What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-04-18 compared with 2022-04-21 · 208 added, 181 removed, 569 unchanged (41% of the section changed)

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Consolidated Statements of Income for the Years Ended January 31, 2023 and 2022

Consolidated Statements of Comprehensive Income for the Years Ended January 31, 2022 and 2021

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended January 31, 2023 and 2022

Consolidated Balance Sheets as of January 31, 2023 and 2022

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In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended January 31, 2023, 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, 2022, 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 21, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.

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, 2023, 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 17, 2023, expressed an adverse opinion on the Company's internal control over financial reporting.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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.

Inventories – Refer to Notes 1 and 2 to the financial statements

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Subsequent events

Acquisitions — Eagle Technologies —Intangible Assets & Contingent Consideration — Refer to Notes 1 and 5 to the financial statements

Critical Audit Matter Description

The Company completed the acquisition of Eagle Technologies for $15.1 million (inclusive of estimated contingent consideration) on December 2, 2022.

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 approximately $13.7 million of intangible assets, including $7.6 million of goodwill as of the acquisition date.

Additionally, the Company recorded within the account Accrued Earnout Agreement an estimated contingent consideration liability of $3.2 million.

Acquired intangible assets, excluding goodwill, were valued using certain discounted cash flow methods based on future cash flows 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 rate and discount rate.

Management estimated the fair value of the contingent consideration 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.

Given the fair value determination of the contingent consideration and intangible assets for Eagle Technologies requires management to make significant estimates and assumptions related to the forecasts of revenue and future cash flows and the selection of the discount rate and royalty rate, 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 cash flows, the selection of valuation methodologies utilized, the selection of the royalty rate and discount rate for the intangible assets and the selection of the discount rate for the contingent consideration liability included the following, among others:

We evaluated the design and operating effectiveness of controls over the valuation of the intangible assets and contingent consideration, including management’s controls over forecasts of future cash flows and selection of the royalty and discount rates.

We assessed the reasonableness of management’s forecasts of future revenues and cash flows by comparing the projections to historical results, actual results to date, contractual revenue agreements in place, and relevant industry reports and evaluated whether the estimated 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:

Testing the source information underlying the determination of the discount and royalty rates.

Comparing the selected royalty rate to market data for comparable rates.

Testing the mathematical accuracy of the calculation of the discount and royalty rates.

Developing a range of independent estimates for the discount rates and comparing those to the discount rates selected by management.

Evaluating the reasonableness of the Monte Carlo methodology utilized, the inputs used in the contingent consideration valuation, and other key judgments made by management as well as independently running the probability-weighted scenario analysis to calculate an independent estimate of fair value.

/s/ Deloitte & Touche LLP

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and subsidiaries (the “Company”) as of January 31, 2023, 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, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

In our opinion, because of the effect of the material weakness identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of January 31, 2023, 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, 2023, of the Company and our report dated April 17, 2023, 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 Eagle Technical Products Limited, which was acquired on December 2, 2022, and whose financial statements constitute 1% and 3% of net and total assets, respectively, 1% of revenues, and 12% of net income of the consolidated financial statement amounts as of and for the year ended January 31, 2023.

Accordingly, our audit did not include the internal control over financial reporting at Eagle Technical Products Limited.

Basis for Opinion

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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.

Material Weakness

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weakness has been identified and included in management's assessment:

the Company did not design, implement, and/or consistently operate effective controls over its foreign subsidiary currency translation or remeasurement to ensure the foreign subsidiary’s account balances were accurately stated in the consolidated financial statements.

This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended January 31, 2023, of the Company, and this report does not affect our report on such consolidated financial statements.

/s/ Deloitte & Touche LLP

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Operating profit

Other income, net

Other income (expense), net

Interest expense

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and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Years Ended January 31, 2023 and 2022

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Foreign currency translation adjustments

Comprehensive income

Comprehensive income (loss)

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

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Prepaid VAT and other taxes

Other current assets

Income tax receivable and other current assets

Total current assets

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Deferred tax assets

Intangible assets, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Income tax payable

Current maturity of long-term debt

Short-term borrowings

Accrued earnout agreement

Current portion of operating lease liability

Total current liabilities

Deferred income taxes

Long-term portion of operating lease liability

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Common stock, $ 0.01 par;

authorized 20,000,000 shares,

Issued 8,555,672 and 8,498,457 ;

authorized 20,000,000 shares, Issued 8,655,699 and 8,555,672 ;

outstanding 7,325,005 and 7,615,967 at January 31, 2023 and 2022, respectively

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Comprehensive

Balance, January 31, 2020 as previously reported

Impact of immaterial restatement (see Note 1)

Balance, January 31, 2020 as restated

Balance, January 31, 2021

Other comprehensive loss

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Balance, January 31, 2023

( 1,330,694 )

Lakeland Industries, Inc.

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Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities

Adjustments to reconcile net income to net cash (used in) provided by operating activities

Provision for (recovery of) doubtful accounts

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Stock based and restricted stock compensation

Loss on disposal of property and equipment

(Gain) loss on disposal of property and equipment

Equity in (earnings) loss of equity investment

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Operating lease liabilities

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

Purchases of property and equipment

Acquisition, net of cash acquired

Net cash used in investing activities

Cash flows from financing activities

Loan repayments, short-term

Short term borrowings

Purchase of Treasury Stock under stock repurchase program

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Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

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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 and countries within Southeast Asia.

For purposes of this Form 10-K, FY refers to a fiscal year ended January 31;

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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.

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In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset.

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 require 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.

Prior to the Eagle acquisition completed on December 2, 2022, we did not have any acquired intangible assets.

Goodwill is not amortized, but is subject to impairment assessments.

On November 1st of each year, or more frequently if indicators of impairment exist or if a decision is made to sell a business, we evaluate goodwill for impairment.

Judgment is involved in determining if an indicator of impairment has occurred.

Such indicators may include a decline in expected cash flows, a significant adverse change in the business climate, unanticipated competition, slower growth rates, or negative developments in equity and credit markets, among others.

Prior to the Eagle acquisition we had recorded goodwill totaling $0.9 million related to an acquisition completed in FY05 that is part of our High Visibility product line.

There has been no impairment of our goodwill during the years ended January 31, 2023 and 2022.

Revenue Recognition

Substantially all the Company’s revenue is derived from product sales, which consist of sales of the Company’s personal protective wear products to distributors.

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.

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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 rollforward of the advances from the date of the Eagle acquisition, December 2, 2022 through January 31, 2023 (in $000s):

Contract liability – December 2,2022

Increases to contract liability

Decreases to contract liability

Contract liability – January 31, 2023

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.

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Advertising costs are expensed as incurred and included in operating expenses on the consolidated statement of income.

Advertising and co-op costs amounted to $ 0.5 million and $ 0.7 million in FY22 and FY21, respectively, net of a co-op advertising allowance received from a supplier.

Advertising and co-op costs amounted to $ 0.5 million and $ 0.5 million in FY23 and FY22.

Stock-Based Compensation

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The Company maintains manufacturing operations in Mexico, India, Argentina, Vietnam and the People’s Republic of China and can access independent contractors in China, Vietnam, Argentina and Mexico.

It also maintains sales and distribution entities located in India, Canada, the U.K., Chile, China, Argentina, Russia, Kazakhstan, Uruguay, Australia 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.

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the Russian operation, the Russian Ruble, and the Kazakhstan operation, the Kazakhstan Tenge.

All other operations have the US dollar as its functional currency.

Pursuant to US GAAP, assets and liabilities of the Company’s foreign operations with functional currencies, other than the US dollar, are translated at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average rates prevailing during the periods.

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.

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.

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Net Income Per Share

Net income per share are based on the weighted average number of common shares outstanding without consideration of common stock equivalents.

Diluted net income per share are 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 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.

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

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Management periodically reviews new accounting standards that are issued.

Recently Adopted Accounting Standards

In 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes (Topic 740) .

The new guidance simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the tax basis of goodwill after a business combination, and the recognition of deferred tax liabilities for outside basis differences.

The new guidance also changes the calculation of the income tax impact of hybrid taxes and the methodology for calculating income taxes in an interim period.

We adopted this standard as of January 31, 2021 on either a prospective basis, or through a modified retrospective approach, as required by the standard.

There was no cumulative effect adjustment recorded to retained earnings as the amount was not material.

The effects of this standard on our financial position, results of operations and cash flows were not material.

New Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting in response to the risk of cessation of the London Interbank Offered Rate (LIBOR).

This amendment provides for optional expedients and exceptions for applying generally accepted accounting principles to contracts and hedging relationships that are affected by LIBOR and other reference rates.

The ASU generally allows for a hedge accounting to continue if the hedge was highly effective or met other standards prior to reference rate reform.

Entities are permitted to apply the amendments to all contracts, cash flow and net investment hedge relationships that exist as of March 12, 2020.

The relief provided in this ASU is only available for a limited time, generally through December 31, 2022.

Our debt agreement that utilizes LIBOR has not yet discontinued the use of LIBOR and, therefore, this ASU is not yet effective for us.

To the extent our debt arrangements change to another accepted rate, we will utilize the relief available in this ASU.

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

Restatement For Correction of Immaterial Errors in Previously Issued Consolidated Financial Statements

In connection with the preparation of the consolidated financial statements for the fiscal year ended January 31, 2022, the Company identified errors in its previously filed annual consolidated financial statements and unaudited quarterly consolidated financial statements.

The errors were not material to any individual prior quarterly or annual period.

The prior period errors were related to assumptions and estimates made related to intercompany profit in ending inventory, use of a blended rate to calculate state net operating losses within the income tax provision and assumptions made concerning compensation information used to calculate employee benefits in one of our foreign entities.

These errors accumulated over time and prior to the beginning of FY 2022.

In accordance with SEC Staff Accounting Bulletin 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements (codified as Topic 1-N), the Company concluded that the correction of the errors was not material to any of its previously issued annual or interim financial statements.

The Company has revised its previously issued consolidated financial statements contained in this Annual Report on Form 10-K to correct the effect of these immaterial errors for the corresponding periods.

Accordingly, for these prior periods we revised the affected line items of our consolidated balance sheets, consolidated statements of income and comprehensive income, consolidated statements of stockholders’ equity, and consolidated statements of cash flows.

The correction of the errors resulted in a $ 1.4 million decrease in retained earnings as of January 31, 2020.

The effects of the correction of immaterial errors on the impacted accounts within the Consolidated Balance Sheets were as follows (in thousands):

January 31, 2021

As Previously Reported

Deferred tax assets

Accrued compensation and benefits

Total Liabilities

Retained earnings

Total Stockholders’ Equity

The effects of the correction of immaterial errors on the impacted accounts within the Consolidated Statements of Income were as follows (in thousands):

Year ended January 31, 2021

As Previously Reported

Cost of goods sold

Income before taxes

Income tax expense

Basic net income per common share

Diluted income per common share

The effects of the correction of immaterial errors on the impacted accounts within the Consolidated Statements of Cash Flows were as follows (in thousands):

Year ended January 31, 2021

As Previously Reported

Deferred taxes

Accrued expenses and other liabilities

Net cash provided by operating activities

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

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

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Property and equipment consists of the following:

Useful Life in Years

Useful Life in

Machinery and equipment

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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.

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.

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 A 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 the additional investments, the Company owns 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, including internally developed intellectual property, of Bodytrak.

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.

For FY23, the Company recognized a loss of $ 0.4 million as the Company’s share of Bodytrak’s net loss.

For the period October 18, 2021 (date of investment) through January 31, 2022, the Company recognized a loss of $ 0.1 million as the Company’s share of Bodytrak’s net loss.

The loss is reflected in other income (expense), net in the consolidated statements of income.

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 acquisition agreement, the Company will 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 will also 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 included in the valuation above is $ 3.2 million.

The estimate was developed using a Monte Carlo simulation.

The following table summarizes the preliminary fair values of the Eagle assets 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

Total assets acquired

Less liabilities assumed

Net assets acquired

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.

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.

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 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

The following unaudited pro forma information presents our combined results as if the Eagle acquisition had occurred at the beginning of FY22.

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 Eagle 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)

Year Ended January 31,

Basic earnings per share

Diluted earnings per share

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.

The Company has been treated as the acquirer.

Total acquisition-related costs were $ 0.6 million for the year ended January 31, 2023.

Transactional costs and acquisition-related amortization is included in operating expenses in the Consolidated Statements of Income.

LONG-TERM DEBT

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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 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.

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 an Amendment No.

1 to Loan Agreement (the “Amendment”) with the Lender, which modifies certain terms of the Company’s existing Loan Agreement with the Lender.

On June 18, 2021, the Company entered into Amendment No.

1 to the Loan Agreement (the “Amendment”) with the Lender, which modifies certain terms of the Company’s existing Loan Agreement with the Lender.

The Amendment increases the credit limit under the Loan Agreement’s senior secured revolving credit facility from $ 12.5 million to $ 25.0 million.

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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 judgements 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.

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As of January 31, 2023, 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 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 %.

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 the time of closing), and (iii) a decrease in the annual interest rate margin from 3.46 % to 3.0 %.

In addition, pursuant to a letter agreement dated December 5, 2014, the Company agreed that £400,000 (approximately USD $ 0.6 million, based on exchange rates at time of closing) of the note payable by the UK subsidiary to the Company shall be subordinated in priority of payment to the subsidiary’s obligations to HSBC under the financing facility.

On December 31, 2016, Lakeland UK entered into an extension of the maturity date of its existing facility with HSBC Invoice Finance (UK) Ltd.

to December 19, 2017.

Other than the extension of the maturity date and a reduction of the service charge from 0.9 % to 0.85 %, all other terms of the facility remained the same.

On December 4, 2017 the facility was extended to March 31, 2018 for the next review period.

On March 9, 2019 the facility was extended to March 31, 2020 and on March 6, 2020 further extended to March 31, 2021 with no additional changes to the terms.

On April 6, 2021 the facility was extended to March 31, 2022 and to reflect a reduction of the service charge from 0.85% to 0.765%.

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 chargeto 0.765%.

The agreement can be terminated with three months’ notice.

There were no borrowings outstanding under this facility at January 31, 2022 and January 31, 2021.

The amounts due from HSBC of $ 1.2 million and $ 2.0 million as of January 31, 2022, and January 31, 2021, respectively, is included in other current assets on the accompanying consolidated balance sheets.

There were $0.4 million in borrowings outstanding under this facility at January 31, 2023.

CONCENTRATION OF RISK

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China Industrial and Commercial Bank;

Rural Credit Cooperative of Shandong;

Royal Bank of Scotland, Rural Credit Cooperative of Shandong;

Postal Savings Bank of China;

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The Company recognized total stock-based compensation costs, which are reflected in operating expenses (in 000’s):

Year Ended January 31,

Total restricted stock and stock option programs

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The following table summarizes the activity under the 2017 Plan for the year ended January 31, 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 December 2019, April 2020 and June 2021 grants.

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 April 2020, June 2021 and June 2022 grants.

Service-Based

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Outstanding at January 31, 2023

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.

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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 current stock repurchase program under which the Company may repurchase up to an additional $ 5 million of its outstanding common stock (the "Existing Shares Repurchase Program") Shares repurchased in FY22 totaled 430,463 shares at a cost of $ 9.2 million leaving $ 0.8 million remaining under the stock repurchase program at January 31, 2022.

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 (the “New Share Repurchase Program”).

The New Share Repurchase Program will become effective upon the completion of the Existing Share Repurchase Program, which has approximately $ 800,000 remaining for repurchases as of April 21, 2022.

The New Share Repurchase Program has no expiration date but may be terminated by the Board of Directors at any time.

On July 6, 2021, 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.

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 FY23 totaled 390,989 shares at a cost of $ 5.4 million, leaving $ 5.4 million remaining under the share repurchase program at January 31, 2023.

The share repurchase program has no expiration date but may be terminated by the Board of Directors at any time.

The provision for income taxes is based on the following pretax income (loss):

Years Ended January 31,

Domestic and Foreign Pretax Income

Years Ended January 31,

Domestic and Foreign Pretax Income (Loss)

Income Tax Expense (Benefit)

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Total Current Tax Expense

$ 4,122 $ 5,578

$ 526 $ 3,005

Total Deferred Tax Expense

Total Income Taxes

$ 4,781 $ 8,583

The following is a reconciliation of the effective income tax rate to the Federal statutory rate:

Years Ended January 31,

Statutory rate

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Adjustment to Deferred

Foreign Tax Credit - GILTI

Section 250 Deduction

Permanent Differences

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Foreign Tax Credit

Section 78 Gross-up

Argentina Flow Through Loss

Foreign Dividend & Subpart F

Withholding Taxes

Foreign Rate Differential

Change in State Apportionment Rate

Foreign employee benefits

Foreign Dividends Paid to U.S.

Foregin Dividends Received Deduction

Effective Rate

The tax effects of temporary cumulative differences which give rise to deferred tax assets are summarized as follows:

Years Ended January 31,

Deferred tax assets:

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Operating lease liability

Foreign carry-forwards

Withholding taxes

Deferred tax asset

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Net deferred tax asset

On December 22, 2017, federal tax reform legislation was enacted in the United States, resulting in significant changes from previous tax law.

The 2017 Tax Cuts and Jobs Act (the Tax Act) reduced the federal corporate income tax rate to 21 % from 35 % effective January 1, 2018.

The Tax Act requires us to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, re-measuring our US deferred tax assets as well as reassessing the net realizability of our deferred tax assets.

The Company completed this re-measurement and reassessment in FY18.

While the Tax Act provides for a modified territorial tax system, beginning in 2018, it includes two new U.S.

tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions.

The GILTI provisions require the Company to include in its U.S.

income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets.

Re-measurement and reassessment of the GILTI tax resulted in a charge to tax expense of $ 0.7 million and $ 1.1 million in FY22 and FY21, respectively.

The Company intends to account for the GILTI tax in the period in which it is incurred.

Though this non-cash expense (due to available NOL’s) had a materially negative impact on FY22 earnings, the Tax Act also changes the taxation of foreign earnings, and companies generally will not be subject to United States federal income taxes upon the receipt of dividends from foreign subsidiaries.

Balance sheet classification

Long-term deferred tax asset

Long-term deferred tax liability

The benefit relating to capital loss, operating loss, and credit carryforwards included in the above table at January 31, 2023, consisted of:

Operating Loss

Benefit Amount

Valuation Allowance

Expiration Beginning In

State operating loss carryforwards

Foreign tax credit carryforwards

Federal credit carryforwards

Mexico operating loss carryforwards

Significant net operating loss carryforwards were generated in the state of Alabama prior to the change in apportionment factor in 2021 which decreased the amount of income to be apportioned to Alabama in the future and therefore decreasing carryforward benefit available related to state operating losses.

Indefinite Reinvestment Assertion

We previously considered substantially all of the earnings in our non-U.S.

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those earnings needed for working capital or additional foreign investment.

The Company strategically employs a dividend plan with respect to our non-U.S.

subsidiaries subject to subsidiary profitability, cash requirements and withholding taxes.

During FY22 the Company’s subsidiaries in Canada, Uruguay and Hong Kong declared and paid dividends of $ 2.6 million, $ 1.0 million and $ 4.4 million respectively.

Withholding taxes totaling $ 0.2 million are included in income tax expense.

No dividends were proposed by management or declared by our Board of Directors for our China subsidiary in FY22 or FY21.

During FY23 the Company changed its’ permanent reinvestment assertions for its Chinese operations due to increased volatility of the Chinese yuan and an updated evaluation of investment strategies.

The Company’s plans are to repatriate a total of $20.0 million from China and recorded withholding taxes of $ 2 .0 million which are included in income tax expense.

During FY23 the Company’s subsidiaries in Canada, China and Hong Kong declared and paid total dividends of $ 15.5 million of which $ 12.5 million came from China.

Income Tax Audits

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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, 2023.

Weifang Meiyang Products Co., Ltd.

(“Meiyang”), one of our Chinese operations, was changed to a trading company from a manufacturing company in Q1 FY16 and all direct workers and equipment were transferred from Meiyang to Weifang Lakeland Safety Products Co., Ltd., (“WF”), another entity of our Chinese operation thereby reducing our tax exposure.

The 2022 tax review will be performed before May 31, 2023 in China.

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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 with the last day of the fiscal quarter, with a new contract purchased on the first day of the following quarter, to match the operating cycle of the Company.

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 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.

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.

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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.

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.

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Classification

January 31, 2022

January 31, 2021

Operating lease cost

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Consolidated capital expenditure

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The unaudited quarterly financial information reflects all normal and recurring accruals and adjustments necessary for a fair presentation of net income for interim periods including, the result of the correction of immaterial errors discussed in Note 1.

“Business and Summary of Significant Accounting Policies.”

These corrections decreased cost of goods sold by $ 0.1 million for the quarters ended October 31, 2021 and July 31, 2021 and $ 0.4 million for the quarter ended April 30, 2021.

These corrections increased income tax expense by $ 0.03 million for the quarter ended October 31, 2021, decreased income tax expense by $ 0.3 million for the quarter ended July 31, 2021 and increased income tax expense by $ 0.03 million for the quarter ended April 30, 2021.

These corrections increased net income by $ 0.1 million for the quarter ended October, 31, 2021 and increased net income by $ 0.4 million for the quarters ended July 31, 2021 and April 30, 2021.

Basic EPS increased $ 0.01 for the quarter ended October 31, 2021,by $ 0.05 for the quarters ended July 31, 2021 and April 30, 2021.

Diluted EPS increased $ 0.01 for quarter ended October 31, 2021, increased $ 0.05 for the quarter ended July 31, 2021 and increased $ 0.04 for the quarter April 30, 2021.

These corrections decreased cost of goods sold by $ 0.1 million for the quarters ended October 31, 2020, July 31, 2020 and April 30, 2020.

These corrections increased cost of goods sold by $ 0.2 million for the quarter ended January 31, 2021.

These corrections decreased income tax expense by $ 0.05 million for the quarters ended January 31, 2021, October, 31, 2020, July 31, 2020 and April 30, 2020.

These corrections decreased net income by $ 0.1 million for the quarter ended January 31, 2021.

These corrections increased net income by $ 0.1 million for the quarters ended October, 31, 2020, July 31, 2020 and April 30, 2020.

Basic EPS decreased $ 0.02 for the quarter ended January 31, 2021.

Basic EPS increased $ 0.02 for the quarters ended October 31, 2020, July 31, 2020 and April 30, 2020.

Diluted EPS decreased $ 0.02 for the quarter ended January 31, 2021.

Diluted EPS increased $ 0.02 for the quarters ended October 31, 2020 and April 30, 2020 and increased $ 0.01 for the quarter ended July 31, 2020.

Quarterly results are not necessarily indicative of a full year’s operations because of various factors.

The following tables present unaudited quarterly financial information for the periods presented:

Fiscal Year 2022

In thousands except EPS

Fourth Quarter Ended January 31, 2022

Third Quarter Ended October 31, 2021

Second Quarter Ended July 31, 2021

First Quarter Ended April 30, 2021

Cost of goods sold

Operating profit

Income tax expense

Weighted average shares used in computing basic EPS

Weighted average shares used in computing diluted EPS

Fiscal Year 2021

In thousands except EPS

Fourth Quarter Ended January 31, 2021

Third Quarter Ended October 31, 2020

Second Quarter Ended July 31, 2020

First Quarter Ended April 30, 2020

Cost of goods sold

Operating profit

Income tax expense

Weighted average shares used in computing basic EPS

Weighted average shares used in computing diluted EPS

SUBSEQUENT EVENTS

The Company has reviewed and evaluated whether any material subsequent events have occurred from January 31, 2023 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 March 3, 2023 the Company changed the benchmark interest rate in its credit facility from the LIBOR to the Secured Overnight Financing Rate (“SOFR”).

On February 1, 2023, the Company announced that its Board of Directors declared a quarterly cash dividend as part of the initiation of a recurring quarterly dividend program.

The initial quarterly dividend of $0.03 per share was paid on February 22, 2023, to stockholders of record as of February 15, 2023.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data