UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number: 0-15535
LAKELAND INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or
Organization)
1525 Perimeter Parkway, Suite 325 Huntsville, AL
(Address of Principal Executive Offices)
13-3115216
(I.R.S. Employer Identification No.)
35806
(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
Common Stock
Trading Symbol(s)
LAKE
Name of each exchange on which registered
NASDAQ
Securities registered pursuant to Section 12(g) of the Act:
Not Applicable
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
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 nonaccelerated 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.
Large accelerated filer
Nonaccelerated filer
Emerging growth company
☐
☐
☐
Accelerated filer
Smaller reporting 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 provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
The aggregate market value of voting stock held by non-affiliates as of July 31, 2023 was approximately $118.8 million. As of April 10, 2024, there were outstanding
7,371,730 shares of common stock, $0.01 par value.
Portions of the registrant’s definitive proxy statement to be filed pursuant to Regulation 14A of the Security Exchange Act of 1934 are incorporated by reference into Part
III (Items 10, 11, 12, 13 and 14) of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
LAKELAND INDUSTRIES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
PART I
Item 1
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
PART II:
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III:
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV:
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15.
Item 16.
Exhibit and Financial Statement Schedules
Form 10-K Summary
Table of Contents
ii
1
8
19
19
21
21
21
22
23
23
32
F-1
33
33
33
33
34
34
34
35
35
36
39
Information Relating to Forward-Looking Statements
This Annual Report on Form 10-K may contain (and verbal statements made by Lakeland Industries, Inc. may contain) "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or future financial performance and involve various assumptions, known
and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include, but are not
limited to, those listed in this report under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in
this report. In some cases, you can identify forward-looking statements by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” "objectives,"
“anticipates,” “believes,” “estimates,” “predicts,” “potential” or other comparable words. Actual results, performance or outcomes may differ materially from those
expressed or implied by these forward-looking statements and may not align with historical performance and events due to a number of factors, including those discussed
in the sections of this report described above. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements, and caution should be exercised against placing undue reliance upon such statements, which are based only
on information currently available to us and speak only as of the date hereof. We are under no duty to update publicly any of the forward-looking statements after the date
of this report, whether as a result of new information, future events or otherwise, except as required by law.
PART I
Lakeland Industries, Inc. (the “Company” or “Lakeland,” “we,” “our,” or “us”) was incorporated in the State of Delaware in 1986. Our executive office is located at 1525
Perimeter Parkway, Suite 325, Huntsville, AL 35806, and our telephone number is (256) 350-3873. Our website is located at www.lakeland.com. Information contained
on our website is not part of this report.
ITEM 1. BUSINESS
Overview – Lakeland Industries is a global provider of quality safety products that protect the world’s workers, first responders, and communities during the most critical
situations. The Company’s products, which are governed by rigorous safety standards and regulations, are used to either protect the wearer from their environment or
protect a product or process from the wearer in a broad range of markets around the world, including chemical, clean room, energy, fire service, manufacturing, and utility
applications. Lakeland’s product portfolio includes firefighter protective apparel and accessories, high-end chemical protective suits, limited use/disposable protective
clothing, durable woven garments, high visibility clothing, gloves, and protective sleeves.
The Company’s strong market position across its focus product categories and markets is supported by continued and increasing investment in its global footprint,
particularly owning and operating its own manufacturing facilities acquiring complementary companies or products that expand and enhance product offerings and/or
geographic customer territories, and investing in sales and marketing resources in countries around the world. We believe that ownership of manufacturing is the keystone
to building a resilient supply chain and providing high-quality products to our customers. Having seven manufacturing locations in seven countries on five continents,
coupled with sourcing core raw materials from multiple suppliers in various countries, affords Lakeland with superior manufacturing capabilities and supply chain
resilience when compared to our competitors who use contractors. Additionally, our focus on providing customers with best-in-class service includes the strategic location
of our sales team members. Lakeland has 95 sales employees located in 24 countries selling into more than 50 countries globally.
Lakeland is committed to protecting the world’s workers, first responders, and communities while creating shareholder value. Key elements of our corporate strategy
include:
·
·
·
·
·
Creating a high-performance culture driven by our corporate values,
Investing resources in high-growth geographies and product categories,
Building a premier global firefighter safety brand through product and marketing enhancements,
Driving profitable growth in high-end chemical and limited-use/disposable protective clothing through product development, strategic pricing initiatives,
channel diversification, and operations optimization, and
Acquiring companies that improve Lakeland’s competitive advantage in focus markets.
On November 30, 2023 the Company acquired New Zealand-based Pacific Helmets NZ Limited (“Pacific”) in an all-cash transaction valued at approximately
NZ$14,000,000 ($8.6 million) including assumption of debt, subject to post-closing adjustments and customary holdback provisions. The acquisition enhances Lakeland’s
product portfolio, particularly within fire service protective helmets. Headquartered in Whanganui, New Zealand, Pacific is a leading designer and provider of structural
firefighting, wildland firefighting, and technical rescue helmets.
Table of Contents
1
For purposes of this Form 10-K, (a) FY refers to a fiscal year ended January 31; for example, FY24 refers to the fiscal year ended January 31, 2024 and (b) Q refers to a
quarter, for example Q4 FY 24 refers to the fourth quarter of the fiscal year ended January 31, 2024.
Segments – The Company has seven revenue-generating reportable geographic segments under ASC Topic 280 “Segment Reporting”: USA Operations, Other Foreign,
Europe (UK), Mexico, Asia, Canada, and Latin America. Segment information is presented in Note 13 – Segment Information of the consolidated financial statements in
Part II Item 8 of this Form 10-K. Because our consolidated financial statements are stated in U.S. dollars and much of our business is conducted outside the U.S., currency
fluctuations may affect our results of operations and financial position and may affect the comparability of our results between financial periods.
Products – We design, manufacture, and sell a multifaceted line of safety products to protect the world’s workers, first responders, and communities during the most
critical situations. The following is a brief description of each of our product categories.
Firefighter Protective Apparel and Accessories
We offer a complete line of NFPA and CE compliant structural firefighter (turnout gear) and wildland firefighter protective apparel for domestic and foreign fire
departments. Our turnout gear is available both in standard stock patterns and customer configurations. Through our acquisition of Pacific Helmets we design and
manufacture structural firefighting helmets, wildland firefighting helmets, and safety helmets for rescue, paramedic, and other applications. Additionally, we offer
firefighter accessories including particulate-blocking hoods and fire gloves. Effective February 5, 2024, through our acquisition of Jolly Scarpe S.p.A. and Jolly Scarpe
Romania S.R.L. (collectively, “Jolly”), we now manufacture and sell a comprehensive range of firefighting and safety boot models. See Note 15, “Subsequent Events,” to
the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional information.
High-End Chemical Protective Suits
We manufacture and sell heavy-duty chemical protective suits and protective apparel from our proprietary CRFR, ChemMax® 3, 4, Interceptor and other fabrics. These
suits are worn by individuals on hazardous material teams and within general industry to provide protection from powerful, highly concentrated, toxic and/or potentially
lethal chemicals and biological toxins. These suits are protective against toxic wastes at Superfund sites, toxic chemical spills or biological discharges, chemical or
biological warfare weapons (such as sarin, anthrax or ricin and mustard gas) and chemicals and petro-chemicals present during the cleaning of refineries and nuclear
facilities, and volatile organic compounds (VOCs) in industrial applications, and protection from infectious diseases such as Avian Flu and Ebola. We believe that we offer
the most complete and cost-effective line of chemical protective garments available on the market today. Garments are certified to both NFPA, CE, ISO, and other
international standards allowing us to offer products composed of these fabrics worldwide.
Limited Use/Disposable Protective Clothing
We manufacture a complete line of limited use/disposable protective garments, including coveralls, laboratory coats, shirts, pants, hoods, aprons, sleeves, arm guards, caps
and smocks. Typical users of these garments include integrated oil/petrochemical refineries, chemical plants, automotive manufacturers, pharmaceutical companies,
construction companies, coal, gas and oil power generation utilities and telephone utility companies, laboratories, mortuaries and governmental entities. Numerous smaller
industries use these garments for specific safety applications unique to their businesses. Additional applications include protection from viruses and bacteria, such as
Ebola, AIDS, streptococcus, SARS, hepatitis, and COVID-19 at medical facilities, laboratories, and emergency rescue sites. Clean manufactured and sterilized versions of
our MicroMAX NS product, trademarked CleanMax, are used in aseptic laboratories to protect both the wearer and the product from cross contamination.
Durable Woven Garments
We manufacture and market a line of durable, launderable woven garments that complement our firefighting and heat protective offerings and provide alternatives to our
limited use/disposable protective clothing lines. These products provide us access to the much larger woven industrial and health care-related markets. Woven garments
are favored by customers for certain applications because of familiarity with and acceptance of these fabrics. These products allow us to supply and satisfy a broader range
of our end users’ safety needs.
Table of Contents
2
High Visibility Clothing
Lakeland’s High-Visibility Division manufactures and markets a comprehensive line of reflective apparel that meets the American National Standards Institute (ANSI)
requirements and multiple national standards around the world. The line includes vests, T-shirts, sweatshirts, jackets, coats, raingear, jumpsuits, hats and gloves.
Gloves and Sleeves
We manufacture and sell specially designed glove and sleeve products made from Kevlar®, a cut and heat-resistant fiber produced by DuPont, Spectra®, a cut-resistant
fiber made by Honeywell, and our own patented engineered yarns. These gloves offer a better overall level of protection and lower worker injury rate and are more cost-
effective than traditional leather, canvas or coated work gloves. These gloves allow workers to handle sharp or jagged unfinished sheet metal safely, and are used
primarily in the automotive, glass and metal fabrication industries.
Customers – The majority of our sales are made through distribution. For the year ended January 31, 2024, no individual customer represented more than 10% of our
sales.
Sales and Marketing - Domestically, we employ a field sales force, organized in four vertical sales groups (industrial, fire service, critical environment, and utilities), to
better support customers and enhance marketing. We further leverage our in-house sales team with independent sales representatives to a global network of over 2,000
safety and industrial supply distributors who buy our products for resale and typically maintain inventory at the local level in order to assure quick response times and the
ability to serve their customers properly.
Internationally, Lakeland has sales representatives in 23 countries outside the U.S. and sells products in more than 50 countries. Our sustainable market advantages
continue to be our knowledge of global standards, the quality of our product offering and the fact that we manufacture our own products. We aim to provide our customers
with the highest quality products and excellent customer service.
Competition – The global safety products market is broad with many verticals based upon product type and end-use. We compete in a subset of the larger safety market
primarily focusing on firefighter apparel, chemical suits, and limited-use/disposable protective clothing. Over the long term, we believe global demand for safety products
will continue to grow as the procurement of PPE is non-discretionary and often mandated by industry standards and government regulations which are increasing in global
adoption.
The safety products market is highly competitive and fragmented, with participants ranging in size from small companies focusing on a single type of PPE to several large
multinational corporations that supply many types of safety products. Our main competitors vary by region and product. We compete on the basis of our product quality,
product availability, cost of ownership, brand recognition, and customer service. We believe Lakeland is favorably positioned in its focus markets as a result of our high-
quality offerings, global footprint, and brand recognition.
Patents and Trademarks – We own 14 patents with the U.S. Patent and Trademark Office. We own 76 trademarks. Our active U.S. patents expire between 2024 and
2037. Intellectual property rights that apply to our various products include patents, trade secrets, trademarks and, to a lesser extent, copyrights. We maintain an active
program to protect our technology, filing for patent and trademark protection in multiple countries where our product may be “knocked off” or where significant sales of
our products exist. Information regarding risks associated with our proprietary technology and our intellectual property rights may be found in Item 1A of this Annual
Report on Form 10-K under the heading “Risk Factors.”
Raw Materials and Suppliers - Our policy is to qualify multiple vendors for our fabrics and bindings whenever possible. We frequently distribute our purchases among
the top two or three suppliers, based on pricing and delivery schedules, in order to keep multiple suppliers qualified and proficient in the manufacture of the raw materials
that we require. Materials, such as polypropylene, polyethylene, polyvinyl chloride, spunlaced polyester, melt blown polypropylene and their derivatives and laminates,
are available from 30 or more major mills. FR fabrics are also available from a number of both domestic and international mills. The accessories used in the production of
our disposable garments, such as thread, boxes, snaps and elastics, are obtained from unaffiliated suppliers. We currently use more than 25 suppliers located in the U.S.
and internationally to supply our key fabrics. We have not experienced difficulty in obtaining our requirements for these commodity component items. Due to the high
cost of freight for our nonwoven fabrics, we also seek to find multiple sources that are local to our manufacturing to emergency demand and shift manufacturing between
our locations with greater ease.
Table of Contents
3
Human Capital - As of January 31, 2024, the Company employed approximately 1,750 people worldwide, of which approximately 1,700 were full-time and
approximately 50 were part-time. Approximately 90 were employed in the United States and 1,660 were employed outside of the United States. Approximately 1,200
employees, or 70% of our global workforce, are covered by collective bargaining agreements or works councils. Overall, we consider our employee relations to be good.
Our culture is important to our success.
Health and Safety. The health and safety of our employees is of utmost importance to us. We conduct regular self-assessments and audits to ensure compliance with our
health and safety guidelines and regulatory requirements. Our ultimate goal is to achieve a level of work-related injuries as close to zero as possible through continuous
investment in our safety programs. We provide protective gear (e.g. eye protection, masks and gloves) as required by applicable standards and as appropriate given
employee job duties. Additionally, during the COVID-19 pandemic, we invested heavily to help ensure the health of our employees. Through the use of education and
awareness, provision of necessary PPE, and changes to our manufacturing sites and screening, we strive to make our workplaces a safe place for employees during the
workday.
Hiring Practices. We recruit the best people for the job without regard to gender, ethnicity or other protected traits, and it is our policy to comply fully with all domestic,
foreign and local laws relating to discrimination in the workplace.
Diversity and Inclusion. Recognizing and respecting our global presence, we strive to maintain a diverse and inclusive workforce everywhere we operate. Almost 50% of
our employees worldwide are female and, in the U.S., non-Caucasian employees account for more than 50% of the employee base. Our diversity and inclusion principles
are also reflected in our employee training, particularly our policies against harassment and bullying and the elimination of bias in the workplace.
In addition, to support mental health and emotional well-being, all associates and their dependents worldwide have access to an Employee Assistance Program ("EAP"), at
no cost to them. This includes access to visits with mental health care providers through the EAP.
Compensation. Lakeland’s compensation philosophy strives to provide total compensation for all employees at the market median, utilizing base salary, cash incentives
and, in some cases, equity grants to achieve this goal. We further strive to provide above-market compensation opportunities for associates who exceed goals and
expectations. This approach to compensation is designed to help Lakeland attract, retain and motivate high-performing individuals who foster an innovative culture and
drive business results.
Additional information about how we value our associates' well-being, including our Global Human Rights Policy and our Global Workplace Health and Safety Policy,
can be found in the Corporate Governance section of our corporate website. Nothing on our website, including our policies, or sections thereof, shall be deemed
incorporated by reference into this Annual Report on Form 10-K or incorporated by reference into any of our other filings with the Securities and Exchange Commission.
Government Regulation – We are governed by regulations that affect the manufacture, distribution, marketing and sale of our products, including regulations relating to
various environmental, health and safety matters. These regulations differ among and within every country in which we operate. We are not involved in any pending or, to
our knowledge, threatened governmental proceedings, which would require curtailment of our operations because of such laws and regulations. Changes in regulations,
guidelines, procedural precedents and enforcement take place frequently and can impact the size, growth potential and profitability of products sold in each market. See “-
Environmental Matters” below for additional discussion of environmental regulations.
International and Domestic Standards. Globally, standards development continues to challenge Industrial protective clothing manufacturers. The pace of change and
adoption of new standards continues to increase as standards for more hazards are added and deficiencies in existing standards are corrected. Complex and changing
international standards play to Lakeland’s strengths when compared to most multinationals or smaller manufacturers. Lakeland currently sits on committees and/or works
closely with groups involved in writing many international standards such as the American Society for Testing and Materials International (“ASTM”), the National Fire
Protection Association (“NFPA”), International Safety Equipment Association (“ISEA”), the European Committee for Standardization (“CEN”), ISO, the China National
Standards Board (“GB”) in China, and the Standards Australia and Standards New Zealand (“ASNZ”).
Table of Contents
4
Globally, not only are the standards continuing to change, but the focus of standards activity is shifting. In response to the increasing use of certification processes as a
technical barrier to trade, standards writing bodies in the U.S. and Europe have concluded efforts to update and define conformity assessment (ANSI/ISEA 125 and the
PPE Regulation respectively) within their own spheres of influence. Unfortunately, these are not “international standards” and can be easily ignored by other countries that
wish to impose their own conformity assessment systems on importers. The result is an increasingly dynamic standards environment where not only are the standards
changing, but the minimum requirements for conformity with the certification process itself are changing.
A number of developing nations are now becoming active in development of their own standards based on existing international standards. This presents a new challenge
in that not only are we faced with multiple test methods and standards, but we have the potential for multiple certification processes. While this adds to product
development and sales expenses, the additional cost is only incremental. The real challenge is in navigating the certification process itself. This is a significant impediment
to entry for companies seeking to expand sales distribution globally.
In many cases products preferred in one market are not acceptable in another and multiple conformity assessments are required for the same standard certification. This is
both technically challenging and costly. By virtue of its international manufacturing and sales operations, Lakeland is uniquely positioned to capitalize on this complex
dynamic.
Environmental Matters. We are subject to various foreign, federal, state and local environmental protection, chemical control, and health and safety laws and regulations,
and we incur costs to comply with those laws. We own and lease real property, and certain environmental laws hold current or previous owners or operators of businesses
and real property responsible for contamination on or originating from property, even if they did not know of, or were not responsible for the contamination. The presence
of hazardous substances on any of our properties or the failure to meet environmental regulatory requirements could affect our ability to use or sell the property or to use
the property as collateral for borrowing and could result in substantial remediation or compliance costs.
Per- and polyfluoroalkyl substances (PFAS) are man-made chemicals that have been used in industry and consumer products worldwide since the 1940s. PFAS have been
widely used to make products more resistant to heat, oils, grease, chemicals, and water. Therefore, PFAS may be found in everyday consumer goods such as food
packaging, nonstick cookware, stain-resistant fabrics and carpets, some cosmetics, water-repellent clothing, and some firefighting foams. PFAS are now the subject of
increasing regulatory attention. Both the EPA and the European Union have proposed draft regulations regarding PFAS, which include restrictions, data gathering and/or
phase-out requirements. In the United States, a number of states have also developed regulatory standards, product reporting, and/or phase-out requirements.
Certain fabric components of firefighter turnout gear manufactured by our suppliers contain PFAS to achieve water, oil, or chemical resistance. Although we understand
some suppliers have investigated PFAS-free alternatives that may become available in the future, no manufacturer of firefighter turnout gear is currently able to meet the
current NFPA safety standards without using certain fabric components that contain PFAS. Some of our suppliers have notified us that they add PFAS to their fabric
components to achieve the NFPA performance requirements. The Company has been named as a party to a number of lawsuits filed by firefighters related to PFAS.
These cases are consolidated in In re: Aqueous Film-Forming Foams Products Liability Litigation, MDL No.: 2:18-mn-2873-RMG (District of South Carolina, Charleston
Division). These matters are at an early stage with numerous factual and legal issues to be resolved.
Although we have not in the past had any material costs or damages associated with environmental claims or compliance, and we do not currently anticipate any such
costs or damages, we cannot guarantee that we will not incur material costs or damages in the future as a result of the discovery of new facts or conditions, acquisition of
new properties, the release of hazardous substances, a change in interpretation of existing environmental laws or the adoption of new environmental laws.
Table of Contents
5
Seasonality – Our operations have historically been moderately seasonal, with higher sales generally occurring in March, April and May when scheduled maintenance on
nuclear, coal, oil and gas fired utilities, chemical, petrochemical and smelting facilities, and other heavy industrial manufacturing plants occurs, primarily due to moderate
spring temperatures and low energy demands. Sales decline during the warmer summer vacation months and gradually increase from Labor Day through the fall with
slight declines again during holidays, such as Christmas and the Chinese New Year. As a result of this seasonality in our sales, we have historically experienced a
corresponding seasonality in our working capital, specifically inventories, with peak inventories occurring between December and May, coinciding with lead times
required to accommodate the spring maintenance schedules. Certain of our large customers seek sole sourcing to avoid sourcing their requirements from multiple vendors
whose prices, delivery times and quality standards differ.
In recent years, our historical seasonal pattern has shifted due to increased demand by first responders for our chemical suits and fire gear, our growing sales into the
southern hemisphere, and our development of non-seasonal products like CleanMAX. While we doubt that we will ever fully eliminate seasonality in our business, we
continue our efforts to diminish its impact on revenues, operational results, working capital and cash flow, by focusing on sales into non-seasonal markets like clean
rooms, electric utilities and the fire service markets.
Available Information - Our Internet address is www.Lakeland.com. We make the following filings available free of charge on the Investor Relations page on our website
as soon as they have been electronically filed with or furnished to the Securities and Exchange Commission ("SEC"): our annual reports on Form 10-K, our quarterly
reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as well as our proxy statement. Information contained on our website is not part of this Annual Report on Form 10-K or our other filings with the
SEC. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers like us who file
electronically with the SEC.
Table of Contents
6
Information about our Executive Officers
The following is a list of the names and ages of all of our executive officers indicating all positions and offices they hold with us as of April 10, 2024.
Name
James M. Jenkins
Roger D. Shannon
Hui (Helena) An
Joshua Sletten
Age
59
59
50
33
Position
Acting President and Chief Executive Officer, and Executive Chairman
Chief Financial Officer and Secretary
Chief Operating Officer
Vice President of Corporate Development and Strategy
James M. Jenkins was appointed Acting President and Chief Executive Officer on February 1, 2024. Mr. Jenkins was appointed the Company's Executive
Chairman on August 30, 2023. Previously, he served as Chairman of the Board from February 1, 2023 through August 2023 and as a director since 2016. Mr. Jenkins also
served on our Board from 2012 to 2015 and was a member of the Audit and Corporate Governance Committees. Mr. Jenkins is currently the General Counsel and Vice
President of Corporate Development for Transcat, Inc., a provider of calibration, repair, inspection and laboratory services. Before joining Transcat, Mr. Jenkins was a
partner at Harter Secrest & Emery LLP, a regional law firm in New York State, where his practice focused on corporate governance and general corporate law matters,
including initial and secondary public offerings, private placements, mergers and acquisitions, and securities law compliance.
Roger D. Shannon has served as our Chief Financial Officer since February 1, 2023 and Secretary since February 1, 2024. Mr. Shannon was Chief Financial
Officer and Treasurer of Charah Solutions from June 2019 to October 2022. Mr. Shannon previously served in various roles, including Chief Financial Officer, Senior
Vice President of Finance, Treasurer and Head of Corporate Development at ADTRAN, a publicly traded provider of next-generation networking solutions, from
November 2015 to June 2019. Mr. Shannon also served as Chief Financial Officer and Treasurer for Steel Technologies and various senior finance roles at the Brown-
Forman Corporation, British American Tobacco, and accounting positions at Vulcan Materials Company, Lexmark International and KPMG.
Helena An has served as our Chief Operating Officer since April 6, 2023. Ms. An previously served as our Vice President of Procurement and Asia
Manufacturing since 2018. Ms. An has been with Lakeland for over 25 years in various procurement and manufacturing leadership positions.
Joshua Sletten was appointed Vice President of Corporate Development and Strategy on April 6, 2023. He has been instrumental in the development and
execution of the Company's global strategy toward higher-value products and revenue growth. He previously served as Vice President of Corporate Development since
June 2021. From July 2019 to May 2021, Mr. Sletten was Vice President, Mergers & Acquisitions for Craig-Hallum Capital Group LLC, an investment banking firm. Mr.
Sletten held various mergers and acquisitions roles in private equity and corporate functions from 2013 to 2019, including The IMAGINE Group, General Mills, and
ShoreView Industries, LLC.
Table of Contents
ITEM 1A RISK FACTORS
7
RISK FACTORS
You should carefully consider the following risks before investing in our common stock. These are not the only risks that we may face. If any of the events referred to below
actually occur, our business, financial condition, liquidity and results of operations could suffer. In that case, the trading price of our common stock could decline, and you
may lose all or part of your investment. You should also refer to the other information in this Form 10-K and in the documents we incorporate by reference into this Form
10-K, including our consolidated financial statements and the related notes.
Risks Related to Our Business and Industry
We are subject to risk as a result of our international manufacturing operations.
Because most of our products are manufactured at our facilities located in China, Vietnam, Mexico, Argentina and India, our operations are subject to risks inherent in
doing business internationally. Such risks include the adverse effects on operations from corruption, war, international terrorism, civil disturbances, political instability,
government activities such as border taxes and renegotiation of treaties, deprivation of contract and property rights and currency valuation changes.
Based on the complex relationships between China and the U.S., there is an inherent risk that political, diplomatic, military, or other events could result in business
disruptions, including increased regulatory enforcement against companies, tariffs, trade embargoes, and export restrictions. Tariffs increase the cost of our products and
the components and raw materials that go into making them. These increased costs adversely impact the gross margin we earn on our products. Tariffs can also make our
products more expensive for customers, which could make our products less competitive and reduce consumer demand. Countries may also adopt other measures, such as
controls on imports or exports of goods, technology, or data, that could adversely impact the Company’s operations and supply chain and limit the Company’s ability to
offer our products and services as designed. These measures can require us to take various actions, including changing suppliers and restructuring business relationships.
Changing our operations in accordance with new or changed trade restrictions can be expensive, time-consuming, disruptive to our operations and distracting to
management. Such restrictions can be announced with little or no advance notice, and we may not be able to mitigate all adverse impacts from such measures, effectively.
Political uncertainty surrounding trade and other international disputes could also have a negative effect on consumer confidence and spending. Any of these events could
reduce customer demand, increase the cost of our products and services, or otherwise have a materially adverse impact on our customers’ and suppliers’ businesses and
results of operations.
A terrorist attack or other geopolitical crisis could negatively impact our domestic and/or international operations.
Our global operations are susceptible to global events, including acts or threats of war or terrorism, international conflicts, political instability, and natural disasters. The
occurrence of any of these events could have an adverse effect on our business results and financial condition.
The impact of the invasion of Ukraine, including economic sanctions or additional war or military conflict, as well as potential responses to them by Russia, could
adversely affect the Company’s business, supply chain, suppliers or customers and potentially heighten our risk of cyber-attacks. In addition, the continuation of Russia's
invasion of Ukraine could lead to other disruptions, instability, and volatility in global markets and industries that could negatively impact the Company’s operations. It is
not possible to predict the broader consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse
effects on macroeconomic conditions, the availability of raw materials, supplies, freight and labor, currency exchange rates and financial markets, all of which could
impact the Company’s business, financial condition and results of operations.
Further escalation of specific trade tensions, including those between the U.S. and China, or more broadly in global trade conflicts, could adversely impact the Company's
business and operations. The Company's business is also impacted by social, political, and labor conditions in locations in which the Company or its suppliers or
customers operate; adverse changes in the availability and cost of capital; monetary policy; interest rates; inflation; recession; commodity prices; currency volatility or
exchange control; ability to expatriate earnings; and other laws and regulations in the jurisdictions in which the Company or its suppliers or customers operate. For
example, changes in local economic conditions or outlooks, such as lower economic growth rates in China, Europe, or other key markets, impact the demand or
profitability of the Company's products.
Table of Contents
8
Pandemics or disease outbreaks, such as COVID-19, may cause unfavorable economic or market conditions, which could impact demand patterns and/or disrupt
global supply chains and manufacturing operations.
Collectively, these outcomes could materially and adversely affect our business, results of operations and financial condition. Pandemics or disease outbreaks such as
COVID-19 could result in a widespread health crisis that could adversely affect the economies of developed and emerging markets, potentially resulting in an economic
downturn that could affect customers’ demand for our products in certain industrial-based end-markets. The spread of pandemics or disease outbreaks may also disrupt the
Company’s manufacturing operations, supply chain, or logistics necessary to import, export and deliver products to our customers. During a pandemic or crisis, applicable
laws and response directives could, in some circumstances, adversely affect our ability to operate our plants, or to deliver our products in a timely manner. The enactment
of laws and directives aimed at mitigating health crises may also hinder our ability to move certain products across borders. Economic conditions can also influence order
patterns. These factors could negatively impact our consolidated results of operations and cash flow.
We have significant international operations and are subject to the risks of doing business in foreign countries, particularly in China and Vietnam, which could affect
our ability to manufacture or sell our products, obtain products from foreign suppliers or control the costs of our products.
We have business operations in approximately 60 foreign countries. In FY24, more than half of our net sales were made by operations outside the United States. Those
operations are subject to various political, economic and other risks and uncertainties, which could have a material adverse effect on our business. These risks include the
following:
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
unexpected changes in regulatory requirements;
changes in trade policy or tariff regulations;
changes in tax laws and regulations;
additional valuation allowances on deferred tax assets due to an inability to generate sufficient profit in certain foreign jurisdictions;
intellectual property protection difficulties or intellectual property theft;
difficulty in collecting accounts receivable;
complications in complying with a variety of foreign laws and regulations, some of which may conflict with U.S. laws;
foreign privacy laws and regulations;
trade protection measures and price controls;
trade sanctions and embargoes;
nationalization and expropriation;
increased international instability or potential instability of foreign governments;
effectiveness of worldwide compliance with Lakeland's anti-bribery policy, the U.S. Foreign Corrupt Practices Act, and similar local laws;
difficulty in hiring and retaining qualified employees;
the ability to effectively negotiate with labor unions in foreign countries;
the need to take extra security precautions for our international operations;
costs and difficulties in managing culturally and geographically diverse international operations; and
pandemics and similar disasters.
In particular, because a majority of our products are manufactured in China and Vietnam, the possibility of adverse changes in trade or political relations with China or
Vietnam, political instability in China or Vietnam, increases in labor costs, the occurrence of prolonged adverse weather conditions or a natural disaster such as an
earthquake or typhoon in China or Vietnam, or the outbreak of a pandemic disease in China or Vietnam could severely interfere with the manufacturing and/or shipment of
our products and would have a material adverse effect on our operations.
Our business operations may be adversely affected by the current and future political environment in the People’s Republic of China (“PRC”). The government of the PRC
has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to
operate under the PRC may be adversely affected by changes in Chinese laws and regulations, including those relating to taxation, import and export tariffs, raw materials,
environmental regulations, land use rights, property and other matters. Under its current leadership, the government of the PRC has been pursuing economic reform
policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the government of the PRC will continue to
pursue these policies or that it will not significantly alter these policies from time to time without notice. A change in policies by the PRC government could adversely
affect our interests by, among other factors: changes in laws, regulations or the interpretation thereof, confiscatory taxation, restrictions on currency conversion, imports or
sources of supplies, or the expropriation or nationalization of private enterprises.
Table of Contents
9
The PRC government exercises significant control over the Chinese economy, including but not limited to controlling capital investments, allocating resources, setting
monetary policy, controlling and monitoring foreign exchange rates, implementing and overseeing tax regulations, providing preferential treatment to certain industry
segments or companies and issuing necessary licenses to conduct business. In addition, we could face additional risks resulting from changes in the PRC’s data privacy
and cybersecurity requirements. Accordingly, any adverse change in the Chinese economy, the PRC legal system or the PRC governmental, economic or other policies
could have a material adverse effect on our entities in the PRC and our prospects generally.
We face additional risks in the PRC due to the country’s historically limited recognition and enforcement of contractual and intellectual property rights. We may
experience difficulty enforcing our intellectual property rights in the PRC. Unauthorized use of our technologies and intellectual property rights by partners or competitors
may dilute or undermine the strength of our brands. If we cannot adequately monitor the use of our technologies and products or enforce our intellectual property rights in
the PRC or contractual restrictions relating to the use of our intellectual property by Chinese companies, our revenue could be adversely affected.
Our entities are subject to laws and regulations applicable to foreign investment in the PRC. There are uncertainties regarding the interpretation and enforcement of laws,
rules and policies in the PRC. Because many laws and regulations are relatively new, the interpretations of many laws, regulations and rules are not always uniform.
Moreover, the interpretation of statutes and regulations may be subject to government policies reflecting domestic political agendas. Enforcement of existing laws or
contracts based on existing laws may be uncertain and sporadic. As a result of the foregoing, it may be difficult for us to obtain swift or equitable enforcement of laws
ostensibly designed to protect companies like ours, which could have a material adverse effect on our business and results of operations.
Any one or more of these risks could have a negative impact on the success of our international operations and, thereby, have a material adverse effect on our business,
consolidated results of operations and financial condition.
Our results of operations may vary widely from quarter to quarter.
Our quarterly results of operations have varied and are expected to continue to vary in the future. These fluctuations may be caused by many factors, including:
·
·
·
·
·
·
·
·
·
·
·
·
Currency volatility;
Global crises, such as the COVID-19 pandemic, oil spills, or Ebola outbreak;
Our expansion of international operations;
Competitive pricing pressures;
Seasonal buying patterns resulting from the cyclical nature of the business of some of our customers;
Changes in the mix of products and services sold;
The timing of introductions and enhancements of products by us or our competitors;
Market acceptance of new products;
Technological changes in fabrics or production equipment used to make our products;
Availability of raw materials due to unanticipated demand or lack of precursors (oil and gas);
Changes in the mix of domestic and international sales; and
Personnel changes.
These variations could negatively impact our stock price.
Disruption in our supply chain, manufacturing or distribution operations could adversely affect our business.
Our ability to manufacture, distribute and sell products is critical to our operations. These activities are subject to inherent risks such as natural disasters, power outages,
fires or explosions, labor strikes, terrorism, epidemics, pandemics, import restrictions, regional economic, business, environmental or political events, governmental
regulatory requirements or nongovernmental voluntary actions in response to global climate change or other concerns regarding the sustainability of our business, which
could disrupt our supply chain and impair our ability to manufacture or sell our products. This interruption, if not mitigated in advance or otherwise effectively managed,
could adversely impact our business, financial condition and results of operations and require additional resources to address.
Table of Contents
10
Climate change and other sustainability matters may adversely affect our business and operations.
There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns, and the
frequency and severity of extreme weather and natural disasters. We have transition risks related to the transition to a lower-carbon economy and physical risks related to
the physical impacts of climate change. Transition risks include increased costs of carbon emission, increased cost to produce products in compliance with future
regulations, increased raw materials cost, shifts in customer/consumer values and other legal, regulatory and technological risks. Physical risks include the risk of direct
damage to assets or supply chain disruption caused by severe weather events such as floods, storms, wildfires and droughts. In addition, concern over climate change may
result in new legal and regulatory requirements to reduce or mitigate the effects of climate change on the environment. Our reputation could be damaged if we do not (or
are perceived not to) act responsibly with respect to sustainability matters, which could adversely affect our business.
Because we do not have long-term commitments from many of our customers, we must estimate customer demand, and errors in our estimates could negatively impact
our inventory levels and net sales.
Our sales are generally made on the basis of individual purchase orders, which may later be modified or canceled by the customer rather than on long-term commitments.
We have historically been required to place firm orders for fabrics and components with our suppliers prior to receiving an order for our products based on our forecasts of
customer demands. Our sales process requires us to make multiple demand forecast assumptions, each of which may introduce errors in our estimates, causing excess
inventory to accrue or a lack of manufacturing capacity when needed. If we overestimate customer demand, as we have done in recent years, we may allocate resources to
manufacturing products that we may not be able to sell when we expect to or at all. As a result, we experienced in fiscal year 2024 a buildup of excess inventory, with
corresponding negative impacts on our financial results. We may experience similar results if we overestimate customer demand in the future. Conversely, if we
underestimate customer demand or if insufficient manufacturing capacity is available, we would lose sales opportunities and market share and damage our customer
relationships. On occasion, we have been unable to adequately respond to delivery dates required by our customers because of the lead time needed for us to obtain
required materials or to send fabrics to our assembly facilities in China, Vietnam, India, and Mexico.
The markets in which we compete are highly competitive, and some of our competitors have greater financial and other resources than we do.
Some of our competitors have greater financial and other resources than we do, and our business could be adversely affected by competitors’ new product innovations,
technological advances made to competing products and pricing changes made by us in response to competition from existing or new competitors. We may not be able to
compete successfully against current and future competitors, and the competitive pressures faced by us could have a material adverse effect on our business, consolidated
results of operations and financial condition. In addition, e-business is a rapidly developing area, and the execution of a successful e-business strategy involves significant
time, investment and resources.
Five of our competitors, DuPont, Honeywell, Ansell, MSA and Kimberly Clark, have substantially greater financial, marketing and sales resources than we do. In
addition, we believe that the barriers to entry in the disposable and reusable garments and gloves markets are relatively low. We cannot assure you that our present
competitors or competitors that choose to enter the marketplace in the future will not exert significant competitive pressures.
Our operations are substantially dependent upon key personnel.
Our performance is substantially dependent on the continued services and performance of our senior management and certain other key personnel, including James M.
Jenkins, our Acting President and Chief Executive Officer and Executive Chairman; Roger D. Shannon, our Chief Financial Officer and Secretary; Helena An, our Chief
Operating Officer, and Joshua Sletten our Vice President of Corporate Development and Strategy. The loss of services of any of our executive officers or other key
employees could have a material adverse effect on our business, financial condition and results of operations. In addition, any future expansion of our business will depend
on our ability to identify, attract, hire, train, retain and motivate other highly skilled managerial, marketing, customer service and manufacturing personnel, and our
inability to do so could have a material adverse effect on our business, financial condition and results of operations.
Table of Contents
11
Technological change could negatively affect sales of our products and our performance.
The rapid development of fabric technology continually affects our apparel applications and may directly impact the performance of our products. We cannot assure you
that we will successfully maintain or improve the effectiveness of our existing products, nor can we assure you that we will successfully identify new opportunities or
continue to have the needed financial resources to develop new fabric or apparel manufacturing techniques in a timely or cost-effective manner. In addition, products
manufactured by others may render our products obsolete or noncompetitive.
Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information and adversely impact our reputation and results of
operations.
We rely on information technology systems to process, transmit and store electronic information, and manage or support various business processes and activities. In
general, all information technology systems, including those we host or have hosted by third parties, are vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, human error or malicious acts, break-ins, and other intentional or unintentional events. Our business is also at risk from and may be materially
impacted and/or disrupted by information security incidents such as ransomware, malware, viruses, phishing, social engineering, and other security incidents. Such
incidents can range from individual attempts to gain unauthorized access to information technology systems through phishing emails to more sophisticated security
threats. These events can also result from internal compromises, such as human error or rogue employees or contractors, and can occur on our systems or on the systems
of our partners and subcontractors. In addition, the number and frequency of cybersecurity events globally may be heightened during times of geopolitical tension or
instability between countries, including, for example, the ongoing war between Russia and Ukraine. Security breaches of our systems or security breaches of third parties’
systems on which we rely to process, store, or transmit electronic information could result in the misappropriation, destruction or unauthorized disclosure of confidential
information or personal data, as well as material disruptions to our operations that could impact services.
We employ various measures to prevent, detect, address and mitigate cybersecurity threats (including access controls, vulnerability assessments, training for all
employees, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems). However, our security measures may be
inadequate to prevent security breaches, and our business operations and reputation could be materially adversely affected by these events and any resulting federal and
state fines and penalties, legal claims or proceedings. There are also significant costs associated with a data breach, including investigation costs, remediation and
mitigation costs, notification and monitoring costs, attorneys’ fees, and the potential for reputational harm and lost revenues due to a loss of confidence. We cannot predict
the costs to comply with these laws or the costs associated with a potential data breach, which could have a material adverse effect on our business, results of operations,
financial position and cash flows, and our business reputation. As cyber threats continue to evolve, we may be required to expend significant capital and other resources to
protect against the threat of security breaches or to mitigate and alleviate problems caused by security incidents. While risks from identified cybersecurity threats or
previous cybersecurity incidents to date have not materially affected our business strategy, results of operations or financial condition to date, there can be no assurance
that such risks will not have a material adverse effect in the future.
Data privacy and security laws relating to the handling of personal information are evolving across the world and may be drafted, interpreted or applied in a manner
that results in increased costs, legal claims, fines against us, or reputational damage.
As a global organization that accesses and processes personal data in the course of its business, we are subject to U.S. and international data privacy, security and data
breach notification laws, as well as contractual requirements that may govern the collection, use, disclosure and protection of personal data.
For example, in the United States, individual states regulate data breach notification requirements as well as more general privacy and security requirements. Certain of
these laws grant individuals various rights with respect to personal information, and we may be required to expend significant resources to comply with these laws.
Further, all 50 states, the District of Columbia and U.S. territories have adopted data breach notification laws that impose, in varying degrees, an obligation to notify
affected persons and/or state regulators in the event of a data breach or compromise, including when their personal information has or may have been accessed by an
unauthorized person. These laws apply according to the residence of the impacted individual. Some state breach notification laws may also impose physical and electronic
security requirements regarding the safeguarding of personal information. In addition, certain states’ privacy, security, and data breach laws, including, for example, the
California Consumer Privacy Act (“CCPA”) (as amended by the California Privacy Rights Act), include private rights of action that may expose us to private litigation
regarding our privacy and security practices and significant damages awards or settlements in civil litigation.
Table of Contents
12
Compliance with the varying data privacy regulations across the United States and around the world may require expenditures and changes in our business models. Failure
to comply with these statutory requirements, or even the occurrence of a data breach, can subject us to legal, regulatory, and reputational risks, as well as the financial risks
that can accompany regulatory investigations and enforcement actions and private litigation.
Our success depends in part on our proprietary technology, and if we fail to successfully obtain or enforce our intellectual property rights, our competitive position
may be harmed.
We rely on our portfolio of issued and pending patent applications in the U.S. and other countries to protect a large part of our intellectual property and our competitive
position; however, these patents may be insufficient to protect our intellectual property rights because our patents may be challenged, invalidated, held unenforceable,
circumvented, or may not be sufficiently broad to prevent third parties from producing competing products similar in design to our products and foreign patents
protections may be more limited than those provided under U.S. patents and intellectual property laws.
We may not be afforded the protection of a patent if our currently pending or future patent filings do not result in the issuance of patents or if we fail to apply for patent
protection. We may fail to apply for a patent if our personnel fail to disclose or recognize new patentable ideas or innovations. Remote working can decrease the
opportunities for our personnel to collaborate, thereby reducing the opportunities for effective invention disclosures and patent application filings. We may choose not to
file a foreign patent application if the limited protections provided by a foreign patent outweigh the costs of obtaining it. Our foreign patent portfolio is less extensive than
our U.S. portfolio.
Our inability to maintain the proprietary nature of our technology through patents, copyrights or trade secrets would impair our competitive advantages and could have a
material adverse effect on our operating results, financial condition and future growth prospects. In particular, a failure to protect our intellectual property rights might
allow competitors to copy our technology or create counterfeit or pirated versions of our products, which could adversely affect our reputation, pricing and market share.
Our inability to successfully identify, consummate and integrate current and future acquisitions and strategic investments or to realize anticipated cost savings and
other benefits could adversely affect our business.
In the future, subject to capital constraints, we may seek to acquire selected safety product lines or safety-related businesses or other businesses, that will complement our
existing products. Our ability to acquire these businesses is dependent upon many factors, including our management’s relationship with the owners of these businesses,
many of which are small and closely held by individual stockholders. In addition, we will be competing for acquisition and expansion opportunities with other companies,
many of which have greater name recognition, marketing support and financial resources than us, which may result in fewer acquisition opportunities for us, as well as
higher acquisition prices. There can be no assurance that we will be able to identify, pursue or acquire any targeted business.
If we are unable to integrate or successfully manage businesses that we have recently acquired or may acquire in the future, we may not realize anticipated cost savings,
improved manufacturing efficiencies and increased revenue, which may result in material adverse short and long-term effects on our consolidated operating results,
financial condition and liquidity. Even if we are able to integrate the operations of our acquired businesses into our operations, we may not realize the full benefits of the
cost savings, revenue enhancements or other benefits that we may have expected at the time of acquisition. In addition, even if we achieve the expected benefits, we may
not be able to achieve them within the anticipated time frame, and such benefits may be offset by costs incurred in integrating the acquired companies and increases in
other expenses.
Acquisitions involve a number of special risks in addition to those mentioned above, including the diversion of management’s attention to the assimilation of the
operations and personnel of the acquired companies, the potential loss of key employees of acquired companies, potential exposure to unknown liabilities, adverse effects
on our reported operating results and the amortization or write-down of acquired intangible assets. We cannot assure you that any acquisition by us will or will not occur,
that if an acquisition does occur it will not materially and adversely affect our results of operations or that any such acquisition will be successful in enhancing our
business. To the extent that we are unable to manage growth efficiently and effectively or are unable to attract and retain additional qualified management personnel, our
business, financial condition and results of operations could be materially and adversely affected.
Table of Contents
13
On November 30, 2023, the Company acquired New Zealand-based Pacific Helmets NZ Limited ("Pacific") in an all-cash transaction valued at approximately $8.5
million, subject to post-closing adjustments and customary holdback provisions. Pacific Helmets is a leading designer and manufacturer of helmets for the structural
firefighting, wildland firefighting, and rescue markets. The acquisition enhances Lakeland’s product portfolio, particularly within fire service.
Beginning in October 2021, the Company has made a series of strategic investments totaling $8.0 million in Inova Design Solutions Ltd. (doing business as Bodytrak®)
(“Bodytrak”) as a step toward entering the Connected Worker Market for “Smart PPE.” Through January 31, 2024, the Company has recognized a total of $1.1 million in
losses from its investment in Bodytrak. The Company may incur additional losses.
On February 5, 2024, the Company acquired Italy and Romania-based Jolly Scarpe S.p.A. and Jolly Scarpe Romania S.R.L. (collectively, "Jolly") in an all-cash
transaction valued at approximately $9.3 million subject to post-closing adjustments and customary holdback provisions. Jolly is a leading designer and manufacturer of
professional footwear for the firefighting, military, police, and rescue markets. The company is headquartered in Montebelluna, Italy, with manufacturing operations in
Bucharest, Romania, and has 150 employees. Jolly provides a differentiated product portfolio through its continued investment in research and development and the use of
modern materials and cutting-edge technologies in the production of its footwear. See Note 15, “Subsequent Events,” to the consolidated financial statements in Item 8 of
this Annual Report on Form 10-K for additional information.
Changes in financial accounting standards or policies have affected, and in the future may affect, our reported financial condition or results of operations; there are
inherent limitations to our system of internal controls; changes in corporate governance requirements, policies and practices may impact our business.
We prepare our consolidated financial statements in conformity with GAAP. The preparation of our financial statements in accordance with GAAP requires that we make
estimates and assumptions that affect the recorded amounts of assets, liabilities and net income during the reporting period. A change in the facts and circumstances
surrounding those estimates could result in a change to our estimates and could impact our future operating results. GAAP is subject to interpretation by the Financial
Accounting Standards Board (“FASB”), the SEC and various bodies formed to interpret and create accounting policies. A change in those policies can have a significant
effect on our reported results and may affect our reporting of transactions that are completed before a change is announced. A significant change in our accounting
judgments could have a significant impact on our reported revenue, gross profit, assets and liabilities. In general, changes to accounting rules or challenges to our
interpretation or application of the rules by regulators may have a material adverse effect on our reported financial results or on the way we conduct business.
Our system of internal and disclosure controls and procedures was designed to provide reasonable assurance of achieving its objectives. However, no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any, have been or will be detected. As a result, there can be no assurance that our
system of internal and disclosure controls and procedures will be successful in preventing all errors, theft and fraud or in informing management of all material
information in a timely manner. For example, as disclosed in Item 9A of this annual report, we have remediated a material weakness related to controls over our foreign
subsidiary currency translation or remeasurement to ensure the foreign subsidiary’s account balances were accurately stated in the consolidated financial statements. We
can give no assurance that additional material weaknesses will not arise in the future.
Finally, corporate governance, public disclosure and compliance practices continue to evolve based on continuing legislative action, SEC rulemaking and policy positions
taken by large institutional stockholders and proxy advisors. As a result, the number of rules, regulations and standards applicable to us may become more burdensome to
comply with, could increase scrutiny of our practices and policies by these or other groups and increase our legal and financial compliance costs and the amount of time
management must devote to governance and compliance activities. For example, the SEC has recently adopted rules requiring that issuers provide significantly increased
disclosures concerning cybersecurity risk management, strategy, governance and incident reporting and adopt more stringent executive compensation clawback policies.
Increasing regulatory burdens and corporate governance requirements could make it more difficult for us to attract and retain qualified members of our Board of Directors
and qualified executive officers.
Table of Contents
Financial Risks
14
Our results of operations could be negatively affected by potential fluctuations in foreign currency exchange rates.
Most of our assembly arrangements with our foreign-based subsidiaries or third-party suppliers require payment to be made in U.S. dollars or the Chinese Renminbi
(“RMB”). Any decrease in the value of the U.S. dollar or RMB in relation to foreign currencies could increase the cost of the services provided to us upon contract
expirations or supply renegotiations. There can be no assurance that we will be able to increase product prices to offset any such cost increases, and any failure to do so
could have a material adverse effect on our business, financial condition and results of operations.
We are also exposed to foreign currency exchange rate risks as a result of our sales to customers in foreign countries in the amount of $69.3 million in FY24. Our sales in
these countries are usually denominated in the local currency. If the value of the U.S. dollar increases relative to these local currencies, and we are unable to raise our
prices proportionally, then our profit margins could decrease because of the exchange rate change.
Due to our purchases and sales in other countries, we are exposed to changes in foreign currency exchange rates. To manage this volatility, we seek to limit, to the extent
possible, our non-US dollar-denominated purchases and sales.
In connection with our operations in China, we purchase a significant amount of products from outside of the United States. However, our purchases in China are
primarily made in the RMB, the value of which has floated for the last 6 years, and therefore we have been exposed to additional foreign exchange rate risk on our
Chinese raw material and component purchases.
Our primary risk from foreign currency exchange rate changes is presently related to non-US dollar-denominated sales in China, Canada and Europe and, to a smaller
extent, in South American countries and Russia. Our sales to customers in Canada are denominated in Canadian dollars, Europe in Euros and British pounds, and China in
RMB and U.S. dollars. If the value of the U.S. dollar increases relative to the Canadian dollar, the Pound, the Euro, or the RMB, then our net sales could decrease as our
products would be more expensive to these international customers because of changes in the rate of exchange. When appropriate, we manage the foreign currency risk
through forward contracts against the Canadian dollar, Australian dollar, New Zealand dollar and Euro and through cash flow hedges in the U.S. against the RMB and the
Euro. We do not hedge other currencies at this time. In the event that non-U.S. dollar-denominated international purchases and sales grow, exposure to volatility in
exchange rates could have a material adverse impact on our financial results.
Covenants in our credit facilities may restrict our financial and operating flexibility.
As a result of the Loan Agreement the Company entered into on June 25, 2020, as amended to date, we currently have a $40.0 million revolving credit facility, expiring
March 25, 2029. Our credit facility requires, and any future credit facilities may also require, among others that we comply with specified financial covenants relating to
fixed charge coverage and investment in acquisitions. Our ability to satisfy these financial covenants can be affected by events beyond our control, and we cannot
guarantee that we will meet the requirements of these covenants.
On March 3, 2023, the Company changed the benchmark interest rate in our credit facility from the London Interbank Offered Rate (“LIBOR”) to the Secured Overnight
Financing Rate (“SOFR”). At January 31, 2024, we did not have any outstanding debt under our credit facility.
Table of Contents
15
We may need additional funds, and if we are unable to obtain these funds, we may not be able to expand or operate our business as planned.
Our operations require significant amounts of cash, and we may be required to seek additional capital, whether from sales of equity or by borrowing money, to fund
acquisitions for the future growth and development of our business or to fund our operations and inventory, particularly in the event of a market downturn.
A number of factors could affect our ability to access future debt or equity financing, including:
·
·
·
·
Our financial condition, strength and credit rating;
The financial markets’ confidence in our management team and financial reporting;
General economic conditions and the conditions in the homeland security and energy sectors; and
Capital markets conditions.
Even if available, additional financing may be more costly than our current facility and may have adverse consequences. If additional funds are raised through the
incurrence of debt, we will incur increased debt servicing costs and may become subject to additional restrictive financial and other covenants. We can give no assurance
as to the terms or availability of additional capital. Although management believes it currently has sufficient capital, if we do need additional capital in the future and are
unsuccessful, it could reduce our net sales and materially adversely impact our earning capability and financial position.
Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions
or transactional counterparties, could adversely affect our business, financial condition or results of operations.
Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other
companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have
in the past and may in the future lead to market-wide liquidity problems. Although we assess our banking and customer relationships as we believe necessary or
appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations
could be significantly impaired by factors that affect us, the financial services industry or economy in general. These factors could include, among others, events such as
liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability
in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest
rates or costs and tighter financial and operating covenants or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to
acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could have material adverse impacts on our
liquidity and our business, financial condition or results of operations.
If our goodwill, other intangible assets and long-lived assets become impaired, we may be required to record significant charges to earnings.
We review our long-lived assets for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. Goodwill and indefinite-
lived intangible assets are required to be assessed for impairment at least annually. Factors that may be considered a change in circumstances, indicating that the carrying
amount of our goodwill, indefinite-lived intangible assets or long-lived assets may not be recoverable, include slower growth rates in our markets, reduced expected future
cash flows, increased country risk premiums as a result of political uncertainty and a decline in stock price and market capitalization. We consider available current
information when calculating our impairment charge. If there are indicators of impairment, our long-term cash flow forecasts for our operations deteriorate or discount
rates increase, we may be required to recognize additional impairment charges in later periods.
Table of Contents
Legal and Regulatory Risks
16
We deal in countries where corruption is an obstacle.
We must comply with American laws such as the Foreign Corrupt Practices Act (FCPA) and Sarbanes-Oxley and also with anticorruption legislation in the U.K. Some of
our competitors and customers in foreign jurisdictions may not adhere to such legislation. As a result, we believe that we lose sales orders due to our strict adherence to
such regulations.
We are subject to various U.S. and foreign tax laws, and any changes in these laws related to the taxation of businesses and resolutions of tax disputes could adversely
affect our results of operations.
The U.S. Congress, the Organization for Economic Co-operation and Development (OECD) and other government agencies in jurisdictions in which we invest or do
business have maintained a focus on issues related to the taxation of multinational companies. The OECD has changed numerous long-standing tax principles through its
base erosion and profit shifting (“BEPS”) project, which could adversely impact our effective tax rate.
We are subject to regular review and audit by foreign and domestic tax authorities. While we believe our tax positions will be sustained, the final outcome of tax audits
and related litigation may differ materially from the tax amounts recorded in our consolidated financial statements, which could have a material adverse effect on our
consolidated results of operations, financial condition and cash flows.
We may be subject to product liability claims, and insurance coverage could be inadequate or unavailable to cover these claims.
We manufacture products used for protection from hazardous or potentially lethal substances, such as chemical and biological toxins, fire, viruses and bacteria. The
products that we manufacture are typically used in applications and situations that involve high levels of risk of personal injury. Failure to use our products for their
intended purposes, failure to use our products properly or the malfunction of our products could result in serious bodily injury or death of the user. In such cases, we may
be subject to product liability claims arising from the design, manufacture or sale of our products. If these claims are decided against us and we are found to be liable, we
may be required to pay substantial damages, and our insurance costs may increase significantly as a result. We cannot assure you that our insurance coverage would be
sufficient to cover the payment of any potential claim. In addition, we cannot assure you that this or any other insurance coverage will continue to be available or, if
available, that we will be able to obtain it at a reasonable cost. Any material uninsured loss could have a material adverse effect on our financial condition, results of
operations and cash flows.
Environmental laws and regulations may subject us to significant liabilities.
Our U.S. operations, including our manufacturing facilities, are subject to federal, state and local environmental laws and regulations relating to the discharge, storage,
treatment, handling, disposal and remediation of certain materials, substances and wastes. Any violation of any of those laws and regulations could cause us to incur
substantial liability to the U.S. Environmental Protection Agency, to the state environmental agencies in any affected state or to any individuals affected by any such
violation. If hazardous substances are released from or located on any of our properties, we could incur substantial costs and damages. Any such liability could have a
material adverse effect on our financial condition and results of operations.
For example, governmental authorities in the U.S. and in other jurisdictions are increasingly focused on potential contamination resulting from PFAS. Products containing
PFAS have been used in manufacturing, industrial, and consumer applications over many decades, including in some of our component materials purchased from
suppliers. In 2021, the Biden Administration announced a multi-agency plan to address PFAS contamination, and the U.S. Environmental Protection Agency released its
PFAS Strategic Roadmap, which identified a comprehensive approach to addressing PFAS. In August 2022, the U.S. EPA proposed to designate perfluorooctanesulfonic
acid (PFOS) and perfluorooctanoic acid (PFOA), two of the most common PFAS chemicals, as hazardous substances, which could have wide-ranging impacts on
companies across various industries, including ours. We may incur costs in connection with any obligations to transition away from the usage of PFAS-containing
products, to dispose of PFAS-containing waste or to remediate any PFAS contamination, which could have a negative effect on our financial position, results of operations
and cash flows.
In addition, some environmental laws impose liability, sometimes without fault, for investigating and/or cleaning up contamination on, or emanating from, properties
currently or formerly owned, leased or operated by a person, as well as for damages to property or natural resources and personal injury arising out of such contamination.
Such liability may be joint and several, meaning that we could be held responsible for more than our share of the liability involved, or even the entire liability.
Table of Contents
17
The regulatory environment in which we operate is subject to change, and new regulations and new or existing claims, such as those related to certain PFAS substances,
could have a material adverse effect on our business, financial condition and results of operations or make aspects of our business as currently conducted no longer
possible. For example, the Company has been named as a party to a number of lawsuits filed by firefighters related to exposure to PFAS in firefighter turnout gear. These
cases are consolidated in In re: Aqueous Film-Forming Foams Products Liability Litigation, MDL No.: 2:18-mn-2873-RMG (District of South Carolina, Charleston
Division). We may, in the future, be subject to additional claims related to PFAS, including for degradation of natural resources from such PFAS and personal injury or
product liability claims as a result of human exposure to such PFAS.
Provisions in our restated certificate of incorporation, by-laws, and Delaware law could make a merger, tender offer or proxy contest difficult.
Our restated certificate of incorporation contains classified board provisions, authorized preferred stock that could be utilized to implement various “poison pill” defenses
and a stockholder authorized, but as yet unused, Employee Stock Ownership Plan (“ESOP”), all of which may have the effect of discouraging a takeover of Lakeland,
which is not approved by our board of directors. Further, we are subject to the antitakeover provisions of Section 203 of the Delaware General Corporation Law, which
prohibit us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person
became an interested stockholder unless the business combination is approved in the prescribed manner.
Risks Relating to Our Common Stock
The market price of our common stock may fluctuate widely.
The market price of our common stock could be subject to significant fluctuations in response to quarter-to-quarter variations in our operating results, announcements of
new products or services by us or our competitors and other events or factors. For example, a shortfall in net sales or net income, or an increase in losses, from levels
expected by securities analysts or investors, could have an immediate and significant adverse effect on the market price of our common stock. Volume fluctuations that
have particularly affected the market prices of many micro and small capitalization companies have often been unrelated or disproportionate to the operating performance
of these companies. These fluctuations and general economic and market conditions may adversely affect the market price for our common stock.
In February 2023, the Company began paying a quarterly cash dividend. Future quarterly dividends are subject to declaration by the Company’s Board of Directors, and
the Company’s share repurchase programs do not obligate it to acquire any specific number of shares. If the Company fails to meet expectations related to future growth,
profitability, dividends, share repurchases or other market expectations, the price of the Company’s stock may decline significantly, which could have a material adverse
impact on investor confidence and employee retention.
18
Table of Contents
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
ITEM 1C: CYBERSECURITY
Cybersecurity Risk Management and Strategy
We recognize the importance of assessing, identifying, and managing material risks associated with cybersecurity threats, as such term is defined in Item 106(a) of
Regulation S-K. These risks include, among other things, operational disruption, intellectual property theft, fraud, extortion, harm to employees or customers, violation of
privacy or security laws and other litigation and legal risks, and reputational risks. We have implemented several cybersecurity processes, technologies, and controls to
aid in our efforts to assess, identify, and manage such material risks.
To identify and assess material risks from cybersecurity threats, our enterprise risk management program considers cybersecurity threat risks alongside other company
risks as part of our overall risk assessment process. Our enterprise risk professionals collaborate with subject matter specialists, as necessary, to gather insights for
identifying and assessing material cybersecurity threat risks, their severity, and potential mitigations. We employ a range of tools and services, including regular network
and endpoint monitoring, vulnerability assessments, and penetration testing, to inform our professionals’ risk identification and assessment.
We also have a cybersecurity specific risk assessment process, which helps identify our cybersecurity threat risks by comparing our program to best practices, as well as
by engaging experts to attempt to infiltrate our information systems (as such term is defined in Item 106(a) of Regulation S-K). We test and review the result on an annual
basis.
Our cybersecurity program includes controls designed to prevent, identify, protect against, detect, respond to and recover from cybersecurity incidents (as such term is
defined in Item 106(a) of Regulation S-K), and to provide for the availability of critical data and systems and to maintain regulatory compliance. These controls include
the following activities:
·
·
·
·
·
·
·
·
·
monitor emerging data protection laws and implement changes to our processes designed to comply;
conduct regular cybersecurity management and incident training for all employees;
conduct regular phishing email simulations for all employees with access to corporate email systems to enhance awareness and responsiveness to such
possible threats. Any employee who fails a phishing test is automatically enrolled in additional cyber training;
through policy, practice and contract (as applicable) require employees, as well as third parties who provide services on our behalf, to treat customer
information and data with care;
maintain multiple layers of controls, including embedding technological and administrative security features into our technology investments, multi-factor
authentication tools, system access policies and privileges, and network configuration;
perform annual system access audit with all departments and personnel;
review access logs and continually monitor detection alerts;
conduct annual tabletop exercises to simulate cyber incidents to refine cyber security policies, further;
implement a remote disaster recovery backup site and fail over testing.
We perform periodic internal assessments to test our cybersecurity controls and regularly evaluate our policies and procedures surrounding our handling and control of
personal data and the systems we have in place to help protect us from cybersecurity or personal data breaches, and we perform periodic internal assessments to test our
controls and to help us identify areas for continued focus, improvement, and/or compliance.
We have established a cybersecurity risk management process that includes internal reporting of significant cybersecurity risk to our board when found. In addition, our
incident response plan coordinates the activities we take to prepare for, detect, respond to and recover from cybersecurity incidents. These include processes to triage,
assess severity, escalate, contain, investigate, and remediate the incident, as well as comply with potentially applicable legal obligations and mitigate brand and
reputational damage.
19
Table of Contents
Our processes also address cybersecurity threat risks associated with our use of third-party service providers, including those in our supply chain or who have access to
our customer and employee data or our systems. Third-party risks are included within our enterprise risk management program, as well as our cybersecurity-specific risk
identification program, both of which are discussed above. In addition, cybersecurity considerations affect the selection and oversight of our third-party service providers.
We describe whether and how risks from identified cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are
reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition, under the heading “Cybersecurity incidents could
disrupt business operations, result in the loss of critical and confidential information and adversely impact our reputation and results of operations” included as part of
our risk factor disclosures at Item 1A of this Annual Report on Form 10-K which disclosures are incorporated by reference herein.
In the last three fiscal years, we have not experienced any material cybersecurity incidents and the expenses we have incurred from them were immaterial. This includes
penalties and settlements, of which there were none.
Cybersecurity Governance
Cybersecurity is an important part of our enterprise risk management program and an area of increasing focus for our Board and management. We have established a
Cyber Security Council, comprised of top-level executives and board members, that acts under the oversight of our Audit Committee. The Cyber Security Council is
responsible for the oversight of risks from cybersecurity threats. Management is informed about and monitors the prevention, mitigation, detection, and remediation of
cybersecurity incidents through their management of and participation in the cybersecurity risk management process described above, including the operation of our
incident response plan. Annually, the Cyber Security Council receives an overview from management of our cybersecurity threat risk management process and strategy
covering topics such as data security posture, results from security assessments, progress towards pre-determined risk-mitigation-related goals, our incident response plan,
and material cybersecurity threat risks or incidents and developments, as well as the steps management has taken to respond to such risks. In such sessions, the Cyber
Security Council generally receives materials, including current and emerging material cybersecurity threat risks and describing the company’s ability to mitigate those
risks, and discusses such matters with our Vice President of Information Technology.
Members of the Cyber Security Council are also encouraged to regularly engage in ad hoc conversations with management on cybersecurity-related news events and
discuss any updates to our cybersecurity risk management process. Material cybersecurity threat risks are also considered during separate Board meeting discussions of
important matters like enterprise risk management, operational budgeting, business continuity planning, mergers and acquisitions, brand management, and other relevant
matters. Any potential threat or incident is reported to the Cyber Security Council based on the severity and potential risk based on the escalation procedure as defined by
the Incident Response Plan.
Our cybersecurity risk management process, which is discussed in greater detail above, is led by our Vice President of Information Technology. This individual has over
thirty years of prior work experience in various Information Technology roles including managing information systems and security.
Our Vice President of Information Technology and technology professionals have deep experience and skills related to the development, implementation and monitoring
of cyber technology assets. Our technology staff and partners have a strong track record of working with major vendors' security, firewall, identity management, and other
platforms.
Table of Contents
20
ITEM 2. PROPERTIES
Our principal executive office is located at 1525 Perimeter Parkway Suite 325, Huntsville, AL 35806 United States. We own or lease our primary facilities. We own our
manufacturing locations in AnQui City, China and Jerez, Mexico. We lease our manufacturing locations in Buenos Aires, Argentina; Noida, India, and Xuan Trung
Commune, Vietnam.
We believe that all of our facilities, including the manufacturing facilities, are in good repair and suitable condition for their intended purpose.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are a party to litigation arising in the ordinary course of our business. We are not currently a party to any litigation or other legal proceedings that
we believe could reasonably be expected to have a material adverse effect on our results of operations, financial condition or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Table of Contents
21
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Our common stock is currently traded on the Nasdaq Market under the symbol “LAKE.” On April 5, 2024, there were 30 registered holders of our shares of common
stock. This number of registered holders does not represent the actual number of beneficial owners of our common stock because shares are frequently held in “street
name” by securities dealers and others for the benefit of individual owners who have the right to vote their shares.
Dividend Policy
Prior to February 2023, we had not paid any cash dividends on our common stock. In February 2023, the Company began paying a quarterly cash dividend of $0.03 per
share. The payment and rate of future cash or stock dividends, if any, or stock repurchase programs are subject to the discretion of our board of directors and will depend
upon our earnings, financial condition, capital or contractual restrictions under our credit facilities and other factors. There is no guarantee that additional dividends will
be declared and paid at any time.
Issuer Purchase of Equity Securities
Period
Total Number
of Shares
Purchased
Average
Price Paid
per Share
Total Number
Maximum Dollar
of Shares
Purchased
Amount
of Shares that
November 1 – November 30
December 1 – December 31
January 1 – January 31
Total
as Part of
Publicly
Announced
Programs
May Yet Be
Purchased
Under
the Programs
— $
--- $
--- $
--- $
—
---
---
---
— $
--- $
--- $
--- $
5,030,479
5,030,479
5,030,479
5,030,479(1)
(1) Represents the amount remaining under our share repurchase program as of January 31, 2024.
On February 17, 2021, the Company’s Board of Directors approved a stock repurchase program under which the Company may repurchase up to $5 million of its
outstanding common stock. On July 6, 2021, the Board of Directors authorized an increase in the Company’s then-current stock repurchase program under which the
Company may repurchase up to an additional $5 million of its outstanding common stock. On April 7, 2022, the Board of Directors authorized a new stock repurchase
program under which the Company may repurchase up to $5 million of its outstanding common stock, which became effective upon the completion of the prior share
repurchase program. On December 1, 2022, the Board of Directors authorized an increase in the share repurchase program under which the Company may repurchase up
to an additional $5 million of its outstanding common stock. The share repurchase program has no expiration date but may be terminated by the Board of Directors at any
time.
We do not have any other share repurchase programs.
22
Table of Contents
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following summary together with the more detailed business information and consolidated financial statements and related notes that appear
elsewhere in this Form 10-K and in the documents that we incorporate by reference into this Form 10-K. This document may contain certain “forward-looking”
information within the meaning of the Private Securities Litigation Reform Act of 1995. This information involves risks and uncertainties. Our actual results may differ
materially from the results discussed in the forward-looking statements. In this Form 10-K, (a) “FY” means fiscal year; thus for example, FY24 refers to the fiscal year
ended January 31, 2024, and (b) “Q” refers to a quarter; thus, for example, Q4 FY24 refers to the fourth quarter of the fiscal year ended January 31, 2024.
Overview
We manufacture and sell a comprehensive line of industrial protective clothing and accessories for the industrial and public protective clothing market. Our products are
sold globally by our in-house sales teams, our customer service group, and authorized independent sales representatives to a network of over 2,000 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 in China, countries
within the European Economic Community (“EEC”), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India, Middle East and countries within
Southeast Asia.
We had net sales of $124.7 million in FY24 and $112.8 million in FY23.
We have operated facilities in Mexico since 1995 and in China since 1996. Beginning in 1995, we moved the labor-intensive sewing operation for our limited
use/disposable protective clothing lines to these facilities. Our facilities and capabilities in China and Mexico allow our access to a labor pool that is less expensive than
that available in the United States and permits us to purchase certain raw materials at a lower cost than they are available domestically. During FY24, the Company was
impacted by tariff costs on certain products imported from China. The Company has been able to pass along a portion of these costs to its customers. We added
manufacturing operations in Vietnam and India in fiscal 2019 to offset increasing manufacturing costs in China and further diversify our manufacturing capabilities. Our
China operations will continue primarily manufacturing for the Chinese market and other markets where duty advantages exist. Manufacturing expansion is not only
necessary to control rising costs, it is also necessary for Lakeland to achieve its growth objectives.
Our net sales attributable to customers outside the United States were $69.4 million and $63.9 million for the fiscal years ended January 31, 2024 and 2023, respectively.
On November 30, 2023, we acquired New Zealand-based Pacific Helmets NZ Limited ("Pacific") in an all-cash transaction valued at approximately $8.6 million, subject
to post-closing adjustments and customary holdback provisions. Pacific is a leading designer and manufacturer of helmets for the structural firefighting, wildland
firefighting, and rescue markets. The company has 70 employees and is headquartered in Whanganui, New Zealand. Pacific provides differentiated product offerings
through its innovative and premium solutions. The existing staff and the majority of the management team will remain in place and will continue to service customer
needs.
On December 2, 2022, we acquired UK-based Eagle Technical Products Limited (“Eagle”) in an all-cash transaction valued at approximately $10.5 million, net of net
working capital acquired, subject to post-closing adjustments and potential future earnout payments. The acquisition enhances Lakeland’s product portfolio, particularly
within fire service protective clothing and expands its sales presence in the Middle East and Europe. Headquartered in Manchester, UK, Eagle is a leading designer and
provider of protective apparel to the fire and industrial sectors. Eagle provides differentiated product offerings through its innovative and technical solutions.
Table of Contents
23
The cost to manufacture and distribute our products is influenced by the cost of raw materials, finished goods, labor, and transportation. During FY24, we have
experienced continued inflationary pressure and higher costs as a result of the increasing cost of raw materials, finished goods, labor, transportation, and other
administrative costs associated with the normal course of business. The increase in the cost of raw materials and finished goods is due in part to a shortage in the
availability of certain products, the higher cost of shipping, and inflation. We can only pass elevated costs onto customers in an effort to offset inflationary pressures on a
limited basis. Future volatility of general price inflation and the impact of inflation on costs and availability of materials, costs for shipping and warehousing and other
operational overhead could adversely affect our financial results.
Impact of Russia’s Invasion of Ukraine on Our Business
The current conflict between Russia and Ukraine is creating substantial uncertainty about the role Russia will play in the global economy in the future. Although the
length, impact, and outcome of the ongoing military conflict between Russia and Ukraine are highly unpredictable, this conflict could lead to significant market
disruptions and other disruptions. The escalation or continuation of this conflict presents heightened risks and has resulted and could continue to result in volatile
commodity markets, supply chain disruptions, increased risk of cyber incidents or other disruptions to information systems, heightened risks to employee safety,
significant volatility of the Russian ruble, limitations on access to credit markets, increased operating costs (including fuel and other input costs), the frequency and
volume of failures to settle securities transactions, inflation, potential for increased volatility in commodity, currency and other financial markets, safety risks, and
restrictions on the transfer of funds to and from Russia. We cannot predict how and the extent to which the conflict will affect our customers, operations or business
partners or the demand for our products and our global business. Depending on the actions we take or are required to take, the ongoing conflict could also result in loss of
cash, assets or impairment charges. Additionally, we may also face negative publicity and reputational risk based on the actions we take or are required to take as a result
of the conflict, which could damage our brand image or corporate reputation. We are continually monitoring the potential financial impact of the Russian invasion of
Ukraine on our operations.
Our business in Russia accounted for approximately 3.0% and 2.4% of our consolidated net revenues for the years ended January 31, 2024 and 2023, respectively. Our
assets in Russia were approximately 2.6% and 2.5% of our consolidated assets at January 31, 2024 and 2023, respectively. The net book value of our assets in Russia on
January 31, 2024 was approximately $4.0 million, of which $0.3 million is cash. We currently have not recognized any impairment charges related to the assets of our
Russian business. However, the extent, severity, duration and outcome of the conflict between Russia and Ukraine and related sanctions could potentially impact the value
of our assets in Russia as the conflict continues. Our Russian business is part of our Other Foreign segment.
Our sales in Ukraine were not significant.
Critical Accounting Policies and Estimates
Revenue Recognition. Substantially all of 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 FY24 and FY23 aggregated approximately $3.4 million and $3.2 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.
Table of Contents
24
Inventories. Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost (on a first-in, first-out or moving average basis) or net
realizable value. Allowances are recorded for slow-moving, obsolete or unusable inventory. We assess our inventory for estimated obsolescence or unmarketable
inventory and write down the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future sales and supply on
hand, if necessary. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. The Company
recorded approximately $3.4 million and $1.3 million in inventory adjustments in FY24 and FY23, respectively. The inventory adjustments in FY24 included $2.3 million
in adjustments for certain products that the Company decided to discontinue or no longer support from a sales and marketing perspective.
Income Taxes. The Company is required to estimate its income taxes in each of the jurisdictions in which it operates as part of preparing the consolidated financial
statements. This involves estimating the actual current tax in addition to assessing temporary differences resulting from differing treatments for tax and financial
accounting purposes. These differences, together with net operating loss carryforwards and tax credits, are recorded as deferred tax assets or liabilities on the Company’s
consolidated balance sheet. A judgment must then be made of the likelihood that any deferred tax assets will be recovered from future taxable income. A valuation
allowance may be required to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines that it may not be
able to realize all or part of its deferred tax asset in the future or that new estimates indicate that a previously recorded valuation allowance is no longer required, an
adjustment to the deferred tax asset is charged or credited to income in the period of such determination. In FY24 and FY23, we recorded a change in our valuation
allowance of approximately $3.1 million and $0.4 million, respectively.
The Company recognizes tax positions that meet a “more likely than not” minimum recognition threshold. If necessary, the Company recognizes interest and penalties
associated with tax matters as part of the income tax provision and would include accrued interest and penalties with the related tax liability in the consolidated balance
sheets.
Business combinations. In accordance with the accounting guidance for business combinations, the Company uses the acquisition method of accounting to allocate costs
of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess of the purchase price over
the estimated fair value of assets and liabilities is recorded as goodwill. Assigning fair market values to the assets acquired and liabilities assumed at the date of an
acquisition requires knowledge of current market values and the values of assets in use and often requires the application of judgment regarding estimates and
assumptions. While the ultimate responsibility resides with management, for material acquisitions, we retain the services of certified valuation specialists to assist with
assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets, tangible long-lived assets, and contingent consideration. Acquired
intangible assets, excluding goodwill, are valued using certain discounted cash flow methodologies based on future cash flows specific to the type of intangible asset
purchased. Several significant assumptions and estimates were involved in the application of these valuation methods, including forecasted sales volumes and prices,
royalty rates, costs to produce, tax rates, discount rates, attrition rates and working capital changes.
If the contingent consideration is deemed significant or absent an agreed-upon payout amount, the initial measurement of contingent consideration and the corresponding
liability is evaluated using the Monte Carlo Method. For this valuation method, management develops projections during the contingent consideration period utilizing
various potential pay-out scenarios. Probabilities are applied to each potential scenario, and the resulting values are discounted using a rate that considers weighted
average cost of capital as well as a specific risk premium associated with the riskiness of the contingent consideration itself, the related projections, and the overall
business. Should actual results increase or decrease as compared to the assumption used in our analysis, the fair value of the contingent consideration obligations will
increase or decrease, up to the contracted limit, as applicable. Changes in the fair value of the contingent earn-out consideration could cause a material impact and
volatility in our operating results.
Refer to Note 1, “Business and Summary of Significant Accounting Policies,” and Note 5, “Acquisitions,” to the consolidated financial statements in Item 8 of this Annual
Report on Form 10-K for further information on the Company’s business acquisitions.
Equity Method Investments. Investments in which the Company can exercise significant influence but do not control, are accounted for using the equity method and are
presented on the consolidated balance sheets. The Company’s share of the net earnings or losses of the investee is presented within the consolidated statements of
operations as other income (expense). The Company evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying
amounts of such investments may be impaired. The primary factors the Company considers in its determination are the length of time that the fair value of the investment
is below the Company's carrying value; the severity of the decline; and the financial condition, operating performance and near-term prospects of the investee. If the
decline in fair value is deemed to be other than temporary, the security is written down to fair value. In situations where the fair value of an investment is not evident due
to a lack of a public market price or other factors, the Company estimates fair value based on a discounted cash flow model and a market-based approach using inputs
which include expected cash flows and a discount rate representative of the risks within the underlying business and forecasts to arrive at the estimated fair value of such
investment. The Company's assessment of the foregoing factors involves a high degree of judgment and accordingly, actual results may differ materially from the
Company's estimates and judgments.
Table of Contents
25
Net Income Per Share. Basic net income per share is based on the weighted average number of common shares outstanding without consideration of common stock
equivalents. Diluted net income per share is based on the weighted average number of common shares and common stock equivalents. The diluted net income per share
calculation takes into account unvested restricted shares and the shares that may be issued upon the exercise of stock options and warrants, reduced by shares that may be
repurchased with the funds received from the exercise, based on the average price during the fiscal year.
Recent Developments
On February 1, 2024, the Company’s Board of Directors declared a quarterly cash dividend. The quarterly dividend of $0.03 per share or approximately $0.2 million, was
paid on February 22, 2024, to stockholders of record as of February 15, 2024.
On February 5, 2024, the "Company acquired Italy and Romania-based Jolly Scarpe S.p.A. and Jolly Scarpe Romania S.R.L. (collectively, "Jolly") in an all-cash
transaction valued at approximately $9.3 million subject to post-closing adjustments and customary holdback provisions. The Company drew down $12.3 million on its
credit line to fund the acquisition, with a portion of the funds used to paydown Jolly’s existing debt. Jolly is a leading designer and manufacturer of professional footwear
for the firefighting, military, police, and rescue markets. The company is headquartered in Montebelluna, Italy, with manufacturing operations in Bucharest, Romania, and
has 150 employees. Jolly’s primary customers are based in Europe.
On February 13, 2024, the Company made an additional funding investment of £500,000 ($0.6 million on the date of investment) in Bodytrak’s convertible notes.
On March 28, 2024, the Company entered into Amendment No. 4 to the Loan Agreement by and between Bank of America, N.A. (the “Lender”) and the Company (the
“Fourth Amendment”). Pursuant to the Fourth Amendment, the Lender and the Company agreed to, among other things, (i) extend the expiration date of the credit facility
to March 28, 2029, (ii) increase the availability under the revolving credit facility to $40.0 million with an accordion feature providing for the potential funding of an
additional $10.0 million, (iii) remove the borrowing base component of the credit facility; and (iv) modify the interest rate based on Daily SOFR plus the Applicable Rate.
The Applicable Rate is based upon a Funded Debt to EBITDA Ratio and includes four (4) different levels constituting a SOFR margin range from 1.25% to 2.00%. In
addition, the Fourth Amendment (i) modified the Funded Debt to EBITDA Ratio covenant so as not to exceed 3.5x (with step-downs to 3.25 and 3.0 in 2025 and 2026),
(ii) modified the Basic Fixed Charge Coverage Ratio covenant to a minimum of 1.20x, (iii) includes a springing Asset Coverage Ratio covenant of at least 1.10x, but only
to the extent that the maximum Total Leverage Ratio exceeds 3.00x at any reporting period, (iv) increases the sublimit for letters of credit to $10.0 million, and (v)
imposes a floor to Daily SOFR of one percent (1.00%). The Fourth Amendment provides for additional indebtedness or the assumption of existing indebtedness for
acquisitions of foreign subsidiaries (not to exceed $10.0 million in USD) and increases the size of Permitted Acquisitions, without prior approval from the Lender, to
$17.5 million per occurrence and $35.0 million in the aggregate.
Table of Contents
26
Significant Balance Sheet Fluctuation January 31, 2024, as Compared to January 31, 2023
Cash increased by $0.7 million, primarily as a result of $10.8 million of cash provided by operations coupled with $4.6 million in proceeds from the sale of our Canada
warehouse facility. The Company invested $5.4 million in the Pacific acquisition and $2.2 million in Bodytrak and $2.0 million in capital expenditures. The Company
used $3.5 million in financing activities including paying down $1.4 million in debt acquired from Pacific, $0.4 million in the UK credit facility, $0.3 million in stock
repurchases and $0.9 million in dividends. Operating cash flow changes were driven by $7.6 million in inventory reductions, increases in accruals of $2.5 million and
increases in accounts receivables and prepayments of $1.5 million.
Results of Operations
The following tables set forth our external sales by our product lines and geographic regions and our historical results of continuing operations as a percentage of our net
sales from operations, for the years and three-months ended January 31, 2024 and 2023.
External Sales by Product Line:
Disposables
Chemical
Fire Services
Gloves
High Visibility
High Performance Wear
Wovens
Consolidated external sales
Table of Contents
External Sales by region:
Three Months Ended January 31,
(Unaudited)
2024
2023
12.9 $
4.9
6.5
0.5
1.2
1.7
3.5
31.2 $
13.9 $
4.8
5.5
0.5
1.2
1.2
1.9
29.0 $
Year Ended January 31,
2024
49.6 $
20.3
26.5
2.2
6.6
6.9
12.6
124.7 $
2023
55.2
22.2
14.7
2.3
5.8
5.0
7.6
112.8
$
$
27
Three Months Ended January 31,
(Unaudited)
2024
2023
Year Ended January 31,
2024
2023
USA
Other foreign
Europe (UK)
Mexico
Asia
Canada
Latin America
Consolidated external sales
Net sales
Cost of goods sold
Gross profit
Operating expenses
Operating profit
Other income, net
Interest expense
Income before tax
Income tax expense
Net income (loss)
$
$
12.7 $
3.3
3.7
1.1
4.0
2.1
4.3
31.2 $
11.9 $
1.8
3.0
0.8
5.6
2.1
3.8
29.0 $
55.2 $
9.9
16.3
4.0
13.8
9.4
16.1
124.7 $
Three Months Ended January 31,
(Unaudited)
Year Ended January 31,
2024
100.0%
64.1%
35.9%
46.4%
(10.5)%
11.5%
0.1%
0.9%
4.0%
(3.1)%
2023
100.0%
62.5%
37.5%
37.2%
0.3%
0.3%
0.0%
0.6%
(0.0)%
0.6%
2024
100.0%
58.9%
41.1%
36.3%
4.8%
2.7%
0.0%
7.5%
3.2%
4.4%
49.0
7.2
8.3
3.7
24.7
9.1
10.8
112.8
2023
100.0%
59.4%
40.6%
35.7%
4.9%
0.0%
0.1%
4.8%
3.2%
1.6%
Net Sales. Net sales increased to $124.7 million for the year ended January 31, 2024 compared to $112.8 million for the year ended January 31, 2023, an increase of $11.9
million. Sales in the U.S. increased $6.2 million or 12.7%, primarily due to increased sales of fire services gear and improvements in direct container sales. Sales to the
Asian market decreased by $10.9 million or 44.1% due to the reduction in COVID-19 driven demand coupled with slow improvement in the Chinese industrial
sector. Sales to the European market increased by $8.0 million or 96.4%. Eagle was the primary driver with an increase in fire services sales of $7.2 million in
FY24. Eagle was acquired on December 2, 2022 and contributed $1.3 million in sales in FY23. The remaining increase was due to strengthening in European demand,
primarily in the industrial sector. Canada sales increased by $0.3 million or 3.3% due to improvements in the industrial markets. Latin America sales increased $5.3
million or 49.1% due to stronger sales in Argentina as many competitors have exited the market due to the weakening Argentine peso and high inflation. Sales into
Uruguay increased $1.1 million or 1.0% due to increased fire services orders. Sales into the Mexican market increased by $0.3 million or 8.1%, driven by the
strengthening Mexican peso against the US dollar. Sales in our other foreign markets increased $2.2 million, including $1.0 million in sales from Pacific acquired in
November, and a $1.0 million increase in sales to the Russian market. Sales of our disposable and chemical product line were impacted due to a reduction in COVID-19
demand, primarily in Asia offset by improving demand in our industrial markets. Other product lines, such as fire services, high performance, and wovens, increased by
$18.7 million due to strengthening demand in those markets and the impact of Eagle’s sales during FY24.
Gross Profit. Gross profit increased $5.4 million, or 11.8%, to $51.2 million for the year ended January 31, 2024, from $45.8 million for the year ended January 31, 2023.
Gross profit as a percentage of net sales increased to 41.1% for the year ended January 31, 2024 from 40.6% for the year ended January 31, 2023. Gross profit
performance in FY24 benefited from higher volumes including direct container shipments, related factory utilization and an improving product mix with pricing power.
These improvements were offset by $2.3 million in inventory adjustments for certain end-of-life products and planned disposal of certain products that were constraining
manufacturing operations.
Table of Contents
28
Operating Expense. Operating expenses increased 12.2% from $40.3 million for the year ended January 31, 2023 to $45.2 million for the year ended January 31, 2024.
Operating expenses as a percentage of net sales were 36.3% for the year ended January 31, 2024, as compared to 35.7% for the year ended January 31, 2023. Operating
expenses increased primarily due to increases in currency translation expense of $1.7 million driven by the devaluation of the Argentine peso in December 2023,
restructuring costs of $1.3 million, administrative costs associated with the Monterrey, Mexico facility of $0.7 million, acquisition-related expenses of $0.5 million, and
increases in professional expenses, primarily legal and accounting, to support future initiatives. The remaining increase was due to increases in compensation,
professional fees and intangibles amortization. The Company evaluated the earnout consideration accrual related to the Eagle acquisition and reduced the accrual by $2.5
million, which was recorded during FY24 as a reduction in operating expenses.
Operating Profit. Operating profit increased to $6.0 million for the year ended January 31, 2024, from $5.5 million for the year ended January 31, 2023, due to the
impacts detailed above. Operating margin decreased to 4.8% for the year ended January 31, 2024, compared to 4.9% for the year ended January 31, 2023.
Interest Expense. Interest expense was less than $0.1 million for the years ended January 31, 2024 and 2023.
Other Income. On November 27, 2023, the Company sold its office and warehouse facility in Brantford, Ontario to an unrelated party for $4.9 million. The sale resulted
in a pre-tax gain, after selling expenses, of approximately $3.8 million. Going forward, the Company will utilize third party logistics providers for customer fulfillment in
Canada.
Income Tax Expense. Income tax expense consists of federal, state and foreign income taxes. Income tax expense was $3.9 million and included $0.8 million associated
with the GILTI component of the Tax Act of 2017 for the year ended January 31, 2024, as compared to an income tax expense of $3.6 million and included $0.2 million
associated with the GILTI component of the Tax Act of 2017 for the year ended January 31, 2023. All international subsidiaries impacted the GILTI component of income
tax expense. The Company changed its permanent reinvestment assertions for its Chinese operations during the second quarter of FY23 due to increased volatility of the
Chinese yuan and an updated evaluation of investment strategies. The Company recorded $2.0 million in withholding taxes for a planned repatriation during FY23.
Net Income. Net income increased to $5.4 million for the year ended January 31, 2024 from $1.9 million for the year ended January 31, 2023.
Fourth Quarter Results
Net sales and net loss were $31.2 million and ($1.0) million, respectively, for Q4 FY24, as compared to sales of $29.0 million and net income of $0.6 million, for Q4
FY23.
Factors affecting Q4 FY24 results of operations included:
·
·
·
Improvement in sales for fire services due to the acquisition of Pacific and strengthening in the Latin America market, primarily Argentina.
Margins were impacted by the Argentine peso devaluation and, the write-down of the carrying value of certain inventory.
The Company recognized a gain on the sale of its Canada facility.
Liquidity and Capital Resources
At January 31, 2024, cash and cash equivalents were approximately $25.2 million and working capital was approximately $83.2 million. Cash and cash equivalents
increased $0.5 million and working capital decreased $3.8 million from January 31, 2023 reflecting the impact of the Company’s purchase of Pacific and additional
investment in Bodytrak offset by the sale of our Canadian facility.
Table of Contents
29
Of the Company’s total cash and cash equivalents of $25.2 million as of January 31, 2024, cash held in Latin America of $4.1 million, cash held in Hong Kong of $1.7
million, cash held in the UK of $1.7 million, cash held in Vietnam of $0.8 million, cash held in India of $0.6 million and cash held in Canada of $4.5 million would not be
subject to additional US income tax in the event such cash was repatriated due to the change in the U.S. tax law as a result of the 2017 Tax Cuts and Jobs Act (the “Tax
Act”). The Company monitors its financial depositories by their credit rating, which varies by country. In addition, cash balances in banks in the United States are insured
by the FDIC subject to certain limitations. There was approximately $3.3 million included in U.S. bank accounts and approximately $21.9 million in foreign bank
accounts as of January 31, 2024, of which $24.4 million was uninsured. These balances could be impacted if one or more of the financial institutions with which the
Company deposits its funds fails or is subject to other adverse conditions in the financial or credit markets. To date, the Company has experienced no loss of principal or
lack of access to invested cash or cash equivalents; however, we can provide no assurance that access to our invested cash and cash equivalents will not be affected if the
financial institutions that hold the Company’s cash and cash equivalents fail. See Part I, Item 1A. Risk Factors in this Annual Report on Form 10-K under the caption
“Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions or
transactional counterparties, could adversely affect our business, financial condition or results of operations.”
The Company strategically employs an intercompany dividend plan subject to subsidiary profitability, cash requirements and withholding taxes. During FY23 the
Company changed its’ permanent reinvestment assertions for its Chinese operations due to the increased volatility of the Chinese yuan and an updated evaluation of
investment strategies. During FY24 the Company’s subsidiaries in Canada and China declared and paid dividends of $4.5 million and $7.0 million, respectively.
Net cash provided by operating activities of $10.9 million for the year ended January 31, 2024 was primarily due to a decrease in net inventories of $7.7 million and an
increase in accounts payable and accrued expenses of $2.4 million offset by an increase in accounts receivable and prepaids of $1.6 million due to stronger Q4 FY24
sales. Net non-cash income items were $3.0 million due to the gain on the sale of our Canadian facility of $3.8 million and the revaluation of the Eagle earnout of $2.5
million. These items were partially offset by the impact of depreciation and amortization and equity compensation expense. Net cash used in investing activities of $5.1
million for the year ended January 31, 2024 includes the $5.5 million Pacific acquisition and reflects the Company’s further investment of $2.2 million in Bodytrak®.
Property and equipment purchases totaled $2.1 million primarily for equipment purchases in Mexico and Vietnam. These investments were offset by $4.6 million in
proceeds from the sale of the Canadian facility. Net cash used in financing activities was $3.5 million for the year ended January 31, 2024 due to $0.9 million in
dividends, $1.8 million in net debt repayments, primarily $1.4 million of debt acquired with the Pacific acquisition, $0.3 million of stock repurchases and $0.4 million in
shares returned to pay taxes for our restricted stock programs.
Net cash used in operating activities of $5.5 million for the year ended January 31, 2023 was primarily due to an increase in net inventories of $9.7 million and an increase
in accounts receivable of $2.3 million due to stronger Q4 FY23 sales, partially offset by non-cash expenses of $3.6 million for deferred taxes, depreciation and
amortization, and stock compensation. Net cash used in investing activities of $16.5 million for the year ended January 31, 2023 includes the $10.5 million Eagle
acquisition and reflects the Company’s $3.1 million investment in Bodytrak®. Purchases of property and equipment were $2.0 million as the Company increased capital
expenditures in the year for the ERP project and equipment purchases in Mexico and Vietnam. Net cash used in financing activities was $5.9 million for the year ended
January 31, 2023 primarily due to the purchase of $5.4 million of our common stock.
On June 25, 2020, we entered into a Loan Agreement (the “Loan Agreement”) with Bank of America (“Lender”). The Loan Agreement provides the Company with a
secured $12.5 million revolving credit facility, which includes a $5.0 million letter of credit sub-facility. The Company may request from time to time an increase in the
revolving credit loan commitment of up to $5.0 million (for a total commitment of up to $17.5 million). Borrowing pursuant to the revolving credit facility is subject to a
borrowing base amount calculated as (a) 80% of eligible accounts receivable, as defined, plus (b) 50% of the value of acceptable inventory, as defined, minus (c) certain
reserves as the Lender may establish for the amount of estimated exposure, as reasonably determined by the Lender from time to time, under certain interest rate swap
contracts. The borrowing base limitation only applies during periods when the Company’s quarterly funded debt to EBITDA ratio, as defined, exceeds 2.00 to 1.00. The
credit facility was to mature on June 25, 2025. Borrowings under the revolving credit facility bear interest at a rate per annum equal to the sum of the LIBOR Daily
Floating Rate (“LIBOR”), plus 125 basis points. LIBOR is subject to a floor of 100 basis points. On March 3, 2023 the Company changed the benchmark interest rate in
our credit facility from the LIBOR to the Secured Overnight Financing Rate (“SOFR”). All outstanding principal and unpaid accrued interest under the revolving credit
facility is due and payable on the maturity date. On a one-time basis, and subject to there not existing an event of default, the Company may elect to convert up to $5.0
million of the then outstanding principal of the revolving credit facility to a term loan facility with an assumed amortization of 15 years and the same interest rate and
maturity date as the revolving credit facility. The Loan Agreement provides for an annual unused line of credit commitment fee, payable quarterly, of 0.25%, based on the
difference between the total credit line commitment and the average daily amount of credit outstanding under the facility during the preceding quarter.
Table of Contents
30
On June 18, 2021, the Company entered into Amendment No. 1 to Loan Agreement (the “Amendment”) with the Lender, which modified certain terms of the Company’s
existing Loan Agreement with the Lender. The Amendment increased the credit limit under the Loan Agreement’s senior secured revolving credit facility from $12.5
million to $25.0 million. The Amendment also amended the covenant in the Loan Agreement that restricts acquisitions by the Company or its subsidiaries in order to
allow, without the prior consent of the Lender, acquisitions of a business or its assets if there is no default under the Loan Agreement and the aggregate consideration does
not exceed $7.5 million for any individual acquisition or $15.0 million on a cumulative basis for all such acquisitions.
The Loan Agreement requires the Company to maintain a Funded Debt to EBITDA (as each such term is defined in the Loan Agreement) ratio of 3.0 to 1.0 or less and a
Basic Fixed Charge Coverage Ratio (as defined in the Loan Agreement) of at least 1.15 to 1.0. The Loan Agreement also contains customary covenants, including
covenants that, among other things, limit or restrict the Company’s and/or the Company’s subsidiaries ability, subject to certain exceptions and qualifications, to incur liens
or indebtedness, or merge, consolidate or sell or otherwise transfer assets.
On November 30, 2023, the Company entered into Amendment No. 3 to the Loan Agreement by and between Bank of America, N.A. (the “Lender”) and the Company
(the “Third Amendment”). Pursuant to the Third Amendment, the Lender consented to the Company’s acquisition of one hundred percent (100%) of the equity interests
of Pacific. The Third Amendment further provided for certain amendments to the Loan Agreement to permit additional indebtedness to be made available to Pacific, to
exempt Pacific from certain requirements of the Loan Agreement pertaining to subsidiary guaranty and asset pledges that would otherwise be required under the Loan
Agreement and to waive the Company’s borrowing base limitations through January 31, 2024. The Third Amendment also provided for the reaffirmation of
representations, warranties and covenants under the Loan Agreement as are customary in connection with similar amendments of credit documents.
As of January 31, 2024, the Company had no borrowings under the Loan Agreement, and there was $25 million of additional available credit under the Loan Agreement.
On February 5, 2024, the Company acquired Italy and Romania-based Jolly Scarpe S.p.A. and Jolly Scarpe Romania S.R.L. (collectively, "Jolly") in an all-cash
transaction valued at approximately $9.3 million subject to post-closing adjustments and customary holdback provisions. The Company drew down $12.3 million on its
credit line to fund the acquisition which included paydown of existing Jolly debt. Jolly is a leading designer and manufacturer of professional footwear for the
firefighting, military, police, and rescue markets. The company is headquartered in Montebelluna, Italy, with manufacturing operations in Bucharest, Romania, and has
150 employees.
On March 28, 2024, the Company entered into Amendment No. 4 to Loan Agreement by and between Bank of America, N.A. (the “Lender”) and the Company (the
“Fourth Amendment”). Pursuant to the Fourth Amendment, the Lender and the Company agreed to, among other things, (i) extend the expiration date of the credit
facility to March 28, 2029, (ii) increase the availability under the revolving credit facility to $40.0 million with an accordion feature providing for the potential funding of
an additional $10.0 million, (iii) remove the borrowing base component of the credit facility; and (iv) modify the interest rate based on Daily SOFR plus the Applicable
Rate. The Applicable Rate is based upon a Funded Debt to EBITDA Ratio and includes four (4) different levels constituting a SOFR margin range from 1.25% to 2.00%.
In addition, the Fourth Amendment (i) modified the Funded Debt to EBITDA Ratio covenant so as not to exceed 3.5x (with step-downs to 3.25 and 3.0 in 2025 and 2026),
(ii) modified the Basic Fixed Charge Coverage Ratio covenant to a minimum of 1.20x, (iii) includes a springing Asset Coverage Ratio covenant of at least 1.10x, but only
to the extent that the maximum Total Leverage Ratio exceeds 3.00x at any reporting period, (iv) increases the sublimit for letters of credit to $10.0 million, and (v)
imposes a floor to Daily SOFR of one percent (1.00%). The Fourth Amendment provides for additional indebtedness or the assumption of existing indebtedness for
acquisitions of foreign subsidiaries (not to exceed $10.0 million in USD) and increased the size of Permitted Acquisitions, without prior approval from the Lender, to
$17.5 million per occurrence and $35.0 million in the aggregate.
Table of Contents
31
We believe that our current cash, cash equivalents, borrowing capacity under our Loan Agreement and the cash to be generated from expected product sales will be
sufficient to meet our projected operating and investing requirements for at least the next twelve months. However, our liquidity assumptions may prove to be incorrect,
and we could utilize our available financial resources sooner than we currently expect. We were in compliance with all financial covenants of the Loan Agreement as of
January 31, 2024.
Stock Repurchase Program. On February 17, 2021, the Company’s Board of Directors approved a stock repurchase program under which the Company may repurchase up
to $5 million of its outstanding common stock. On July 6, 2021, the Board of Directors authorized an increase in the Company’s then-current stock repurchase program
under which the Company may repurchase up to an additional $5 million of its outstanding common stock. On April 7, 2022, the Board of Directors authorized a new
stock repurchase program under which the Company may repurchase up to $5 million of its outstanding common stock which became effective upon the completion of the
prior share repurchase program. On December 1, 2022, the Board of Directors authorized an increase in the share repurchase program under which the Company may
repurchase up to an additional $5 million of its outstanding common stock. The share repurchase program has no expiration date but may be terminated by the Board of
Directors at any time.
The common shares available for repurchase under the authorizations currently in effect may be purchased from time to time, with consideration given to the market price
of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations.
Repurchases may be made on the open market or through privately negotiated transactions.
Shares repurchased in FY24 totaled 27,514 shares at a cost of $0.3 million, leaving $5.0 million remaining under the share repurchase program at January 31, 2024. The
share repurchase program has no expiration date but may be terminated by the Board of Directors at any time.
Capital Expenditures. Our capital expenditures for FY24 of $2.1 million principally relate to our capital purchases for our manufacturing facilities in Vietnam and
Mexico. We anticipate FY25 capital expenditures to be approximately $3.0 million to replace existing equipment in the normal course of operations and expand our fire
services products manufacturing capabilities. We expect to fund the capital expenditures from our cash flow from operations.
Recently Adopted and Recently Issued Accounting Standards
Income Taxes
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This guidance requires a public entity to
disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the
reconciling items in some categories if the items meet a quantitative threshold. The guidance also requires all entities to disclose annually income taxes paid (net of
refunds received) disaggregated by federal (national), state and foreign taxes and to disaggregate the information by jurisdiction based on a quantitative threshold. This
guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted, and this guidance should be applied prospectively but there is the
option to apply it retrospectively. The Company plans to adopt the provisions of this guidance in conjunction with our Form 10-K for our fiscal year ending January 31,
2026.
Segment Reporting
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This guidance requires a public
entity to disclose for each reportable segment, on an interim and annual basis, the significant expense categories and amounts that are regularly provided to the chief
operating decision-maker (“CODM”) and included in each reported measure of a segment’s profit or loss. Additionally, it requires a public entity to disclose the title and
position of the individual or the name of the group or committee identified as the CODM. This guidance is effective for fiscal years beginning after December 31, 2023,
and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the guidance should be applied retrospectively to all periods
presented in the financial statements, unless it is impracticable. The Company plans to adopt the provisions of this guidance in conjunction with our Form 10-K for the
fiscal year ending January 31, 2025.
OECD and Pillar Two
In 2021, the Organization for Economic Cooperation and Development (OECD) announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar
Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%. Subsequently multiple sets
of administrative guidance have been issued. Many non-U.S. tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model
Rules beginning in 2024 with the adoption of additional components in later years or announced their plans to enact legislation in future years. Although we expect
increased tax compliance efforts as a result of new legislation, we do not expect Pillar Two to have a significant impact on our effective tax rate or our consolidated results
of operations, financial position and cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, the Company is not required to provide the information required by this Item and therefore, no disclosure is required under Item 7A for
the Company.
Table of Contents
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
32
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Statements of Operations for the Years Ended January 31, 2024 and 2023
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended January 31, 2024 and 2023
Consolidated Balance Sheets as of January 31, 2024 and 2023
Consolidated Statements of Stockholders' Equity for the Years Ended January 31, 2024 and 2023
Consolidated Statements of Cash Flows for the Years Ended January 31, 2024 and 2023
Notes to Consolidated Financial Statements
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Lakeland Industries, Inc.
Opinion on the Financial Statements
Page No.
F-2
F-6
F-7
F-8
F-9
F-10
F-11
We have audited the accompanying consolidated balance sheets of Lakeland Industries, Inc. and subsidiaries (the "Company") as of January 31, 2024 and 2023, the
related statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, for each of the two years in the period ended January 31, 2024, and
the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of January 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended January 31, 2024, in
conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control
over financial reporting as of January 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated April 10, 2024, expressed an unqualified opinion on the Company's internal control over financial
reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based
on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our
opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be
communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we
are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
Acquisitions — Pacific Helmets NZ Limited —Intangible Assets— Refer to Notes 1 and 6 to the financial statements
Critical Audit Matter Description
The Company completed the acquisition of Pacific Helmets NZ Limited (“Pacific”) on November 30, 2023. The Company accounted for the acquisition under the
acquisition method of accounting for business combinations. Accordingly, the Company allocated the purchase price, on a preliminary basis, to the assets acquired and
liabilities assumed based on their estimated fair values. The Company recorded intangible assets related to customer relationships, trade names and trademarks and
technological know-how.
Table of Contents
F-2
Acquired intangible assets were valued using certain methods including the excess earnings approach and relief from royalty methods specific to the type of intangible
asset acquired. Several significant assumptions and estimates were involved in the application of these valuation methods, including forecasted revenue growth rates,
EBITDA margins and resulting forecasted cash flows, as well as royalty and discount rates.
Given the fair value determination of the intangible assets for Pacific requires management to leverage complex valuation methodologies and make significant estimates
and assumptions related to the forecasts of revenue, EBITDA margins and resulting future cash flows and the selection of royalty and discount rates, performing audit
procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the
need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future revenues and EBITDA margins and resulting future cash flows, the selection of valuation methodologies utilized,
and the selection of the royalty and discount rates for the intangible assets, included the following, among others:
·
We evaluated the design and operating effectiveness of controls over the valuation of the intangible assets, including management’s controls over forecasts
which estimate future cash flows and selection of the royalty and discount rates.
·
·
We assessed the reasonableness of management’s forecasts of future revenues, EBITDA margin and cash flows by comparing the projections to historical
results, actual results through year-end, and relevant industry reports and evaluated whether the estimated resulting future cash flows were consistent with
evidence obtained in other areas of the audit.
With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodologies and (2) the valuation assumptions used
in the fair value analyses by:
o
o
o
Comparing the selected royalty rate to market data for comparable rates.
Testing the mathematical accuracy of the calculations of the royalty and discount rates.
Developing a range of independent estimates for the royalty and discount rates and comparing those to the rates selected by management.
Equity method investment - Refer to Notes 1 and 4 to the financial statements
Critical Audit Matter Description
The Company uses the equity method of accounting to account for its $4.7 million investment in the Class A stock of Inova Design Solutions Ltd, a private limited
company incorporated under the laws of England and Wales and headquartered in the United Kingdom, doing business as Bodytrak® (“Bodytrak”). The Company also
holds $2.2 million of notes receivable from Bodytrak which are convertible into shares of the entity. The Company evaluates its equity method investments whenever
events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. If the decline in fair value is deemed to be other than
temporary, the investment is written down to fair value. In situations where the fair value of an investment is not evident due to a lack of a public market price or other
factors, the Company uses its best estimates and assumptions to arrive at the estimated fair value of such investment based on accepted valuation methods, which require
management to make significant estimates and assumptions related to future cash flows and the selection of the discount rate used in the valuation.
Table of Contents
F-3
We identified the estimation of future cash flows and discount rate associated with the valuation of Bodytrak as a critical audit matter due to the significant judgments
required in the estimation of future revenues and resulting cash flows and the selection of the discount rate. This required a high degree of auditor judgment and an
increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s
forecasts of future cash flows and the selection of the discount rate.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the estimates and assumptions utilized in the determination of fair value used for the impairment analysis included the following, among
others:
·
·
·
·
We evaluated the design and tested the operating effectiveness of controls related to the accounting for potential impairment of the investment.
We evaluated the reasonableness of the forecasts of future revenues and resulting cash flows by comparing those estimates to historical results, internal
communications to management and the Board of Directors, existing arrangements with customers, and relevant industry/market data.
With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate by:
o
o
o
Testing the source information underlying the determination of the discount rate and testing the mathematical accuracy of the calculation.
Developing a range of independent estimates and comparing those to the discount rate selected by management.
Independently testing the guideline public company market valuation prepared by management’s specialist to further evaluate the estimated fair value.
We considered whether other information obtained during the course of our audit represented contradictory evidence in relation to the estimated future
revenues and resulting cash flow projections utilized in the model.
/s/ Deloitte & Touche LLP
Memphis, Tennessee
April 10, 2024
We have served as the Company's auditor since 2020.
F-4
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Lakeland Industries, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Lakeland Industries, Inc. and subsidiaries (the “Company”) as of January 31, 2024, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2024, based on criteria established in
Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial
statements as of and for the year ended January 31, 2024, of the Company and our report dated April 10, 2024, expressed an unqualified opinion on those financial
statements.
As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial
reporting at Pacific Helmets NZ Limited, which was acquired on November 30, 2023, and whose financial statements constitute 6% and 6% of net and total assets,
respectively, less than 1% of revenues, and 4% of net income of the consolidated financial statement amounts as of and for the year ended January 31, 2024. Accordingly,
our audit did not include the internal control over financial reporting at Pacific Helmets NZ Limited.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
F-5
Lakeland Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended January 31, 2024 and 2023
($000’s) except share information
/s/ Deloitte & Touche LLP
Memphis, Tennessee
April 10, 2024
Table of Contents
Net sales
Cost of goods sold
Gross profit
Operating expenses
Operating profit
Other income (expense), net
Interest expense
Income before taxes
Income tax expense
Net income
Net income per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
$
$
$
$
2024
124,688 $
73,496
51,192
45,200
5,993
3,415
(52)
9,356
3,930
5,425 $
0.74 $
0.72 $
2023
112,846
66,997
45,849
40,308
5,541
(33)
(37)
5,471
3,598
1,873
0.25
0.24
7,352,356
7,539,705
7,562,187
7,737,963
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-6
Lakeland Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Years Ended January 31, 2024 and 2023
($000)’s
Net income
Other comprehensive income:
Foreign currency translation adjustments
Comprehensive income (loss)
$
$
2024
5,425 $
(1,669)
3,756 $
2023
1,873
(2,193)
(320)
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-7
Lakeland Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31, 2024 and 2023
($000’s) except share information
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $857 and $800 at January 31, 2024 and 2023, respectively
Inventories
Prepaid VAT and other taxes
Income tax receivable and other current assets
Total current assets
Property and equipment, net
Operating leases right-of-use assets
Deferred tax assets
Other assets
Goodwill
Intangible assets, net
Equity investments
Convertible debt investments
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
Accrued compensation and benefits
Other accrued expenses
Income tax payable
Short-term borrowings
Accrued earnout agreement
Current portion of operating lease liability
Total current liabilities
Deferred income taxes
Loans payable – long term
Long-term portion of operating lease liability
Total liabilities
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 8,722,965 and 8,655,699; outstanding 7,364,757 and
7,325,005 at January 31, 2024 and 2023, respectively
Treasury stock, at cost; 1,358,208 and 1,330,694 shares at January 31, 2024 and 2023, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-8
$
$
$
$
2024
25,222 $
19,169
51,250
2,753
3,111
101,505
10,685
10,969
3,097
110
13,669
6,830
4,719
2,161
153,745 $
7,378 $
3,922
2,487
1,454
298
643
2,164
18,346
2,097
731
9,121
30,294
2023
24,639
17,296
58,176
1,963
3,517
105,591
9,140
5,472
2,764
100
8,473
6,042
5,354
-
142,936
6,558
2,522
4,068
609
405
3,182
1,253
18,597
769
-
3,580
22,946
—
—
87
(19,979)
79,420
69,282
(5,360)
123,450
153,745 $
87
(19,646)
78,475
64,765
(3,691)
119,990
142,936
Lakeland Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended January 31, 2024 and 2023
Additional
Accumulated
Other
Common Stock
Shares
Amount
($000’s)
Treasury Stock
Shares
Amount
($000’s)
Paid-in Retained Comprehensive
Capital
($000’s)
Earnings
($000’s)
Loss
($000’s)
Total
($000’s)
Balance, January 31, 2022
8,555,672 $
86
(939,705) $
(14,206) $
77,826 $
62,892 $
(1,498) $ 125,100
Net Income
Other comprehensive loss
Stock-based compensation:
Restricted stock issued
Restricted stock plan
Return of shares in lieu of payroll tax
—
—
100,027
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,873
—
—
(2,193)
1,873
(2,193)
—
1,491
(842)
—
—
—
—
—
—
1
1,491
(842)
withholding
Treasury stock purchased
Balance, January 31, 2023
Net Income
Dividends paid
Other comprehensive income
Stock-based compensation:
Restricted stock issued
Restricted stock plan
Return of shares in lieu of payroll tax
withholding
Treasury stock purchased
Balance, January 31, 2024
—
8,655,699 $
—
(390,989)
87 (1,330,694) $
(5,440)
(19,646) $
—
78,475 $
—
64,765 $
—
(3,691) $
(5,440)
119,990
—
—
—
67,266
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,425
(908)
—
—
—
(1,669)
5,425
(908)
(1,669)
—
1,365
—
—
—
—
—
1,365
—
—
8,722,965 $
—
—
(27,514)
—
87 (1,358,208) $
—
(333)
(19,979) $
(420)
—
79,420 $
—
—
69,282 $
—
—
(420)
(333)
(5,360) $ 123,450
Table of Contents
F-9
Lakeland Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended January 31, 2024 and 2023
($000’s)
2024
2023
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash (used in) provided by operating activities
$
5,425 $
Provision for (recovery of) doubtful accounts
Deferred income taxes
Depreciation and amortization
Stock based and restricted stock compensation
(Gain) loss on disposal of property and equipment
Equity in (earnings) loss of equity investment
Revaluation of earnout consideration
(Increase) decrease in operating assets:
Accounts receivable
Inventories
Prepaid VAT and other taxes
Other current assets
Increase (decrease) in operating liabilities:
Accounts payable
Accrued expenses and other liabilities
Operating lease liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from sale of fixed assets
Acquisition, net of cash acquired
Investments
Net cash used in investing activities
Cash flows from financing activities
Short term borrowings
Short term borrowings – repayments
Dividends paid
Purchase of Treasury Stock under stock repurchase program
Shares returned to pay employee taxes under restricted stock program
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Cash paid for interest
Cash paid for taxes
Noncash investing and financing activities
Leased assets obtained in exchange for operating lease liabilities
57
(818)
2,111
1,365
(3,764)
629
(2,538)
(853)
7,738
(789)
(15)
417
982
955
10,912
(2,069)
4,559
(5,452)
(2,154)
(5,116)
5,664
(7,455)
(908)
(333)
(420)
(3,452)
(1,761)
583
24,639
25,222 $
63 $
2,169 $
6,110 $
$
$
$
$
1,873
134
75
1,505
1,491
(6)
411
-
(2,278)
(9,710)
(260)
1,478
36
69
(269)
(5,451)
(1,985)
-
(9,722)
(3,061)
(14,768)
405
-
-
(5,439)
(842)
(5,876)
(1,985)
(28,080)
52,719
24,639
37
3,151
1,148
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, manufacture and
sell a comprehensive line of industrial protective clothing and accessories for the industrial and public protective clothing market. Our products are sold globally
by our in-house sales teams, our customer service group, and authorized independent sales representatives to a network of over 2,000 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. Sales are made to more than 50 countries, the majority of which were into China, countries within the
European Economic Community (“EEC”), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India, Middle East and countries within
Southeast Asia. For purposes of this Form 10-K, FY refers to a fiscal year ended January 31; for example, FY24 refers to the fiscal year ended January 31, 2024.
Basis of Presentation
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). We
have reclassified certain prior year amounts to conform to current year presentation. 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.
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 estimates credit losses by considering
historical credit losses, the current economic environment, customer credit ratings or bankruptcies.
Inventories
Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost (on a first-in, first-out or moving average basis) or net
realizable value. Adjustments are recorded for slow-moving, obsolete or unusable inventory. We assess our inventory for estimated obsolescence or unmarketable
inventory and write down the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future sales and
supply on hand, if necessary. If actual market conditions are less favorable than those projected by management, additional inventory adjustments may be
required.
Table of Contents
F-11
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation and amortization. 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 that 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.
Assets held for sale are measured at the lower of carrying value or fair value less cost to sell. Gains or losses are recognized for any subsequent changes to fair
value less cost to sell. However, gains are limited to cumulative losses previously recognized. Assets classified as held for sale are not depreciated.
Equity Method Investments
Investments in which the Company can exercise significant influence, but do not control, are accounted for using the equity method and are presented on the
consolidated balance sheets. The Company’s share of the net earnings or losses of the investee is presented within the consolidated statements of operations as
other income (expense). The Company evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of
such investments may be impaired. The primary factors the Company considers in its determination are the length of time that the fair value of the investment is
below the Company's carrying value; the severity of the decline; and the financial condition, operating performance and near term prospects of the investee. If the
decline in fair value is deemed to be other than temporary, the security is written down to fair value. In situations where the fair value of an investment is not
evident due to a lack of a public market price or other factors, the Company estimates fair value based on a discounted cash flow model and a market-based
approach using inputs which include expected cash flows and a discount rate representative of the risks within the underlying business and forecasts to arrive at
the estimated fair value of such investment.
Business combinations
In accordance with the accounting guidance for business combinations, the Company uses the acquisition method of accounting to allocate costs of acquired
businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess of the purchase price over the
estimated fair value of assets and liabilities is recorded as goodwill. Assigning fair market values to the assets acquired and liabilities assumed at the date of
acquisition requires knowledge of current market values and the values of assets in use and often requires the application of judgment regarding estimates and
assumptions. While the ultimate responsibility resides with management for material acquisitions, we retain the services of certified valuation specialists to assist
with assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets, tangible long-lived assets, and contingent
consideration. Acquired intangible assets, excluding goodwill, are valued using certain discounted cash flow methodologies based on future cash flows specific to
the type of intangible asset purchased. Several significant assumptions and estimates were involved in the application of these valuation methods, including
forecasted sales volumes and prices, royalty rates, costs to produce, tax rates, discount rates, attrition rates and working capital changes.
If the contingent consideration is deemed significant or absent an agreed-upon payout amount, the initial measurement of contingent consideration and the
corresponding liability is evaluated using the Monte Carlo Method. For this valuation method, management develops projections during the contingent
consideration period utilizing various potential pay-out scenarios. Probabilities are applied to each potential scenario, and the resulting values are discounted using
a rate that considers the weighted average cost of capital as well as a specific risk premium associated with the riskiness of the contingent consideration itself, the
related projections, and the overall business.
Goodwill and Other Intangible Assets
Intangible assets with a finite useful life are amortized on a straight-line basis over their useful lives. Indefinite lived intangible assets are assessed for possible
impairment annually on November 1st or whenever circumstances change such that the recorded value of the asset may not be recoverable.
Table of Contents
F-12
All goodwill is assigned to and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating
segment. Goodwill is not amortized, but evaluated for impairment at least annually or whenever events or changes in circumstance indicate it is more likely than
not that the fair value of a reporting unit is less than its carrying amount. The Company may perform either a qualitative assessment of potential impairment or
proceed directly to a quantitative assessment of potential impairment. If the Company chooses not to perform a qualitative assessment, or if it chooses to perform
a qualitative assessment but is unable to conclude that no impairment has occurred qualitatively, then the Company will perform a quantitative assessment. A
quantitative test for goodwill impairment is performed by determining the fair value of the related reporting units. The Company estimates the fair value of the
reporting unit with which the goodwill is associated and compares it to the carrying value. If the estimated fair value of a reporting unit is less than its carrying
value, an impairment charge is recognized for the excess of the reporting unit's carrying value over its fair value. Fair value is measured using on the discounted
cash flow method and relative market-based approaches.
There has been no impairment of our goodwill during the years ended January 31, 2024 and 2023.
Revenue Recognition
Substantially all of 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 FY24 and FY23 aggregated approximately $3.4 million and $3.2 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 receives advances under certain of its contracts for products sold by Eagle. Those advances are considered contract liabilities with revenues
recorded upon delivery of promised goods to customers. These advances are included in Other Accrued Expenses on the Company’s consolidated balance sheet.
The following is a roll-forward of the advances from the date of the Eagle acquisition, December 2, 2022 through January 31, 2024 (in $000s):
Contract liability – December 2, 2022
Increases to contract liability
Decreases to contract liability
Contract liability – January 31, 2023
Increases to contract liability
Decreases to contract liability
Contract liability – January 31, 2024
Table of Contents
F-13
$
$
$
1,560
158
(91)
1,627
445
(1,968)
104
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 and product line 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:
External Sales by Product Lines:
Disposables
Chemical
Fire
Gloves
High Visibility
High Performance Wear
Wovens
Consolidated external sales
External Sales by Region:
USA
Other foreign
Year Ended
January 31,
(in millions of dollars)
2023
2024
49.6 $
20.3
26.5
2.2
6.6
6.9
12.6
124.7 $
55.2
22.2
14.7
2.3
5.8
5.0
7.6
112.8
Year Ended
January 31,
(in millions of dollars)
2023
2024
55.3 $
9.9
49.0
7.2
$
$
$
Europe (UK)
Mexico
Asia
Canada
Latin America
Consolidated external sales
Table of Contents
16.3
4.0
13.8
9.3
16.1
124.7 $
8.3
3.7
24.7
9.1
10.8
112.8
$
F-14
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 $0.6 million and $0.5 million in FY24 and FY23.
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.
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.
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, New Zealand, 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 in India, Canada, the U.K., Chile, China,
Argentina, Russia, Kazakhstan, Uruguay, Australia and Mexico. The Company is vulnerable to currency risks in these countries. The functional currency for the
United Kingdom subsidiaries is the Pound; the trading company in China, the RMB; the Russian operation, the Russian Ruble; the New Zealand Dollar in New
Zealand, and the Kazakhstan operation, the Kazakhstan Tenge. All other operations have the U.S. dollar as their functional currency.
Pursuant to US GAAP, assets and liabilities of the Company’s foreign operations with functional currencies other than the U.S. 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.
Table of Contents
F-15
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.
There were no foreign currency forward or hedge contracts at January 31, 2024 or January 31, 2023.
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.
Net Income Per Share
Net income per share is based on the weighted average number of common shares outstanding without consideration of common stock equivalents. Diluted net
income per share is based on the weighted average number of common shares and common stock equivalents. The diluted net income per share calculation takes
into account unvested restricted shares and the shares that may be issued upon the 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.
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.
Income Taxes
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This guidance requires a public entity
to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the
reconciling items in some categories if the items meet a quantitative threshold. The guidance also requires all entities to disclose annually income taxes paid (net
of refunds received) disaggregated by federal (national), state and foreign taxes and to disaggregate the information by jurisdiction based on a quantitative
threshold. This guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted and this guidance should be applied
prospectively but there is the option to apply it retrospectively. The Company plans to adopt the provisions of this guidance in conjunction with our Form 10-K for
our fiscal year ending January 31, 2026.
Segment Reporting
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This guidance requires
a public entity to disclose for each reportable segment, on an interim and annual basis, the significant expense categories and amounts that are regularly provided
to the chief operating decision-maker (“CODM”) and included in each reported measure of a segment’s profit or loss. Additionally, it requires a public entity to
disclose the title and position of the individual or the name of the group or committee identified as the CODM. This guidance is effective for fiscal years
beginning after December 31, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the guidance
should be applied retrospectively to all periods presented in the financial statements, unless it is impracticable. The Company plans to adopt the provisions of this
guidance in conjunction with our Form 10-K for the fiscal year ending January 31, 2025.
2. INVENTORIES
Inventories consist of the following (in $000s):
Raw materials
Work-in-process
Finished goods
Excess and obsolete adjustments
Table of Contents
3. PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following (in $000s):
F-16
Machinery and equipment
Furniture and fixtures
Leasehold improvements
Computer hardware and software
Land and building
Less accumulated depreciation and amortization
Construction-in-progress
January 31,
2024
2023
$
$
27,417 $
668
29,719
(6,554)
51,250 $
29,036
952
32,855
(4,668)
58,176
Useful Life
in Years
3-10
3-10
$
Lease term
3
20-30
$
January 31,
2024
2023
10,773 $
988
2,388
5,430
7,625
27,203
(17,600)
1,081
10,685 $
5,436
492
2,094
5,015
9,508
22,546
(14,406)
1,001
9,140
Depreciation and amortization expense for FY24 and FY23 amounted to $1.9 million and $1.4 million, respectively.
4. INVESTMENTS
On October 18, 2021, the Company entered into an Investment Agreement (the “Investment Agreement”) with Inova Design Solutions Ltd, a private limited
company incorporated under the laws of England and Wales and headquartered in the United Kingdom, doing business as Bodytrak® (“Bodytrak”), and the other
parties thereto, pursuant to which Bodytrak agreed to issue and sell to the Company 508,905 cumulative convertible series A shares of Bodytrak (“Series A
Shares”) in exchange for a payment by the Company of £2,000,000 ($2.8 million). The closing of this minority investment transaction occurred on October 18,
2021. The Series A Shares issued to the Company at the closing represented approximately 11.43% of Bodytrak’s total share capital.
On April 28, 2022, the Company, under the terms of the Investment Agreement, acquired an additional 381,679 Series A1 Shares of Bodytrak for £1,500,000
($1.9 million). On October 26, 2022, the Company acquired an additional 254,452 Series A Shares of Bodytrak for £1,000,000 ($1.2 million). After completion
of these additional investments, the Company owned 22.5% of Bodytrak’s total share capital. The investment in Bodytrak is accounted for under the equity
method, given our board representation and the resulting ability to exercise significant influence. A substantial portion of our investment represents differences in
our investment and our share of the underlying recognized net assets of Bodytrak. These differences are predominately attributable to non-amortizing intangible
assets of Bodytrak, including internally developed intellectual property.
On May 19, 2023, the Company entered into an agreement with Bodytrak to provide an additional investment of up to an aggregate of £1,500,000 ($1.9 million
on the date of initial investment) in the form of a secured convertible loan with an option for an additional £1,000,000 investment at the Company’s
discretion. An initial investment funding of £500,000 ($0.6 million on the date of investment) was made on May 19, 2023. Additional investment fundings of
£700,000 ($0.9 million on the date of investment) and £500,000 ($0.6 million on the date of investment) were made on September 8, 2023 and December 15,
2023, respectively. The loaned amounts are due twenty-four months from the issue date, which can be extended upon mutual agreement. The convertible note
bears interest at either an annual rate of 12% for cash interest or 15% for payment in kind interest on the outstanding amount under the note, such rate being
selected by Bodytrak.
Table of Contents
F-17
The notes can be converted into equity shares of Bodytrak under a number of conditions, including a qualified equity financing as defined in the agreement, a
change of control, an IPO, default or conversion at the discretion of the Company and upon the occurrence of the specified event. The convertible note is secured
by Bodytrak’s intellectual property.
Bodytrak provides wearable monitoring solutions for customers in industrial health, safety, defense and first responder markets wanting to achieve better
employee health and performance. Bodytrak’s solution is provided as a platform as a service (PaaS), delivering real-time data, cloud-based analytics, and
hardware that includes a patented earpiece for physiological monitoring and audio communications.
For FY24 and FY23, the Company recognized losses of $0.6 and $0.4 million, respectively. The loss is reflected in other income (expense), net in the
consolidated statements of operations.
5. GOODWILL AND INTANGIBLE ASSETS
Changes in goodwill during the fiscal years ended January 31, 2024 and 2023, were as follows (in $000s):
Balance at February 1
Measurement period adjustment
Acquisitions
Balance at January 31
2024
2023
$
$
8,473 $
1,447
3,749
13,669 $
871
----
7,602
8,473
During FY24, a measurement period adjustment was recorded to recognize deferred tax liabilities of $1.4 million associated with the finite-lived intangibles
acquired in the Eagle acquisition, with a corresponding increase to goodwill.
Changes in intangible assets during the fiscal years ended January 31, 2024 and 2023, were as follows (in $000s):
Balance at February 1
Acquisitions
Amortization
Balance at January 31
Intangible Assets (in $000s)
Customer relationships
Trade names and trademarks
Technological know-how
Total
2024
2023
$
$
6,042 $
1,211
(423)
6,830 $
----
6,109
(67)
6,042
January 31, 2024
January 31, 2023
Weighted
Average
Life in
Years
15
15
15
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
$
3,558 $
1,773
1,989
7,320 $
(267) $
(109)
(114)
(490) $
3,291 $
1,664
1,875
6,830 $
3,283 $
1,333
1,493
6,109 $
(37) $
(15)
(15)
(67) $
3,246
1,318
1,478
6,042
Intangible asset amortization expense over the next five years is expected to be approximately $0.5 million per year.
F-18
Table of Contents
6. ACQUISITIONS
Acquisition of Pacific
On November 30, 2023 the Company acquired New Zealand-based Pacific Helmets NZ Limited (“Pacific”) in an all-cash transaction valued at approximately
NZ$14.000,000 ($8.5 million at the closing date exchange rate) including assumption of debt, subject to post-closing adjustments and customary holdback provisions. The
acquisition enhances Lakeland’s product portfolio, particularly within fire service protective helmets. Headquartered in Whanganui, New Zealand, Pacific is a leading
designer and provider of structural firefighting, wildland firefighting, and technical rescue helmets. The transaction was funded through the revolving credit facility and
cash balances.
Pacific’s operating results are included in our consolidated financial statements from the acquisition date. The acquisition qualified as a business combination and was
accounted for using the acquisition method of accounting.
As part of the acquisition agreement, Pacific will pay from the holdback an amount equal to the amount by which Pacific’s revenue falls below NZ$11.1 million for
Pacific’s fiscal year ending March 31, 2024 subject to certain conditions. The estimated amount of the reduction to the holdback to be paid by the Company is less than
$0.1 million. The estimate was developed using a Monte Carlo simulation. If Pacific exceeds the revenue target of NZ$11.1 million, Pacific will not receive any additional
consideration.
The following table summarizes the preliminary fair values of the Pacific assets acquired and liabilities assumed at the date of the acquisition:
Net working capital acquired (including cash of $0.1 million)
Property, plant and equipment
Customer relationships
Trade names and trademarks
Technological know-how
Goodwill
Total assets acquired
Less liabilities assumed
Net assets acquired
$
$
1,694
2,265
275
440
495
3,749
8,918
(2,787)
6,131
Assets acquired and liabilities assumed in connection with the acquisition were recorded at estimated fair values. Estimated fair values were determined by management,
based in part on an independent valuation performed by a third-party valuation specialist. The valuation methods used to determine the estimated fair value of intangible
assets included the excess earnings approach for customer relationships using customer inputs and contributory charges; the relief from royalty method for trade names
and trademarks and technological know-how; and the cost method for the assembled workforce was included in goodwill. Several significant assumptions and estimates
were involved in the application of these valuation methods, including forecasted sales volumes and prices, royalty rates, costs to produce, tax rates, capital spending,
discount rates, attrition rates and working capital changes. Cash flow forecasts were generally based on Pacific’s pre-acquisition forecasts. Identifiable intangible assets
with finite lives are subject to amortization over their estimated useful lives. The customer relationships, trade names and trademarks and technological know-how
acquired in the Pacific transaction are being amortized over periods of 14 years, 15 years and 10 years, respectively.
Goodwill is calculated as the excess of the purchase price over the estimated fair value of net assets acquired and represents the future economic benefits arising from
other assets acquired that could not be individually identified and separately recognized. Among the factors that contributed to a purchase price in excess of the estimated
fair value of the net tangible and intangible assets acquired were the acquisition of an assembled workforce, the expected synergies and other benefits that we believe will
result from combining the operations of Pacific with our operations.
Table of Contents
F-19
Due to the timing of the completion of the acquisition, the purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the
purchase price, additional information obtained regarding assets acquired and liabilities assumed, and revisions of provisional estimates of fair values, including, but not
limited to, the completion of independent appraisals and valuations related to contingent consideration, inventory, contractual relationships, tangible assets and intangible
assets. These changes to the purchase price allocation could be significant. The purchase price allocation will be finalized within the measurement period of up to one year
from the acquisition date.
Acquisition of Eagle
On December 2, 2022, we acquired 100% of Eagle's common stock in an all-cash transaction valued at $10.5 million, net of net working capital acquired.
Headquartered in Manchester, UK, Eagle is a leading designer and provider of protective apparel to the fire and industrial sectors. Eagle provides differentiated product
offerings through its innovative and technical solutions.
Eagle’s operating results are included in our consolidated financial statements from the acquisition date. The acquisition qualified as a business combination and was
accounted for using the acquisition method of accounting.
As part of the Eagle acquisition agreement, the Company agreed to pay an earnout payment equal to the amount by which Eagle’s revenue exceeds 6 million GBP for the
period May 1, 2022 through April 30, 2023. The Company also agreed to pay an earnout payment equal to the amount by which Eagle’s revenue exceeds 6.3 million GBP
for the period May 1, 2023 through April 30, 2024. The estimated amount of the earnout payment developed using a Monte Carlo simulation included in the preliminary
valuation was $3.2 million.
Eagle did not reach the revenue threshold for the period May 1, 2022 through April 30, 2023 and received no payment for that period. Based on the revised forecast for
the period May 1, 2023 through April 30, 2024, the estimated amount of the earnout payment developed using a Monte Carlo simulation is $0.6 million. The adjustment to
the accrued earnout payment of $2.5 million was recorded in FY24, and reflected as a reduction in operating expenses.
The following table summarizes the preliminary fair values of the Eagle assets acquired and liabilities assumed at the date of the acquisition:
Current assets acquired (including cash of $2.2 million)
Property, plant and equipment
Customer relationships
Trade names and trademarks
Technological know-how
Goodwill
Total assets acquired
Less liabilities assumed
Net assets acquired
$
$
3,729
41
3,283
1,333
1,493
7,602
17,481
(2,334)
15,147
Assets acquired and liabilities assumed in connection with the acquisition were recorded at estimated fair values. Estimated fair values were determined by management,
based in part on an independent valuation performed by a third-party valuation specialist. The valuation methods used to determine the estimated fair value of intangible
assets included the excess earnings approach for customer relationships using customer inputs and contributory charges; the relief from royalty method for trade names
and trademarks and technological know-how; and the cost method for the assembled workforce was included in goodwill. Several significant assumptions and estimates
were involved in the application of these valuation methods, including forecasted sales volumes and prices, royalty rates, costs to produce, tax rates, capital spending,
discount rates, attrition rates and working capital changes. Cash flow forecasts were generally based on Eagle’s pre-acquisition forecasts. Identifiable intangible assets
with finite lives are subject to amortization over their estimated useful lives. The customer relationships, trade names and trademarks and technological know-how
acquired in the Eagle transaction are being amortized over periods of 15 years, 15 years and 17 years, respectively. Liabilities assumed primarily relate to customer
deposits included within Other Accrued Expenses.
Table of Contents
F-20
Goodwill is calculated as the excess of the purchase price over the estimated fair value of net assets acquired and represents the future economic benefits arising from
other assets acquired that could not be individually identified and separately recognized. Among the factors that contributed to a purchase price in excess of the estimated
fair value of the net tangible and intangible assets acquired were the acquisition of an assembled workforce, the expected synergies and other benefits that we believe will
result from combining the operations of Eagle with our operations.
During FY24, a measurement period adjustment was recorded to recognize deferred tax liabilities of $1.4 million associated with the finite-lived intangibles acquired, with
a corresponding increase to goodwill.
The following unaudited pro forma information presents our combined results as if the Pacific and Eagle acquisitions had occurred at the beginning of FY23. The
unaudited pro forma financial information was prepared to give effect to events that are (1) directly attributable to the acquisition; (2) factually supportable; and (3)
expected to have a continuing impact on the combined company's results. There were no material transactions between the Company and the acquired entities during the
periods presented that are required to be eliminated. The unaudited pro forma combined financial information does not reflect cost savings, operating synergies or revenue
enhancements that the combined companies may achieve or the costs to integrate the operations or the costs necessary to achieve cost savings, operating synergies or
revenue enhancements.
Pro forma combined financial information (Unaudited)
(in millions, except per share amount)
Net sales
Net income
Year Ended January 31,
2023
2024
$
$
129.8 $
5.8 $
122.3
1.6
Basic earnings per share
Diluted earnings per share
$
$
0.79 $
0.77 $
0.22
0.21
The unaudited pro forma combined financial information is presented for information purposes only and is not intended to represent or be indicative of the combined
results of operations or financial position that we would have reported had the acquisition been completed as of the date and for the periods presented, and should not be
taken as representative of our consolidated results of operations or financial condition following the acquisition. In addition, the unaudited pro forma combined financial
information is not intended to project the future results of the combined company.
The unaudited pro forma combined financial information was prepared using the acquisition method of accounting under existing U.S. GAAP. The Company has been
treated as the acquirer.
Total acquisition-related costs were $0.5 million and $0.6 million for the years ended January 31, 2024 and 2023, respectively. Transactional costs and acquisition-related
amortization is included in operating expenses in the Consolidated Statements of Operations.
Table of Contents
7. LONG-TERM DEBT
Revolving Credit Facility
F-21
On June 25, 2020, the Company entered into a Loan Agreement (the “Loan Agreement”) with Bank of America (“Lender”). The Loan Agreement provides the Company
with a secured (i) $12.5 million revolving credit facility, which includes a $5.0 million letter of credit sub-facility. The Company may request from time to time an
increase in the revolving credit loan commitment of up to $5.0 million (for a total commitment of up to $17.5 million). Borrowing pursuant to the revolving credit facility
is subject to a borrowing base amount calculated as (a) 80% of eligible accounts receivable, as defined, plus (b) 50% of the value of acceptable inventory, as defined,
minus (c) certain reserves as the Lender may establish for the amount of estimated exposure, as reasonably determined by the Lender from time to time, under certain
interest rate swap contracts. The borrowing base limitation only applies during periods when the Company’s quarterly funded debt to EBITDA ratio, as defined, exceeds
2.00 to 1.00. The credit facility was to mature on June 25, 2025.
Borrowings under the revolving credit facility bear interest at a rate per annum equal to the sum of the LIBOR Daily Floating Rate (“LIBOR”), plus 125 basis points.
LIBOR is subject to a floor of 100 basis points. All outstanding principal and unpaid accrued interest under the revolving credit facility is due and payable on the maturity
date. On a one-time basis, and subject to there not existing an event of default, the Company may elect to convert up to $5 million of the then outstanding principal of the
revolving credit facility to a term loan facility with an assumed amortization of 15 years and the same interest rate and maturity date as the revolving credit facility. The
Loan Agreement provides for an annual unused line of credit commitment fee, payable quarterly, of 0.25%, based on the difference between the total credit line
commitment and the average daily amount of credit outstanding under the facility during the preceding quarter.
On June 18, 2021, the Company entered into Amendment No. 1 to the Loan Agreement (the “Amendment”) with the Lender, which modified certain terms of the
Company’s existing Loan Agreement with the Lender. The Amendment increased the credit limit under the Loan Agreement’s senior secured revolving credit facility from
$12.5 million to $25.0 million. The Amendment also amended the covenant in the Loan Agreement that restricts acquisitions by the Company or its subsidiaries in order
to allow, without the prior consent of the Lender, acquisitions of a business or its assets if there is no default under the Loan Agreement and the aggregate consideration
does not exceed $7.5 million for any individual acquisition or $15.0 million on a cumulative basis for all such acquisitions.
The Loan Agreement requires the Company to maintain a Funded Debt to EBITDA (as each such term is defined in the Loan Agreement) ratio of 3.0 to 1.0 or less and a
Basic Fixed Charge Coverage Ratio (as defined in the Loan Agreement) of at least 1.15 to 1.0. The Loan Agreement also contains customary covenants, including
covenants that, among other things, limit or restrict the Company’s and/or the Company’s subsidiaries’ ability, subject to certain exceptions and qualifications, to incur
liens or indebtedness, pay dividends or merge, consolidate or sell or otherwise transfer assets. The Company was in compliance with all of its debt covenants as of January
31, 2024.
The Company made certain representations and warranties to the Lender in the Loan Agreement that are customary for credit arrangements of this type. The Company
also agreed to maintain, as of the end of each fiscal quarter, a minimum “basic fixed charge coverage ratio” (as defined in the Loan Agreement) of at least 1.15 to 1.00 and
a “funded debt to EBITDA ratio” (as defined in the Loan Agreement) not to exceed 3.00 to 1.00, in each case for the trailing 12-month period ending with the applicable
quarterly reporting period. The Company also 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, make
substantial change in the present executive or management personnel and incur additional indebtedness, which negative covenants are subject to certain exceptions.
The Loan Agreement contains customary events of default that include, among other things (subject to any applicable cure periods and materiality qualifier), non-payment
of principal, interest or fees, defaults under related agreements with the Lender, cross-defaults under agreements for other indebtedness, violation of covenants, inaccuracy
of representations and warranties, bankruptcy and insolvency events, material judgments and material adverse change. Upon the occurrence of an event of default, the
Lender may terminate all loan commitments, declare all outstanding indebtedness owing under the Loan Agreement and related documents to be immediately due and
payable, and may exercise its other rights and remedies provided for under the Loan Agreement.
Table of Contents
F-22
In connection with the Loan Agreement, the Company entered into with the Lender (i) a security agreement dated June 25, 2020, pursuant to which the Company granted
to the Lender a first priority perfected security interest in substantially all of the personal property and the intangibles of the Company, and (ii) a pledge agreement, dated
June 25, 2020, pursuant to which the Company granted to the Lender a first priority perfected security interest in the stock of its subsidiaries (limited to 65% of those
subsidiaries that are considered “controlled foreign subsidiaries” as set forth in the Internal Revenue Code and regulations). The Company’s obligations to the Lender
under the Loan Agreement are also secured by a negative pledge evidenced by a Non-encumbrance Agreement covering the real property owned by the Company in
Decatur, Alabama
On November 30, 2023, the Company entered into Amendment No. 3 to the Loan Agreement by and between Bank of America, N.A. (the “Lender”) and the Company
(the “Third Amendment”). Pursuant to the Third Amendment, the Lender consented to the Company’s acquisition of one hundred percent (100%) of the equity interests
of Pacific. The Third Amendment further provided for certain amendments to the Loan Agreement to permit additional indebtedness to be made available to Pacific, to
exempt Pacific from certain requirements of the Loan Agreement pertaining to subsidiary guaranty and asset pledges that would otherwise be required under the Loan
Agreement and to waive the Company’s borrowing base limitations through January 31, 2024. The Third Amendment also provided for the reaffirmation of
representations, warranties and covenants under the Loan Agreement as are customary in connection with similar amendments of credit documents.
As of January 31, 2024, the Company had no borrowings outstanding on the letter of credit sub-facility and no borrowings outstanding under the revolving credit facility.
On March 28, 2024, the Company entered into Amendment No. 4 to the Loan Agreement by and between Bank of America, N.A. (the “Lender”) and the Company (the
“Fourth Amendment”). Pursuant to the Fourth Amendment, the Lender and the Company agreed to, among other things, (i) extend the expiration date of the credit facility
to March 28, 2029, (ii) increase the availability under the revolving credit facility to $40.0 million with an accordion feature providing for the potential funding of an
additional $10.0 million, (iii) remove the borrowing base component of the credit facility; and (iv) modify the interest rate based on Daily SOFR plus the Applicable Rate.
The Applicable Rate is based upon a Funded Debt to EBITDA Ratio and includes four (4) different levels constituting a SOFR margin range from 1.25% to 2.00%. In
addition, the Fourth Amendment (i) modified the Funded Debt to EBITDA Ratio covenant so as not to exceed 3.5x (with step-downs to 3.25 and 3.0 in 2025 and 2026),
(ii) modified the Basic Fixed Charge Coverage Ratio covenant to a minimum of 1.20x, (iii) includes a springing Asset Coverage Ratio covenant of at least 1.10x, but only
to the extent that the maximum Total Leverage Ratio exceeds 3.00x at any reporting period, (iv) increases the sublimit for letters of credit to $10.0 million, and (v)
imposes a floor to Daily SOFR of one percent (1.00%). The Fourth Amendment provides for additional indebtedness or the assumption of existing indebtedness for
acquisitions of foreign subsidiaries (not to exceed $10.0 million in USD) and increased the size of Permitted Acquisitions, without prior approval from the Lender, to
$17.5 million per occurrence and $35.0 million in the aggregate.
Table of Contents
F-23
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
the 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. This agreement has been subsequently amended with the most recent amendment on March 8, 2022. The cumulative result of the
amendments through March 8, 2022 reflect a reduction of the service charge to 0.765%. The agreement can be terminated with three months’ notice. There were
no borrowings outstanding under this facility at January 31, 2024.
Pacific Borrowings
Pacific has two facilities with the Bank of New Zealand. Pacific has a trade finance facility where the lender finances vendor purchases. The trade finance facility
has a limit of 500,000 New Zealand dollars and caries an interest rate at the prevailing base rate for the relevant currency of the vendor plus a margin of 3.00% per
annum. The facility includes two term loans. The first term loan of 1,500,000 New Zealand dollars matures on December 17, 2025, carries an interest rate of 2.3%
per annum and requires monthly payments of $19,350.27 New Zealand dollars. The second term loan of 550,000 New Zealand dollars matures on November 18,
2024, carries an interest rate of 3.5% per annum and requires monthly payments of 10,005 New Zealand dollars. The facilities expire in August 2026 and are
secured by a security interest in Pacific’s real property. Borrowings under the trade finance facility and amounts due in FY25 under the term loans are reported as
short-term borrowings and were $0.3 million at January 31, 2024. Borrowings under the term loans due after FY25 are reported as long-term borrowings and were
$0.7 million at January 31, 2024.
8. CONCENTRATION OF RISK
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); Royal Bank of Scotland, 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, JSC Bank Centercredit in Kazakhstan and Bank of New Zealand in New Zealand. 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 was approximately $3.3 million total included in U.S. bank accounts and approximately $22.0 million total in
foreign bank accounts as of January 31, 2024, of which $24.4 million was uninsured.
Major Customer
No customer accounted for more than 10% of net sales during FY24 and FY23.
Major Supplier
No vendor accounted for more than 10% of purchases during FY24 and FY23.
F-24
Table of Contents
9. STOCKHOLDERS’ EQUITY
On June 21, 2017, the stockholders of the Company approved the Lakeland Industries, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). 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”).
On June 16, 2021, the stockholders of the Company approved Amendment No. 1 (the “Amendment”) to the 2017 Plan. The Amendment increases the number of
shares of common stock, par value $0.01 per share (the “Common Stock”), of the Company reserved for issuance under the Plan by 480,000 shares.
An aggregate of 840,000 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 Company recognized total stock-based compensation costs, which are reflected in operating expenses (in 000’s):
2017 Plan:
Total restricted stock and stock option programs
Total income tax expense recognized for stock-based compensation arrangements
Table of Contents
F-25
Year Ended
January 31,
2024
2023
$
$
1,365 $
287 $
1,491
313
Restricted Stock
Under the 2017 Plan, as described above, the Company awarded performance-based and service-based shares of restricted stock and restricted stock units to
eligible employees and directors. The following table summarizes the activity under the 2017 Plan for the years ended January 31, 2024 and 2023. This table
reflects the amount of awards granted at the number of shares that would be vested if the Company were to achieve the maximum performance level under the
June 2021, June 2022 and March 2023 grants.
Outstanding at January 31, 2022
Awarded
Vested
Forfeited
Outstanding at January 31, 2023
Awarded
Vested
Forfeited
Outstanding at January 31, 2024
Performance-
Based
Service-Based
Total
Weighted
Average Grant
Date Fair Value
232,838
36,475
(141,833)
---
127,480
64,953
(71,202)
(38,901)
82,330
14,970
56,065
(30,370)
---
40,665
130,390
(26,336)
(31,829)
112,890
247,808 $
92,540 $
(172,203) $
---
168,145 $
195,343 $
(97,538) $
(70,730)
195,220 $
20.89
18.19
10.33
22.95
14.19
14.90
16.61
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 Amortization (“EBITDA”) margin, revenue growth, and
free cash flow for the June 2021 grants. Performance measures for the April 2022 grants are revenue growth and EBITDA margin. Performance measures for the
March 2023 grants are revenue growth, EBITDA margin and return on invested capital. The performance targets have been set for each of the Minimum, Target,
and Maximum levels. The actual performance amount achieved is determined by the Committee and may be adjusted for items determined to be unusual in nature
or infrequent in occurrence, at the discretion of the Committee.
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. As of January 31, 2024, unrecognized stock-based compensation expense totaled $1.0
million pursuant to the 2017 Plan based on outstanding awards under the Plan. This expense is expected to be recognized over approximately two years.
Stock Repurchase Program
On February 17, 2021, the Company’s Board of Directors approved a stock repurchase program under which the Company may repurchase up to $5 million of its
outstanding common stock. On July 6, 2021, the Board of Directors authorized an increase in the Company’s stock repurchase program of up to an additional $5
million of its outstanding common stock. On April 7, 2022, the Board of Directors authorized a new stock repurchase program under which the Company may
repurchase up to $5 million of its outstanding common stock, which became effective upon the completion of the prior share repurchase program. On December
1, 2022, the Board of Directors authorized an increase in the Company’s stock repurchase program, under which the Company may repurchase up to an additional
$5 million of its outstanding common stock.
Shares repurchased in FY24 totaled 27,514 shares at a cost of $0.3 million, leaving $5.0 million remaining under the share repurchase program at January 31,
2024. The share repurchase program has no expiration date but may be terminated by the Board of Directors at any time.
Table of Contents
10. INCOME TAXES
The provision for income taxes is based on the following pretax income (loss):
F-26
Domestic and Foreign Pretax Income (Loss)
Domestic
Foreign
Total
Years Ended
January 31,
2024
2023
$
$
8,648 $
708
9,356 $
15,322
(9,851)
5,471
The domestic and foreign pretax income in the schedule above reflects intercompany dividends paid to the U.S. from international subsidiaries of $11.4 million
and $19.0 million for fiscal years ended January 31, 2024 and 2023, respectively.
Income Tax Expense (Benefit)
Current:
Federal
State and other taxes
Foreign
Total Current Tax Expense
Deferred:
Years Ended
January 31,
2024
2023
$
$
17 $
58
4,674
4,749 $
2
68
3,450
3,520
Domestic
Foreign
Total Deferred Tax Expense
Total Income Taxes
The following is a reconciliation of the effective income tax rate to the Federal statutory rate:
Statutory rate
State Income Taxes, Net of Federal Tax Benefit
Adjustment to Deferred
GILTI
Foreign Tax Credit – GILTI
Section 250 Deduction
Permanent Differences
Valuation Allowance-Deferred Tax Asset
Foreign Tax Credit
Section 78 Gross-up
Argentina Flow Through Loss
Withholding Taxes
Foreign Rate Differential
Change in State Apportionment Rate
Foreign employee benefits
Foreign Dividends Paid to U.S.
Foreign Dividends Received Deduction
Earnout Adjustment
Other
Effective Rate
Table of Contents
F-27
The tax effects of temporary cumulative differences which give rise to deferred tax assets are summarized as follows:
Deferred tax assets:
Inventories
US tax loss carryforwards, including work opportunity credit
Accounts receivable and accrued rebates
Accrued compensation and other
India reserves - US deduction
Equity based compensation
Foreign tax credit carry-forward
State and local carry-forwards
Depreciation and amortization
Prepaid expenses
Right-of-use asset
Operating lease liability
Foreign carry-forwards
Withholding taxes
Other
Deferred tax asset
Less valuation allowance
Net deferred tax asset
Balance sheet classification
Long-term deferred tax asset
Long-term deferred tax liability
($186)
(633)
(819) $
3,930 $
($756)
834
78
3,598
$
Years Ended
January 31,
2024
2023
21.00%
0.49%
(23.26)%
9.07%
(2.42)%
(4.92)%
0.20%
33.29%
(15.24)%
0.77%
7.20%
5.72%
18.25%
(1.48)%
(1.58)%
25.69%
(25.69)%
(5.70)%
0.62%
42.01%
21.00%
0.05%
13.54%
24.84%
(14.86)%
(15.74)%
0.07%
6.41%
(9.74)%
6.64%
1.09%
36.55%
2.11%
(1.38)%
(3.58)%
73.01%
(73.01)%
---
(1.25)%
65.74%
Years Ended
January 31,
2024
2023
$
1,545 $
1,147
167
295
441
24
346
4,548
1,256
(1,846)
(253)
(1,590)
1,672
1,102
(383)
351
7,675
(6,675)
1,000 $
186
278
123
22
1,178
3,123
18
(155)
(175)
(697)
732
438
(769)
107
5,556
(3,561)
1,995
January 31,
2024
2023
3,097 $
2,097 $
2,764
769
$
$
$
The benefit relating to capital loss, operating loss, and credit carryforwards included in the above table at January 31, 2024, consisted of:
State operating loss carryforwards
Foreign tax credit carryforwards
Federal credit carryforwards
Mexico operating loss carryforwards
Chile operating loss carryforwards
UK operating loss carryforwards
Total
Table of Contents
Gross
Carryforward
Benefit Amount
Valuation
Allowance
Expiration
Beginning In
$
$
$
$
20,132 $
1,199
2,414
361
$
1,256 $
4,548
167
360
652
90
7,073 $
(1,025)
(4,548)
-
(360)
(652)
(90)
(6,675)
2028
2025
2035
2033
Indefinite
Indefinite
F-28
A significant portion of our net operating loss carryforwards were generated in the state of Alabama prior to the change in apportionment factor rules for that state
in 2021 which moved the state to a single sales factor apportionment method. The impact of the state law change significantly reduced our apportionment factor in
that state, making it unlikely that we will generate sufficient income allocated to that state in order to utilize the full amount of our net loss carryforwards prior to
their expiration.
Indefinite Reinvestment Assertion
The Company generally considers all earnings generated outside of the U.S. to be permanently reinvested offshore, with the exception to countries where cash can
be repatriated without withholding taxes, and in China in which the Company previously determined excess cash over what was required to fund operations and
growth existed.
During FY24, the Company repatriated $4.5 million and $7.0 million from Canada and China, respectively. The Company also identified an additional $3.8
million in excess cash in its Chinese operations for which it plans to repatriate in the future. A withholding tax liability has been established for the expected
withholding taxes in the amount of $0.4 million as of the period ended January 31, 2024. The distribution from Canada received during FY24 was a result of the
sale of real estate during the year. The sale resulted in after tax excess cash that the Company determined was not needed to fund local operations and repatriated
back to the US in a one-time action. The Company still currently maintains a permanently reinvestment assertion on its future Canada operations.
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 FY20 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 2021 with no significant issues noted and we
believe our tax positions are reasonably stated as of January 31, 2024. The 2023 tax review will be performed before May 31, 2024 in China.
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 for the years ended January
31, 2024 and January 31, 2023 was $6.7 million and $3.6 million, respectively.
OECD and Pillar Two
In 2021 the Organization for Economic Cooperation and Development (OECD) announced an Inclusive Framework on Base Erosion and Profit Shifting including
Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%. Subsequently
multiple sets of administrative guidance have been issued. Many non-U.S. tax jurisdictions have either recently enacted legislation to adopt certain components of
the Pillar Two Model Rules beginning in 2024 with the adoption of additional components in later years or announced their plans to enact legislation in future
years. Although we expect increased tax compliance efforts as a result of new legislation, we do not expect Pillar Two to have a significant impact on our effective
tax rate or our consolidated results of operations, financial position and cash flows.
11. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per share as follows:
Numerator – Net Income
Years Ended January 31,
(000’s except share information)
2024
2023
$
5,425 $
1,873
Denominator for basic net income per share (weighted-average shares which reflect 1,358,208 and 1,330,694 treasury shares at
January 31, 2024 and 2023, respectively)
Effect of dilutive securities from restricted stock plan and from dilutive effect of stock options
Denominator for diluted net income per share (adjusted weighted average shares)
7,352,356
7,562,187
187,349
7,539,705
175,776
7,737,963
Basic net income per share
Diluted net income per share
Table of Contents
$
$
0.74 $
0.72 $
0.25
0.24
F-29
12. 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 on the last
day of the fiscal quarter, with a new contract purchased on the first day of the next quarter to match the Company's operating cycle. 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 on 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 one type 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, were generally settled quarterly. Gain and loss on those forward contracts are included in current earnings. There were no outstanding forward
contracts at January 31, 2024 or 2023.
13. 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 legal counsel assess such contingent liabilities, which inherently
involve 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 consolidated 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.
During the third quarter of FY24, the Company sent a letter to the landlord outlining certain structural defects on the newly constructed facility in Monterrey,
Mexico that would inhibit the Company from effectively utilizing the facility for its intended purpose. The Company has initiated discussions with the landlord as
to potential remedies which may inform our decision-making process with respect to this property. Changes in our long-term intended use for the building may
impact the carrying value of the currently recorded right of use asset.
Table of Contents
F-30
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, 2024, to the best of the Company’s knowledge, there were no significant outstanding claims or litigation.
Leases
We lease real property, equipment and 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.
Lease cost
The components of lease expense are included on the consolidated statement of operations as follows (in 000’s):
Operating lease cost
Short-term lease cost
Weighted-average lease terms and discount rates are as follows:
Weighted-average remaining lease term (years)
Operating leases
Weighted-average discount rate
Operating leases
Supplemental cash flow information related to leases were as follows (in 000’s):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Leased assets obtained in exchange for new operating lease liabilities
Table of Contents
Maturity of Lease Liabilities
Maturity of lease liabilities as of January 31, 2024 was as follows (in $000’s):
F-31
Year ending January 31,
2025
2026
2027
Classification
Cost of goods sold
Operating expenses
Year Ended
January 31,
2024
Year Ended
January 31,
2023
$
$
$
1,092 $
1,402 $
221 $
272
1,035
169
January 31,
2024
January 31,
2023
8.0
8.2
10.4%
5.25%
Year Ended
January 31,
2024
Year Ended
January 31,
2023
$
$
1,932 $
5,591 $
1,436
1,148
Operating
Leases
$
2,164
2,092
1,876
2028
2029
Thereafter
Total lease payments
Less: Interest
Present value of lease liability
Table of Contents
14. SEGMENT REPORTING
1,805
1,490
5,547
14,974
3,689
11,285
$
F-32
Domestic and international sales from continuing operations are as follows in millions of dollars:
Domestic
International
Total
2024
2023
$
$
55.3 $
69.4
124.7 $
49.0
63.8
112.8
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), a manufacturing facility in New Zealand (helmets) 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, New Zealand 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:
Net Sales
USA Operations (including Corporate)
Other foreign
Europe (UK)
Mexico
Asia
Canada
Latin America
Less intersegment sales
Consolidated sales
External Sales
USA Operations (including Corporate)
Other foreign
Europe (UK)
Mexico
Asia
Canada
Latin America
Consolidated external sales
Intersegment Sales
USA Operations (including Corporate)
Other foreign
Europe (UK)
Mexico
Asia
Canada
Latin America
Consolidated intersegment sales
Table of Contents
Operating Profit (Loss):
USA Operations (including Corporate)
Other foreign
Europe (UK)
Mexico
Asia
Canada
Latin America
Less intersegment (profit) loss
Consolidated operating profit
Depreciation and Amortization Expense:
USA Operations (including Corporate)
F-33
Year Ended January 31,
2023
2024
(in millions of dollars)
60.9 $
14.0
16.4
6.7
46.2
9.3
16.3
(45.1)
124.7 $
55.3 $
9.9
16.3
4.0
13.8
9.3
16.1
124.7 $
5.6 $
4.1
0.1
2.7
32.4
—
0.2
45.1 $
Year Ended January 31,
2023
2024
(in millions of dollars)
(3.5) $
2.0
0.1
(2.1)
4.6
1.5
2.8
0.3
5.7 $
0.8 $
53.8
9.5
8.3
5.2
63.7
9.0
10.9
(47.6)
112.8
49.0
7.2
8.3
3.7
24.8
9.0
10.8
112.8
4.8
2.4
----
1.5
38.9
—
—
47.6
(6.4)
0.4
(1.3)
(1.4)
10.9
1.5
1.9
(0.1)
5.5
0.6
$
$
$
$
$
$
$
$
$
Other foreign
Europe (UK)
Mexico
Asia
Canada
Latin America
Less intersegment
Consolidated depreciation and amortization expense
Table of Contents
Total Assets:
USA Operations (including Corporate)
Other foreign
Europe (UK)
Mexico
Asia
Canada
Latin America
Less intersegment
Consolidated assets
Total Assets Less Intersegment:
USA Operations (including Corporate)
Other foreign
Europe (UK)
Mexico
Asia
Canada
Latin America
Consolidated assets
Property and Equipment:
USA Operations (including Corporate)
Other foreign
Europe (UK)
Mexico
Asia
Canada
Latin America
Less intersegment
Consolidated long-lived assets
Capital Expenditures:
USA Operations (including Corporate)
Other foreign
Europe (UK)
Mexico
Asia
Canada
Latin America
Consolidated capital expenditure
Table of Contents
15. SUBSEQUENT EVENTS
F-34
F-35
0.1
0.4
0.2
0.5
0.1
----
----
2.1 $
0.1
----
0.2
0.5
0.1
----
----
1.5
Year Ended January 31,
2023
2024
(in millions of dollars)
92.2 $
20.3
30.0
12.1
51.6
8.5
15.0
(76.0)
153.7 $
47.1 $
19.6
27.2
10.2
29.0
8.3
12.3
153.7 $
2.3 $
2.7
0.1
2.8
2.6
----
0.2
----
10.7 $
0.5 $
----
----
1.0
0.5
----
0.1
2.1 $
94.1
10.4
12.5
5.5
55.8
6.0
10.6
(52.0)
142.9
65.2
9.2
12.5
5.3
35.6
5.8
9.3
142.9
3.3
0.2
0.1
2.0
2.4
0.8
0.2
0.1
9.1
1.2
----
----
-
0.6
----
0.2
2.0
$
$
$
$
$
$
$
$
$
$
The Company has reviewed and evaluated whether any material subsequent events have occurred from January 31, 2024 through the filing date of the Company’s Annual
Report on Form 10-K. All appropriate subsequent event disclosures have been made in the consolidated financial statements. On February 5, 2024, the Company
acquired Italy and Romania-based Jolly Scarpe S.p.A. and Jolly Scarpe Romania S.R.L. (collectively, "Jolly") in an all-cash transaction valued at approximately $9.3
million subject to post-closing adjustments and customary holdback provisions. Jolly is a leading designer and manufacturer of professional footwear for the firefighting,
military, police, and rescue markets. The company is headquartered in Montebelluna, Italy, with manufacturing operations in Bucharest, Romania, and has 150 employees.
Jolly provides a differentiated product portfolio through its continued investment in research and development and use of modern materials and cutting-edge technologies
in the production of its footwear.
On March 28, 2024, the Company entered into Amendment No. 4 to Loan Agreement by and between Bank of America, N.A. (the “Lender”) and the Company (the
“Fourth Amendment”). See Note 7, “Long-Term Debt” for additional information.
On April 2, 2024, Lakeland Global Safety, Ltd. (“Lakeland Global”), a wholly-owned subsidiary the Company, entered into a Share Sale and Purchase Agreement (the
“Purchase Agreement”), by and between Kantaras Investments Pte. Ltd., Lakeland Global, and the Company, pursuant to which Lakeland Global acquired all of the shares
of the fire and rescue business of LHD Group Deutschland GmbH, LHD Group Australia Pty Ltd and LHD Group Hong Kong Ltd., wholly-owned entities of Kantaras
Investments Pte. Ltd. (collectively, the “LHD Group”) for a purchase price of EUR 15.4 million (approximately USD $16.7 million), subject to post-closing adjustments
and customary holdback provisions. The LHD Group is a leader in firefighter turnout gear, accessories, and Total Care services, including laundry, repair, and
maintenance. The transaction will be funded through the Company’s credit facility. The acquisition is expected to close in May subject to the satisfaction of customary
closing conditions, including receipt of regulatory approvals.
Table of Contents
F-36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this Form 10-K, the Company’s principal executive officer and principal financial officer have
concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”)) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is
(i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) accumulated
and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.
Remediation of Material Weakness
In connection with our audit of the fiscal year 2023 consolidated financial statements, we and our independent registered public accounting firm determined that
we had material weaknesses in our internal control over financial reporting. These material weaknesses primarily pertained to process-level controls over foreign
subsidiary currency translation or remeasurement to ensure the foreign subsidiary’s account balances were accurately stated in the consolidated financial
statements.
During the year ended January 31, 2024, we implemented enhanced procedures to remediate the deficiencies in our internal control over financial reporting that
resulted in the material weakness. Specific remedial actions undertaken by management included, without limitation:
•
•
•
Enhancing the existing monthly financial statement management review by including a reconciliation of key account balances on the general ledger back to
the originally reported balances from the foreign subsidiary sub-ledgers (translated to USD);
Reconfiguring the trial balance import process for its Argentina subsidiary to import and remeasure account balances in a manner consistent with other
foreign subsidiaries; and
Developing enhancements to the foreign subsidiary financial reporting packages by specifically quantifying and reviewing the currency fluctuation impact to
the overall financial statements.
We have completed the process of implementing the aforementioned enhancements and believe that we have remediated the material weaknesses in our internal
control over financial reporting with respect to the foreign subsidiary currency translation.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting (ICOFR), as defined in Rule 13a-
15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process, under the supervision of the CEO and CFO, designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in
accordance with GAAP and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect our transactions and the disposition of our assets; (2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with
appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on our consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with
the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of January 31, 2024. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
Based on our assessment and those criteria, management has concluded that the Company maintained effective internal control over financial reporting as of
January 31, 2024.
The Company acquired Pacific Helmets NZ Limited on November 30, 2023, which represented approximately 7% and 6% of the Company's net assets and total
assets as of January 31, 2024 and 1% of total sales, for the year ended January 31, 2024. As the Pacific Helmets NZ Limited acquisition was completed during the
fourth quarter of fiscal 2024, the scope of the Company's fiscal 2024 assessment of the effectiveness of its internal control over financial reporting does not
include the acquired Pacific Helmets NZ Limited business. This exclusion is pursuant to the SEC's general guidance that an assessment of a recently acquired
business' internal control over financial reporting may be omitted from the scope of the Company's assessment of its internal control over financial reporting for
twelve months following the date of acquisition.
Changes in Internal Control over Financial Reporting
Other than the remediation efforts described above, which were ongoing during the last fiscal quarter ended January 31, 2024, there were no changes in the
Company’s internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(f) and 15d-15(f) of the Exchange Act during
the quarter ended January 31, 2024 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
Table of Contents
33
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Part III: Item 10, Directors, Executive Officers and Corporate Governance; Item 11, Executive Compensation; Item 13, Certain
Relationships and Related Transactions and Director Independence; and Item 14, Principal Accountant Fees and Services is included in and incorporated by
reference to Lakeland’s definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in June 2024, to be filed with the
Securities and Exchange Commission within 120 days following the end of Lakeland’s fiscal year ended January 31, 2024. Information relating to the executive
officers of the Registrant appears under Item 1 of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Part III: Item 10, Directors, Executive Officers and Corporate Governance; Item 11, Executive Compensation; Item 13, Certain
Relationships and Related Transactions and Director Independence; and Item 14, Principal Accountant Fees and Services is included in and incorporated by
reference to Lakeland’s definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in June 2024, to be filed with the
Securities and Exchange Commission within 120 days following the end of Lakeland’s fiscal year ended January 31, 2024. Information relating to the executive
officers of the Registrant appears under Item 1 of this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
The information regarding security ownership of certain beneficial owners and management that is required to be included pursuant to this Item 12 is included in
and incorporated by reference to Lakeland’s definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in June 2024.
Equity Compensation Plans
The following sets forth information relating to Lakeland’s equity compensation plans as of January 31, 2024:
Equity Compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights (1)
(a)
Weighted-
average exercise
price per share
of outstanding
options,
warrants and
rights
(b)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a)(1)
(c)
193,151 $
—
193,151 $
15.92
—
15.92
190,466
—
190,466
(1) The total reflected in column (c) includes shares available for grant as any type of equity award under our 2017 Equity Incentive Plan, as amended.
Table of Contents
34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Part III: Item 10, Directors, Executive Officers and Corporate Governance; Item 11, Executive Compensation; Item 13, Certain Relationships
and Related Transactions and Director Independence; and Item 14, Principal Accountant Fees and Services is included in and incorporated by reference to Lakeland’s
definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in June 2024, to be filed with the Securities and Exchange
Commission within 120 days following the end of Lakeland’s fiscal year ended January 31, 2024.
ITEM 14, PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Part III: Item 10, Directors, Executive Officers and Corporate Governance; Item 11, Executive Compensation; Item 13, Certain Relationships
and Related Transactions and Director Independence; and Item 14, Principal Accountant Fees and Services is included in and incorporated by reference to Lakeland’s
definitive proxy statement in connection with its Annual Meeting of Stockholders scheduled to be held in June 2023, to be filed with the Securities and Exchange
Commission within 120 days following the end of Lakeland’s fiscal year ended January 31, 2024.
Table of Contents
35
PART IV
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
a. (1) Financial Statements - Covered by Report of Independent Registered Public Accounting Firm
(A) Consolidated Statements of Operations for the years ended January 31, 2024 and 2023
(B)
Consolidated Statements of Comprehensive Income for the years ended January 31, 2024 and 2023
(C)
Consolidated Balance Sheets at January 31, 2024 and 2023
(D) Consolidated Statements of Stockholders’ Equity for the years ended January 31, 2024 and 2023
(E)
Consolidated Statements of Cash Flows for the years ended January 31, 2024 and 2023
(F)
Notes to Consolidated Financial Statements
Table of Contents
(4) Exhibits – See (b) below
b. Exhibits
Exhibit No.
36
Description
2.1
2.2
2.3
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Agreement for the Sale and Purchase of the Issued Shares of Eagle Technical Products Limited, by and between Lakeland Global Safety, Ltd as Buyer
and Longworth Limited as Seller, dated as of December 2, 2022 (incorporated by reference to Exhibit 2.1 of Lakeland Industries, Inc.’s Form 10-K filed
April 18, 2023).
Share Sale and Purchase Agreement, by and between Pacific Helmets NZ Limited and Lakeland NZ Limited, dated as of November 30, 2023 (filed
herewith).
Share Purchase Agreement, by and between Minerva Manufacture de chaussures S.A. and Lakeland Global Safety, Ltd., dated as of February 5, 2024
(filed herewith).
Restated Certificate of Incorporation of Lakeland Industries, Inc., as amended (incorporated by reference to Exhibit 4.1 of Lakeland Industries, Inc.’s
Registration Statement on Form S-8 filed on September 3, 2021).
Amended and Restated Bylaws of Lakeland Industries Inc., (incorporated by reference to Exhibit 3.1 of Lakeland Industries, Inc.’s Form 8-K filed April
28, 2017).
Description of Securities of the Registrant (incorporated by reference to Exhibit 4.1 of Lakeland Industries, Inc.’s Form 10-K filed April 18, 2023).
Employment Agreement dated February 11, 2021, between Allen E. Dillard and the Company (incorporated by reference to Exhibit 10.1 of Lakeland
Industries, Inc. Form 8-K filed February 16, 2021).*
Employment Agreement dated January 27, 2020, between Charles D. Roberson and the Company (incorporated by reference to Exhibit 10.1 of Lakeland
Industries, Inc. Form 8-K filed January 29, 2020).*
Form of Stock Option Certificate and Agreement (incorporated by reference to Exhibit 10.1 of Lakeland Industries, Inc. Form 10-Q filed September 9,
2019).*
Lakeland Industries, Inc. Form of Indemnity Agreement (incorporated by reference to Exhibit 10.1 to Lakeland Industries, Inc. Form 8-K filed June 29,
2012).
Lease Agreement dated April 4, 2011, between Wallingfen Park Limited, as lessor, and Lakeland Industries Europe Limited, as lessee (incorporated by
reference to Exhibit 10.1 of Lakeland Industries, Inc. Form 10-Q for fiscal quarter ended April 30, 2015).
Agreement for the Purchase of Debts dated January 29, 2013 between HSBC Invoice Finance (UK) Limited and Lakeland Industries Europe Limited
(incorporated by reference to Exhibit 10.1 to Lakeland Industries, Inc. Form 8-K filed February 25, 2013).
Fixed Charge on Non-vesting Debts and Floating Charge dated January 29, 2013 between HSBC Invoice Finance (UK) Limited and Lakeland Industries
Europe Limited (incorporated by reference to Exhibit 10.2 to Lakeland Industries, Inc. Form 8-K filed February 25, 2013).
Standard Terms & Conditions dated May 15, 2018, for the debt provided by between HSBC Invoice Finance (UK) Limited and Lakeland Industries
Europe Limited (incorporated by reference to Exhibit 10.6 of Lakeland Industries, Inc.’s Form 10-K filed April 16, 2019).
Amendment to Agreement for Purchase of Debts, dated effectively as of December 3, 2014 between HSBC Invoice Finance (UK) Limited and Lakeland
Industries Europe Limited (incorporated by reference to Exhibit 10.1 of Lakeland Industries, Inc.’s Form 8-K filed December 8, 2014).
Table of Contents
37
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
Letter Agreement dated December 5, 2014, between Lakeland Industries, Inc. and HSBC Invoice Finance (UK) Ltd. (incorporated by reference to Exhibit
10.2 of Lakeland Industries, Inc.’s Form 8-K filed December 8, 2014).
Warehouse Service for Fee Agreement dated February 10, 2016, between Safety Pro, LLC and Lakeland Industries, Inc. (incorporated by reference to
Exhibit 10.55 of Lakeland Industries, Inc. Form 10-K filed April 21, 2016).
Shares Transfer Agreement, dated as of June 18, 2015, by and among Lakeland Industries, Inc., Brasil Industria E Comercio de Roupas E Equipamentos
de Protecao Individual Ltda, Zap Comércio de Brindes Corporativos Ltda and Jack Nemer (incorporated by reference to Exhibit 10.1 of Lakeland
Industries, Inc. Form 8-K filed June 25, 2015).
Lease Agreement dated December 1, 2018, between Tamash S.A., as lessor and Lakeland Argentina S.R.L, as lessee (incorporated by reference to
Exhibit 10.20 of Lakeland Industries, Inc.’s Form 10-K filed April 16, 2019).
Loan Agreement, dated as of June 25, 2020, by and between Lakeland Industries, Inc. and Bank of America, N.A. (incorporated by reference to Exhibit
10.1 of Lakeland Industries, Inc.’s Form 8-K filed June 30, 2020).
Security Agreement, dated as of June 25, 2020, by and between Lakeland Industries, Inc. and Bank of America, N.A. (incorporated by reference to
Exhibit 10.2 of Lakeland Industries, Inc.’s Form 8-K filed June 30, 2020).
Pledge Agreement, dated as of June 25, 2020, by and between Lakeland Industries, Inc. and Bank of America, N.A. (incorporated by reference to Exhibit
10.3 of Lakeland Industries, Inc.’s Form 8-K filed June 30, 2020).
Non-encumbrance Agreement, dated as of June 25, 2020, by Lakeland Industries, Inc. for the benefit of Bank of America, N.A. (incorporated by
reference to Exhibit 10.4 of Lakeland Industries, Inc.’s Form 8-K filed June 30, 2020).
Employment Agreement, dated December 30, 2020, between Lakeland Industries, Inc. and Steven L. Harvey (incorporated by reference to Exhibit 10.1
of Lakeland Industries, Inc.’s Form 8-K filed January 5, 2021).*
Amendment No. 1 to Loan Agreement, dated as of June 18, 2021, by and between Lakeland Industries, Inc. and Bank of America, N.A. (incorporated by
reference to Exhibit 10.1 of Lakeland Industries, Inc.’s Form 8-K filed June 24, 2021).
Lakeland Industries, Inc. 2017 Equity Incentive Plan, inclusive of all amendments through June 16, 2021 (incorporated by reference to Exhibit 4.3 of
Lakeland Industries, Inc.’s Registration Statement on Form S-8 filed on September 3, 2021).*
Lakeland Industries, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Lakeland Industries, Inc.’s Form 8-K filed June 21,
2021).*
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.4 of Lakeland Industries, Inc. Form 10-Q for fiscal quarter
ended July 31, 2021).*
Amendment to Employment Letter Agreement of Charles D. Roberson (incorporated by reference to Exhibit 10.1 of Lakeland Industries, Inc.’s Form 8-K
filed January 6, 2022).*
Amendment to Agreement for Purchase of Debts, dated effectively as of March 3, 2022, between HSBC Invoice Finance (UK) Limited and Lakeland
Industries Europe Limited (incorporated by reference to Exhibit 10.2 of Lakeland Industries, Inc.’s Form 10-Q filed June 7, 2023).
Investment Agreement, dated as of October 18, 2021, by and among Lakeland Industries, Inc., Inova Design Solutions LTD and the other parties thereto
(incorporated by reference to Exhibit 10.1 of Lakeland Industries, Inc.’s Form 8-K filed on October 20, 2021)
Lease Agreement, by and between Morena de la Garza Gonzalez and Alejandro Mario Gonzalez Quezada and Lakeland Industries, Inc.(incorporated by
reference to Exhibit 10.1 of Lakeland Industries, Inc.’s Form 8-K filed August 17, 2022)
10.27
10.28
Continuing Guaranty, dated as of July 6, 2022, by Lakeland Industries, Inc. in favor of Morena de la Garza Gonzalez and Alejandro Mario Gonzalez
Quezada (incorporated by reference to Exhibit 10.2 of Lakeland Industries, Inc.’s Form 8-K filed August 17, 2022)
Form of Performance-Based Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.4 of Lakeland Industries, Inc.’s Form 10-Q
filed September 8, 2022) *
Table of Contents
38
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
14.1
21
23.1
31.1
31.2
32.1
32.2
97.1
101
104
Form of Director Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.4 of Lakeland Industries, Inc.’s Form 10-Q filed
September 8, 2022) *
Employment Agreement, dated January 30, 2023, by and between Lakeland Industries, Inc. and Roger D. Shannon (incorporated by reference to Exhibit
10.1 of Lakeland Industries, Inc.’s Form 8-K filed February 2, 2023) *
Employment Agreement, dated September 1, 2022, by and between Lakeland Industries, Inc. and Hui An (incorporated by reference to Exhibit 10.30 of
Lakeland Industries, Inc.’s Form 10-K filed April 18, 2023)*
Debt Purchase Facility Agreement, dated as of April 6, 2021, between HSBC Invoice Finance (UK) Limited and Lakeland Industries Europe
Limited (incorporated by reference to Exhibit 10.2 of Lakeland Industries, Inc.’s Form 10-Q filed June 7, 2023)*
General Release and Severance Agreement, by and between Lakeland Industries, Inc. and Allen E. Dillard (incorporated by reference to Exhibit 10.1 of
Lakeland Industries, Inc.’s Form 10-Q filed June 7, 2023) *
Transition to Retirement Agreement and General Release, dated May 11, 2023, by and between Lakeland Industries, Inc. and Steven L. Harvey
(incorporated by reference to Exhibit 10.1 of Lakeland Industries, Inc.’s Form 10-Q filed September 6, 2023) *
General Release and Separation Agreement, dated October 19, 2023, by and between Lakeland Industries, Inc. and Charles D. Roberson (incorporated by
reference to Exhibit 10.1 of Lakeland Industries, Inc.’s Form 10-Q filed December 7, 2023) *
Amendment No. 2 to Loan Agreement, dated as of March 3, 2023, by and between Lakeland Industries, Inc. and Bank of America, N.A. (filed herewith)
Amendment No. 3 to Loan Agreement, dated as of November 30, 2023, by and between Lakeland Industries, Inc. and Bank of America, N.A. (filed
herewith)
Lakeland Industries, Inc. Code of Ethics, as amended on September 29, 2017 (incorporated by reference to Exhibit 14.1 of Lakeland Industries, Inc.’s
Form 10-K filed April 16, 2019).
Subsidiaries of Lakeland Industries, Inc. (wholly owned) and jurisdictions of incorporation:
Lakeland Protective Wear, Inc. (Ontario, Canada)
Weifang Meiyang Protective Products Co., Ltd. (China)
Weifang Lakeland Safety Products Co., Ltd. (China)
Lakeland (Beijing) Safety Products Co., Ltd. (Beijing & Shanghai China)
Lakeland Industries Europe Ltd. (Cardiff, United Kingdom)
Industrias Lakeland S.A. de C.V. (Zacatecas, Mexico)
Lakeland Industries Chile Limitado (Santiago, Chile)
Indian Pan-Pacific Sales Ltd. (Hong Kong, China)
Lakeland (Hong Kong) Trading Co., Ltd. (Hong Kong, China)
Lakeland Argentina, SRL (Buenos Aires, Argentina)
Migliara S.A. (Uruguay)
Lakeland Glove and Safety Apparel Private, Ltd. (Noida, India)
Lakeland India Private Limited, New Delhi, India)
RussIndProtection, Ltd. (Moscow, Russia)
Art Prom, LLC (Kazakhstan, Russia)
SpecProtect LLC (St. Petersburg, Russia)
Lakeland (Vietnam) Industries Co., Ltd. (Nam Dinh, Vietnam)
Lakeland Industries Australia Pty Ltd. (Mornington, Australia)
Eagle Technical Products Limited (Manchester, United Kingdom)
SALH1,Inc. (Delaware, United States)
SALH2, Inc. (Delaware, United States)
Lakeland Safety MX Monterrey, S.A. de C.V. (Monterrey, Mexico)
Lakeland NZ Limited (Wanganui, New Zealand)
Pacific Helmets NZ Limited (Wanganui, New Zealand)
Jolly Scarpe S.p.A. (Italy)
Jolly Scarpe Romania S.R.L. (Romania)
Consent of Deloitte & Touche LLP, independent registered public accounting firm (filed herewith)
Certification of the Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (filed herewith)
Certification of the Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (filed herewith)
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(furnished herewith)
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(furnished herewith)
Compensation Recoupment Policy (filed herewith)
Interactive Data Files for the Registrant’s Form 10-K for the period ended January 31, 2023, formatted in Inline XBRL.
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101).
*Indicates a management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
None.
Table of Contents
39
_________________SIGNATURES_________________
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: April 10, 2024
LAKELAND INDUSTRIES, INC.
By: /s/ James M. Jenkins
James M. Jenkins
Acting President and Chief Executive Officer and
Executive Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
Signature
/s/ James M. Jenkins
James M. Jenkins
/s/ Roger D. Shannon
Roger D. Shannon
/s/ Thomas J. McAteer
Thomas J. McAteer
/s/ Nikki L. Hamblin
Nikki L. Hamblin
/s/ Jeffrey T. Schlarbaum
Jeffrey T. Schlarbaum
/s/ Ronald Herring
Ronald Herring
/s/ Melissa Kidd
Melissa Kidd
/s/ Martin Glavin
Martin Glavin
Title
Date
Acting President and Chief Executive Officer and Executive Chairman
April 10, 2024
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
40
April 10, 2024
April 10, 2024
April 10, 2024
April 10, 2024
April 10, 2024
April 10, 2024
April 10, 2024
EXHIBIT 2.2
EXHIBIT 2.3
EXHIBIT 10.36
EXHIBIT 10.37
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-200422 on Form S-3 and Registration Statement Nos. 333-144870, 333-176733, 333-
183882, 333-205836, 333-219084 and 333-259308 on Form S-8 of our reports dated April 10, 2024, relating to the financial statements of Lakeland Industries, Inc. and
the effectiveness of Lakeland Industries, Inc.'s internal control over financial reporting appearing in this Annual Report on Form 10-K for the year ended January 31, 2024.
EXHIBIT 23.1
/s/ Deloitte & Touche LLP
Memphis, Tennessee
April 10, 2024
EXHIBIT 31.1
I, James M. Jenkins, certify that:
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
1)
2)
3)
4)
I have reviewed this report on Form 10-K of Lakeland Industries, Inc. (the “registrant”);
Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements and other financial information included in this report fairly present, in all material respects, the financial
condition, results of operations and cash flows of the registrant as of and for the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant, and we have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over
financial reporting.
Date: April 10, 2024
By:
/s/ James M. Jenkins
Acting President and Chief Executive Officer and
Executive Chairman
EXHIBIT 31.2
I, Roger D. Shannon, certify that:
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
1)
2)
3)
4)
I have reviewed this report on Form 10-K of Lakeland Industries, Inc. (the “registrant”);
Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements and other financial information included in this report fairly present, in all material respects, the financial
condition, results of operations and cash flows of the registrant as of and for the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant, and we have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over
financial reporting.
Date: April 10, 2024
By:
/s/ Roger D. Shannon
Chief Financial Officer and Secretary
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to 18 USC. § 1350, As Adopted Pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.1
In connection with the filing with the Securities and Exchange Commission of the Annual Report of Lakeland Industries, Inc. (the “Company”) on Form 10-K for the year
ended January 31, 2024 (the “Report”), I, James M. Jenkins, Acting President and Chief Executive Officer and Executive Chairman of the Company, certify, pursuant to
18 USC. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)
The Report fully complies with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for
the periods presented in the report.
/s/ James M. Jenkins
James M. Jenkins
Acting President and Chief Executive Officer and
Executive Chairman
April 10, 2024
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to 18 USC. § 1350, As Adopted Pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.2
In connection with the filing with the Securities and Exchange Commission of the Annual Report of Lakeland Industries, Inc. (the “Company”) on Form 10-K for the year
ended January 31, 2024 (the “Report”), I, Roger D. Shannon, Chief Financial Officer and Secretary of the Company, certify, pursuant to 18 USC. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)
The Report fully complies with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for
the periods presented in the report.
/s/ Roger D. Shannon
Roger D. Shannon
Chief Financial Officer and Secretary
April 10, 2024
LAKELAND INDUSTRIES, INC.
COMPENSATION RECOUPMENT POLICY
EXHIBIT 97.1
1. Purpose. The purpose of this Policy is to describe the circumstances in which Covered Persons will be required to repay, return, or forfeit
Erroneously Awarded Compensation and other Recoverable Amounts to the Company. This Policy shall be interpreted to comply with Rule
10D-1 promulgated under the Securities Exchange Act of 1934, as amended, and the related listing rules of the Exchange, and, to the extent
this Policy is deemed inconsistent with such rules in any manner, this Policy shall be treated as retroactively amended to be compliant with
such rules. Capitalized terms shall have the meanings ascribed to such terms in Section 3 below. This Policy replaces and supersedes the
Company’s Clawback Policy adopted and approved by the Board on the Original Adoption Date.
2. Administration. This Policy shall be administered by the Committee. The Committee has full and final authority to make all
determinations under this Policy, in each case to the extent permitted under the listing rules of the Exchange and in compliance with (or
pursuant to an exemption from the application of) Section 409A of the Code. Any determinations made by the Committee shall be final and
binding on all affected individuals. The Committee has the power, in its sole discretion, to retain or obtain the advice of a compensation
consultant, legal counsel or other adviser as it deems necessary or appropriate to carry out its duties under this Policy.
3. Definitions. For purposes of this Policy, the following capitalized terms shall have the meanings set forth below.
(a) “Accounting Restatement” shall mean an accounting restatement due to the material noncompliance of the Company with any
financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously
issued financial statements that is material to the previously issued financial statements (a “Big R” restatement), or that would result in a
material misstatement if the error were corrected in the current period or left uncorrected in the current period (a “little r” restatement).
(b) “Board” shall mean the Board of Directors of the Company.
(c) “Clawback Eligible Incentive Compensation” shall mean all Incentive-based Compensation Received by a Covered Executive (i)
on or after October 2, 2023, (ii) after beginning service as a Covered Executive, (iii) who served as a Covered Executive at any time during
the applicable performance period for such Incentive-based Compensation (whether or not such Covered Executive is serving at the time the
Erroneously Awarded Compensation is required to be repaid, returned, or forfeited to the Company Group), (iv) while the Company has a
class of securities listed on a national securities exchange or a national securities association, and (v) during the applicable Clawback Period.
(d) “Clawback Period” shall mean, with respect to any Accounting Restatement, the three completed fiscal years of the Company
immediately preceding the Restatement Date, including any transition period (that results from a change in the Company’s fiscal year) of less
than nine months within or immediately following those three completed fiscal years.
1
(e) “Code” shall mean the U.S. Internal Revenue Code of 1986, as amended. Any reference to a section of the Code or regulation
thereunder includes such section or regulation, any valid regulation or other official guidance promulgated under such section, and any
comparable provision of any future legislation or regulation amending, supplementing, or superseding such section or regulation.
(f) “Committee” shall mean the Compensation Committee (if composed entirely of independent directors) of the Board, or, in the
absence of such a committee, a majority of the independent directors serving on the Board.
(g) “Company” shall mean Lakeland Industries, Inc., a Delaware corporation.
(h) “Company Group” shall mean the Company, together with each of its direct and indirect subsidiaries.
(i) “Covered Employee” shall mean each individual who is currently or was previously an employee or director of the Company who
has Received Incentive-based Compensation.
(j) “Covered Executive” shall mean each individual who is currently or was previously designated as an “officer” of the Company in
accordance with Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended.
(k) “Covered Person” shall mean each Covered Employee and each Covered Executive.
(l) “Effective Date” shall mean October 2, 2023.
(m) “Erroneously Awarded Compensation” shall mean, with respect to each Covered Executive in connection with an Accounting
Restatement, the amount of Clawback Eligible Incentive Compensation Received that exceeds the amount of Incentive-based Compensation
that otherwise would have been Received had it been determined based on the restated amounts, computed without regard to any taxes paid.
For Incentive-based Compensation based on (or derived from) stock price or total stockholder return where the amount of Erroneously
Awarded Compensation is not subject to mathematical recalculation directly from the information in the applicable Accounting Restatement,
the amount shall be determined by the Committee based on a reasonable estimate of the effect of the Accounting Restatement on the stock
price or total stockholder return upon which the Incentive-based Compensation was Received (in which case, the Company shall maintain
documentation of such determination of that reasonable estimate and provide such documentation to the Exchange). With respect to any
compensation plans or programs of the Company Group that take into account Incentive-based Compensation, the amount of Erroneously
Awarded Compensation subject to recovery (or, to the extent such amount has not yet been paid, forfeiture) under this Policy includes, but is
not limited to, the amount of Erroneously Awarded Compensation credited to any notional account and any notional earnings attributable
thereto.
2
(n) “Exchange” shall mean a national securities exchange or national securities association on which the Company has listed
securities.
(o) “Financial Reporting Measure” shall mean a measure that is determined and presented in accordance with the accounting
principles used in preparing the Company’s financial statements, and any other measure that is derived wholly or in part from such measure.
Stock price and total stockholder return (and any measure that is derived wholly or in part from stock price or total stockholder return) shall
be considered Financial Reporting Measures for purposes of this Policy. For the avoidance of doubt, a Financial Reporting Measure need not
be presented in the Company’s financial statements or included in a filing with the SEC.
(p) “Incentive-based Compensation” shall mean any compensation that is granted, earned, or vested based wholly or in part upon the
attainment of a Financial Reporting Measure.
(q) “Original Adoption Date” shall mean June 15, 2021.
(r) “Policy” shall mean this Compensation Recoupment Policy, as the same may be amended and/or restated from time to time.
(s) “Received” shall, with respect to any Incentive-based Compensation, mean deemed receipt, and Incentive-based Compensation
shall be deemed received in the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive-based
Compensation award is attained, even if payment or grant of the Incentive-based Compensation occurs after the end of that period (subject to
applicable law, including any Incentive-based Compensation the payment of which has been deferred). For the avoidance of doubt, Incentive-
based Compensation that is subject to both a Financial Reporting Measure vesting condition and a service-based vesting condition shall be
considered received when the relevant Financial Reporting Measure is achieved, even if the Incentive-based Compensation continues to be
subject to the service-based vesting condition.
(t) “Recoverable Amounts” shall mean all Incentive-based Compensation Received by a Covered Employee (i) on or after the Original
Adoption Date, (ii) who served as a Covered Employee at any time during the applicable performance period for such Incentive-based
Compensation (whether or not such Covered Employee is serving at the time the Recoverable Amounts are required to be repaid, returned, or
forfeited to the Company Group), and (iii) during the applicable Clawback Period. “Recoverable Amounts” shall not include any Erroneously
Awarded Compensation that has been recouped by the Company pursuant to this Policy.
(u) “Restatement Date” shall mean the earlier to occur of (i) the date the Board, a committee of the Board or the officers of the
Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is
required to prepare an Accounting Restatement, or (ii) the date a court, regulator, or other legally authorized body directs the Company to
prepare an Accounting Restatement.
(v) “SEC” shall mean the U.S. Securities and Exchange Commission.
3
4. Recovery of Erroneously Awarded Compensation and Recoverable Amounts.
(a) Mandatory Recoupment of Erroneously Awarded Compensation. In the event that the Company is required to prepare an
Accounting Restatement, the Company must recover, reasonably promptly, Erroneously Awarded Compensation Received by any Covered
Executive during the applicable Clawback Period, in amounts determined by the Committee pursuant to this Policy. The Company’s
obligation to recover Erroneously Awarded Compensation is not dependent on if or when the Company files restated financial statements.
Recovery under this Policy with respect to a Covered Executive shall not require the finding of any misconduct by such Covered Executive or
such Covered Executive being found responsible for the accounting error leading to an Accounting Restatement. In the event of an
Accounting Restatement, the Committee shall determine, in its sole and absolute discretion, the timing and method for promptly recovering
Erroneously Awarded Compensation hereunder, including, without limitation, the cancellation of or offsetting against any planned future cash
or equity-based awards, to the extent permitted under the listing rules of the Exchange and in compliance with (or pursuant to an exemption
from the application of) Section 409A of the Code.
(b) Exceptions. Notwithstanding anything herein to the contrary, the Company shall not be required to take the actions contemplated
by Section 4(a) above to the extent that one or more of the following conditions are met and the Committee determines that recovery would
therefore be impracticable:
(i) The direct expense paid to a third party to assist in enforcing this Policy against a Covered Employee would exceed the
amount to be recovered, after the Company has made a reasonable attempt to recover the applicable Erroneously Awarded Compensation,
documented such attempts and provided such documentation to the Exchange; or
(ii) Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to
employees of any member of the Company Group, to fail to meet the requirements of Section 401(a)(13) or Section 411(a) of the Code.
(c) Discretionary Recoupment of Recoverable Amounts. In the event that the Company is required to prepare an Accounting
Restatement, the Company may, in the Committee’s sole discretion, recover up to all Recoverable Amounts Received by any Covered
Employee during the applicable Clawback Period, in amounts determined by the Committee pursuant to this Policy based on the particular
facts and circumstances surrounding the Accounting Restatement and the Covered Employee’s relative role and responsibilities. The
Company’s ability to recover Recoverable Amounts under this Section 4(c) is not dependent on if or when the Company files restated
financial statements. The Committee shall determine, in its sole and absolute discretion, the timing and method for promptly recovering
Recoverable Amounts hereunder, including, without limitation, the cancellation of or offsetting against any planned future cash or equity-
based awards, to the extent permitted under the listing rules of the Exchange and in compliance with (or pursuant to an exemption from the
application of) Section 409A of the Code.
4
5. Reporting and Disclosure. The Company shall file all disclosures with respect to this Policy in accordance with the requirements of the
federal securities laws, including the disclosures required by applicable SEC filings.
6. Indemnification Prohibition. No member of the Company Group shall be permitted to indemnify any Covered Person against the loss of
any Erroneously Awarded Compensation or Recoverable Amounts that are repaid, returned, recovered, or forfeited pursuant to the terms of
this Policy, including any payment or reimbursement for the cost of third-party insurance purchased by a Covered Person to cover such losses
incurred under this Policy. Further, no member of the Company Group shall enter into any agreement that exempts any Incentive-based
Compensation from the application of this Policy or that waives the Company Group’s right to recovery of any Erroneously Awarded
Compensation or Recoverable Amounts, and this Policy shall supersede any such agreement (whether entered into before, on, or after the
Effective Date).
7. Interpretation. The Committee is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or
advisable for the administration of this Policy.
8. Effective Date. This Policy shall be effective as of the Effective Date.
9. Amendment; Termination. The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems
necessary, including as and when it determines that it is legally required by any federal securities laws, SEC rules, or the listing rules of the
Exchange. The Board may terminate this Policy at any time. Notwithstanding anything in this Section 9 to the contrary, no amendment or
termination of this Policy shall be effective if such amendment or termination would (after taking into account any actions taken by the
Company contemporaneously with such amendment or termination) cause the Company to violate any federal securities laws, SEC rules, or
the listing rules of the Exchange.
10. Acknowledgment; Benefits Conditioned on Agreeing to this Policy. Each Covered Person shall be required to sign and return to the
Company, within sixty (60) calendar days following the later of (i) the Effective Date of this Policy or (ii) the date the individual becomes a
Covered Person, the Acknowledgment Form attached hereto as Exhibit A, pursuant to which such Covered Person will agree to be bound by
the terms of this Policy. Any employment agreement, equity award agreement, compensatory plan or any other agreement or arrangement
with a Covered Person shall be deemed to include, as a condition to the grant or receipt of any benefit thereunder, an agreement by the
Covered Person to abide by, and for such Covered Person and his/her Incentive-based Compensation to be subject to, the terms of this Policy.
For the avoidance of doubt, each Covered Person will be fully bound by, and must comply with, this Policy, whether or not such Covered
Person has executed and returned such Acknowledgment Form to the Company.
5
11. Other Recoupment Rights; Company Claims. The Board intends that this Policy will be applied to the fullest extent of the law. This
Policy should be considered as a supplement to any other clawback policy in effect now or in the future at the Company or any other member
of the Company Group, and if such other policy provides that a greater amount of compensation shall be subject to clawback, such other
policy shall apply to the amount in excess of the amount subject to clawback under this Policy. Any right of recoupment (or right to apply a
forfeiture) under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment (or forfeiture) that may be
available to the Company Group under applicable law, regulation, or rule or pursuant to the terms of any similar policy in any employment
agreement, compensation plan or program, award agreement, or similar document and any other legal remedies available to the Company
Group, in each case to the extent permitted under the listing rules of the Exchange and in compliance with (or pursuant to an exemption from
the application of) Section 409A of the Code. Nothing contained in this Policy, and no recoupment, recovery, or forfeiture as contemplated by
this Policy, shall limit any claims, damages, or other legal remedies the Company Group may have against a Covered Person arising out of or
resulting from any actions or omissions by the Covered Person.
12. Successors. This Policy shall be binding and enforceable against all Covered Persons and their beneficiaries, heirs, executors,
administrators or other legal representatives.
6
Exhibit A
Lakeland Industries, Inc.
Compensation Recoupment Policy
ACKNOWLEDGMENT FORM
By signing below, the undersigned acknowledges and confirms that the undersigned has received and reviewed a copy of the Lakeland
Industries, Inc. Compensation Recoupment Policy (the “Policy”). Capitalized terms used but not otherwise defined in this Acknowledgment
Form (this “Acknowledgment Form”) shall have the meanings ascribed to such terms in the Policy.
By signing this Acknowledgment Form, the undersigned acknowledges and agrees that the undersigned and the undersigned’s
Incentive-based Compensation are and will continue to be subject to the Policy and that the Policy will apply both during and after the
undersigned’s employment with any member of the Company Group. In the event of any inconsistency or conflict between the Policy and any
prior, existing or future employment agreement, compensation plan or program, award agreement or similar document to which the
undersigned is or becomes a party or that otherwise is or becomes applicable to the undersigned (collectively, “compensation
arrangements”), the undersigned acknowledges and agrees that the Policy shall govern such compensation arrangements, and all such
compensation arrangements are hereby automatically deemed amended to the extent necessary to give effect to the Policy. Further, by signing
below, the undersigned agrees to abide by the terms of the Policy, including, without limitation, by (i) waiving any rights to indemnification or
any claim to insurance under a policy paid for by the Company, in either case in connection with the recovery of Erroneously Awarded
Compensation or Recoverable Amounts under the Policy, and (ii) returning any Erroneously Awarded Compensation or Recoverable Amounts
to the extent required by the Policy.
Signature: __________________________
Print Name: _________________________
Date: ______________________________
7