Full Press Release Details
Lakeland Industries, Inc. Reports
Fiscal 2013 First Quarter
RONKONKOMA, NY - June 14,
2012 - Lakeland Industries, Inc. (NASDAQ: LAKE), a leading global manufacturer of industrial protective clothing for industry,
municipalities, healthcare and to first responders on the federal, state and local levels, today announced financial results for
its first quarter of fiscal year 2013 ended April 30, 2012. For all periods, the financial results have been restated to reflect
the Company's India glove manufacturing subsidiary as a discontinued operation.
Financial Results Highlights
and Recent Company Developments
Fiscal Year 2013 Financial Results
Net Sales. Net sales from
continuing operations decreased $1.6 million, or 6.2%, to $24.0 million for the three months ended April 30, 2012, from $25.6 million
for the three months ended April 30, 2011. The net decrease was due to a $5.0 million decrease in domestic sales, partially offset
by an increase of $3.4 million in foreign sales. US domestic sales of disposables decreased by $4.8 million as a result of the
DuPont license termination, while domestic glove sales increased by $0.3 million.
Domestic sales in China and to
the Asia Pacific Rim remain strong and increased by over 45% in the first quarter of fiscal 2013 as compared with the prior year.
UK sales increased by $0.5 million, or 28%. Chile and Argentina combined sales increased by 86%. Sales in Brazil grew by $1.1 million,
an increase of 28%. In Q4 FY12, the Company received a record level of large bid purchase orders for delivery in fiscal 2013, resulting
in a marked anticipated rebound for total Brazil sales expected in fiscal 2013. Due to the timing of shipments and related revenue
recognition, sales in the fiscal 2013 first quarter reflect only a portion of the total order backlog.
Gross Profit. Gross profit
from continuing operations decreased $0.9 million, or 11.5%, to $7.3 million for the three months ended April 30, 2012, from $8.3
million for the three months ended April 30, 2011. Gross profit as a percentage of net sales decreased to 30.5% for the three months
ended April 30, 2012, from 32.3% for the three months ended April 30, 2011. Major factors driving the changes in gross margins
Operating Expenses. Operating
expenses from continuing operations increased $0.6 million, or 9.0%, to $7.3 million for the three months ended April 30, 2012,
from $6.7 million for the three months ended April 30, 2011. As a percentage of sales, operating expenses increased to 30.4% for
the three months ended April 30, 2012, from 26.1% for the three months ended April 30, 2011. The $0.6 million increase in operating
expenses in the three months ended April 30, 2012, as compared to the three months ended April 30, 2011, was comprised of:
| $0.5 | million increase in sales commission mainly resulting from large bid contracts in Brazil |
| $0.3 | million increase in sales salaries, sales travel and trade shows resulting from staff additions in the US as part of the Company's new domestic sales and marketing strategy |
| $(0.1) | million decrease in medical benefits resulting from better experience in the Company's self-insured plan |
| $(0.1) | million decrease in administration payroll salaries resulting from staff reductions |
Operating Profit. Operating
profit from continuing operations decreased $1.6 million for the three months ended April 30, 2012, from $1.6 million for the three
months ended April 30, 2011. Operating margins were breakeven for the three months ended April 30, 2012, compared to 6.2% for the
three months ended April 30, 2011. The profitability of the more developed foreign operating businesses was offset by operating
losses from the U.S. business as it restructures and implements a new sales and marketing strategy.
Interest Expenses. Interest
expenses from continuing operations increased by $0.1 million for the three months ended April 30, 2012, as compared to the three
months ended April 30, 2011, due to higher borrowing levels outstanding, and by higher rates prevailing in Brazil. Higher borrowing
levels generally relate to the purchase of raw materials and carrying of inventory throughout the Company's expanded global
footprint. In Brazil, the raw material and product inventory being carried is unusually high due to the ongoing fulfillment of
large bid orders to be delivered in subsequent quarters of fiscal 2013. The Company's total inventory at April 30, 2012 was
reduced by approximately $3.3 million from the beginning of the fiscal year.
Income Tax Expense. Income
tax expenses from continuing operations consist of federal, state and foreign income taxes. Income tax benefits increased $0.7
million to $0.3 million for the three months ended April 30, 2012, from an expense of $0.4 million for the three months ended April
30, 2011. The Company's effective tax rates were (3.3%) for Q1FY13 and 23.2% for Q1FY12. The effective tax rate for Q1FY12
was due to goodwill write-offs in Brazil and tax benefits from India resulting from "check the box" in the US. For
Q1FY13, the effective tax rate varied from the 34% federal statutory rate primarily due to the $10,000,000 Arbitral Award (against
the Company) in Brazil with no tax benefit, and goodwill write-offs in Brazil and tax benefits from US losses at a rate higher
than the tax rates on other profits, mainly in China.
Net Income (Loss). Net
income from continuing operations decreased $11.5 million to a loss of $(10.1) million for the three months ended April 30, 2012,
from a profit of $1.3 million for the three months ended April 30, 2011. The decrease in net income primarily resulted from the
$10,000,000 Arbitral Award in Brazil and loss in volume in the US resulting from the DuPont termination.
(loss) per share (EPS) from continuing operations on a fully diluted basis for the first quarter ended April 30, 2012 was $(1.94)
as compared to EPS of $0.25 for the 2012 fiscal first quarter. The weighted average shares used in calculating fully diluted EPS
was 5,225,478 for the first quarter of fiscal 2013 and 5,334,165 for the same period of fiscal 2012.
At April 30, 2012, the
Company had a cash balance of $4.7 million and long term debt consisting primarily of bank debt of $13.1 million in the U.S. (including
term loans) plus bank debt of $2.6 million in Brazil and $1.5 million in Canada. As a result of the Arbitration Award issued against
the Company in May 2012 (see Note 14), and other issues, one or more events of default have occurred under the TD Bank revolving
credit facility and term loan facility including an event of default for failure to comply with the minimum EBITDA covenant, which
would allow TD Bank, at its option, to accelerate the loan. As such this debt has been reclassified as a current liability. While
TD Bank has not waived the events of default, we are in discussions with TD Bank about resolution of these matters, and we continue
to otherwise operate within the terms of the credit agreement while we work out a resolution. However, no assurances can
be given that we will be able to work out a satisfactory arrangement with TD Bank.
The Company has engaged Raymond James & Associates, Inc. to
assist the Board of Directors in its evaluation of a broad range of financial and strategic alternatives for the Company.
Management's Comments
Commenting on the financial
results and recent developments, Lakeland Industries President and Chief Executive Officer Christopher J. Ryan said, "We
reported yet another quarter of record top line performance for our international sales operations. This performance is driven
by large bid orders received in Brazil and continued improvement in our other high growth markets in Latin America and Asia. International
revenues from continuing operations as a percentage of consolidated sales increased to 59.2% in the first quarter of fiscal 2013,
the highest level in the Company's history. This percentage grew from 52.5% in the fourth quarter of fiscal year 2012 and
42.5% in the first quarter of the prior year.
"Total international sales
in the first quarter were a record $14.2 million, an increase of over 30% from $10.9 million in the same period of the prior year
and 34% higher than the fourth quarter of last year. In Brazil, first quarter sales increased by 28% from the prior year, although
this reflected only a portion of the shipments we had planned to make. As previously disclosed, the Company received large bid
purchase orders for delivery in fiscal 2013, resulting in a marked anticipated rebound for total Brazil sales expected in fiscal
2013. Due to the timing of shipments and related revenue recognition, sales in the fiscal 2013 first quarter reflect only a portion
of the total order backlog. Although on a smaller scale, our operations in other Latin American markets are experiencing significant
growth. And China continues to deliver impressive double digit increases in revenue from sales throughout the region.
"Amid all of the progress
we are making internationally, our performance improvements are being marred by the Brazil Arbitration Award which was ruled against
Lakeland Industries. We have accrued $10,000,000 or a reduction of $1.91 per share in the first quarter for the judgment, although
we are aggressively attempting to have the award set aside. As a result of this ruling, we are in default on our long term debt
and also in default of the minimum EBITDA covenant related to our primary bank debt facility. We strongly believe that the arbitration
decision is inconsistent with the underlying facts, and we continue to work with counsel to determine and evaluate our options.
We believe that we have available resources, together with additional outside funding through debt or equity financings or asset
sales, which will enable us to satisfy any potential award adverse to the Company and continue operations on a viable basis.
"To strengthen the Company's
financial position, particularly in light of the Brazil Arbitration Award ruled against us, we have reduced our inventories by
$3.4 million and paid down our bank debt by $1.7 million net, since the beginning of the fiscal year. These actions complement
other previously announced initiatives, which include improvements to the Company's cost structure, reductions in overhead,
and investments in sales and marketing to accelerate our top line growth both domestically and abroad.
"Now that we have removed
our dependence on DuPont, we are in the process of effectuating a turnaround for our domestic operations, which will not be complete