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 October 31, Nine Months Ended October 31, 2021 2020 2021 2020 Net sales $ 30,032 $ 41,451 $ 91,590 $ 122,054 Cost of goods sold 17,399 19,763 51,853 60,882 Gross profit 12,633 21,688 39,737 61,172 Operating expenses 8,544 9,195 25,483 26,575 Operating profit 4,089 12,493 14,254 34,597 Other income (expense), net ( 1 ) 12 ( 14 ) 49 Interest expense ( 2 ) ( 4 ) ( 7 ) ( 23 ) Income before taxes 4,086 12,501 14,233 34,623 Income tax expense 1,294 3,237 4,242 7,386 Net income $ 2,792 $ 9,264 $ 9,991 $ 27,237 Net income per common share: Basic $ 0.36 $ 1.16 $ 1.26 $ 3.41 Diluted $ 0.35 $ 1.14 $ 1.23 $ 3.36 Weighted average common shares outstanding: Basic 7,849,591 7,979,902 7,942,162 7,976,228 Diluted 7,998,965 8,123,848 8,095,025 8,110,435 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 October 31, Nine Months Ended October 31, 2021 2020 2021 2020 Net income $ 2,792 $ 9,264 $ 9,991 $ 27,237 Other comprehensive income (loss): Foreign currency translation adjustments 69 216 5 225 Comprehensive income $ 2,861 $ 9,480 $ 9,996 $ 27,462 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) October 31, January 31, 2021 2021 ASSETS Current assets Cash and cash equivalents $ 55,533 $ 52,596 Accounts receivable, net of allowance for doubtful accounts of $ 613 and $ 700 at October 31, 2021 and January 31, 2021, respectively 16,879 21,702 Inventories 47,042 43,833 Prepaid VAT and other taxes 2,322 1,343 Other current assets 3,113 4,134 Total current assets 124,889 123,608 Property and equipment, net 8,878 9,819 Operating leases right-of-use assets 5,356 2,347 Deferred tax assets 2,048 2,839 Other assets 1,198 1,312 Investments 2,783 ---- Total assets $ 145,152 $ 139,925 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 6,426 $ 7,397 Accrued compensation and benefits 3,030 3,902 Other accrued expenses 2,192 1,793 Income tax payable 913 1,534 Current portion of operating lease liabilities 1,311 768 Total current liabilities 13,872 15,394 Long-term portion of operating lease liabilities 3,849 1,613 Total liabilities 17,721 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 8,555,672 and 8,498,457 ; outstanding 7,775,406 and 7,984,518 at October 31, 2021 and January 31, 2021, respectively 86 85 Treasury stock, at cost; 780,266 and 509,242 shares at October 31, 2021 and January 31, 2021, respectively ( 10,910 ) ( 5,023 ) Additional paid-in capital 77,184 76,781 Retained earnings 62,678 52,687 Accumulated other comprehensive loss ( 1,607 ) ( 1,612 ) Total stockholders' equity 127,431 122,918 Total liabilities and stockholders' equity $ 145,152 $ 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) Accummulated Additional Other Common Stock Treasury Stock Paid-in Retained Comprehensive Shares Amount Shares Amount Capital Earnings Loss Total ($000’s) ($000’s) ($000’s) ($000’s) ($000’s) ($000’s) Balance, January 31, 2020 8,481,665 $ 85 ( 509,242 ) $ ( 5,023 ) $ 75,171 $ 17,581 $ ( 2,762 ) $ 85,052 — — — — — 27,237 — 27,237 Net income — — — — — — 225 225 Other comprehensive income Stock-based compensation: Restricted stock issued 9,595 — — — ---- — — ---- Restricted Stock Plan — — — — 1,186 — — 1,186 Return of shares in lieu of payroll withholding — — — — ( 79 ) — — ( 79 ) Balance, October 31, 2020 8,491,260 $ 85 ( 509,242 ) $ ( 5,023 ) $ 76,278 $ 44,818 $ ( 2,537 ) $ 113,621 Balance, July 31, 2020 8,489,144 $ 85 ( 509,242 ) $ ( 5,023 ) $ 75,494 $ 35,554 $ ( 2,753 ) $ 103,357 Net Income — — — — — 9,264 — 9,264 Other comprehensive income — — — — — — 216 216 Stock-based compensation: Restricted stock issued 2,116 — — — — — — — Restricted stock plan — — — — 808 — — 808 Return of shares in lieu of payroll withholding — — — — ( 24 ) — — ( 24 ) Balance, October 31, 2020 8,491,260 $ 85 ( 509,242 ) $ ( 5,023 ) $ 76,278 $ 44,818 $ ( 2,537 ) $ 113,621 Balance, January 31, 2021 8,498,457 $ 85 ( 509,242 ) $ ( 5,023 ) $ 76,781 $ 52,687 $ ( 1,612 ) $ 122,918 Net Income — — — — — 9,991 — 9,991 Other comprehensive loss — — — — — — 5 5 Stock-based compensation: Restricted stock issued 57,215 1 — — — — — 1 Restricted stock plan — — — — 1,025 — — 1,025 Return of shares in lieu of payroll withholding — — — — ( 622 ) — — ( 622 ) Treasury stock purchased — — ( 271,024 ) ( 5,887 ) ---- ---- ---- ( 5,887 ) Balance, October 31, 2021 8,555,672 $ 86 ( 780,266 ) $ ( 10,910 ) $ 77,184 $ 62,678 $ ( 1,607 ) $ 127,431 Balance, July 31, 2021 8,542,372 $ 86 ( 736,696 ) $ ( 10,017 ) $ 76,927 $ 59,886 $ ( 1,676 ) $ 125,206 Net Income — — — — — 2,792 — 2,792 Other comprehensive income — — — — — — 69 69 Stock-based compensation: Restricted stock issued 13,300 — — — — — — — Restricted stock plan — — — — 418 — — 418 Return of shares in lieu of payroll withholding — — — — ( 161 ) — — ( 161 ) Treasury stock purchased — — ( 43,570 ) ( 893 ) ---- ---- ---- ( 893 ) Balance, October 31, 2021 8,555,672 $ 86 ( 780,266 ) $ ( 10,910 ) $ 77,184 $ 62,678 $ ( 1,607 ) $ 127,431 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ($000)’s Nine Months Ended October 31, 2021 2020 Cash flows from operating activities: Net income $ 9,991 $ 27,237 Adjustments to reconcile net income to net cash provided by operating activities Provision for doubtful accounts ( 86 ) 315 Deferred income taxes 790 3,194 Depreciation and amortization 1,470 1,425 Stock based and restricted stock compensation 1,025 1,245 Loss on disposal of property and equipment 51 5 Non-cash operating lease expense 229 267 (Increase) decrease in operating assets Accounts receivable 4,792 ( 9,249 ) Inventories ( 3,234 ) ( 808 ) Prepaid VAT and other taxes ( 979 ) ( 10 ) Other assets 1,020 ( 484 ) Increase (decrease) in operating liabilities Accounts payable ( 965 ) 810 Accrued expenses and other liabilities ( 1,052 ) 4,365 Operating lease liabilities ( 461 ) ( 286 ) Net cash provided by operating activities 12,591 28,026 Cash flows from investing activities: Purchases of property and equipment ( 581 ) ( 1,325 ) Investments ( 2,783 ) ---- Net cash (used in) investing activities: ( 3,364 ) ( 1,325 ) Cash flows from financing activities: Loan repayments, short-term ---- ( 1,319 ) Loan borrowings, short-term ---- 158 Purchase of treasury stock under stock repurchase program ( 5,887 ) ---- Shares returned to pay employee taxes under restricted stock program ( 622 ) ( 79 ) Net cash (used in) financing activities ( 6,509 ) ( 1,240 ) Effect of exchange rate changes on cash and cash equivalents 219 119 Net increase in cash and cash equivalents 2,937 25,580 Cash and cash equivalents at beginning of period 52,596 14,606 Cash and cash equivalents at end of period $ 55,533 $ 40,186 Supplemental disclosure of cash flow information : Cash paid for interest $ 7 $ 22 Cash paid for taxes $ 4,217 $ 2,376 Noncash investing and financing activities Leased assets obtained in exchange for operating lease liabilities $ 3,238 $ 870 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 FINANCIAL 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, through distributors, 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, Q3 FY22 refers to the third 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. 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. 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 and cloud-based analytics, and hardware that includes a patented earpiece for, physiological monitoring and audio communications. 8 Table of Contents The Series A Shares issued to the Company at the closing represent approximately 11.43 % of Bodytrak’s total share capital. Under the terms of the Investment Agreement, the Company may also elect, within 30 months of the date of the initial investment, to acquire up to an additional 381,679 Series A Shares of Bodytrak for £1,500,000 (approximately $ 2.0 million at current exchange rates) assuming all 381,679 Series A Shares are acquired by the Company), which would result in the Company owning an aggregate of 18.42 % of Bodytrak’s share capital, assuming no other shares are issued by Bodytrak. The investment in Bodytrak will be accounted for under the equity method given our board representation and the resulting ability to exercise significant influene. 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, including internally developed intellectual property, of Bodytrak. 4. Inventories Inventory is valued at the lower of cost or market using the first-in, first-out (FIFO) method. Inventories consist of the following (in $000s): October 31, 2021 January 31, 2021 Raw materials $ 17,988 $ 18,941 Work-in-process 415 409 Finished goods 31,420 27,047 Excess and obsolete adjustments ( 2,781 ) ( 2,564 ) $ 47,042 $ 43,833 5. 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 $ 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 will mature on June25,2025. On June 18, 2021, the Company entered into an Amendment No. 1 to Loan Agreement (the “Amendment”) with the Lender, which modifies certain terms of the Company’s existing Loan Agreement. The Amendment increases the credit limit under the Loan Agreement’s senior secured revolving credit facility from $ 12.5 million to $ 25.0 million. The Amendment also amends 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. Other than the changes described above, the terms and conditions of the Loan Agreement remain in full force and effect. As of October 31, 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. 9 Table of Contents Borrowings in UK There were no borrowings outstanding under the Company’s existing credit facility with HSBC Bank at October 31, 2021 and January 31, 2021. Amounts due the Company, under the facility with HSBC Invoice Finance (UK) Ltd., of $ 1.1 million and $ 2.0 million as of October 31, 2021, and January 31, 2021, respectively, are included in other current assets on the accompanying consolidated balance sheets. 6. 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 $ 13.9 million total included in U.S. bank accounts and approximately $ 41.6 million total in foreign bank accounts as of October 31, 2021, of which $ 54.8 million was uninsured. Major Customer No customer accounted for more than 10 % of net sales during the three months and nine months ended October 31, 2021 and 2020. Major Supplier No vendor accounted for more than 10 % of purchases during the three months and nine months ended October 31, 2021 and 2020. 7. 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. 10 Table of Contents The Company recognized total stock-based compensation costs, which are reflected in operating expenses (in 000’s): Three Months Ended October 31, Nine Months Ended October 31, 2021 2020 2021 2020 2017 Plan: Total restricted stock and stock option programs $ 418 $ 835 $ 1,025 $ 1,245 Total income tax expense recognized for stock-based compensation arrangements $ 108 $ 175 $ 266 $ 262 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 nine months ended October 31, 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, April 2020 and June 2021 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 23,101 38,071 61,172 $ 21.71 Vested ( 79,574 ) ---- ( 79,574 ) Forfeited ---- ---- ---- Outstanding at October 31, 2021 188,737 69,001 257,738 $ 14.75 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, April 2020 and June 2021 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 October 31, 2021, unrecognized stock-based compensation expense totaled $ 1.7 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 authorized a stock repurchase program under which the Company may repurchase up to $5.0 million of its outstanding common stock. This program replaced the prior program which had approximately $ 800,000 remaining for repurchases. On July 6, 2021, the Company’s Board of Directors authorized a $ 5.0 million increase in the Company’s current stock repurchase program. During the three months ended July 31, 2021, the Company repurchased 227,454 shares for $ 5.0 million leaving $ 5.0 million remaining under the stock repurchase program at July 31, 2021. During the three months ended October 31, 2021, the Company repurchased 43,570 shares for $ 0.9 million leaving $ 4.1 million remaining under the stock repurchase program at October 31, 2021. 11 Table of Contents 8. Income Taxes The Company's effective tax rate for the third quarter of FY22 was 31.7 % which differs from the U.S. federal statutory rate of 21 % primarily due to rate differentials in foreign tax jurisdictions and state income taxes. The Company's effective tax rate for the third quarter of FY21 was 25.9 %, which differs from the U.S. statutory rate of 21 % primarily due to rate differentials in foreign tax jurisdictions and state income taxes. The Company's effective tax rate for the nine months ended October 31, 2021 was 29.8 % which differs from the U.S. federal statutory rate of 21 % primarily due to rate differentials in foreign tax jurisdictions and state income taxes. The Company recorded a discrete item related to the remeasurement of deferred taxes for $ 0.8 million of tax expense primarily as a result of the statutory change in the State of Alabama apportionment factor. The Company's effective tax rate for the nine months ended October 31, 2020 was 21.3 % which differs from the U.S. statutory rate of 21 % primarily due to Global Intangible Low-Taxed Income (“GILTI”) and an adjustment to reflect the recapture of U.S. NOL as a result of applying the GILTI high tax exclusion in tax years FY19 and FY20. 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 $ 3.0 million and $ 2.7 million at October 31, 2021 and January 31, 2021, respectively. 9. Net Income Per Share The following table sets forth the computation of basic and diluted net income per share at October 31, 2021 and 2020 as follows (in $000s except per share amounts): Three Months Ended October 31, Nine Months Ended October 31, 2021 2020 2021 2020 Numerator: Net income $ 2,792 $ 9,264 $ 9,991 $ 27,237 Denominator: Denominator for basic net income per share (weighted-average shares which exclude shares in the treasury, 780,266 and 509,242 at October 31, 2021 and 2020, respectively 7,849,591 7,979,902 7,942,162 7,976,228 Effect of dilutive securities from restricted stock plan 149,374 143,946 152,863 134,207 Denominator for diluted net income per share (adjusted weighted average shares) 7,998,965 8,123,848 8,095,025 8,110,435 Basic net income per share $ 0.36 $ 1.16 $ 1.26 $ 3.41 Diluted net income per share $ 0.35 $ 1.14 $ 1.23 $ 3.36 10. Contingencies From time to time, the Company is a party to litigation, claims and other contingencies, including environmental, regulatory and employee matters and examinations and investigations by governmental agencies, which arise in the ordinary course of business. The Company records a contingent liability when it is probable that a loss has been incurred and the amount of loss is reasonably estimable in accordance with ASC Topic 450, Contingencies, or other applicable accounting standards. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed. 12 Table of Contents 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, 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 acquired all of the shares of Lakeland Brazil owned by the Company. 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 potential litigation, there can be no assurance as to the findings of the courts in Brazil. Labor Claims in Brazil As disclosed in our periodic filings with the Securities and Exchange Commission (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, one significant claim remains; a civil claim filed by separate former officers of our former Brazilian subsidiary. Lakeland is a named co-defendant in the civil matter. 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. 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 to due process in case of potential litigation, there can be no assurance as to the findings of the courts of Brazil. 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 October 31, 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. 11. Segment Reporting We manage our operations by evaluating each of our geographic locations. Our US operations include a facility in Alabama (primarily distribution to customers of the bulk of our products and 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 facility produces 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 United States, 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. 13 Table of Contents The table below represents information about reported segments for the three and nine month periods noted therein: Three Months Ended October 31, Nine Months Ended October 31, (in millions of dollars) (in millions of dollars) 2021 2020 2021 2020 Net Sales: USA Operations (including Corporate) $ 11.72 $ 17.43 $ 39.43 $ 57.11 Other foreign 2.22 3.39 7.23 8.81 Europe (UK) 1.70 5.58 8.79 12.75 Mexico 1.25 2.12 4.12 4.84 Asia 21.85 23.25 59.31 67.42 Canada 2.92 4.20 6.78 10.92 Latin America 2.49 3.75 9.28 9.38 Less intersegment sales ( 14.12 ) ( 18.27 ) ( 43.35 ) ( 49.18 ) Consolidated sales $ 30.03 $ 41.45 $ 91.59 $ 122.05 External Sales: USA Operations (including Corporate) $ 10.61 $ 17.04 $ 36.46 $ 54.60 Other foreign 1.69 2.72 5.02 7.04 Europe (UK) 1.70 5.58 8.79 12.75 Mexico 0.99 1.91 3.29 3.89 Asia 9.83 6.36 22.40 23.80 Canada 2.92 4.20 6.78 10.92 Latin America 2.29 3.64 8.85 9.05 Consolidated external sales $ 30.03 $ 41.45 $ 91.59 $ 122.05 Intersegment Sales: USA Operations (including Corporate) $ 1.09 $ 0.39 $ 2.97 $ 2.50 Other foreign 0.54 0.67 2.22 1.77 Mexico 0.27 0.21 0.83 0.95 Asia 12.02 16.90 36.91 43.62 Latin America 0.20 0.10 0.42 0.34 Consolidated intersegment sales $ 14.12 $ 18.27 $ 43.35 $ 49.18 14 Table of Contents Three Months Ended October 31, Nine Months Ended October 31, (in millions of dollars) (in millions of dollars) 2021 2020 2021 2020 Operating Profit (Loss): USA Operations (including Corporate) $ ( 2.03 ) $ 2.17 $ ( 2.88 ) $ 7.86 Other foreign 0.40 0.96 1.40 3.35 Europe (UK) ( 0.04 ) 1.75 1.72 3.35 Mexico ( 0.28 ) 0.11 ( 0.61 ) 0.12 Asia 4.96 6.04 11.34 15.51 Canada 0.65 0.55 1.41 1.95 Latin America 0.43 1.24 2.10 2.93 Intersegment profit (loss) ---- ( 0.33 ) ( 0.23 ) ( 0.47 ) Consolidated operating profit $ 4.09 $ 12.49 $ 14.25 $ 34.60 October 31, 2021 January 31, 2021 (in millions of dollars) Total Assets: USA Operations (including Corporate) $ 53.84 $ 52.31 Other foreign 8.55 8.37 Europe (UK) 9.35 11.33 Mexico 5.31 5.62 Asia 54.47 47.29 Canada 5.42 8.03 Latin America 8.21 6.97 Consolidated assets $ 145.15 $ 139.92 The table below presents external sales by product line: Three Months Ended October 31, (in millions of dollars) Nine Months Ended October 31, (in millions of dollars) 2021 2020 2021 2020 External Sales by product lines: Disposables $ 18.14 $ 25.78 $ 53.04 $ 80.77 Chemical 5.15 9.71 19.01 24.77 Fire 1.50 1.62 5.92 4.74 Gloves 0.63 0.54 1.66 1.86 High Visibility 1.65 1.40 3.81 3.70 High Performance Wear 0.90 0.74 2.77 1.56 Wovens 2.06 1.66 5.38 4.65 Consolidated external sales $ 30.03 $ 41.45 $ 91.59 $ 122.05 15 Table of Contents