LAKELAND INDUSTRIES INC - Quarter Report: 2020 April (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

For the quarterly period ended April 30, 2020

OR

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 or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

 

202 Pride Lane SW, Decatur, AL		35603
(Address of Principal Executive Offices)		(Zip Code)

 

(Registrant's telephone number, including area code) (256) 350-3873

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	LAKE	NASDAQ

 

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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer 	Accelerated filer ☒
Nonaccelerated filer 	Smaller reporting company ☒
Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes☐ No ☒

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

Class		Outstanding at June 5, 2020
Common Stock, $0.01 par value per share		7,976,275 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:

 

	Page
Item 1. Financial Statements (Unaudited)	3
Introduction	3
Condensed Consolidated Statements of Operations Three Months Ended April 30, 2020 and 2019	5
Condensed Consolidated Statements of Comprehensive Income (Loss) Three Months Ended April 30, 2020 and 2019	6
Condensed Consolidated Balance Sheets April 30, 2020 and January 31, 2020	7
Condensed Consolidated Statements of Stockholders’ Equity Three Months Ended April 30, 2020 and 2019	8
Condensed Consolidated Statements of Cash Flows Three Months Ended April 30, 2020 and 2019	9
Notes to Condensed Consolidated Financial Statements	10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitiative and Qualitative Disclosures About Market Risk	34
Item 4. Controls and Procedures	34
PART II - OTHER INFORMATION:
Item 6. Exhibits	35
Signature Pages	36

 

 

LAKELAND INDUSTRIES, INC.

AND SUBSIDIARIES

 

PART I    FINANCIAL INFORMATION

 

Item 1.    Financial Statements

 

Introduction

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q may contain certain forward-looking statements. When used in this Form 10-Q or in any other presentation, statements which are not historical in nature, including the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” “project” and similar expressions, are intended to identify forward-looking statements. They also include statements containing a projection of sales, earnings or losses, capital expenditures, dividends, capital structure or other financial terms.

 

The forward-looking statements in this Form 10-Q are based upon our management’s beliefs, assumptions and expectations of our future operations and economic performance, taking into account the information currently available to us. These statements are not statements of fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. Some of the important factors that could cause our actual results, performance or financial condition to differ materially from expectations are:

 

 

 

 

We believe these forward-looking statements are reasonable; however, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Furthermore, forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements after the date of this Form 10-Q, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 10-Q might not occur. We qualify any and all of our forward-looking statements entirely by these cautionary factors.

 

 

LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

($000’s except for share and per share information)

 

	Three Months Ended April 30,
	2020	2019
Net sales	$45,582	$24,684
Cost of goods sold	23,438	17,130
Gross profit	22,144	7,554
Operating expenses	9,774	7,869
Operating profit (loss)	12,370	(315)
Other income (expense), net	6	(27)
Interest expense	(17)	(34)
Income (loss) before taxes	12,359	(376)
Income tax expense	3,725	89
Net income (loss)	$8,634	$(465)
Net income (loss) per common share:
Basic	$1.08	$(0.06)
Diluted	$1.07	$(0.06)
Weighted average common shares outstanding:
Basic	7,972,423	8,013,840
Diluted	8,044,849	8,013,840

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

($000’s)

 

	Three Months Ended April 30,
	2020	2019
Net income (loss)	$8,634	$(465)
Other comprehensive loss:
Foreign currency translation adjustments	(289)	(69)
Comprehensive income (loss)	$8,345	$(534)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(000’s except for share information)

 

ASSETS	April 30,	January 31,
	2020	2020
Current assets
Cash and cash equivalents	$23,473	$14,606
Accounts receivable, net of allowance for doubtful accounts of $647 and $497 at April 30, 2020 and January 31, 2020, respectively	25,074	17,702
Inventories	37,470	44,238
Prepaid VAT and other taxes	1,516	1,228
Other current assets	3,229	2,033
Total current assets	90,762	79,807
Property and equipment, net	9,847	10,113
Operating leases right-of-use assets	2,246	2,244
Deferred tax assets	3,625	5,939
Prepaid VAT and other taxes	292	333
Other assets	81	98
Goodwill	871	871
Total assets	$107,724	$99,405
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$6,119	$7,204
Accrued compensation and benefits	2,020	1,300
Other accrued expenses	3,713	2,445
Current maturity of long-term debt	-----	1,155
Short-term borrowings	139	----
Current portion of operating lease liabilities	925	835
Total current liabilities	12,916	12,939
Long-term portion of operating lease liabilities	1,268	1,414
Total liabilities	14,184	14,353
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par; authorized 1,500,000 shares (none issued)	-----	-----
Common stock, $0.01 par; authorized 20,000,000 shares Issued 8,485,517 and 8,481,665; outstanding 7,976,275 and 7,972,423 at April 30, 2020 and January 31, 2020, respectively	85	85
Treasury stock, at cost; 509,242 shares	(5,023)	(5,023)
Additional paid-in capital	75,314	75,171
Retained earnings	26,215	17,581
Accumulated other comprehensive loss	(3,051)	(2,762)
Total stockholders' equity	93,540	85,052
Total liabilities and stockholders' equity	$107,724	$99,405

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

							Accummulated
					Additional		Other
	Common Stock		Treasury Stock		Paid-in	Retained	Comprehensive
	Shares	Amount	Shares	Amount	Capital	Earnings	Loss	Total
		($000’s)		($000’s)	($000’s)	($000’s)	($000’s)	($000’s)
Balance, January 31, 2019	8,475,929	$85	(462,089)	$(4,517)	$75,612	$14,300	$(2,252)	$83,228
Net loss	-----	-----	-----	-----	-----	(465)	-----	(465)
Other comprehensive loss	-----	-----	-----	-----	-----	-----	(69)	(69)
Stock-based compensation:
Restricted Stock Plan	-----	-----	-----	-----	201	-----	-----	201
Balance, April 30, 2019	8,475,929	$85	(462,089)	$(4,517)	$75,813	$13,835	$(2,321)	$82,895
Balance, January 31, 2020	8,481,665	$85	(509,242)	$(5,023)	$75,171	$17,581	$(2,762)	$85,052
Net Income	-----	-----	-----	-----	-----	8,634	-----	8,634
Other comprehensive loss	-----	-----	-----	-----	-----	-----	(289)	(289)
Stock-based compensation:
Restricted stock issued	3,852	-----	-----	-----	-----	-----	-----	-----
Restricted stock plan	-----	-----	-----	-----	163	-----	-----	163
Return of shares in lieu of payroll withholding	-----	-----	-----	-----	(20)	-----	-----	(20)
Balance, April 30, 2020	8,485,517	$85	(509,242)	$(5,023)	$75,314	$26,215	$(3,051)	$93,540

 

 

LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

($000)’s

 

	Three Months Ended April 30,
	2020	2019
Cash flows from operating activities:
Net income (loss)	$8,634	$(465)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Provision for doubtful accounts	150	105
Deferred income taxes	2,314	(158)
Depreciation and amortization	453	383
Stock based and restricted stock compensation	163	201
Loss on disposal of property and equipment	7	-----
Non-cash operating lease expense	214	251
(Increase) decrease in operating assets
Accounts receivable	(7,589)	1,144
Inventories	6,656	(4,414)
Prepaid VAT and other taxes	(288)	127
Other current assets	(1,199)	(247)
Increase in operating liabilities
Accounts payable	(1,008)	4,242
Accrued expenses and other liabilities	2,017	596
Operating lease liabilities	(271)	(251)
Net cash provided by operating activities	10,253	1,514
Cash flows from investing activities:
Purchases of property and equipment	(194)	(168)
Cash flows from financing activities:
Loan repayments, short-term	(1,181)	-----
Loan borrowings, short-term	158	-----
Loan repayments, long-term	-----	(40)
UK borrowings under line of credit facility, net	-----	156
Shares returned to pay employee taxes under restricted stock program	(20)	-----
Net cash provided by (used in) financing activities	(1,043)	116
Effect of exchange rate changes on cash and cash equivalents	(149)	(11)
Net increase in cash and cash equivalents	8,867	1,451
Cash and cash equivalents at beginning of period	14,606	12,831
Cash and cash equivalents at end of period	$23,473	$14,282
Supplemental disclosure of cash flow information:
Cash paid for interest	$17	$34
Cash paid for taxes	$861	$276
Noncash investing and financing activities
Leased assets obtained in exchange for operating lease liabilities	$215	$2,486

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

Lakeland Industries, Inc. and Subsidiaries (“Lakeland,” the “Company,” “we,” “our” or “us”), a Delaware corporation organized in April 1986, manufacture and sell a comprehensive line of industrial protective clothing and accessories for the industrial and public protective clothing market. Our products are sold globally by our inhouse sales teams, our customer service group, and authorized independent sales representatives to a network of over 1,600 global safety and industrial supply distributors. Our authorized distributors supply end users, such as integrated oil, chemical/petrochemical, automobile, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical, and high technology electronics manufacturers, as well as scientific, medical laboratories and the utilities industry. In addition, we supply federal, state and local governmental agencies and departments, such as fire and law enforcement, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control. Internationally, we sell to a mixture of end users directly, and to industrial distributors depending on the particular country and market. In addition to the United States, sales are made to more than 50 foreign countries, the majority of which were into China, the European Economic Community (“EEC”), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India and Southeast Asia.

 

The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments (consisting of only normal and recurring adjustments) which are, in the opinion of management, necessary to present fairly the unaudited condensed consolidated financial information required herein. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations. While we believe that the disclosures are adequate to make the information presented not misleading, it is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended January 31, 2020.

 

The results of operations for the three month period ended April 30, 2020 are not necessarily indicative of the results to be expected for the full year.

 

In this Form 10-Q, (a) “FY means fiscal year; thus for example, FY21 refers to the fiscal year ending January 31, 2021, (b) “Q” refers to quarter; thus, for example, Q1 FY21 refers to the first quarter of the fiscal year ending January 31, 2021, (c) “Balance Sheet” refers to the unaudited condensed consolidated balance sheet and (d) “Statement of Operations” refers to unaudited condensed consolidated statement of operations.

 

Principles of Consolidation

The accompanying unaudited condensed 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 unaudited condensed 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.

 

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 below at the date of the unaudited condensed 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 and 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.

 

 

Inventories

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 net realized value.

 

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.

 

Revenue Recognition

Substantially all the Company’s revenue is derived from product sales, which consist of sales of the Company’s personal protective wear products to distributors. The Company considers purchase orders to be a contract with a customer. Contracts with customers are considered to be short-term when the time between order confirmation and satisfaction of the performance obligations is equal to or less than one year, and virtually all of the Company’s contracts are short-term. The Company recognizes revenue for the transfer of promised goods to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. The Company typically satisfies its performance obligations in contracts with customers upon shipment of the goods. Generally, payment is due from customers within 30 to 90 days of the invoice date, and the contracts do not have significant financing components. The Company elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. Shipping and handling costs associated with outbound freight are included in operating expenses, and for the month ended April 30, 2020 and 2019, aggregated approximately $1.6 million and $0.8 million, respectively. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue.

 

The transaction price includes estimates of variable consideration, related to rebates, allowances, and discounts that are reductions in revenue. All estimates are based on the Company's historical experience, anticipated performance, and the Company's best judgment at the time the estimate is made. Estimates for variable consideration are reassessed each reporting period and are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur upon resolution of uncertainty associated with the variable consideration. All the Company’s contracts have a single performance obligation satisfied at a point in time and the transaction price is stated in the contract, usually as quantity times price per unit.

 

The Company has seven revenue generating reportable geographic segments under ASC Topic 280 “Segment Reporting” and derives its sales primarily from its limited use/disposable protective clothing and secondarily from its sales of reflective clothing, high-end chemical protective suits, firefighting and heat protective apparel, reusable woven garments and gloves and arm guards. The Company believes disaggregation of revenue by geographic region best depicts the nature, amount, timing, and uncertainty of its revenue and cash flows (see table below). Net sales by geographic region and by product line are included below:

 

 

	Three Months Ended April 30, (in millions of dollars)
	2020	2019
External Sales by region:
USA	$23.11	$12.87
Other foreign	2.30	0.78
Europe (UK)	3.01	2.39
Mexico	1.37	0.60
Asia	9.05	3.83
Canada	4.31	2.49
Latin America	2.43	1.72
Consolidated external sales	$45.58	$24.68

 

	Three Months Ended April 30, (in millions of dollars)
	2020	2019
External Sales by product lines:
Disposables	$31.21	$12.36
Chemical	8.88	5.06
Fire	1.45	1.40
Gloves	0.78	0.75
High Visability	1.35	2.12
High Performance Wear	0.29	0.23
Wovens	1.62	2.76
Consolidated external sales	$45.58	$24.68

 

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 unaudited condensed 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 unaudited condensed 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.

 

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 unaudited condensed consolidated balance sheets. The Company does not have any uncertain tax positions at April 30, 2020 or January 31, 2020.

 

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.

 

 

Foreign Operations and Foreign Currency Translation

The Company maintains manufacturing operations in Mexico, India, Argentina, Vietnam and the People’s Republic of China and can access independent contractors in China, Vietnam, Argentina and Mexico. It also maintains sales and distribution entities located in India, Canada, the U.K., Chile, China, Argentina, Russia, Kazakhstan, Uruguay 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 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. Foreign currency transaction (loss) gain included in net income (loss) for the three months ended April 30, 2020 and 2019, were approximately $(0.1) million and $0.1 million, respectively.

 

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:

 

 

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.

 

Net Income (loss) Per Share

Net Income (loss) per share are based on the weighted average number of common shares outstanding without consideration of common stock equivalents. Diluted income (loss) per share are based on the weighted average number of common shares and common stock equivalents. The diluted income (loss) 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 period. Potentially dilutive securities are excluded from the computation of diluted loss per share since their effect would be antidilutive.

 

Reclassifications

Certain reclassifications have been made to the presentation of the segment data in the prior period consolidated financial statements to conform to the current period’s presentation. These reclassifications had no impact on the previously reported net loss.

 

 

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.

 

New Accounting Pronouncements Recently Adopted

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), which includes provisions, intended to simplify the test for goodwill impairment. The standard is effective for annual periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has adopted this guidance using prospective transition method, which had no material impact on its unaudited condensed consolidated financial statements and related disclosures.

 

New Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplying the Accounting for Income Taxes. The ASU removes certain exceptions for performing intra-period allocation and calculating income taxes in interim periods. It also simplifies the accounting for income taxes by requiring recognition of franchise tax partially based on income as an income-based tax, requiring reflection of enacted chages in tax laws in the interim period and making improvements for income taxes related to employee stock owernship plans. ASU 2019-12 is effective for fiscal years and interim periods within those years, beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued. The Company is currently evaluating the impact the standard will have on its consolidated financial statements.

 

No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s unaudited condensed consolidated financial statements.

 

Inventories consist of the following (in $000s):

 

	April 30, 2020	January 31, 2020
Raw materials	$16,417	$16,709
Work-in-process	959	670
Finished goods	20,094	26,859
	$37,470	$44,238

 

We lease real property, equipment and certain automobiles. The Company made the accounting policy election to account for short-term leases as described herein. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

 

The Company determines if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty. All of the Company’s real estate leases are classified as operating leases.

 

Most of our real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term for an additional four to five years. The exercise of lease renewal options is at the Company’s discretion. The Company evaluates renewal options at lease inception and on an ongoing basis, and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.

 

 

Leases recorded on the consolidated balance sheet consist of the following (in $000’s):

 

	Classification	April 30, 2020	January 31, 2020
Assets
Operating lease assets	Operating lease right-of-use assets	$2,246	$2,244
Liabilities
Current
Operating	Current portion of operating lease liabilities	$925	$835
Noncurrent
Operating	Long-term portion of operating lease liabilities	1,268	1,414
Total Lease Obligations		$2,193	$2,249

 

Lease cost

The components of lease expense are included on the unaudited condensed consolidated statement of operations as follows (in 000’s):

 

	Classification	Three Months Ended April 30, 2020	Three Months Ended April 30, 2019
Operating lease cost	Cost of goods sold	$90	$145
	Operating expenses	$223	$119
Short-term lease cost		$155	$36

 

Maturity of Lease Liabilities

Maturity of lease liabilities as of April 30, 2020 was as follows (in $000’s):

 

For the 12 months ended April 30,	Operating Leases (a)
2021	$1,025
2022	769
2023	455
2024	22
2025	18
Thereafter	112
Total lease payments	$2,401
Less: Interest	(208)
Present value of lease liability	$2,193

 

 

Weighted-average lease terms and discount rates are as follows:

 

Weighted-average remaining lease term (years)	April 30, 2020	January 31, 2020
Operating leases	3.05	3.14
Weighted-average discount rate
Operating leases	6.40%	5.87%

 

 

Supplemental cash flow information related to leases for the three months ended April 30, 2020 were as follows

(in 000’s):

 

Cash paid for amounts included in the measurement of lease liabilities:	Three Months Ended April 30, 2020	Three Months Ended April 30, 2019
Operating cash flows from operating leases	$303	$264
Leased assets obtained in exchange for new operating lease liabilities	$215	$2,486

 

As of April 30, 2020 and January 31, 2020, the Company’s other current assets were comprised of the following:

 

	April 30, 2020	January 31, 2020
Prepaid maintenance contracts	$203	$144
Prepaid insurance	220	49
Prepaid material and supplies	2,103	1,313
UK factoring (due from HSBC)	367	113
Prepaid other	336	414
	$3,229	$2,033

 

As of April 30, 2020 and January 31, 2020, the Company’s other accrued expenses were comprised of the following:

 

	April 30, 2020	January 31, 2020
Other employee related costs, including employee benefits	$169	$199
Freight expenses and material purchases	1,829	673
Professional fees	264	279
Sales commissions	150	234
Other vendor accruals	442	718
Income tax accrual	859	342
	$3,713	$2,445

 

 

Revolving Credit Facility

On May 10, 2017, the Company entered into a Loan Agreement (the “Loan Agreement”) with SunTrust Bank (“Lender”). The Loan Agreement provides the Company with a secured (i) $20.0 million revolving credit facility, which includes a $5.0 million letter of credit sub-facility, and (ii) $1,575,000 term loan with Lender. The Company may request from time to time an increase in the revolving credit loan commitment of up to $10.0 million (for a total commitment of up to $30.0 million). Borrowing pursuant to the revolving credit facility is subject to a borrowing base amount calculated as (a) 85% of eligible accounts receivable, as defined, plus (b) an inventory formula amount, as defined, minus (c) an amount equal to the greater of (i) $1,500,000 or (ii) 7.5% of the then current revolver commitment amount, minus (d) certain reserves as determined by the Loan Agreement. The credit facility which was to mature on May 10, 2020 was extended to August 10, 2020 (subject to earlier termination upon the occurrence of certain events of default as set forth in the Loan Agreement).

 

 

 

Borrowings under the term loan and the revolving credit facility bear interest at an interest rate determined by reference whether the loan is a base rate loan or Eurodollar loan, with the rate election made by the Company at the time of the borrowing or at any time the Company elects pursuant to the terms of the Loan Agreement. The term loan is payable in equal monthly principal installments of $13,125 each, beginning on June 1, 2017, and on the first day of each succeeding month, with a final payment of the remaining principal and interest on May 10, 2020 (subject to earlier termination as provided in the Loan Agreement). For that portion of the term loan that consists of Eurodollar loans, the term loan shall bear interest at the LIBOR Market Index Rate (“LIBOR”) plus 2.0% per annum, and for that portion of the term loan that consists of base rate loans, the term loan shall bear interest at the base rate then in effect plus 1.0% per annum. All principal and unpaid accrued interest under the revolving credit facility shall be due and payable on the maturity date of the revolver. For that portion of the revolver loan that consists of Eurodollar loans, the revolver shall bear interest at LIBOR plus a margin rate of 1.75% per annum for the first nine months and thereafter between 1.5% and 2.0%, depending on the Company’s “availability calculation” (as defined in the Loan Agreement) and, for that portion of the revolver that consists of base rate loans, the revolver shall bear interest at the base rate then in effect plus a margin rate of 0.75% per annum for the first nine months and thereafter between 0.50% and 1.0%, depending on the availability calculation. As of the closing, the Company elected all borrowings under the Loan Agreement to accrue interest at LIBOR which, as of that date, was 0.99500%. As such, the initial rate of interest for the revolver was 2.745% per annum and the initial rate of interest for the term loan was 2.995% per annum. At April 30, 2020 and January 31, 2020, the rate of interest on the revolver was 2.5% and 3.8% per annum, respectively, and the rate of interest on the term loan was 3.0% and 3.3% per annum, respectively. The Loan Agreement provides for payment of an unused line fee of between 0.25% and 0.50%, depending on the amount by which the revolving credit loan commitment exceeds the amount of the revolving credit loans outstanding (including letters of credit), which shall be payable monthly in arrears on the average daily unused portion of the revolver.

 

In connection with the Loan Agreement, the Company entered into a security agreement, dated May 10, 2017, with Lender pursuant to which the Company granted to Lender a first priority perfected security interest in substantially all real and personal property of the Company.

 

The Company agreed to maintain a minimum “fixed charge coverage ratio” (as defined in the Loan Agreement) as of the end of each fiscal quarter, commencing with the fiscal quarter ended October 31, 2017, of not less than 1.10 to 1.00 during the applicable fiscal quarter, and agreed to certain negative covenants that are customary for credit arrangements of this type, including restrictions on the Company’s ability to enter into mergers, acquisitions or other business combination transactions, conduct its business, grant liens, make certain investments, incur additional indebtedness, and make stock repurchases. At April 30, 2020 and January 31, 2020 the Company was in compliance with all provisions in the loan agreement.

 

As of April 30, 2020 and January 31, 2020, the Company had no borrowings outstanding on the letter of credit sub-facility and no borrowings outstanding under the revolving credit facility. With respect to the term loan, the Company had no borrowings outstanding on April 30, 2020 and $1.2 million outstanding on January 31, 2020. On April 10, 2020, the Company prepaid the outstanding balance on the term loan. The Company is currently negotiating with another prospective lender to provide a revolving credit facility agreement which would replace the existing agreement with SunTrust.

 

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. On December 31, 2016, Lakeland UK entered into an extension of the maturity date of its existing 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 remained the same. On December 4, 2017 the facility was extended to March 31, 2018 for the next review period. On March 9, 2019 the facility was extended to March 31, 2020 and on March 6, 2020 further extended to March 31, 2021 with no additional changes to the terms. There were no borrowings outstanding under this facility at either April 30, 2020 or April 30, 2019. The amounts due from HSBC of USD $0.4 million and USD $0.1 million as of April 30, 2020 and January 31, 2020, respectively, is included in other current assets on the accompanying consolidated balance sheets.

 

 

Borrowing in Argentina

On March 20, 2020 Lakeland Argentina and AP Partners entered into an agreement for Lakeland Argetnina to obtain a loan in the amount of ARS $10 million (approximately USD $158k, based on exchange rates at time of closing); such loan is for a term of one year at an interest rate of 30% per annum. The amount outstanding at April 30, 2020 was ARS $9.3 million (approximately USD $139k which is shown as short-term borrowings on the consolidated balance sheet).

 

Below is a table to summarize the debt amounts above (in 000’s):

 

	Short-Term		Long-Term		Current Maturity of Long-Term
	April 30, 2020	January 31, 2020	April 30, 2020	January 31, 2020	April 30, 2020	January 31, 2020
U.S	$-----	$-----	$-----	$-----	$-----	$1,155
Argentina	139	-----	-----	-----	-----	------
Totals	$139	$-----	$-----	$-----	$-----	$1,155

 

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 (UK); 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 $3.6 million total included in the US bank accounts and approximately $19.9 million total in foreign bank accounts as of April 30, 2020, of which $22.8 million was uninsured.

 

Major Customer

No customer accounted for more than 10% of net sales during the three month periods ended April 30, 2020 and 2019.

Major Supplier

No supplier accounted for more than 10% of purchases during the three month periods ended April 30, 2020 and 2019.

 

 

The 2017 Stock Plan

 

On June 21, 2017, the stockholders of the Company approved the Lakeland Industries, Inc. 2017 Equity Incentive Plan (the “2017 Plan”) at the Annual Meeting of Stockholders. The executive officers and all other employees and directors of the Company, including its subsidiaries, are eligible to participate in the 2017 Plan. The 2017 Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”), except that with respect to all non-employee directors, the Committee shall be deemed to include the full Board. The 2017 Plan provides for the grant of equity-based compensation in the form of stock options, restricted stock, restricted stock units, performance shares, performance units, or stock appreciation rights (“SARS”).

 

The Committee has the authority to determine the type of award, as well as the amount, terms and conditions of each award, under the 2017 Plan, subject to the limitations and other provisions of the 2017 Plan. An aggregate of 360,000 shares of the Company’s common stock are authorized for issuance under the 2017 Plan, subject to adjustment as provided in the 2017 Plan for stock splits, dividends, distributions, recapitalizations and other similar transactions or events. If any shares subject to an award are forfeited, expire, lapse or otherwise terminate without issuance of such shares, such shares shall, to the extent of such forfeiture, expiration, lapse or termination, again be available for issuance under the 2017 Plan. The following tables summarize the unvested shares granted on June 7, 2018, December 4, 2019 and April 9, 2020 which have been made under the 2017 Plan.

 

 

Granted June 7, 2018

 

	Number of shares awarded total
	Minimum	Target	Maximum	Cap
Employees	17,834	26,753	35,670	42,805
Non-Employee Directors	7,168	10,752	14,336	17,204
Total	25,002	37,505	50,006	60,009

 

	Value at grant date
	Minimum	Target	Maximum	Cap
Employees	$248,800	$373,200	$497,600	$597,120
Non-Employee Directors	100,000	150,000	200,000	240,000
Total	$348,800	$523,200	$697,600	$837,120

 

Granted December 4, 2019 and April 9, 2020

 

	Number of shares awarded total
	Minimum	Target	Maximum
Employees	78,004	120,006	144,009
Non-Employee Directors	27,664	42,560	51,072
Total	105,668	162,566	195,081

 

	Value at grant date
	Minimum	Target	Maximum
Employees	$943,570	$1,451,600	$1,741,920
Non-Employee Directors	338,000	520,000	624,000
Total	$1,281,570	$1,971,600	$2,365,920

  

 

The Company recognized total stock-based compensation costs, which are reflected in operating expenses:

	Three Months Ended April 30,
	2020	2019
2017 Plan:
Restricted Stock Program	$149,539	$201,829
Stock Options	14,347	-----
	$163,886	$201,829
Stock appreciation rights	-----	(121)
Total stock-based compensation	$163,886	$201,708
Total income tax benefit recognized for stock-based compensation arrangement	$34,416	$42,359

 

Restricted Stock Units

Under the 2017 Plan, as described above, the Company awarded performance-based and service based restricted stock units to eligible employees and directors. The following table summarizes the activity under the 2017 Plan for the quarter ended April 30, 2020. This table reflects the amount of awards granted at the maximum number of shares that would be issued if the Company were to achieve the maximum performance level under the December 2019 and April 2020 grants.

 

	Performance-Based	Service-Based	Total	Weighted Average Grant Date Fair Value
Outstanding at January 31, 2020	109,234	9,930	119,164	$10.33
Awarded	69,591	6,326	75,917	$14.95
Vested	-----	-----	-----	-----
Forfeited	-----	-----	-----	-----
Outstanding at April 30, 2020	178,825	16,256	195,081	$12.13

 

The actual number of shares of Common Stock, if any, to be earned by the award recipient is determined over the three year performance measurement periods based on measures that include revenue growth, EBITDA margin, and free cash flow, retention and Board discretion for the December 4, 2019 and April 9, 2020 grants. The performance targets have been set for each of the Minimum, Target, and Maximum levels.The actual performance amount achieved is determined by the Board and may be adjusted for items determined to be unusual in nature or infrequent in occurrence, at the discretion of the Board.

  

The compensation cost is based on the fair value at the grant date, is recognized over the requisite performance/service period using the straight-line method, and is periodically adjusted for the probable number of shares to be awarded. The Company is recognizing expense related to the December 2019 and April 2020 grants under the 2017 Plan at Target, and these expenses were approximately $140,000 for the quarter ended April 30, 2020. As of April 30, 2020, unrecognized stock-based compensation expense totaled $1,665,000 pursuant to the 2017 Plan based on outstanding awards under the Plan. This expense is expected to be recognized over of the next 2.75 years.

 

 

The following table reflects the amount of awards granted at the maximum number of shares that would be issued if the Company were to achieve the maximum performance level in relation to the June 2018 grants.

 

Shares issued under 2017 Plan	Outstanding Unvested Grants at Maximum at Beginning of FY21	Granted during FY21	Becoming Vested during FY21	Forfeited during FY21	Outstanding Unvested Grants at Maximum at End of April 30, FY21
Restricted stock grants – employees	35,670	-----	-----	-----	35,670
Restricted stock grants – non-employee directors	14,336	-----	-----	-----	14,336
Total restricted stock	50,006	-----	-----	-----	50,006
Weighted average grant date fair value	$13.95	$-----	$-----	$-----	$13.95

 

The actual number of shares of common stock of the Company, if any, to be earned by the award recipients is determined over a three year performance measurement period based on measures that include Earnings Before Interest Taxes Depreciation and Amoritzation (“EBITDA”). As of April 30, 2020, based on actual performance to date, it was deemed improbable that the Company would meet the minimum performance level required for the June 7, 2018 grants to vest.

 

Stock Options

During the year ended January 31, 2020 a stock option was granted pursuant to the Company’s 2017 Equity Incentive Plan in the amount of 24,900 shares at an exercise price of $11.17 per share. Such shares will vest at 8,300 shares on each of August 12, 2020, August 12, 2021 and August 12, 2022.

 

The following table represents stock options granted, exercised and forfeited during the period.

 

Stock Options	Number of Shares	Weighted Average Exercise Price per Share	Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 31, 2020	24,900	$11.17	9.53	$-----
Granted	-----	-----	-----	-----
Outstanding at April 30, 2020	24,900	$11.17	9.29	-----
Exercisable at April 30, 2020	-----	$-----	-----	$-----

 

The Company recognized approximately $14,000 of stock-based compensation expense during the quarter ended April 30, 2020 associated with the grant of the stock option. As of April 30, 2020 there is approximately $133,000 of unrecognized stock-based compensation expense.

 

Other Compensation Plans/Programs

Pursuant to the Company’s restricted stock program, all directors are eligible to elect to receive any director fees in shares of restricted stock in lieu of cash. 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, and is subject to a vesting requirement, the amount of shares awarded is 133% of the cash amount based on the grant date stock price. As of April 30, 2020, unrecognized stock-based compensation expense related to these restricted stock awards totaled $20,548 for the 2017 Plan. The cost of these non-vested awards is expected to be recognized over a two-year weighted-average period. In addition, as of April 30, 2020, the Company issued 3,852 shares and has granted awards for up to an aggregate of 19,439 shares under the 2017 Plan.

 

 

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. During the quarter ended April 30, 2020, the Company did not repurchase any shares of its common stock. The Company has repurchased 152,801 shares of stock under this program as of April 30, 2020 for $1,671,188 inclusive, of commissions.

 

 

Deferred Taxes and Valuation Allowance

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. The valuation allowance was $1.3 million at April 30, 2020 and January 31, 2020.

 

The federal net operating loss (“NOL”) carryforwards as of April 30, 2020 were approximately $6.6 million before tax effects. If not utilized, the NOL generated from the 1/31/2015 tax year will expire after 1/31/2035, and the NOL generated after 01/31/2018 will be carried forward indefintley.

 

The state net opering loss (“NOL”) carryforwards as of April 30, 2020 were approximately $22.6 million before tax effects. The state NOLs with carry forward limitations will begin to expire after 1/31/2025 and will continue to expire at various periods up until 1/31/2039 when they will be fully expired. The states have a larger spread because some only carryforward for 10 years and some allow 20 years. The Georgia NOLs generated after 1/31/2018 can be carried forward indefinitely.

 

Tax Reform

On December 22, 2017, new federal tax reform legislation was enacted in the United States, resulting in significant changes from previous tax law.  The 2017 Tax Cuts and Jobs Act (the Tax Act) reduced the federal corporate income tax rate to 21% from 35% effective January 1, 2018. The Tax Act requires us to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, re-measuring our US deferred tax assets as well as reassessing the net realizability of our deferred tax assets.  The Company completed this re-measurement and reassessment in FY18. While the Tax Act provides for a modified territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The regulations were finalized as of June 14, 2019 and reassessment of the GILTI tax as it is currently written resulted in a charge to tax expense of $1.2 and $0.1 million for the three months ended April 30, 2020 and 2019, respectively. The Company intends to account for the GILTI tax in the period in which it is incurred. Though this non-cash expense (due to use of existing NOLs) has a materially negative impact on earnings, the Tax Act also changes the taxation of foreign earnings, and companies generally will not be subject to United States federal income taxes upon the receipt of dividends from foreign subsidiaries. 

 

The BEAT provisions in the Tax Act pertain to companies with average annual gross receipts of $500 million for the prior 3-year period and eliminate the deduction of certain base-erosion payments made to related foreign corporations and impose a minimum tax if greater than regular tax. Based on current guidelines the Company does not expect the BEAT provision to have an impact on U.S. tax expense.

 

We previously considered substantially all of the earnings in our non-U.S. subsidiaries to be indefinitely reinvested outside the U.S. and, accordingly, recorded no deferred income taxes on such earnings.  At this time, the applicable provisions of the Tax Act have been fully analyzed and our intention with respect to unremitted foreign earnings is to continue to indefinitely reinvest outside the U.S. those earnings needed for working capital or additional foreign investment. As stated above, GILTI is recognized in the period it is incurred and is not considered with regard to deferred income tax on unremitted earnings and profits. All international subsidiaries are impacted by GILTI calculation.

 

Income Tax Expense

Income tax expenses consist of federal, state and foreign income taxes. Items impacting the effective rate are foreign income subject to US tax (including Tax Reform impacts), tax rates in foreign jurisdictions, US state income taxes, tax deductions for restricted stock vesting, company borrowing structures, and other permanent tax differences.

 

 

The following table sets forth the computation of basic and diluted net income (loss) per share at April 30, 2020 and 2019 as follows:

 

	Three Months Ended April 30,
	(in $000s except share and per share information)
	2020	2019
Numerator:
Net income (loss)	$8,634	$(465)
Denominator:
Denominator for basic net income (loss) per share (weighted-average shares which reflect shares in the treasury, 509,242 at April 30, 2020 and 462,089 for April 30, 2019)	7,972,423	8,013,840
Effect of dilutive securities from restricted stock plan and from dilutive effect of warrants	72,426	-----
Denominator for diluted net income (loss) per share (adjusted weighted average shares)	8,044,849	8,013,840
Basic net income (loss) per share	$1.08	$(0.06)
Diluted net income (loss) per share	$1.07	$(0.06)
Warrants and restricted stock awards excluded from the computation of diluted loss per share because the effect of inclusion would have been anti-dilutive.	-----	196,340

 

Labor and other contingencies in Brazil

As disclosed in our periodic filings with the SEC, we agreed to make certain payments in connection with ongoing labor litigation involving our former Brazilian subsidiary. While the vast majority of these labor suits have been resolved, there are labor cases that remain active and a civil case filed by a former officer of our former Brazilian subsidiary, in which Lakeland was named as a co-defendant.

 

The first case was initially filed in 2010 claiming USD $100,000 owed to plaintiff. This case is on its final appeal to the Brazilian Supreme Court, having already been ruled upon in favor of Lakeland three (3) times, most recently by the Labor Court Supreme Court. The claimant having lost three times previously, management firmly believes that Lakeland will continue to prevail in this case.  A second case filed against Lakeland by a former officer of Lakeland Brazil , was filed in Labor court in 2014 claiming Lakeland owed USD $300,000. The Labor court ruled that the claimant’s case was outside of the scope of the Labor court and the case was dismissed. The claimant is appealing within the Labor court system. A third case filed by a former Lakeland Brazil manager in 2014 was ruled upon in civil court and awarded the claimant USD $100,000. Both the claimant and Lakeland have appealed this decision.  In the last case a former officer of our former Brazilian subsidiary filed a claim seeking approximately USD $700,000 that he alleges is due to him against an unpaid promissory note. Lakeland has not been served with process and no decision on the merits has been issued in this case yet. Management firmly believes these claims to be without any merit and does not anticipate a negative outcome resulting in significant expense to us.

 

Lakeland Brazil may face new labor lawsuits in the short term as a result of the shutdown of its operations in March 2019. The Company has no obligation under the Shares Transfer Agreement to make any additional payments in connection with these potential new labor lawsuits. The Company also understands that under the labor laws of Brazil, a parent company may be held liable for the labor liabilities of a former Brazilian subsidiary in the case of fraud, misconduct, or under various theories.

 

Although the Company would have the right of adversary system, full defense and due process in case of a potential litigation, there can be no assurance as to the findings of the courts of Brazil. 

  

 

There are additional cases in Labor and Civil courts against Lakeland Brazil in which Lakeland is not a party, and other outstanding monetary allegations of Lakeland Brazil.

 

The Company has provided for professional fees and litigation reserves associated with potential residual labor claims in Brazil. The accrual on the balance sheet at April 30, 2020 and January 31, 2020 is $0.2 million, respectively.

 

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 April 30, 2020, to the best of the Company’s knowledge, there were no outstanding claims or litigation, except for the labor contingencies in Brazil described above.

 

Domestic and international sales from continuing operations are as follows in millions of dollars:

 

	Three Months Ended April 30,
	2020		2019
Domestic	$23.11	50.70%	$12.87	52.12%
International	$22.47	49.30%	11.81	47.88%
Total	$45.58	100.00%	$24.68	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), a manufacturing facility in Vietnam (primarily disposable 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, Australia 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:

 

 

The table below represents information about reported segments for the years noted therein:

 

	Three Months Ended April 30, (in millions of dollars)
	2020	2019
Net Sales:
USA Operations (including Corporate)	$24.13	$13.90
Other foreign	3.04	1.36
Europe (UK)	3.01	2.39
Mexico	1.82	0.90
Asia	20.02	13.18
Canada	4.31	2.50
Latin America	2.54	1.74
Less intersegment sales	(13.29)	(11.29)
Consolidated sales	$45.58	$24.68
External Sales:
USA Operations (including Corporate)	$23.11	$12.87
Other foreign	2.30	0.78
Europe (UK)	3.01	2.39
Mexico	1.37	0.60
Asia	9.05	3.83
Canada	4.31	2.49
Latin America	2.43	1.72
Consolidated external sales	$45.58	$24.68
Intersegment Sales:
USA Operations (including Corporate)	$1.02	$1.03
Other foreign	0.74	0.58
Mexico	0.45	0.30
Asia	10.97	9.35
Canada	-----	0.01
Latin America	0.11	0.02
Consolidated intersegment sales	$13.29	$11.29