significant administrative cost to most entities. The amendments are intended to address implementation and
provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. These amendments
have the same effective date as the new revenue standard. The Company plans to adopt Topic 606 in the first quarter
of its fiscal 2019 using the retrospective transition method, and is currently evaluating the impact of its pending adoption of
Topic 606 will have on its consolidated financial statements. While no significant impact is expected upon adoption
of the new guidance, the Company will not be able to make that determination until the time of adoption based upon outstanding contracts at
that time.
In July 2015, the FASB issued
ASU No. 2015-11, an amendment to Topic 330 for simplifying the measurement of inventory. The update requires that inventory be
measured at the lower of cost and net realizable value where net realizable value is the estimated selling prices in the ordinary
course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged
for inventory measured using LIFO or the retail inventory method. The amendment is intended to provide clarification on the measurement
and disclosure of inventory in Topic 330 and not intended for those clarifications to result in any changes in practice. The ASU
is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted for all entities
and should be applied prospectively. Management does not believe the adoption of this ASU would have a material impact on the Company’s
consolidated financial statements.
In November 2015, the FASB issued
ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which changes how deferred taxes are
classified on organizations’ balance sheets. The ASU eliminates the current requirement for organizations to present deferred
tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to
classify all deferred tax assets and liabilities as noncurrent. The amendments apply to all organizations that
present a classified balance sheet. For public companies, the amendments are effective for financial statements issued for annual
periods beginning after December 15, 2016, and interim periods within those annual periods. During the quarter ended October 31,
2016, the Company early applied this ASU and retrospectively applied it to the prior period presented. The adoption of ASU 2015-17
had no impact on the Company’s results of operations and cash flows.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
In January 2016, the FASB issued
ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities, to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful
information. The update requires equity investments (except those accounted for under the equity method or those that result in
consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. It eliminated
the requirement for public entities to disclose the method(s) and significant assumptions used to estimate the fair value that
is require to be disclosed for financial instruments measured at amortized cost on the balance sheet. For public entities, the
ASU is effective for the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management
does not believe the adoption of this ASU would have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued
ASU No. 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02
requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in
this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early
application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or
entered into after, the date of initial application, with an option to elect to use certain transition relief. The Company is currently
evaluating the impact of this new standard on its consolidated financial statements but has not determined the effects that the
adoption of the pronouncement may have on its consolidated financial statements.
In March 2016, the FASB Issued
ASU No. 2016-09, Compensation–Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. The
guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early
adoption is permitted for an entity in any interim or annual period. If an entity early adopts the amendments in an interim period,
any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects
early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the impact of this new
standard on its consolidated financial statements but management does not believe the adoption of the pronouncement will have
a material impact on its consolidated financial statements.
In May 2016, the FASB issued
ASU No. 2016-11 Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815); Rescission of SEC Guidance Because of
Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, which is rescinding
certain SEC Staff Observer comments that are codified in Topic 605, Revenue Recognition, and Topic 932, Extractive Activities—Oil
and Gas, effective upon adoption of Topic 606. Management does not expect the adoption of the ASU to have any impact on its
consolidated financial statements.
In August 2016, the FASB issued
ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address diversity
in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide
guidance on the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of
Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective
Interest Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Business Combination; (4) Proceeds from the
Settlement of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned;
(6) Life Insurance Policies; (7) Distributions Received from Equity Method Investees; (8) Beneficial Interests in Securitization
Transactions; and Separately Identifiable Cash Flows and Application of the Predominance Principle. The amendments are effective
for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
Early adoption is permitted, including adoption in an interim period. The amendments should be applied using a retrospective transition
method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments
for those issues would be applied prospectively as of the earliest date practicable. Management does not believe the adoption of
this ASU would have a material impact on the Company’s consolidated financial statements.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
In January 2017, the FASB issued
ASU 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business in an effort to clarify the definition of
a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for
as acquisitions (or disposals) of assets or businesses. This guidance is effective for fiscal years beginning after December 15,
2017, and interim periods within those fiscal years. The Company does not believe the adoption of this guidance will have a material
impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued
ASU 2017-04 Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment to simplify the accounting
for goodwill impairment. The guidance removes the second step of the goodwill impairment test, which requires a hypothetical purchase
price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair
value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities
will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary.
The same one-step impairment test will be applied to goodwill for all reporting units, even those with zero or negative carrying
amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts.
This guidance is effective in 2020, but early adoption is permitted for any impairment tests performed after January 1, 2017. The
Company is currently evaluating the impact that this guidance will have on the Company’s consolidated financial statements.
Inventories, net consist of the
following (in $000s):
|
|
January 31, 2017
|
|
|
January 31, 2016
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
14,312
|
|
|
$
|
15,435
|
|
Work-in-process
|
|
|
1,233
|
|
|
|
784
|
|
Finished goods
|
|
|
19,990
|
|
|
|
24,622
|
|
|
|
$
|
35,535
|
|
|
$
|
40,841
|
|
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
|
3.
|
PROPERTY AND EQUIPMENT, NET
|
Property and equipment from continuing
operations consists of the following:
|
|
Useful Life in Years
|
|
January 31, 2017
|
|
|
January 31, 2016
|
|
|
|
|
|
(000’s)
|
|
|
(000’s)
|
|
Machinery and equipment
|
|
3-10
|
|
$
|
6,442
|
|
|
$
|
7,535
|
|
Furniture and fixtures
|
|
3-10
|
|
|
306
|
|
|
|
522
|
|
Leasehold improvements
|
|
Lease term
|
|
|
1,207
|
|
|
|
1,084
|
|
Land and building (China)
|
|
20-30
|
|
|
1,764
|
|
|
|
1,764
|
|
Land and building (Canada)
|
|
30
|
|
|
1,864
|
|
|
|
1,745
|
|
Land and buildings (USA)
|
|
30
|
|
|
3,417
|
|
|
|
3,382
|
|
Land and buildings (Mexico)
|
|
30
|
|
|
2,070
|
|
|
|
2,070
|
|
|
|
|
|
|
17,070
|
|
|
|
18,102
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
(8,805
|
)
|
|
|
(8,850
|
)
|
Assets held for sale
|
|
|
|
|
901
|
|
|
|
1,101
|
|
Construction-in-progress
|
|
|
|
|
262
|
|
|
|
16
|
|
|
|
|
|
$
|
9,428
|
|
|
$
|
10,369
|
|
Depreciation and amortization
expense from continuing operations for FY17 and FY16 amounted to $1,096,943 and $884,863 respectively.
The estimated cost to complete
construction-in-progress at January 31, 2017 is $800,000.
During FY17, conditions in the
Brazilian economy caused management to believe that the Company’s assets held for sale in that country should be analyzed
for impairment. The analysis resulted in an impairment write-down of $0.2 million for assets that have been identified as held-for-sale
by the Company. The write-down is included in operating expenses in the Company’s FY17 consolidated statement of operations.
The estimated fair value of the assets written down in FY17, consisting primarily of buildings and land was approximately
$0.9 million. In determining fair value the Company relied upon third party appraisals. Of the original approximately $1.1 million,
the estimated fair value of assets held for sale at January 31, 2017 is approximately $0.9 million.
On August 1, 2005, the Company
purchased Mifflin Valley, Inc., a Pennsylvania manufacturer, the operations of which now comprise the Company’s Reflective
division. This acquisition resulted in the recording of $0.9 million in goodwill in FY06. The Company believes that there was no
impairment of goodwill for the years ended January 31, 2017 and 2016. This goodwill is included in the US segment for reporting
purposes.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
Revolving Credit Facility
On June 28, 2013, as amended
on March 31, 2015 and June 3, 2015, Lakeland Industries, Inc. and its wholly owned Canadian subsidiary, Lakeland Protective Wear
Inc. (collectively the “Borrowers”), entered into a Loan and Security Agreement (the “Senior Loan Agreement”)
with AloStar Business Credit, a division of AloStar Bank of Commerce (the “Senior Lender”). The Senior Loan Agreement
provides the Borrowers with a $15 million revolving line of credit (the “Senior Credit Facility”), at a variable interest
rate based on LIBOR, with a first priority lien on substantially all of the United States and Canada assets of the Company, except
for its Mexican plant and the Canadian warehouse. After these amendments the maturity date of the Senior Credit Facility
is now June 28, 2017 and the minimum interest rate floor is 4.25% per annum. The Senior Lender has approved required aspects of
the transactions relating to the Brazil operations as such transactions are further described in Note 13 hereto.
The Company is negotiating a
replacement facility as of April 26, 2017.
The following is a summary of
the material terms of the Senior Credit Facility:
$15 million Senior Credit
Facility
|
·
|
Borrowing pursuant to a revolving credit facility subject to a borrowing base calculated as the
sum of:
|
|
o
|
85% of eligible accounts receivable as defined
|
|
o
|
The lesser of 60% of eligible inventory as defined or 85% of net orderly liquidation value of inventory
|
|
o
|
In transit inventory in bound to the US up to a cap of $1,000,000
|
|
o
|
Receivables and inventory held by the Canadian operating subsidiary to be included, up to a cap
of $2.0 million of availability
|
|
·
|
There was $4.9 million and $9.5 million outstanding under the Senior Credit Facility on January
31, 2017 and 2016, respectively.
|
|
·
|
There was $10.1 million and $5.5 million available for further borrowings under the Senior Credit
Facility on January 31, 2017 and 2016, respectively.
|
|
o
|
A perfected first security lien on all of the Borrower’s United States and Canadian assets,
other than its Mexican plant and the Canadian warehouse
|
|
o
|
Pledge of 65% of Lakeland Industries, Inc. stock in all foreign subsidiaries other than 100% pledge
of stock of its Canadian subsidiaries
|
|
o
|
All customers of Borrowers must remit to a lockbox controlled by Senior Lender or into a blocked
account with all collection proceeds applied against the outstanding loan balance.
|
|
·
|
Prepayment penalties of 1%.
|
|
o
|
Rate equal to LIBOR rate plus 325 basis points, subject to Floor rate of 4.25%
|
|
o
|
Rate at January 31, 2017 of 4.25% per annum
|
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
|
o
|
Borrowers are subject to certain covenants from the Closing Date, as defined in the Senior Loan
Agreement, until the commitment termination date and full payment of the obligations to Senior Lender, Lakeland Industries, Inc.
(the parent company), together with its subsidiaries on a consolidated basis, excluding its Brazilian subsidiary (which has since
been transferred), is required to comply with the following additional covenants:
|
|
·
|
Fixed Charge Coverage Ratio. At the end of each fiscal quarter of Borrowers, Borrowers shall
maintain a Fixed Charge Coverage Ratio of not less than 1.1 to 1.00 for the twelve month period then ending.
|
|
·
|
Minimum Quarterly Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”).
Borrowers shall achieve, on a rolling four quarter basis excluding the operations of the Borrower’s then Brazilian subsidiary,
EBITDA of not less than $4.1 million.
|
|
·
|
Capital Expenditures. Borrowers shall not during any fiscal year make capital expenditures in an
amount exceeding $1 million in the aggregate.
|
|
o
|
Standard financial reporting requirements as defined
|
|
o
|
Limitation on total net investment in foreign subsidiaries of a maximum of $1.0 million per annum
|
Borrowings in UK
On December 31, 2014, the Company
and Lakeland Industries Europe, Ltd, (“Lakeland UK”), a wholly owned subsidiary of the Company, amended the terms of
its existing line of credit facility with HSBC Bank to provide for (i) a one-year extension of the maturity date of the existing
financing facility to December 19, 2016, (ii) an increase in the facility limit from £1,250,000 (approximately USD $1.9 million,
based on exchange rates at time of closing) to £1,500,000 (approximately USD $2.3 million, based on exchange rates at time
of closing), and (iii) a decrease in the annual interest rate margin from 3.46% to 3.0%. In addition, pursuant to a letter agreement
dated December 5, 2014, the Company agreed that £400,000 (approximately USD $0.6 million, based on exchange rates at time
of closing) of the note payable by the UK subsidiary to the Company shall be subordinated in priority of payment to the subsidiary’s
obligations to HSBC under the financing facility. The balance under this loan outstanding at January 31, 2017 and January 31, 2016
was USD $0.1 million and USD $0, respectively, and is included in short-term borrowings on the consolidated balance sheet. On December
31, 2016, Lakeland UK entered into an extension of the maturity date of its existing financing facility with HSBC Invoice Finance
(UK) Ltd. to December 19, 2017. Other than the extension of the maturity date and a small reduction of the service charge from
0.9% to 0.85%, all other terms of the facility remain the same.
Canada
Loans
In September 2013, the Company
refinanced its loan with the Development Bank of Canada (“BDC”) for a principal amount of approximately $1.1 million
in both Canadian dollars and USD (based on exchange rates at time of closing). Such loan is for a term of 240 months at an interest
rate of 6.45% per annum with fixed monthly payments of approximately USD $6,048 (CAD $8,169) including principal and interest.
It is collateralized by a mortgage on the Company's warehouse in Brantford, Ontario. The amount outstanding at January 31, 2017
is CAD $1,002,000 which is included as USD $716,000 in long term borrowings on the accompanying consolidated balance sheet, net
of current maturities of USD $50,000. The amount outstanding at January 31, 2016 was USD $691,000 (CAD $1.0 million) in long term
borrowings, net of current maturities of USD $50,000.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
and 2016
China Loans
On March 28, 2016, Weifang Lakeland
Safety Products Co., Ltd., (“WF”), the Company’s Chinese subsidiary and Chinese Rural Credit Cooperative Bank
(“CRCCB”) completed an agreement for WF to obtain a line of credit for financing in the amount of USD $1.3 million,
with interest at 120% of the benchmark rate supplied by CRCCB (which is currently 4.6% per annum), with the line of credit having
a term of one year. The effective per annum interest rate was 5.35%. The loan was collateralized by inventory owned by WF. The
line of credit was paid in full prior to January 31, 2017.
On December 1, 2015, WF and CRCCB
entered into an agreement for WF to obtain a line of credit for financing in the amount of RMB 6.0 million (approximately USD $0.9
million), with interest at 120% of the benchmark rate supplied by CRCCB (which is currently 4.6% per annum), and with the line
of credit having a term of one year. The effective per annum interest rate was 5.52%. The loan was collateralized by inventory
owned by WF. The line of credit was paid in full prior to January 31, 2017. At January 31, 2016, the line of credit was RMB 6.0
million (approximately USD $0.9 million).
On October 10, 2015, WF and Bank
of China Anqiu Branch entered into an agreement for WF to obtain a line of credit for financing in the amount RMB 5.0 million (approximately
USD $0.8 million). The effective per annum interest rate was 7%, with the line of credit having a term of one year. The loan was
collateralized by inventory owned by WF. The line of credit was paid in full prior to January 31, 2017. At January 31, 2016, the
line of credit was RMB 5.0 million (approximately USD $0.8 million).
On September
21, 2015, WF and CRCCB entered into an agreement for WF to obtain a line of credit for financing in the amount RMB 8.0 million
(approximately USD $1.3 million). The effective per annum interest rate was 5.52%, with the line of credit having a term of one
year. The loan was collateralized by inventory owned by WF. The line of credit was paid in full prior to January 31, 2017. At
January 31, 2016, the line of credit was RMB 8.0 million (approximately USD $1.3 million).
Argentina Loan
In
April 2015, Lakeland Argentina S.R.L. (“Lakeland Argentina”), the Company’s Argentina subsidiary was
granted a $300,000 line of credit denominated in Argentine pesos, pursuant to a standby letter of credit granted by the
parent company. The line of credit outstanding of $0.2 million at January 31, 2016 was the total of five separate loans which
were paid in full during the course of normal operations and prior to January 31, 2017, except for the $38,000 noted below.
The following three
loans were made under the $300,000 facility stated above:
On December 2, 2015, Lakeland
Argentina and Banco Santander Rio S.A (“Santander”) entered into an agreement for Lakeland Argentina to obtain a loan
in the amount of ARS 559,906 (approximately USD $50,000, based on exchange rates at time of closing); such loan is for a term of
18 months at an interest rate of 42% per annum. The amount outstanding at January 31, 2017 is ARS 138,333 (approximately USD $9,000)
which is included as short-term borrowings on the consolidated balance sheet. At January 31, 2016, the line of credit was ARS 522,000
(approximately USD $38,000).
On March 30, 2016, Lakeland
Argentina and Banco de la Nación Argentina (“BNA”) entered into an agreement for Lakeland Argentina to obtain
a loan in the amount of ARS 830,000 (approximately USD $56,000, based on exchange rates at time of closing); such loan is for
a term of 18 months at an interest rate of 27% per annum. The loan was paid in full prior to January 31, 2017.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
and 2016
Below is a table to summarize
the debt amounts above (in 000’s):
|
|
Short-Term
|
|
|
Long-term
|
|
|
Current Maturity of
Long-term
|
|
|
Revolving Credit
Facility
|
|
|
|
1/31/2017
|
|
|
1/31/2016
|
|
|
1/31/2017
|
|
|
1/31/2016
|
|
|
1/31/2017
|
|
|
1/31/2016
|
|
|
1/31/2017
|
|
|
1/31/2016
|
|
Argentina
|
|
$
|
27
|
|
|
$
|
248
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Canada
|
|
|
-
|
|
|
|
-
|
|
|
|
716
|
|
|
|
691
|
|
|
|
50
|
|
|
|
50
|
|
|
|
-
|
|
|
|
-
|
|
China
|
|
|
-
|
|
|
|
2,978
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
UK
|
|
|
126
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
USA
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,865
|
|
|
|
9,458
|
|
TOTALS
|
|
$
|
153
|
|
|
$
|
3,226
|
|
|
$
|
716
|
|
|
$
|
691
|
|
|
$
|
50
|
|
|
$
|
50
|
|
|
$
|
4,865
|
|
|
$
|
9,458
|
|
Five-year Debt Payout Schedule
This schedule reflects the liabilities
as of January 31, 2017, and does not reflect any subsequent event:
|
|
Total
|
|
|
1 Year or less
|
|
|
2 Years
|
|
|
3 Years
|
|
|
4 Years
|
|
|
5 Years
|
|
|
After 5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
4,865,094
|
|
|
$
|
4,865,094
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Borrowings in Canada
|
|
|
766,455
|
|
|
|
50,000
|
|
|
|
28,034
|
|
|
|
29,896
|
|
|
|
31,883
|
|
|
|
34,000
|
|
|
|
592,642
|
|
Borrowings in UK
|
|
|
126,189
|
|
|
|
126,189
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Borrowings in Argentina
|
|
|
26,585
|
|
|
|
26,585
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
5,784,323
|
|
|
$
|
5,067,868
|
|
|
$
|
28,034
|
|
|
$
|
29,896
|
|
|
$
|
31,883
|
|
|
$
|
34,000
|
|
|
$
|
592,642
|
|
Credit
Risk
Financial instruments, which
potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents, and trade receivables.
Concentration of credit risk with respect to trade receivables is generally diversified due to the large number of entities comprising
the Company’s customer base and their dispersion across geographic areas principally within the United States. The Company
routinely addresses the financial strength of its customers and, as a consequence, believes that its receivable credit risk exposure
is limited. The Company does not require customers to post collateral.
The
Company’s foreign financial depositories are Bank of America; China Construction Bank; Bank of China; China
Industrial and Commercial Bank; HSBC; Rural Credit Cooperative of Shandong; Postal Savings Bank of China; Punjab National
Bank; HSBC in India, Argentina and UK; Raymond James in Argentina; TD Canada Trust; Banco Itaú S.A., Banco Credito
Inversione in Chile; Banco Mercantil Del Norte SA in Mexico; ZAO KB Citibank Moscow in Russia, and JSC Bank Centercredit in
Kazakhstan. The Company monitors its financial depositories by their credit rating which varies by country. In addition, cash
balances in banks in the United States of America are insured by the Federal Deposit Insurance Corporation subject to
certain limitations. There is approximately $1.4 million total included in the U.S. bank accounts and approximately $9.0
million total in foreign bank accounts as of January 31, 2017.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017
and 2016
Major
Customer
No customer
accounted for more than 10% of net sales during FY17 and FY16, respectively.
Major
Supplier
Our largest supplier, Precision
Fabrics Group, accounted for 13% and 9.5% of total purchases in FY17 and FY16. There were no other vendors over 10% for either
FY17 or FY16.
|
7.
|
STOCKHOLDERS’ EQUITY AND STOCK OPTIONS
|
The
2012 and 2015 Plans
At the Annual Meeting of Stockholders
held on July 8, 2015, the Company’s stockholders approved the Lakeland Industries, Inc. 2015 Stock Plan (the “2015
Plan”). The executive officers and all other employees and directors of the Company and its subsidiaries are eligible to
participate in the 2015 Plan. The 2015 Plan is currently administered by the compensation committee of the Company’s Board
of Directors (“Committee”), except that with respect to all non-employee director awards, the Committee shall be deemed
to include the full Board. The 2015 Plan authorizes the issuance of awards of restricted stock, restricted stock units, performance
shares, performance units and other stock-based awards. The 2015 Plan also permits the grant of awards that qualify for “performance-based
compensation” within the meaning of Section 162(m) of the US Internal Revenue Code. The aggregate number of shares of the
Company’s common stock that may be issued under the 2015 Plan may not exceed 100,000 shares. Awards covering no more than
20,000 shares of common stock may be awarded to any plan participant in any one calendar year. Under the 2015 Plan, as of January
31, 2017, the Company granted awards for up to an aggregate of 99,270 restricted shares assuming maximum award levels are achieved.
The 2015 Plan, which terminates
in July 2017, is the successor to the Company’s 2012 Stock Incentive Plan (the “2012 Plan”). The Company’s
2012 Plan authorized the issuance of up to a maximum of 310,000 shares of the Company’s common stock to employees and directors
of the Company and its subsidiaries in the form of restricted stock, restricted stock units, performance shares, performance units
and other share-based awards. Under the 2012 Plan, as of January 31, 2017, the Company issued 293,166 fully vested shares of common
stock and 721 restricted shares which will continue to vest according to the terms of the 2012 Plan.
Under the 2012 Plan and the 2015
Plan, the Company generally awards eligible employees and directors with either performance-based or time-based restricted shares.
Performance-based restricted shares are awarded at either baseline (target), maximum or zero amounts. The number of restricted
shares subject to any award is not tied to a formula or comparable company target ranges, but rather is determined at the discretion
of the Committee at the end of the applicable performance period, which is two years under the 2015 Plan and had been three years
under the 2012 Plan. The Company recognizes expense related to performance-based restricted share awards over the requisite performance
period using the straight-line attribution method based on the most probable outcome (baseline, maximum or zero) at the end of
the performance period and the price of the Company’s common stock price at the date of grant.
In addition to the performance-based
awards, the Company also grants time-based vesting awards which vest either two or three years after date of issuance, subject
to continuous employment and certain other conditions.
As of
January 31, 2017, unrecognized stock-based compensation expense related to share-based stock awards totaled $206 pursuant to
the 2012 Plan and $472,913 pursuant to the 2015 Plan, before income taxes, based on the maximum performance award level. Such
unrecognized stock-based compensation expense related to restricted stock awards totaled $206 for the 2012 Plan and $197,283
for the 2015 Plan at the baseline performance level. During FY17, the Company changed the estimated performance award level
of the 2012 and 2015 stock plans from maximum to baseline. As of January 31, 2017, the cost of these non-vested awards is
expected to be recognized over a weighted-average period of three years for the 2012 Plan and two years for the
2015 Plan.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
The Company recognized total
stock-based compensation costs of $276,000 and $585,987 for the year ended January 31, 2017 and 2016, respectively, of which $(9,354)
and $332,691 result from the 2012 Plan, and $285,354 and $253,296 result from the 2015 Plan. These amounts are reflected in operating
expenses. The total income tax benefit recognized for stock-based compensation arrangements was $99,360 and $210,955 for the year
ended January 31, 2017 and 2016, respectively.
Shares under 2015 and 2012
Stock Plan
|
|
Outstanding
Unvested Grants
at Maximum at
Beginning of
FY17
|
|
|
Granted
during
FY17
|
|
|
Becoming
Vested during
FY17
|
|
|
Forfeited
during
FY17
|
|
|
Outstanding
Unvested
Grants at
Maximum at
End of
FY17
|
|
Restricted stock grants – employees
|
|
|
72,999
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,380
|
|
|
|
67,619
|
|
Matching award program
|
|
|
3,000
|
|
|
|
—
|
|
|
|
3,000
|
|
|
|
—
|
|
|
|
—
|
|
Bonus in stock - employees
|
|
|
2,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,500
|
|
|
|
—
|
|
Retainer in stock - directors
|
|
|
30,764
|
|
|
|
5,221
|
|
|
|
3,613
|
|
|
|
—
|
|
|
|
32,372
|
|
Total restricted stock plans
|
|
|
109,263
|
|
|
|
5,221
|
|
|
|
6,613
|
|
|
|
7,880
|
|
|
|
99,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value
|
|
$
|
9.93
|
|
|
$
|
10.19
|
|
|
$
|
6.68
|
|
|
$
|
9.68
|
|
|
$
|
10.18
|
|
Other Compensation Plans/Programs
The Company previously awarded
stock-based options to non-employee directors under its Non-employee Directors’ Option Plan (the “Directors’
Plan”) which expired on December 31, 2012. All stock option awards granted under the Directors’ Plan were fully vested
at January 31, 2017. During the year ended January 31, 2017 there have been no forfeitures and 5,000 shares exercised at an exercise
price of $8.28 per share, and there were no options outstanding.
The Company utilized a matching
award program pursuant to the 2012 Restricted Stock Plan to which all employees were entitled to receive one share of restricted
stock for each two shares of the Company’s common stock purchased on the open market. Such restricted shares were subject
to a one year vesting period. The valuation was based on the stock price at the grant date and is amortized to expense over the
vesting period, which approximates the performance period.
Pursuant to the Company’s
director restrictive stock program, all directors are eligible to elect to receive any director fees in shares of restricted stock.
Such restricted shares are subject to a two year vesting period. The valuation is based on the stock price at the grant date and
is amortized to expense over the two year period, which approximates the performance period. Since the director is giving up cash
for unvested shares, the amount of shares awarded is 133% of the cash amount based on the grant date stock price.
Stock Repurchase Program
On July 19, 2016, the Company’s
board of directors approved a stock repurchase program under which the Company may repurchase up to $2,500,000 of its outstanding
common stock. The Company has not repurchased any stock under this program as of the date of this filing.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
Warrants
In October 2014, the Company
issued a five-year warrant that is immediately exercisable to purchase up to 55,500 shares of the Company’s common stock
at an exercise price of $11.00 per share. As of January 31, 2017 and 2016, the warrant to purchase up to 55,500 shares remains
outstanding.
The provision for income taxes
is based on the following pretax income (loss):
Domestic and Foreign Pretax Income (Loss)
|
|
FY17
|
|
|
FY16
|
|
Domestic
|
|
$
|
1,833,377
|
|
|
$
|
6,139,543
|
|
Foreign
|
|
|
4,439,270
|
|
|
|
(572,168
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,272,647
|
|
|
$
|
5,567,375
|
|
|
|
|
|
|
|
|
Income Tax Expense (Benefit)
|
|
FY17
|
|
|
FY16
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(49,191
|
)
|
|
$
|
225,180
|
|
State and other taxes
|
|
|
29,283
|
|
|
|
(40,555
|
)
|
Foreign
|
|
|
1,576,775
|
|
|
|
1,553,589
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
822,954
|
|
|
$
|
156,448
|
|
Valuation allowance-deferred tax asset
|
|
|
—
|
|
|
|
(181,338
|
)
|
Foreign
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
2,379,821
|
|
|
$
|
1,713,324
|
|
The following is a reconciliation
of the effective income tax rate to the Federal statutory rate:
|
|
2017
|
|
|
2016
|
|
Statutory rate
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
State Income Taxes, Net of Federal Tax Benefit
|
|
|
0.59
|
|
|
|
1.77
|
|
Adjustment to Deferred
|
|
|
—
|
|
|
|
8.86
|
|
Foreign Dividend and Subpart F Income
|
|
|
2.15
|
|
|
|
10.93
|
|
Brazil Worthless Stock Deduction
|
|
|
—
|
|
|
|
(14.21
|
)
|
Argentina Flow Through Loss
|
|
|
(0.38
|
)
|
|
|
(1.76
|
)
|
Permanent Differences
|
|
|
0.46
|
|
|
|
(8.78
|
)
|
Valuation Allowance-Deferred Tax Asset
|
|
|
—
|
|
|
|
(3.26
|
)
|
Other
|
|
|
1.12
|
|
|
|
3.22
|
|
Effective Rate
|
|
|
37.94
|
%
|
|
|
30.77
|
%
|
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2016 and 2015
The tax effects of temporary
differences which give rise to deferred tax assets at January 31, 2017 and 2016 are summarized as follows:
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
1,122,234
|
|
|
$
|
1,266,718
|
|
US tax loss carryforwards, including work opportunity credit*
|
|
|
8,612,947
|
|
|
|
9,335,575
|
|
Accounts receivable and accrued rebates
|
|
|
265,745
|
|
|
|
238,261
|
|
Accrued compensation and other
|
|
|
108,987
|
|
|
|
266,272
|
|
India reserves - US deduction
|
|
|
73,697
|
|
|
|
75,053
|
|
Equity based compensation
|
|
|
286,278
|
|
|
|
201,925
|
|
Foreign tax credit carry-forward
|
|
|
3,698,351
|
|
|
|
3,388,051
|
|
State and local carry-forwards
|
|
|
791,180
|
|
|
|
899,824
|
|
Argentina timing difference
|
|
|
51,113
|
|
|
|
116,194
|
|
Depreciation and other
|
|
|
80,468
|
|
|
|
103,372
|
|
Amortization
|
|
|
(239,715
|
)
|
|
|
(217,811
|
)
|
Allowance for Note Receivable - Brazil
|
|
|
833,705
|
|
|
|
834,510
|
|
Deferred tax asset
|
|
|
15,684,990
|
|
|
|
16,507,944
|
|
Less valuation allowance
|
|
|
2,170,309
|
|
|
|
2,170,309
|
|
Net deferred tax asset - USA
|
|
$
|
13,514,681
|
|
|
$
|
14,337,635
|
|
|
|
|
|
|
|
|
|
|
*The federal net operating loss (“NOL”) that is
left after FY17 will expire after 1/31/2034 (20 years from the generated date of 1/31/2014). The credits will begin to expire
after 1/31/2020 (10 years from the 1st carryover year generated date of 1/31/2010) and will fully expire after 1/31/2025.
|
|
The state NOLs
will begin to expire after 1/31/2025 and will continue to expire at various periods up
until 1/31/2035 when they will be fully expired. The states have a larger spread because
some only carryforward for 15 years and some allow 20 years.
|
|
The
Company early adopted ASU No. 2015-17 and reclassed the current portion of the deferred
taxes totaling approximately $1,555,000 to non-current as of January 31, 2016.
|
Income Tax Audits
The Company is subject to US
federal income tax, as well as income tax in multiple US state and local jurisdictions and a number of foreign jurisdictions. Returns
for the years since FY2014 are still open based on statutes of limitation only.
Chinese tax authorities have
performed limited reviews on all Chinese subsidiaries as of tax years 2008 through 2015 with no significant issues noted and we
believe our tax positions are reasonably stated as of January 31, 2017. Weifang Meiyang Products Co., Ltd. (“Meiyang”),
one of our Chinese operations, was changed to a trading company from a manufacturing company in Q1 FY16 and all direct workers
and equipment were transferred from Meiyang to Weifang Lakeland Safety Products Co., Ltd., (“WF”), another entity of
our Chinese operation thereby reducing our tax exposure.
Lakeland Protective Wear, Inc.,
our Canadian subsidiary, is subject to Canadian federal income tax, as well as income tax in the Province of Ontario. Income tax
returns for the 2013 fiscal year and subsequent years are still within the normal reassessment period and open to examination by
tax authorities.
In connection with the exit from
Brazil (see Note 13), the Company claimed a worthless stock deduction which generated a tax benefit of approximately USD $9.5 million,
net of a USD $2.2 million valuation allowance. While the Company and its tax advisors believe that this deduction is valid, there
can be no assurance that the IRS will not challenge it and, if challenged, there is no assurance that the Company will prevail.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2016 and 2015
Except in Canada, and as set
forth in the next paragraph, it is our practice and intention to reinvest the earnings of our non-US subsidiaries in their operations.
As of January 31, 2017, the Company had not made a provision for US or additional foreign withholding taxes on approximately $24.7
million of the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are
essentially permanent in duration ($22.3 million at January 31, 2016). Generally, such amounts become subject to US taxation upon
remittance of dividends and under certain other circumstances. If these earnings were repatriated to the US, the deferred tax liability
associated with these temporary differences would be approximately $3.1 million at January 31, 2017.
The Company’s Board of
Directors has instituted a plan subject to declaration and approval each year to elect to pay annual dividends to the Company from
a portion of Weifang’s future profits, a portion of Meiyang’s future profits and a portion of the UK’s future
profits starting in FY15 and from a portion of Beijing’s future profits starting in FY18. All other retained earnings are
expected to be reinvested indefinitely.
Change in Valuation Allowance
We record net deferred tax assets
to the extent we believe these assets will more likely than not be realized. The valuation allowance was $2.2 million for both
of the years ended January 31, 2017 and 2016.
Income Tax Expense
Income tax expenses consist of
federal, state and foreign income taxes. The statutory rate is the US rate. Reconciling items to the effective rate are foreign
dividend income, Argentina income, and other permanent tax differences.
The following table sets forth
the computation of basic and diluted earnings per share for “income from continuing operations” and “discontinued
operations” at January 31, 2017 and 2016, as follows:
|
|
Years Ended January 31,
|
|
|
|
(000’s except share
information)
|
|
|
|
2017
|
|
|
2016
|
|
Numerator
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
3,893
|
|
|
$
|
7,790
|
|
Net loss from discontinued operations
|
|
|
—
|
|
|
|
(3,936
|
)
|
Net income
|
|
$
|
3,893
|
|
|
$
|
3,854
|
|
Denominator
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share (weighted-average shares which reflect 356,441 shares in the treasury)
|
|
|
7,257,553
|
|
|
|
7,171,965
|
|
Effect of dilutive securities from restricted stock plan and from dilutive effect of stock options
|
|
|
69,695
|
|
|
|
82,375
|
|
Denominator for diluted earnings per share (adjusted weighted average shares)
|
|
|
7,327,248
|
|
|
|
7,254,340
|
|
Basic earnings per share from continuing operations
|
|
$
|
0.54
|
|
|
$
|
1.09
|
|
Basic loss per share from discontinued operations
|
|
|
—
|
|
|
($
|
0.55
|
)
|
Basic earnings per share
|
|
$
|
0.54
|
|
|
$
|
0.54
|
|
Diluted earnings per share from continuing operations
|
|
$
|
0.53
|
|
|
$
|
1.07
|
|
Diluted loss per share from discontinued operations
|
|
|
—
|
|
|
($
|
0.54
|
)
|
Diluted earnings per share
|
|
$
|
0.53
|
|
|
$
|
0.53
|
|
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
10. BENEFIT
PLANS
Defined Contribution
Plan
Pursuant to the terms of the
Company’s 401(k) plan, substantially all US employees over 21 years of age with a minimum period of service are eligible
to participate. The 401(k) plan is administered by the Company and provides for voluntary employee contributions ranging from 1%
to 15% of the employee’s compensation. Beginning in January 2016 the Company changed to a Safe Harbor tiered matching plan
equal to 100% of the first 1% of eligible participant’s compensation contributed to the Plan and 50% of the next 5% of eligible
participant’s compensation contributed to the Plan (maximum Company match 3.5% of salary) and totaled approximately $193,000
and $120,000 in the years ended January 31, 2017 and January 31, 2016, respectively.
11.
Derivative
Instruments and Foreign Currency Exposure
The Company is exposed to foreign
currency risk. Management has commenced a derivative instrument program to partially offset this risk by purchasing forward contracts
to sell the Canadian Dollar and the Euro other than the cash flow hedge discussed below. Such contracts are largely timed to expire
with the last day of the fiscal quarter, with a new contract purchased on the first day of the following quarter, to match the
operating cycle of the Company. We designated the forward contracts as derivatives but not as hedging instruments, with loss and
gain recognized in current earnings.
The Company accounts for its
foreign exchange derivative instruments by recognizing all derivatives as either assets or liabilities at fair value, which may
result in additional volatility in current period earnings or other comprehensive income, depending whether the instrument was
designated as a cash flow hedge, as a result of recording recognized and unrecognized gains and losses from changes in the fair
value of derivative instruments.
We have two types of derivatives
to manage the risk of foreign currency fluctuations.
We enter into forward contracts
with financial institutions to manage our currency exposure related to net assets and liabilities denominated in foreign currencies.
Those forward contract derivatives, not designated as hedging instruments, are generally settled quarterly. Gain and loss on those
forward contracts are included in current earnings. There were no outstanding forward contracts at January 31, 2017 or 2016.
We also enter into cash flow
hedge contracts with financial institutions to manage our currency exposure on future cash payments denominated in foreign currencies.
The effective portion of gain or loss on cash flow hedge is reported as a component of accumulated other comprehensive loss. The
notional amount of these contracts was $1.5 million and $1.0 million at January 31, 2017 and 2016, respectively. The corresponding
unrealized income or loss is recorded in the consolidated statements of comprehensive income. The corresponding liability amounted
to $25,826 and $(26,252) at January 31, 2017 and 2016, respectively.
12. RELATED
PARTIES AND TRANSACTIONS
The Company paid approximately
$236,000 in FY16 to a printing company owned in part, at that time, by managers of the Company. On October 28, 2015 those managers
of the Company resigned from the board of directors of the printing company, so that those are now independent parties.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
13. THE
COMPANY’S EXIT FROM BRAZIL
On March 9, 2015, Lakeland Brazil,
S.A. changed its legal form to a Limitada and changed its name to Lake Brasil Industria E Comercio de Roupas E Equipamentos de
Protecao Individual LTDA (“Lakeland Brazil”).
Transfer
of Shares Agreement
On July 31, 2015 (the “Closing
Date”), Lakeland and Lakeland Brazil, completed a conditional closing of a Shares Transfer Agreement (the “Shares Transfer
Agreement”) with Zap Comércio de Brindes Corporativos Ltda (“Transferee”), a company owned by an existing
Lakeland Brazil manager, entered into on June 19, 2015. Pursuant to the Shares Transfer Agreement, the Transferee has acquired
all of the shares of Lakeland Brazil owned by the Company. Pursuant to the Shares Transfer Agreement, Transferee paid R$1.00 to
the Company and assumed all liabilities and obligations of Lakeland Brazil, whether arising prior to, on or after the Closing Date.
In order to help enable Lakeland Brazil to have sufficient funds to continue to operate for a period of at least two years following
the Closing Date, the Company provided funding to Lakeland Brazil in the aggregate amount of USD $1,130,000, in cash, in the form
of a capital raise, on or prior to the Closing Date, and agreed to provide an additional R$582,000 (approximately USD $188,000)
(the “Additional Amount”), in the form of a capital raise, to be utilized by Lakeland Brazil to pay off certain specified
liabilities and other potential contingent liabilities. Pursuant to the Shares Transfer Agreement, the Company paid R$992,000 (approximately
USD $320,000) in cash, on July 1, 2015 and issued a non-interest bearing promissory note for the payment to be due for the Additional
Amount (R$582,000) (approximately USD $188,000) on the Closing Date which was paid to Lakeland Brazil in two (2) installments of
(i) R$288,300 (approximately USD $82,000) which was paid on August 1, 2015, and (ii) R$294,500 (approximately USD $84,000) on September
1, 2015. The closing of this agreement was subject to Brazilian government approval of the shares transfer, which was received
in October 2015 (The “Final Closing Date”).
The Company understands that
under the laws of Brazil, a concept of fraudulent bankruptcy exists, which may hold a parent company liable for the liabilities
of its Brazilian subsidiary in the event some level of fraud or misconduct is shown during the period that the parent company owned
the subsidiary. While the Company believes that there has been no such fraud or misconduct relating to the proposed transfer of
stock of Lakeland Brazil and the transactions contemplated by the Shares Transfer Agreement, as evidenced by the Company’s
funding support for continuing operations of Lakeland Brazil, there can be no assurance that the courts of Brazil will not make
such a finding nonetheless.
The risk of exposure to the Company
continues to diminish as the Transferee continues to operate Lakeland Brazil, as the risk of a finding of fraudulent bankruptcy
lessens and pre-sale liabilities are paid off. Should the Transferee operate Lakeland Brazil for a period of two years, the Company
believes the risk of a finding of fraudulent bankruptcy is eliminated. The Company believes that the loan transaction with its
former Brazilian subsidiary resulting in a substantial reduction of the VAT tax liability, as described below in this Note, significantly
reduced such potential liability. In addition, as discussed below in this Note, the potential labor claims liability has substantially
diminished. The Shares Transfer Agreement, which is governed by United States law, contains customary representations, warranties
and covenants of the parties for a transaction of this type. The Company and Transferee have agreed to indemnify each other from
and against certain liabilities, subject to certain exceptions. Under the Shares Transfer Agreement, the Company will be subject
to certain non-solicitation provisions for a period of two years following the Closing Date.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
The following tables summarize
the results of the Brazil business included in the statements of operations for the fiscal year ended January 31, 2016. The Company
did not recognize any income (loss) from discontinued operations during the fiscal year ended January 31, 2017.
|
|
2016 (in 000’s)
|
|
Net sales from discontinuing operations
|
|
$
|
869
|
|
Gross profit from discontinuing operations
|
|
|
164
|
|
Operating expenses from discontinuing operations
|
|
|
763
|
|
Operating loss from discontinuing operations
|
|
|
(599
|
)
|
Interest expense from discontinuing operations
|
|
|
256
|
|
Other expense from discontinuing operations
|
|
|
2,683
|
|
Loss from operation of discontinuing operations (includes a $0.1 million tax benefit from Q1)
|
|
|
(3,538
|
)
|
Non-cash reclassification of Other Comprehensive Income to Statement of Operations (no impact on stockholders’ equity)
|
|
|
(1,286
|
)
|
Loss from disposal of discontinued operations
|
|
|
(515
|
)
|
Loss before taxes for discontinued operations
|
|
|
(5,339
|
)
|
Income tax benefit from discontinued operations
|
|
|
(1,403
|
)
|
Net loss from discontinued operations
|
|
$
|
(3,936
|
)
|
Settlement Agreement –
Arbitration Debt
On June 18, 2015, Lakeland and
its then wholly owned subsidiary Lakeland Brazil (together with Lakeland, the “Brazil Co”), entered into an Amendment
(the “Amendment”) to a Settlement Agreement, dated as of September 11, 2012 (the “Settlement Agreement”),
with two former officers (the “former officers”) of Lakeland Brazil. As part of the original Settlement Agreement,
the parties resolved all alleged outstanding claims against Lakeland Brazil arising from an arbitration proceeding in Brazil involving
Lakeland Brazil and the former officers of Lakeland Brazil for an aggregate amount of approximately USD $8.5 million payable by
Lakeland Brazil to the former officers over a period of six (6) years. As of the June 18, 2015 settlement date, there was a balance
of USD $3.75 million (the “Outstanding Amount”) owed under the Settlement Agreement, which Outstanding Amount was to
be paid by the Company in quarterly installments of USD $250,000 through December 31, 2018.
Pursuant to the Amendment, the
former officers agreed to fully and finally settle the Outstanding Amount owed by the Company for an aggregate lump sum payment
of USD $3.41 million, resulting in a gain of USD $224,000 after allowing for imputed interest on the original Settlement Agreement.
Within five days of receipt of such payment, the former officers provided to Lakeland Brazil the documents needed to have their
lien securing payment of the Outstanding Amount removed on certain real estate owned by Lakeland Brazil and such lien was removed.
The Amendment also contains a general release of claims by the former officers in favor of the Company and its past or present
officers, directors, and other affiliates. The Company’s senior lender, AloStar Bank of Commerce, has consented to the transactions
in the Amendment.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
Loan Agreement with Transferee
of Brazil Operations
The Company had entered into
a loan agreement (the “Loan Agreement”) on December 11, 2015 with Qualytextil for the amount of R$8,584,012 (approximately
USD $2.29 million) for the purpose of providing funds necessary for Qualytextil to settle its largest outstanding VAT claim with
the State of Bahia. The Company determined that a reserve against the collection of this loan in full was prudent and recorded
this charge in the fiscal year ended January 31, 2016.
VAT Tax Issues in Brazil
Value Added Tax (“VAT”)
in Brazil is charged at the state level. We commenced operations in Brazil in May 2008 through an acquisition of Qualytextil,
S.A., which subsequently became Lake Brasil Indústria e Comércio de Roupas e Equipamentos de Proteção
Individual Ltda. (referred to in this Form 10-K as “Lakeland Brazil”). An audit performed on the VAT for the 2007-2009
period was completed by the State of Bahia (state of domicile for the Lakeland operations in Brazil). In October 2010,
the Company received four claims for 2007-2009 from the State of Bahia, the largest of which was for taxes of R$6.2 million (USD
$2.3 million) and interest, penalties and fees of R$8.3 million (USD $3.1 million), for a total of R$14.6 million (USD $5.4 million).
This large VAT claim was settled in the fiscal year ended January 31, 2016 using funds from the loan described above. Of other
claims, our attorney informed us that three claims totaling R$1.3 million (USD $0.5 million) excluding interest, penalties
and fees of R$2.7 million (USD $0.9 million) were likely to be successfully defended based on state auditor misunderstanding.
Labor
Claims in Brazil
The Company may continue to
be exposed to certain liabilities arising in connection with lawsuits pending in the labor courts in Brazil in which plaintiffs
were seeking, as at July 31, 2015, a total of nearly USD $8,000,000 in damages from the Company’s then Brazilian subsidiary
(Lakeland Brazil). The Company believes many of these labor court claims are without merit and the amount of damages being sought
is significantly higher than any damages which may have been incurred. Pursuant to the Shares Transfer Agreement, the Company
is required to fully fund amounts owed by Lakeland Brazil in connection with the then existing labor claims and to pay amounts
potentially owed for future labor claims up to an aggregate amount of $375,000 plus 60% of the excess of such amount until the
earlier of (i) the date all labor claims against Lakeland Brazil deriving from events prior to the sale are settled, (ii) by our
mutual agreement with Lakeland Brazil or (iii) on the two (2) year anniversary of closing of the sale. With respect to continuing
claims, $167,000 is being sought, of which management estimates the aggregate liability will be less than that amount.
14. COMMITMENTS
AND CONTINGENCIES
Certain conditions may exist
as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only
be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess
such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related
to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s
legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of
the amount of relief sought or expected to be sought therein.
If the assessment of a contingency
indicates that it is probable that a material loss has been or is probable of being incurred and the amount of the liability can
be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates
that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material,
would be disclosed.
Loss contingencies considered
remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
We comply with American laws
such as the Foreign Corrupt Practices Act (FCPA) and Sarbanes-Oxley, and also with anti-corruption legislation in the UK.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
Employment Contracts
The Company has employment contracts
expiring through fiscal year ending January 31, 2019, with four principal officers. Pursuant to such contracts, the Company is
committed to aggregate annual base remuneration of $1,120,000, $544,750 and $268,750 for FY17, FY18 and FY19, respectively.
Leases
Total rental costs under all
operating leases are summarized as follows:
|
|
Gross rental
|
|
Year ended January 31,
|
|
|
|
|
2017
|
|
$
|
540,193
|
|
2016
|
|
$
|
503,089
|
|
Minimum annual rental commitments
for the remaining term of the Company’s noncancelable operating leases relating to manufacturing facilities, office space
and equipment rentals at January 31, 2017, including lease renewals subsequent to year end, are summarized as follows:
Year ending January 31,
|
|
|
|
|
|
|
|
|
|
2018
|
|
$
|
471,694
|
|
2019
|
|
|
338,020
|
|
2020
|
|
|
171,026
|
|
2021
|
|
|
107,286
|
|
2022
|
|
|
80,586
|
|
and thereafter
|
|
|
89,902
|
|
Total
|
|
$
|
1,258,514
|
|
Labor
contingencies in Brazil
Lakeland Brazil,
the Company’s former subsidiary, is currently named in numerous labor proceedings in Brazilian courts and, due to
certain liability assumption provisions specified in the Shares Transfer Agreement, the Company recorded a liability totaling
$238,000 in the fiscal year ended January 31, 2016 to reflect this contingency. The accrual on the balance sheet at January
31, 2017 is $0.1 million and the Company believes these claims will be settled for less than this amount. Should the former
subsidiary stay in operations for a period of two years from the Closing Date, the Company believes the risk will be
eliminated. See Note 13 for a further description of the Shares Transfer Agreement.
General
litigation contingencies
The Company is involved in various
litigation proceedings arising during the normal course of business which, in the opinion of the management of the Company, will
not have a material effect on the Company’s financial position, results of operations or cash flows; however, there can be
no assurance as to the ultimate outcome of these matters. As of January 31, 2017, to the best of the Company’s knowledge,
there were no outstanding claims or litigation, except for the labor contingencies in Brazil described above.
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
15. SEGMENT
REPORTING
Domestic and international sales
from continuing operations are as follows in millions of dollars:
|
|
Years Ended January 31,
|
|
|
|
2017
|
|
|
2016
|
|
Domestic
|
|
$
|
46.54
|
|
|
|
54.00
|
%
|
|
$
|
56.54
|
|
|
|
56.74
|
%
|
International
|
|
$
|
39.64
|
|
|
|
46.00
|
%
|
|
$
|
43.11
|
|
|
|
43.26
|
%
|
Total
|
|
$
|
86.18
|
|
|
|
100.00
|
%
|
|
$
|
99.65
|
|
|
|
100.00
|
%
|
We manage our operations by evaluating
each of our geographic locations. Our US operations include a facility in Alabama (primarily the distribution to customers of the
bulk of our products and the light manufacturing of our chemical, wovens, reflective, and fire products). The Company also maintains
one manufacturing company in China (primarily disposable and chemical suit production), a manufacturing facility in Mexico (primarily
disposable, reflective, fire and chemical suit production) and a small manufacturing facility in India. Our China facilities produce
the majority of the Company’s products and China generates a significant portion of the Company’s international revenues.
We evaluate the performance of these entities based on operating profit, which is defined as income before income taxes, interest
expense and other income and expenses. We have sales forces in the USA, Canada, Mexico, Europe, Latin America, India, Russia, Kazakhstan
and China, which sell and distribute products shipped from the United States, Mexico, India or China. The table below represents
information about reported segments for the years noted therein:
|
|
Years Ended January 31,
|
|
|
|
2017
(in
millions of dollars)
|
|
|
2016
(in
millions of dollars)
|
|
Net Sales from continuing operations:
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
50.46
|
|
|
$
|
60.33
|
|
Other foreign
|
|
|
15.17
|
|
|
|
13.32
|
|
Europe (UK)
|
|
|
8.97
|
|
|
|
14.53
|
|
Mexico
|
|
|
3.27
|
|
|
|
3.65
|
|
China
|
|
|
40.64
|
|
|
|
50.32
|
|
Corporate
|
|
|
1.76
|
|
|
|
1.71
|
|
Less intersegment sales
|
|
|
(34.09
|
)
|
|
|
(44.21
|
)
|
Consolidated sales
|
|
$
|
86.18
|
|
|
$
|
99.65
|
|
External Sales from continuing operations:
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
46.54
|
|
|
$
|
56.54
|
|
Other foreign
|
|
|
14.20
|
|
|
|
12.85
|
|
Europe (UK)
|
|
|
8.97
|
|
|
|
14.52
|
|
Mexico
|
|
|
1.66
|
|
|
|
1.61
|
|
China
|
|
|
14.81
|
|
|
|
14.13
|
|
Consolidated external sales
|
|
$
|
86.18
|
|
|
$
|
99.65
|
|
Intersegment Sales from continuing operations:
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
3.92
|
|
|
$
|
3.79
|
|
Other foreign
|
|
|
0.97
|
|
|
|
0.47
|
|
Europe (UK)
|
|
|
—
|
|
|
|
0.01
|
|
Mexico
|
|
|
1.61
|
|
|
|
2.04
|
|
China
|
|
|
25.83
|
|
|
|
36.19
|
|
Corporate
|
|
|
1.76
|
|
|
|
1.71
|
|
Consolidated intersegment sales
|
|
$
|
34.09
|
|
|
$
|
44.21
|
|
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
|
|
Year Ended
January 31
|
|
|
|
2017
(in millions of dollars)
|
|
|
2016
(in millions of dollars)
|
|
Operating Profit (Loss) from continuing operations:
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
8.09
|
|
|
$
|
11.38
|
|
Other foreign
|
|
|
1.55
|
|
|
|
(0.12
|
)
|
Europe (UK)
|
|
|
0.34
|
|
|
|
2.65
|
|
Mexico
|
|
|
(0.02
|
)
|
|
|
0.04
|
|
China
|
|
|
4.09
|
|
|
|
4.69
|
|
Corporate
|
|
|
(7.35
|
)
|
|
|
(6.65
|
)
|
Less intersegment profit
|
|
|
0.15
|
|
|
|
(0.18
|
)
|
Consolidated operating profit (loss)
|
|
$
|
6.85
|
|
|
$
|
11.81
|
|
Depreciation and Amortization Expense from continuing operations:
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
Other foreign
|
|
|
0.15
|
|
|
|
0.06
|
|
Europe (UK)
|
|
|
—
|
|
|
|
0.02
|
|
Mexico
|
|
|
0.12
|
|
|
|
0.12
|
|
China
|
|
|
0.25
|
|
|
|
0.38
|
|
Corporate
|
|
|
0.57
|
|
|
|
0.43
|
|
Less intersegment
|
|
|
(0.05
|
)
|
|
|
(0.17
|
)
|
Consolidated depreciation and amortization expense
|
|
$
|
1.19
|
|
|
$
|
0.99
|
|
Interest Expense from continuing operations:
|
|
|
|
|
|
|
|
|
Other foreign
|
|
$
|
0.10
|
|
|
$
|
0.13
|
|
Europe (UK)
|
|
|
0.01
|
|
|
|
0.02
|
|
China
|
|
|
0.12
|
|
|
|
0.14
|
|
Corporate
|
|
|
0.39
|
|
|
|
0.50
|
|
Consolidated interest expense
|
|
$
|
0.62
|
|
|
$
|
0.79
|
|
Income Tax Expense (Benefit) from continuing operations:
|
|
|
|
|
|
|
|
|
USA (shown in Corporate)
|
|
|
—
|
|
|
|
—
|
|
Other foreign
|
|
$
|
0.23
|
|
|
$
|
0.21
|
|
Europe (UK)
|
|
|
0.14
|
|
|
|
0.49
|
|
Mexico
|
|
|
0.08
|
|
|
|
(0.21
|
)
|
China
|
|
|
1.11
|
|
|
|
1.11
|
|
Corporate
|
|
|
0.80
|
|
|
|
1.56
|
|
Less intersegment
|
|
|
0.02
|
|
|
|
(0.04
|
)
|
Consolidated income tax expense (benefit)
|
|
$
|
2.38
|
|
|
$
|
3.12
|
|
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2017 and 2016
|
|
Year Ended
January 31
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in millions of dollars)
|
|
|
(in millions of dollars)
|
|
|
|
|
|
|
|
|
Total Assets: *
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
56.34
|
|
|
$
|
48.18
|
|
Other foreign
|
|
|
18.16
|
|
|
|
17.55
|
|
Europe (UK)
|
|
|
3.61
|
|
|
|
5.05
|
|
Mexico
|
|
|
3.99
|
|
|
|
4.25
|
|
China
|
|
|
30.54
|
|
|
|
29.92
|
|
India
|
|
|
(1.36
|
)
|
|
|
(1.35
|
)
|
Corporate
|
|
|
26.00
|
|
|
|
37.18
|
|
Less intersegment
|
|
|
(52.73
|
)
|
|
|
(52.52
|
)
|
Consolidated assets
|
|
$
|
84.55
|
|
|
$
|
88.26
|
|
Total Assets Less Intersegment:*
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
30.94
|
|
|
$
|
33.63
|
|
Other foreign
|
|
|
10.17
|
|
|
|
9.91
|
|
Europe (UK)
|
|
|
3.58
|
|
|
|
5.03
|
|
Mexico
|
|
|
4.07
|
|
|
|
4.23
|
|
China
|
|
|
18.44
|
|
|
|
17.63
|
|
India
|
|
|
0.43
|
|
|
|
0.44
|
|
Corporate
|
|
|
16.92
|
|
|
|
17.39
|
|
Consolidated assets
|
|
$
|
84.55
|
|
|
$
|
88.26
|
|
Property and Equipment (excluding assets held for sale at $0.9 million):
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
2.09
|
|
|
$
|
2.20
|
|
Other foreign
|
|
|
1.55
|
|
|
|
1.57
|
|
Europe (UK)
|
|
|
0.03
|
|
|
|
0.06
|
|
Mexico
|
|
|
2.05
|
|
|
|
2.11
|
|
China
|
|
|
2.05
|
|
|
|
2.37
|
|
India
|
|
|
0.03
|
|
|
|
0.03
|
|
Corporate
|
|
|
0.75
|
|
|
|
1.00
|
|
Less intersegment
|
|
|
(0.02
|
)
|
|
|
(0.07
|
)
|
Consolidated long-lived assets
|
|
$
|
8.53
|
|
|
$
|
9.27
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
0.04
|
|
|
$
|
0.06
|
|
Other foreign
|
|
|
0.01
|
|
|
|
0.08
|
|
Europe (UK)
|
|
|
—
|
|
|
|
—
|
|
Mexico
|
|
|
0.05
|
|
|
|
0.04
|
|
China
|
|
|
0.06
|
|
|
|
0.16
|
|
India
|
|
|
0.02
|
|
|
|
—
|
|
Corporate
|
|
|
0.23
|
|
|
|
0.50
|
|
Consolidated capital expenditure
|
|
$
|
0.41
|
|
|
$
|
0.84
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
USA
|
|
$
|
0.87
|
|
|
$
|
0.87
|
|
Consolidated goodwill
|
|
$
|
0.87
|
|
|
$
|
0.87
|
|
*
Negative assets reflect intersegment amounts eliminated in consolidation
Lakeland Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017 and 2016
16. UNAUDITED
QUARTERLY RESULTS OF OPERATIONS (
In thousands, except for per share amounts):
|
|
1/31/2017
|
|
|
10/31/2016
|
|
|
7/31/2016
|
|
|
4/30/2016
|
|
Net sales from continuing operations
|
|
$
|
20,302
|
|
|
$
|
23,243
|
|
|
$
|
22,269
|
|
|
$
|
20,369
|
|
Gross profit from continuing operations
|
|
$
|
7,752
|
|
|
$
|
8,519
|
|
|
$
|
8,590
|
|
|
$
|
6,776
|
|
Earnings (loss) from continuing operations
|
|
$
|
1,989
|
|
|
$
|
2,248
|
|
|
$
|
2,631
|
|
|
$
|
(21
|
)
|
Net income from continuing operations
|
|
$
|
946
|
|
|
$
|
1,513
|
|
|
$
|
1,431
|
|
|
$
|
3
|
|
Basic net earnings per share – continuing operations
|
|
$
|
0.13
|
|
|
$
|
0.21
|
|
|
$
|
0.20
|
|
|
$
|
0.00
|
|
Diluted net earnings per share – continuing operations
|
|
$
|
0.13
|
|
|
$
|
0.21
|
|
|
$
|
0.20
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/31/2016
|
|
|
10/31/2015
|
|
|
7/31/2015
|
|
|
4/30/2015
|
|
Net sales from continuing operations
|
|
$
|
20,473
|
|
|
$
|
24,888
|
|
|
$
|
29,465
|
|
|
$
|
24,819
|
|
Gross profit from continuing operations
|
|
$
|
6,010
|
|
|
$
|
9,248
|
|
|
$
|
11,795
|
|
|
$
|
9,279
|
|
Earnings (loss) from continuing operations
|
|
$
|
(300
|
)
|
|
$
|
3,192
|
|
|
$
|
5,700
|
|
|
$
|
3,220
|
|
Net income (loss) from continuing operations
|
|
$
|
(78
|
)
|
|
$
|
2,120
|
|
|
$
|
3,588
|
|
|
$
|
2,160
|
|
Basic net earnings (loss) per share – continuing operations
|
|
$
|
(0.01
|
)
|
|
$
|
0.29
|
|
|
$
|
0.50
|
|
|
$
|
0.31
|
|
Diluted net earnings (loss) per share – continuing operations
|
|
$
|
(0.01
|
)
|
|
$
|
0.29
|
|
|
$
|
0.50
|
|
|
$
|
0.30
|
|
17. SUBSEQUENT EVENT
On March 24, 2017, the Company filed a shelf registration statement
on Form S-3 which was declared effective by the SEC on April 11, 2017. The shelf registration statement permits the Company to
sell, from time to time, up to an aggregate of $30.0 million of various securities, including shares of common stock, shares of
preferred stock, debt securities, warrants to purchase common stock, preferred stock, debt securities, and/or units, rights to
purchase common stock, preferred stock, debt securities, warrants and/or units, units of two or more of the foregoing, or any combination
of such securities, not to exceed one-third of the Company's public float in any 12-month period. To date, no securities have been
issued pursuant to the registration statement.