LAKELAND INDUSTRIES INC 10-Q

Item 1. Financial Statements LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) ($000’s except for share and per share information) Three Months Ended April 30, 2021 2020 Net sales $ 34,092 $ 45,582 Cost of goods sold 19,706 23,438 Gross profit 14,386 22,144 Operating expenses 8,148 9,774 Operating profit 6,238 12,370 Other income (expense), net ( 12 ) 6 Interest expense ( 1 ) ( 17 ) Income before taxes 6,225 12,359 Income tax expense 1,584 3,725 Net income $ 4,641 $ 8,634 Net income per common share: Basic $ 0.58 $ 1.08 Diluted $ 0.57 $ 1.07 Weighted average common shares outstanding: Basic 7,989,215 7,972,423 Diluted 8,143,805 8,044,849 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) ($000’s) Three Months Ended April 30, 2021 2020 Net income $ 4,641 $ 8,634 Other comprehensive income (loss): Foreign currency translation adjustments ( 55 ) ( 289 ) Comprehensive income $ 4,586 $ 8,345 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (000’s except for share information) April 30, January 31, 2021 2021 ASSETS Current assets Cash and cash equivalents $ 60,322 $ 52,596 Accounts receivable, net of allowance for doubtful accounts of $ 873 and $ 700 at April 30, 2021 and January 31, 2021, respectively 19,184 21,702 Inventories 43,881 43,833 Prepaid VAT and other taxes 2,302 1,343 Other current assets 3,462 4,134 Total current assets 129,151 123,609 Property and equipment, net 9,437 9,819 Operating leases right-of-use assets 2,230 2,347 Deferred tax assets 2,913 2,839 Prepaid VAT and other taxes 329 329 Other assets 118 112 Goodwill 871 871 Total assets $ 145,049 $ 139,925 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 7,267 $ 7,397 Accrued compensation and benefits 3,259 3,902 Other accrued expenses 2,660 1,793 Income tax payable 2,315 1,534 Current portion of operating lease liabilities 956 768 Total current liabilities 16,457 15,394 Long-term portion of operating lease liabilities 1,212 1,613 Total liabilities 17,669 17,007 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 8,542,235 and 8,498,457 ; outstanding 8,032,993 and 7,984,518 at April 30, 2021 and January 31, 2021, respectively 86 85 Treasury stock, at cost; 509,242 shares ( 5,023 ) ( 5,023 ) Additional paid-in capital 76,656 76,781 Retained earnings 57,328 52,687 Accumulated other comprehensive loss ( 1,667 ) ( 1,612 ) Total stockholders' equity 127,380 122,918 Total liabilities and stockholders' equity $ 145,049 $ 139,925 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (000’s except for share information) Accumulated Additional Other Common Stock Treasury Stock Paid-in Retained Comprehensive Shares Amount Shares Amount Capital Earnings Loss Total ($000’s) ($000’s) ($000’s) ($000’s) ($000’s) ($000’s) Balance, January 31, 2020 8,481,665 $ 85 ( 509,242 ) $ ( 5,023 ) $ 75,171 $ 17,581 $ ( 2,762 ) $ 85,052 Net income - - - - - 8,634 - 8,634 Other comprehensive loss - - - - - - ( 289 ) ( 289 ) Stock-based compensation: Restricted Stock Plan 3,852 - - - 143 - - 143 Balance, April 30, 2020 8,485,517 $ 85 ( 509,242 ) $ ( 5,023 ) $ 75,314 $ 26,215 $ ( 3,051 ) $ 93,540 Balance, January 31, 2021 8,498,457 $ 85 ( 509,242 ) $ ( 5,023 ) $ 76,781 $ 52,687 $ ( 1,612 ) $ 122,918 Net Income - - - - - 4,641 - 4,641 Other comprehensive income - - - - - - ( 55 ) ( 55 ) Stock-based compensation: Restricted stock issued 43,778 1 - - - - - 1 Restricted stock plan - - - - 336 - - 336 Return of shares in lieu of payroll withholding - - - - ( 461 ) - - ( 461 ) Balance, April 30, 2021 8,542,235 $ 86 ( 509,242 ) $ ( 5,023 ) $ 76,656 $ 57,328 $ ( 1,667 ) $ 127,380 6 Table of Contents LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ($000)’s Three Months Ended April 30, 2021 2020 Cash flows from operating activities: Net income $ 4,641 $ 8,634 Adjustments to reconcile net income to net cash provided by operating activities Provision for doubtful accounts 173 150 Deferred income taxes ( 75 ) 2,314 Depreciation and amortization 499 453 Stock based and restricted stock compensation 336 163 Gain on disposal of property and equipment 17 7 Non-cash operating lease expense 117 214 (Increase) decrease in operating assets Accounts receivable 2,328 ( 7,589 ) Inventories ( 57 ) 6,656 Prepaid VAT and other taxes ( 959 ) ( 288 ) Other current assets 634 ( 1,199 ) Increase (decrease) in operating liabilities Accounts payable ( 128 ) ( 1,008 ) Accrued expenses and other liabilities 1,007 2,017 Operating lease liabilities ( 214 ) ( 271 ) Net cash provided by operating activities 8,318 10,253 Cash flows from investing activities: Purchases of property and equipment ( 135 ) ( 194 ) Cash flows from financing activities: Loan repayments, short-term - ( 1,181 ) Loan borrowings, short-term - 158 Shares returned to pay employee taxes under restricted stock program ( 461 ) ( 20 ) Net cash (used in) financing activities ( 461 ) ( 1,043 ) Effect of exchange rate changes on cash and cash equivalents 3 ( 149 ) Net increase in cash and cash equivalents 7,726 8,867 Cash and cash equivalents at beginning of period 52,596 14,606 Cash and cash equivalents at end of period $ 60,322 $ 23,473 Supplemental disclosure of cash flow information: Cash paid for interest $ 1 $ 17 Cash paid for taxes $ 1,152 $ 861 Noncash investing and financing activities Leased assets obtained in exchange for operating lease liabilities $ 268 $ 215 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Table of Contents LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED STATEMENTS (UNAUDITED) 1. 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 1,600 global safety and industrial supply distributors. Our authorized distributors supply end users, such as integrated oil, chemical/petrochemical, automobile, steel, glass, construction, smelting, cleanroom, janitorial, pharmaceutical, and high technology electronics manufacturers, as well as scientific, medical laboratories and the utilities industry. In addition, we supply federal, state and local governmental agencies and departments, such as fire and law enforcement, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control. Internationally, we sell to a mixture of end users directly, and to industrial distributors depending on the particular country and market. Sales are made to more than 50 foreign countries, the majority of which were into China, the European Economic Community (“EEC”), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India and Southeast Asia. 2. Basis of Presentation The condensed consolidated financial statements of the Company are unaudited. These condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary by management to fairly state the Company's results. Intercompany accounts and transactions have been eliminated. The results reported in these condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the entire fiscal year ending January 31, 2022, or for any future period. The January 31, 2021, Condensed Consolidated Balance Sheet data was derived from the audited Consolidated Balance Sheet, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S. GAAP).The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto as of January 31, 2021 and 2020, and for each of the two years in the period ended January 31, 2021, included in our most recent annual report on Form 10-K filed on April 16, 2021. In this Form 10-Q, (a) “FY” means fiscal year; thus for example, FY22 refers to the fiscal year ending January 31, 2022, (b) “Q” refers to quarter; thus, for example, Q1 FY22 refers to the first quarter of the fiscal year ending January 31, 2022, (c) “Balance Sheet” refers to the unaudited condensed consolidated balance sheet and (d) “Statement of Income” refers to the unaudited condensed consolidated statement of income. 3. Inventories Inventories consist of the following (in $000s): April 30, 2021 January 31, 2021 Raw materials $ 18,624 $ 18,941 Work-in-process 794 409 Finished goods 27,145 27,047 Excess and obsolete adjustments ( 2,682 ) ( 2,564 ) $ 43,881 $ 43,833 8 Table of Contents 4. Long-Term Debt Revolving Credit Facility 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 $5.0million (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 will mature on June 25, 2025 . As of April 30, 2021, the Company had no borrowings outstanding on the letter of credit sub-facility and no borrowings outstanding under the revolving credit facility. Prior to the execution of the Loan Agreement with Bank of America, the Company repaid a $ 1.2 million term loan that was outstanding under a similar agreement with SunTrust Bank. The Company has terminated the borrowing agreement with SunTrust Bank. Borrowings in UK On March XX, 2021, Lakeland UK entered into an extension of the maturity date of its existing facility with HSBC Invoice Finance (UK) Ltd. to March 31, 2022 with no additional changes to the terms. There were no borrowings outstanding under the Company’s existing credit facility with HSBC Bank at April 30, 2021 and January 31, 2021. Amounts due, under the facility with HSBC Invoice Finance (UK) Ltd., of $ 1.6 million and $ 2.0 million as of April 30, 2021, and January 31, 2021, respectively, are included in other current assets on the accompanying consolidated balance sheets. 5. 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. The Company routinely addresses the financial strength of its customers and, as a consequence, believes that its receivable credit risk exposure is limited. The Company does not require customers to post collateral. The Company’s foreign financial depositories are Bank of America; China Construction Bank; Bank of China; China Industrial and Commercial Bank; HSBC (UK); Rural Credit Cooperative of Shandong; Postal Savings Bank of China; Punjab National Bank; HSBC in India, Argentina and UK; Banco Nacion in Argentina; TD Canada Trust; Banco Itaú S.A., Santander in Chile; Banco Mercantil Del Norte SA in Mexico; ZAO KB Citibank Moscow in Russia, and JSC Bank Centercredit in Kazakhstan. The Company monitors its financial depositories by their credit rating which varies by country. In addition, cash balances in banks in the United States of America are insured by the Federal Deposit Insurance Corporation subject to certain limitations. There was approximately $ 19.4 million total included in the U.S. bank accounts and approximately $ 40.9 million total in foreign bank accounts as of April 30, 2021, of which $ 59.6 million was uninsured. Major Customer No customer accounted for more than 10 % of net sales during the three months ended April 30, 2021 and 2020. Major Supplier No vendor accounted for more than 10 % of purchases during the three months ended April 30, 2021 and 2020. 9 Table of Contents 6. 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”). An aggregate of 360,000 shares of the Company’s common stock are authorized for issuance under the 2017 Plan, subject to adjustment as provided in the 2017 Plan for stock splits, dividends, distributions, recapitalizations and other similar transactions or events. If any shares subject to an award are forfeited, expire, lapse or otherwise terminate without issuance of such shares, such shares shall, to the extent of such forfeiture, expiration, lapse or termination, again be available for issuance under the 2017 Plan. The Company recognized total stock-based compensation costs, which are reflected in operating expenses (in 000’s): Three Months Ended April 30, 2021 2020 2017 Plan: Restricted Stock Program $ 306 $ 149 Stock Options 30 14 Total stock based compensation $ 336 $ 164 Total income tax expense recognized for stock-based compensation arrangements $ 71 $ 34 10 Table of Contents Restricted Stock Under the 2017 Plan, as described above, the Company awarded performance-based shares and service-based shares of restricted stock to eligible employees and directors. The following table summarizes the activity under the 2017 Plan for the three months ended April 30, 2021. 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 December 2019 and April 2020 grants. Performance-Based Service-Based Total Weighted Average Grant Date Fair Value Outstanding at January 31, 2021 245,210 30,930 276,140 $ 13.24 Awarded ---- ---- ---- Vested ( 58,574 ) ---- ( 58,574 ) Forfeited ---- ---- ---- Outstanding at April 30, 2021 186,636 30,930 217,566 $ 12.13 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 December 2019 and April 2020 grants. The performance targets have been set for each of the Minimum, Target, and Maximum levels. The actual performance amount achieved is determined by the 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 April 30, 2021, unrecognized stock-based compensation expense totaled $ 1.1 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 July 19, 2016, the Company’s board of directors approved a stock repurchase program under which the Company may repurchase up to $ 2,500,000 of its outstanding common stock. During the three months ended April 30, 2021, the Company did not repurchase any shares. The Company has repurchased 152,801 shares of stock under this program as of April 30, 2021 for $ 1,671,188 , inclusive, of commissions. On February 17, 2021, the Company’s Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to $ 5,000,000 of its outstanding common stock. This new program replaced the prior program which had approximately $ 800,000 remaining for repurchases. 7. Income Taxes Deferred Taxes and Valuation Allowance The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. The valuation allowance was $ 2.5 million and $ 2.7 million at April 30, 2021 and January 31, 2021, respectively. The state net operating loss (“NOL”) carryforwards as of April 30, 2021 were approximately $ 0.8 million after tax effects. The state NOLs with carry forward limitations will begin to expire after January 31, 2025 and will continue to expire at various periods up until January 31, 2039 when they will be fully expired. The states have a larger spread because some only carryforward for 10 years and some allow 20 years . The Georgia NOLs generated after January 31, 2018 can be carried forward indefinitely. Income Tax Expense Income tax expenses consists of federal, state and foreign income taxes. Items impacting the effective rate are state taxes, an adjustment for foreign tax rates lower than the US statutory tax rate, Global Intangible Low-taxed Income (“GILTI”), and an adjustment to reflect the recapture of U.S. NOLs as a result of applying the GILTI high tax exclusion in tax years FY19 and FY20. 11 Table of Contents 8. Net Income Per Share The following table sets forth the computation of basic and diluted net income per share at April 30, 2021 and 2020 as follows (in $000s except per share amounts): Three Months Ended April 30, 2021 2020 Numerator: Net income $ 4,641 $ 8,634 Denominator: Denominator for basic net income per share (weighted-average shares which exclude shares in the treasury, 509,242 at April 30, 2021 and 2020 7,989,215 7,972,423 Effect of dilutive securities from restricted stock plan 154,590 72,426 Denominator for diluted net income per share (adjusted weighted average shares) 8,143,805 8,044,849 Basic net income per share $ 0.58 $ 1.08 Diluted net income per share $ 0.57 $ 1.07 9. Contingencies Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been or is probable of being incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s 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. The Company’s Exit from Brazil On March 9, 2015, Lakeland Brazil, S.A. changed its legal form to a Limitada and changed its name to Lake Brasil Industria E Comercio de Roupas E Equipamentos de Protecao Individual LTDA (“Lakeland Brazil”). Transfer of Shares Agreement On July 31, 2015 (the “Closing Date”), Lakeland and Lakeland Brazil, completed a conditional closing of a Shares Transfer Agreement (the “Shares Transfer Agreement”) with Zap Comércio de Brindes Corporativos Ltda (“Transferee”), a company owned by an existing Lakeland Brazil manager, entered into on June 19, 2015. Pursuant to the Shares Transfer Agreement, the Transferee has acquired all of the shares of Lakeland Brazil owned by the Company. Pursuant to the Shares Transfer Agreement, Transferee paid R$1.00 to the Company and assumed all liabilities and obligations of Lakeland Brazil, whether arising prior to, on or after the Closing Date. In order to help enable Lakeland Brazil to have sufficient funds to continue to operate for a period of at least two years following the Closing Date, the Company provided funding to Lakeland Brazil in the aggregate amount of USD $ 1,130,000 in cash, in the form of a capital raise, on or prior to the Closing Date, and agreed to provide an additional R$582,000 (approximately USD $ 188,000 ) (the “Additional Amount”), in the form of a capital raise, to be utilized by Lakeland Brazil to pay off certain specified liabilities and other potential contingent liabilities. Pursuant to the Shares Transfer Agreement, the Company paid R$992,000 (approximately USD $ 320,000 ) in cash, on July 1, 2015 and issued a non-interest bearing promissory note for the payment to be due for the Additional Amount (R$582,000) (approximately USD $ 188,000 ) on the Closing Date which was paid to Lakeland Brazil in two (2) installments of (i) R$288,300 (approximately USD $82,000) which was paid on August 1, 2015, and (ii) R$294,500 (approximately USD $84,000) on September 1, 2015 . The closing of this agreement was subject to Brazilian government approval of the shares transfer, which was received in October 2015 (The “Final Closing Date”). 12 Table of Contents Although the Company formally completed the terms of the “Shares Transfer Agreement”, pursuant to which our entire equity interest in Lakeland Brazil was transferred, during the fiscal year ended January 31, 2016, we may continue to be exposed to certain liabilities arising in connection with the operations of Lakeland Brazil, which was shut down in late March 2019. The Company understands that under the laws of Brazil, a parent company may be held liable for the liabilities of a former Brazilian subsidiary in the event of fraud, misconduct, or under various theories. In this respect, as regards labor claims, a parent company could conceivably be held liable for the liabilities of a former Brazilian subsidiary. Although the Company would have the right of adversary system, full defense and due process, in case of a potential litigation, there can be no assurance as to the findings of the courts in Brazil. VAT Tax Issues in Brazil Value Added Tax (“VAT”) in Brazil is charged at the state level. We commenced operations in Brazil in May 2008 through the acquisition of Lakeland Brazil. Having successfully settled that largest of the VAT claims against Lakeland Brazil, three claims remain open. Our attorney informs us the three claims totaling R$1.3 million (USD $ 0.5 million) excluding interest, penalties and fees of R$2.7 million (USD $ 0.9 million) were likely to be successfully defended based on state auditor misunderstanding. Furthermore, with regards to foreign tax claims, our US attorney informs us that the US courts will not hear foreign tax claims and therefore will not enforce them. Labor Claims in Brazil As disclosed in our periodic filings with the SEC, we agreed to make certain payments in connection with ongoing labor litigation involving our former Brazilian subsidiary. While the vast majority of these labor suits have been resolved, two significant claims remain; one labor claim and one civil claim filed by separate former officers of our former Brazilian subsidiary. While Lakeland was initially named as a co-defendant in the labor suit, Lakeland was dismissed from the case by the labor judge. Lakeland is a named co-defendant in the civil matter. In the labor case filed in 2014, the former Brazilian manager was initially awarded USD $ 100,000 and appealed the award amount. Having recently completed that appeals process, the case has been returned to the initial hearing phase for witness testimony and collection of evidence before the same judge that previously dismissed Lakeland. Currently, Lakeland is not a co-defendant in this case, but that could change should the judge change his prior ruling. In the civil matter filed five years ago in 2016, a former Lakeland Brazil manager is seeking approximately USD $ 700,000 he alleges is due to him against an unpaid promissory note. Lakeland has not been served with process and no decision on the merits has been issued in this case yet. These two cases are the only two cases filed within the last 5 years against the parent company Lakeland Industries, Inc. and represent the majority of the remaining exposure for Lakeland. Lakeland Brazil may face new labor lawsuits in the short term as a result of the shutdown of its operations in March 2019. The Company has no obligation under the Shares Transfer Agreement to make any additional payments in connection with these potential new labor lawsuits. The Company also understands that under the labor laws of Brazil, a parent company may be held liable for the labor liabilities of a former Brazilian subsidiary in the case of fraud, misconduct, or under various theories. Although the Company would have the right of adversary system, full defense and due process in case of a potential litigation, there can be no assurance as to the findings of the courts of Brazil. There are additional cases in Labor and Civil courts against Lakeland Brazil in which Lakeland is not a party, and other outstanding monetary allegations of Lakeland Brazil. 13 Table of Contents General litigation contingencies The Company is involved in various litigation proceedings arising during the normal course of business which, in the opinion of the management of the Company, will not have a material effect on the Company’s financial position, results of operations or cash flows; however, there can be no assurance as to the ultimate outcome of these matters. As of April 30, 2021, to the best of the Company’s knowledge, there were no outstanding claims or litigation, except for the labor contingencies in Brazil described above. 10. Segment Reporting We manage our operations by evaluating each of our geographic locations. Our US operations include a facility in Alabama (primarily the distribution to customers of the bulk of our products and the light manufacturing of our chemical, wovens, reflective, and fire products). The Company also maintains one manufacturing company in China (primarily disposable and chemical suit production), a manufacturing facility in Mexico (primarily disposable, reflective, fire and chemical suit production), a manufacturing facility in Vietnam (primarily disposable production) and a small manufacturing facility in India. Our China facilities produce the majority of the Company’s products and China generates a significant portion of the Company’s international revenues. We evaluate the performance of these entities based on operating profit, which is defined as gross profit less operating expenses. We have sales forces in the USA, Canada, Mexico, Europe, Latin America, India, Russia, Kazakhstan, Australia and China, which sell and distribute products shipped from the United States, Mexico, India, Vietnam or China. 14 Table of Contents The table below represents information about reported segments for the three month periods noted therein: Three Months Ended April 30, (in millions of dollars) 2021 2020 Net Sales: USA Operations (including Corporate) $ 16.41 $ 24.13 Other foreign 2.46 3.04 Europe (UK) 4.40 3.01 Mexico 1.81 1.82 Asia 18.19 20.02 Canada 1.78 4.31 Latin America 3.56 2.54 Less intersegment sales ( 14.51 ) ( 13.29 ) Consolidated sales $ 34.10 $ 45.58 External Sales: USA Operations (including Corporate) $ 15.70 $ 23.11 Other foreign 1.58 2.30 Europe (UK) 4.40 3.01 Mexico 1.55 1.37 Asia 5.64 9.05 Canada 1.78 4.31 Latin America 3.45 2.43 Consolidated external sales $ 34.10 $ 45.58 Intersegment Sales: USA Operations (including Corporate) $ 0.71 $ 1.02 Other foreign 0.88 0.74 Mexico 0.26 0.45 Asia 12.55 10.97 Latin America 0.11 0.11 Consolidated intersegment sales $ 14.51 $ 13.29 Operating Profit (Loss): USA Operations (including Corporate) $ 0.27 $ 4.33 Other foreign 0.57 1.23 Europe (UK) 1.60 0.46 Mexico 0.05 0.22 Asia 3.35 4.51 Canada 0.47 1.13 Latin America 0.90 0.57 Less intersegment profit ( 0.97 ) ( 0.08 ) Consolidated operating profit $ 6.24 $ 12.37 April 30, 2021 January 31, 2021 (in millions of dollars) Total Assets: USA Operations (including Corporate) $ 52.81 $ 52.31 Other foreign 8.65 8.37 Europe (UK) 11.88 11.33 Mexico 5.66 5.62 Asia 49.93 47.29 Canada 7.82 8.03 Latin America 8.30 6.97 Consolidated assets $ 145.05 $ 139.92 15 Table of Contents The table below presents external sales by product line: Three Months Ended April 30, (in millions of dollars) 2022 2021 External Sales by product lines: Disposables $ 19.70 $ 31.21 Chemical 8.26 8.88 Fire 1.90 1.45 Gloves 0.45 0.78 High Visibility 1.30 1.35 High Performance Wear 0.86 0.29 Wovens 1.63 1.62 Consolidated external sales $ 34.10 $ 45.58 16 Table of Contents