What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-04-11 compared with 2023-04-18 · 151 added, 72 removed, 163 unchanged (58% of the section changed)

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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.

In addition to the United States, sales are made to more than 50 foreign countries, the majority of which were into China, countries within the European Economic Community (“EEC”), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India, Middle East and countries within Southeast Asia.

In addition to the United States, sales are made to more than 50 foreign countries, the majority of which were in China, countries within the European Economic Community (“EEC”), Canada, Chile, Argentina, Russia, Kazakhstan, Colombia, Mexico, Ecuador, India, Middle East and countries within Southeast Asia.

We had net sales of $124.7 million in FY24 and $112.8 million in FY23.

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Beginning in 1995, we moved the labor-intensive sewing operation for our limited use/disposable protective clothing lines to these facilities.

Our facilities and capabilities in China and Mexico allow access to a less expensive labor pool than is available in the United States and permit us to purchase certain raw materials at a lower cost than they are available domestically.

Our facilities and capabilities in China and Mexico allow our access to a labor pool that is less expensive than that available in the United States and permits us to purchase certain raw materials at a lower cost than they are available domestically.

During FY24, the Company was impacted by tariff costs on certain products imported from China.

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Our net sales attributable to customers outside the United States were $69.4 million and $63.9 million for the fiscal years ended January 31, 2024 and 2023, respectively.

On December 2, 2022, we acquired UK-based Eagle Technical Products Limited (“Eagle”) in an all-cash transaction valued at approximately $10.5 million subject to post-closing adjustments and potential future earnout payments.

On November 30, 2023, we acquired New Zealand-based Pacific Helmets NZ Limited ("Pacific") in an all-cash transaction valued at approximately $8.6 million, subject to post-closing adjustments and customary holdback provisions.

Pacific is a leading designer and manufacturer of helmets for the structural firefighting, wildland firefighting, and rescue markets.

The company has 70 employees and is headquartered in Whanganui, New Zealand.

Pacific provides differentiated product offerings through its innovative and premium solutions.

The existing staff and the majority of the management team will remain in place and will continue to service customer needs.

On December 2, 2022, we acquired UK-based Eagle Technical Products Limited (“Eagle”) in an all-cash transaction valued at approximately $10.5 million, net of net working capital acquired, subject to post-closing adjustments and potential future earnout payments.

The acquisition enhances Lakeland’s product portfolio, particularly within fire service protective clothing and expands its sales presence in the Middle East and Europe.

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During FY24, we have experienced continued inflationary pressure and higher costs as a result of the increasing cost of raw materials, finished goods, labor, transportation, and other administrative costs associated with the normal course of business.

The increase in cost of raw materials and finished goods are due in part to a shortage in the availability of certain products, the higher cost of shipping, and inflation.

The increase in the cost of raw materials and finished goods is due in part to a shortage in the availability of certain products, the higher cost of shipping, and inflation.

We can only pass elevated costs onto customers in an effort to offset inflationary pressures on a limited basis.

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The current conflict between Russia and Ukraine is creating substantial uncertainty about the role Russia will play in the global economy in the future.

Although the length, impact and outcome of the ongoing military conflict between Russia and Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions.

Although the length, impact, and outcome of the ongoing military conflict between Russia and Ukraine are highly unpredictable, this conflict could lead to significant market disruptions and other disruptions.

The escalation or continuation of this conflict presents heightened risks and has resulted and could continue to result in volatile commodity markets, supply chain disruptions, increased risk of cyber incidents or other disruptions to information systems, heightened risks to employee safety, significant volatility of the Russian ruble, limitations on access to credit markets, increased operating costs (including fuel and other input costs), the frequency and volume of failures to settle securities transactions, inflation, potential for increased volatility in commodity, currency and other financial markets, safety risks, and restrictions on the transfer of funds to and from Russia.

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We are continually monitoring the potential financial impact of the Russian invasion of Ukraine on our operations.

Our business in Russia accounted for approximately 2.4% and 2.5% of our consolidated net revenues and 1.9% and 3.0% of our net income for the years ended January 31, 2023 and 2022, respectively.

Our business in Russia accounted for approximately 3.0% and 2.4% of our consolidated net revenues for the years ended January 31, 2024 and 2023, respectively.

Our assets in Russia were approximately 2.6% and 2.5% of our consolidated assets at January 31, 2024 and 2023, respectively.

The net book value of our assets in Russia at January 31, 2023 was approximately $3.5 million of which $1.3 million is cash.

The net book value of our assets in Russia on January 31, 2024 was approximately $4.0 million, of which $0.3 million is cash.

We currently have not recognized any impairment charges related to the assets of our Russian business.

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Our Russian business is part of our Other Foreign segment.

Our sales into Ukraine were not significant.

The COVID-19 pandemic has had, and continues to have, a significant impact around the world, prompting governments and businesses to take unprecedented measures, such as restrictions on travel and business operations, temporary closures of businesses, and quarantine and shelter-in-place orders.

The COVID-19 pandemic has at times significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets.

The COVID-19 pandemic and the measures taken by many countries in response have affected and could in the future materially impact the Company’s business, results of operations and financial condition.

Certain of the Company’s materials suppliers and logistical service providers have experienced disruptions during the COVID-19 pandemic, resulting in supply shortages.

Similar disruptions could occur in the future.

Our sales in Ukraine were not significant.

Critical Accounting Policies and Estimates

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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The Company elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation.

Shipping and handling costs associated with outbound freight are included in operating expenses, and for the years ended in FY23 and FY22 aggregated approximately $3.2 million and $2.9 million, respectively.

Shipping and handling costs associated with outbound freight are included in operating expenses, and for FY24 and FY23 aggregated approximately $3.4 million and $3.2 million, respectively.

Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue.

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If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

In FY23 we recorded approximately $1.3 million in write-downs of inventory and $0.6 million in inventory adjustments in FY22.

The Company recorded approximately $3.4 million and $1.3 million in inventory adjustments in FY24 and FY23, respectively.

The inventory adjustments in FY24 included $2.3 million in adjustments for certain products that the Company decided to discontinue or no longer support from a sales and marketing perspective.

Income Taxes.

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In the event the Company determines that it may not be able to realize all or part of its deferred tax asset in the future or that new estimates indicate that a previously recorded valuation allowance is no longer required, an adjustment to the deferred tax asset is charged or credited to income in the period of such determination.

In FY23 and FY22, we recorded a valuation allowance of approximately $0.4 million and $0.8 million, respectively.

In FY24 and FY23, we recorded a change in our valuation allowance of approximately $3.1 million and $0.4 million, respectively.

The Company recognizes tax positions that meet a “more likely than not” minimum recognition threshold.

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The excess of the purchase price over the estimated fair value of assets and liabilities is recorded as goodwill.

Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires knowledge of current market values, the values of assets in use, and often requires the application of judgment regarding estimates and assumptions.

Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires knowledge of current market values and the values of assets in use and often requires the application of judgment regarding estimates and assumptions.

While the ultimate responsibility resides with management, for material acquisitions, we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets, tangible long-lived assets, and contingent consideration.

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Refer to Note 1, “Business and Summary of Significant Accounting Policies,” and Note 5, “Acquisitions,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information on the Company’s business acquisitions.

Equity Method Investments .

Investments in which the Company can exercise significant influence but do not control, are accounted for using the equity method and are presented on the consolidated balance sheets.

The Company’s share of the net earnings or losses of the investee is presented within the consolidated statements of operations as other income (expense).

The Company evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired.

The primary factors the Company considers in its determination are the length of time that the fair value of the investment is below the Company's carrying value;

the severity of the decline;

and the financial condition, operating performance and near-term prospects of the investee.

If the decline in fair value is deemed to be other than temporary, the security is written down to fair value.

In situations where the fair value of an investment is not evident due to a lack of a public market price or other factors, the Company estimates fair value based on a discounted cash flow model and a market-based approach using inputs which include expected cash flows and a discount rate representative of the risks within the underlying business and forecasts to arrive at the estimated fair value of such investment.

The Company's assessment of the foregoing factors involves a high degree of judgment and accordingly, actual results may differ materially from the Company's estimates and judgments.

Net Income Per Share.

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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 exercise of stock options and warrants, reduced by shares that may be repurchased with the funds received from the exercise, based on the average price during the fiscal year.

The diluted net income per share calculation takes into account unvested restricted shares and the shares that may be issued upon the exercise of stock options and warrants, reduced by shares that may be repurchased with the funds received from the exercise, based on the average price during the fiscal year.

Recent Developments

On February 1, 2024, the Company’s Board of Directors declared a quarterly cash dividend.

The quarterly dividend of $0.03 per share or approximately $0.2 million, was paid on February 22, 2024, to stockholders of record as of February 15, 2024.

On February 5, 2024, the "Company acquired Italy and Romania-based Jolly Scarpe S.p.A.

and Jolly Scarpe Romania S.R.L.

(collectively, "Jolly") in an all-cash transaction valued at approximately $9.3 million subject to post-closing adjustments and customary holdback provisions.

The Company drew down $12.3 million on its credit line to fund the acquisition, with a portion of the funds used to paydown Jolly’s existing debt.

Jolly is a leading designer and manufacturer of professional footwear for the firefighting, military, police, and rescue markets.

The company is headquartered in Montebelluna, Italy, with manufacturing operations in Bucharest, Romania, and has 150 employees.

Jolly’s primary customers are based in Europe.

On February 13, 2024, the Company made an additional funding investment of £500,000 ($0.6 million on the date of investment) in Bodytrak’s convertible notes.

On March 28, 2024, the Company entered into Amendment No.

4 to the Loan Agreement by and between Bank of America, N.A.

(the “Lender”) and the Company (the “Fourth Amendment”).

Pursuant to the Fourth Amendment, the Lender and the Company agreed to, among other things, (i) extend the expiration date of the credit facility to March 28, 2029, (ii) increase the availability under the revolving credit facility to $40.0 million with an accordion feature providing for the potential funding of an additional $10.0 million, (iii) remove the borrowing base component of the credit facility;

and (iv) modify the interest rate based on Daily SOFR plus the Applicable Rate.

The Applicable Rate is based upon a Funded Debt to EBITDA Ratio and includes four (4) different levels constituting a SOFR margin range from 1.25% to 2.00%.

In addition, the Fourth Amendment (i) modified the Funded Debt to EBITDA Ratio covenant so as not to exceed 3.5x (with step-downs to 3.25 and 3.0 in 2025 and 2026), (ii) modified the Basic Fixed Charge Coverage Ratio covenant to a minimum of 1.20x, (iii) includes a springing Asset Coverage Ratio covenant of at least 1.10x, but only to the extent that the maximum Total Leverage Ratio exceeds 3.00x at any reporting period, (iv) increases the sublimit for letters of credit to $10.0 million, and (v) imposes a floor to Daily SOFR of one percent (1.00%).

The Fourth Amendment provides for additional indebtedness or the assumption of existing indebtedness for acquisitions of foreign subsidiaries (not to exceed $10.0 million in USD) and increases the size of Permitted Acquisitions, without prior approval from the Lender, to $17.5 million per occurrence and $35.0 million in the aggregate.

Significant Balance Sheet Fluctuation January 31, 2024, as Compared to January 31, 2023

Cash decreased by $28.1 million, primarily as a result of $5.5 million of cash used in operations coupled with $5.4 million in share repurchases, $10.5 million for the acquisition of Eagle, $3.1 million in equity investment and $2.0 million in capital improvements.

Operating cash flow changes were driven by an increase in accounts receivable of $2.3 million due to timing of collections, increased sales in Q4 FY23 over Q4 FY22 and the acquisition of Eagle in December FY23.

Excluding inventory acquired from Eagle, inventory increased $9.7 million driven by investment in inventory to reduce the impact on our supply chain of a global slowdown in freight deliveries.

The Company has made strategic investments of $6.1 million in Inova Design Solutions Ltd.

(doing business as Bodytrak®) as a groundbreaking step toward entering the Connected Worker Market for “Smart PPE.” Bodytrak’s unique ear-based sensor platform uses precise physiological measurements and cloud-based analytics to automate health, safety and performance monitoring, making it an ideal complement to Lakeland’s portfolio of industrial protective solutions.

Cash increased by $0.7 million, primarily as a result of $10.8 million of cash provided by operations coupled with $4.6 million in proceeds from the sale of our Canada warehouse facility.

The Company invested $5.4 million in the Pacific acquisition and $2.2 million in Bodytrak and $2.0 million in capital expenditures.

The Company used $3.5 million in financing activities including paying down $1.4 million in debt acquired from Pacific, $0.4 million in the UK credit facility, $0.3 million in stock repurchases and $0.9 million in dividends.

Operating cash flow changes were driven by $7.6 million in inventory reductions, increases in accruals of $2.5 million and increases in accounts receivables and prepayments of $1.5 million.

Results of Operations

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External Sales by Product Line:

Fire Services

High Visibility

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Income tax expense

Net sales decreased to $112.8 million for the year ended January 31, 2023 compared to $118.4 million for the year ended January 31, 2022, a decrease of $5.6 million.

Net income (loss)

Net sales increased to $124.7 million for the year ended January 31, 2024 compared to $112.8 million for the year ended January 31, 2023, an increase of $11.9 million.

Sales in the U.S.

increased $1.4 million or 2.9%, primarily due to increases in sales of fire gear coupled with improvements in direct container sales.

Sales to the Asian market decreased by $5.1 million or 17.1% due to the impacts of COVID-19 on demand, including shutdowns in China and the absence of typical year-end stocking ahead of the Chinese New Year due to the country’s “Zero COVID Policy.” Sales to the European market decreased by $2.0 million or 19.4%, driven by reduced demand across Europe and a stronger dollar impact offset by Eagle sales of $1.3 million in Q4 FY23.

increased $6.2 million or 12.7%, primarily due to increased sales of fire services gear and improvements in direct container sales.

Sales to the Asian market decreased by $10.9 million or 44.1% due to the reduction in COVID-19 driven demand coupled with slow improvement in the Chinese industrial sector.

Sales to the European market increased by $8.0 million or 96.4%.

Eagle was the primary driver with an increase in fire services sales of $7.2 million in FY24.

Eagle was acquired on December 2, 2022 and contributed $1.3 million in sales in FY23.

The remaining increase was due to strengthening in European demand, primarily in the industrial sector.

Canada sales increased by $0.3 million or 3.3% due to improvements in the industrial markets.

Latin America sales decreased $0.5 million or 4.4% due to weaker local currency, primarily the Argentine peso.

Sales into the Mexican market decreased by $0.4 million or 9.8%, driven by weaker industrial demand at the beginning of FY23.

Sales of our disposable and chemical product line were impacted due to a reduction in COVID-19 demand, primarily in Asia and uneven demand from our industrial markets.

Other product lines, such as fire, high performance, and wovens, increased by $8.7 million due to strengthening demand in those markets and the impact of Eagle’s sales during the last two months of our fiscal year.

Sales were affected by customers over-ordering in prior periods, resulting in excess channel inventories and shipping delays with ocean freight carriers.

Latin America sales increased $5.3 million or 49.1% due to stronger sales in Argentina as many competitors have exited the market due to the weakening Argentine peso and high inflation.

Sales into Uruguay increased $1.1 million or 1.0% due to increased fire services orders.

Sales into the Mexican market increased by $0.3 million or 8.1%, driven by the strengthening Mexican peso against the US dollar.

Sales in our other foreign markets increased $2.2 million, including $1.0 million in sales from Pacific acquired in November, and a $1.0 million increase in sales to the Russian market.

Sales of our disposable and chemical product line were impacted due to a reduction in COVID-19 demand, primarily in Asia offset by improving demand in our industrial markets.

Other product lines, such as fire services, high performance, and wovens, increased by $18.7 million due to strengthening demand in those markets and the impact of Eagle’s sales during FY24.

Gross Profit .

Gross profit decreased $5.1 million, or 10.0%, to $45.8 million for the year ended January 31, 2023, from $50.9 million for the year ended January 31, 2022.

Gross profit as a percentage of net sales decreased to 40.6% for the year ended January 31, 2023 from 43.0% for the year ended January 31, 2022.

Gross profit increased $5.4 million, or 11.8%, to $51.2 million for the year ended January 31, 2024, from $45.8 million for the year ended January 31, 2023.

Gross profit as a percentage of net sales increased to 41.1% for the year ended January 31, 2024 from 40.6% for the year ended January 31, 2023.

Gross profit performance in FY24 benefited from higher volumes including direct container shipments, related factory utilization and an improving product mix with pricing power.

Major factors driving the decline in gross margins in FY23, were:

Inflationary pressure on certain materials

Stronger dollar impacting revenue in key Asian and Latin American markets

Pricing pressure on non-strategic products

Writedown of the carrying value of certain inventory as freight rates declined toward year-end

These improvements were offset by $2.3 million in inventory adjustments for certain end-of-life products and planned disposal of certain products that were constraining manufacturing operations.

Operating Expense .

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Operating expenses as a percentage of net sales were 36.3% for the year ended January 31, 2024, as compared to 35.7% for the year ended January 31, 2023.

Operating expenses increased primarily due to increases in currency translation expense of $1.9 million, acquisition costs associated with the Eagle transaction of $0.6 million, restructuring costs of $0.4 million, increased outbound freight of $0.3 million, administrative costs associated with the start-up of the Monterrey, Mexico facility of $0.2 million, and increases in professional expenses, primarily legal and accounting, to support future initiatives.

Operating expenses increased primarily due to increases in currency translation expense of $1.7 million driven by the devaluation of the Argentine peso in December 2023, restructuring costs of $1.3 million, administrative costs associated with the Monterrey, Mexico facility of $0.7 million, acquisition-related expenses of $0.5 million, and increases in professional expenses, primarily legal and accounting, to support future initiatives.

The remaining increase was due to increases in compensation, professional fees and intangibles amortization.

The Company evaluated the earnout consideration accrual related to the Eagle acquisition and reduced the accrual by $2.5 million, which was recorded during FY24 as a reduction in operating expenses.

Operating Profit .

Operating profit decreased to $5.5 million for the year ended January 31, 2023, from $16.0 million for the year ended January 31, 2022, due to the impacts detailed above.

Operating profit increased to $6.0 million for the year ended January 31, 2024, from $5.5 million for the year ended January 31, 2023, due to the impacts detailed above.

Operating margin decreased to 4.8% for the year ended January 31, 2024, compared to 4.9% for the year ended January 31, 2023.

Interest Expense .

Interest expenses was less than $0.1 million for the year ended January 31, 2023 compared to $0.1 million for the year ended January 31, 2022.

The Company did not drawdown any of its available line of credit during FY23.

Interest expense was less than $0.1 million for the years ended January 31, 2024 and 2023.

Other Income.

On November 27, 2023, the Company sold its office and warehouse facility in Brantford, Ontario to an unrelated party for $4.9 million.

The sale resulted in a pre-tax gain, after selling expenses, of approximately $3.8 million.

Going forward, the Company will utilize third party logistics providers for customer fulfillment in Canada.

Income Tax Expense .

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All international subsidiaries impacted the GILTI component of income tax expense.

The Company changed its permanent reinvestment assertions for its Chinese operations during the second quarter due to increased volatility of the Chinese yuan and an updated evaluation of investment strategies.

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

The Company recorded $2.0 million in withholding taxes for a planned repatriation during FY23.

Net income decreased to $1.9 million for the year ended January 31, 2023 from $11.4 million for the year ended January 31, 2022.

Net income increased to $5.4 million for the year ended January 31, 2024 from $1.9 million for the year ended January 31, 2023.

Fourth Quarter Results

Net sales and net income were $29.0 million and $0.6 million, respectively, for Q4 FY23, as compared to $26.8 million and $0.5 million, respectively, for Q4 FY22.

Net sales and net loss were $31.2 million and ($1.0) million, respectively, for Q4 FY24, as compared to sales of $29.0 million and net income of $0.6 million, for Q4 FY23.

Factors affecting Q4 FY24 results of operations included:

Improvement in sales primarily in the fire and industrial markets and due to the Eagle acquisition

Pricing pressure on non-strategic products

Margins were negatively impacted by product mix and currency and the write-down of the carrying value of certain inventory as freight rates declined toward year-end

Improvement in sales for fire services due to the acquisition of Pacific and strengthening in the Latin America market, primarily Argentina.

Margins were impacted by the Argentine peso devaluation and, the write-down of the carrying value of certain inventory.

The Company recognized a gain on the sale of its Canada facility.

Liquidity and Capital Resources

At January 31, 2024, cash and cash equivalents were approximately $25.2 million and working capital was approximately $83.2 million.

Cash and cash equivalents decreased $28.1 million and working capital decreased $21.6 million from January 31, 2022 reflecting the impact of the Company’s purchase of Eagle, additional investment in Bodytrak and stock repurchases.

Of the Company’s total cash and cash equivalents of $24.6 million as of January 31, 2023, cash held in Latin America of $1.8 million, cash held in Hong Kong of $0.7 million, cash held in the UK of $2.4 million, cash held in Vietnam of $0.8 million, cash held in India of $0.7 million and cash held in Canada of $1.0 million would not be subject to additional US tax in the event such cash was repatriated due to the change in the U.S.

Cash and cash equivalents increased $0.5 million and working capital decreased $3.8 million from January 31, 2023 reflecting the impact of the Company’s purchase of Pacific and additional investment in Bodytrak offset by the sale of our Canadian facility.

Of the Company’s total cash and cash equivalents of $25.2 million as of January 31, 2024, cash held in Latin America of $4.1 million, cash held in Hong Kong of $1.7 million, cash held in the UK of $1.7 million, cash held in Vietnam of $0.8 million, cash held in India of $0.6 million and cash held in Canada of $4.5 million would not be subject to additional US income tax in the event such cash was repatriated due to the change in the U.S.

tax law as a result of the 2017 Tax Cuts and Jobs Act (the “Tax Act”).

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In addition, cash balances in banks in the United States are insured by the FDIC subject to certain limitations.

There was approximately $1.3 million total included in the U.S.

bank accounts and approximately $23.5 million total in foreign bank accounts as of January 31, 2023, of which $24.1 million was uninsured.

There was approximately $3.3 million included in U.S.

bank accounts and approximately $21.9 million in foreign bank accounts as of January 31, 2024, of which $24.4 million was uninsured.

These balances could be impacted if one or more of the financial institutions with which the Company deposits its funds fails or is subject to other adverse conditions in the financial or credit markets.

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The Company strategically employs an intercompany dividend plan subject to subsidiary profitability, cash requirements and withholding taxes.

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

During FY23 the Company’s subsidiaries in Canada, China and Hong Kong declared and paid dividends of $1.0 million, $12.5 million and $2.0 million.

Withholding taxes totaling $2.0 million are included in income tax expense.

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

During FY24 the Company’s subsidiaries in Canada and China declared and paid dividends of $4.5 million and $7.0 million, respectively.

Net cash provided by operating activities of $10.9 million for the year ended January 31, 2024 was primarily due to a decrease in net inventories of $7.7 million and an increase in accounts payable and accrued expenses of $2.4 million offset by an increase in accounts receivable and prepaids of $1.6 million due to stronger Q4 FY24 sales.

Net non-cash income items were $3.0 million due to the gain on the sale of our Canadian facility of $3.8 million and the revaluation of the Eagle earnout of $2.5 million.

These items were partially offset by the impact of depreciation and amortization and equity compensation expense.

Net cash used in investing activities of $5.1 million for the year ended January 31, 2024 includes the $5.5 million Pacific acquisition and reflects the Company’s further investment of $2.2 million in Bodytrak®.

Property and equipment purchases totaled $2.1 million primarily for equipment purchases in Mexico and Vietnam.

These investments were offset by $4.6 million in proceeds from the sale of the Canadian facility.

Net cash used in financing activities was $3.5 million for the year ended January 31, 2024 due to $0.9 million in dividends, $1.8 million in net debt repayments, primarily $1.4 million of debt acquired with the Pacific acquisition, $0.3 million of stock repurchases and $0.4 million in shares returned to pay taxes for our restricted stock programs.

Net cash used in operating activities of $5.5 million for the year ended January 31, 2023 was primarily due to an increase in net inventories of $9.7 million and an increase in accounts receivable of $2.3 million due to stronger Q4 FY23 sales, partially offset by non-cash expenses of $3.6 million for deferred taxes, depreciation and amortization, and stock compensation.

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Net cash used in financing activities was $5.9 million for the year ended January 31, 2023 primarily due to the purchase of $5.4 million of our common stock.

Net cash provided by operating activities of $12.8 million for the year ended January 31, 2022 was primarily due to net income of $11.4 million, non-cash expenses of $4.3 million for deferred taxes, depreciation and amortization, and stock compensation, and a decrease in accounts receivable due to lower sales activity of $6.7 million offset by an increase in net inventories of $4.4 million and a decrease in accounts payable, accrued expenses and other liabilities of $5.2 million due to lower sales volume.

Net cash used in investing activities of $3.6 million for the year ended January 31, 2022 reflects the Company’s $2.8 million investment in Bodytrak® as a groundbreaking step toward entering the Connected Worker Market for “Smart PPE.” Purchases in property and equipment were $0.8 million as the Company made capital expenditures in the year for the ERP project, leasehold improvements for our new corporate headquarters, and equipment purchases in Mexico and China.

Net cash used in financing activities was $9.8 million for the year ended January 31, 2022 due to the purchase of $9.2 million of our common stock.

On June 25, 2020, we entered into a Loan Agreement (the “Loan Agreement”) with Bank of America (“Lender”).

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The borrowing base limitation only applies during periods when the Company’s quarterly funded debt to EBITDA ratio, as defined, exceeds 2.00 to 1.00.

The credit facility will mature on June 25, 2025.

The credit facility was to mature on June 25, 2025.

Borrowings under the revolving credit facility bear interest at a rate per annum equal to the sum of the LIBOR Daily Floating Rate (“LIBOR”), plus 125 basis points.

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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.

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.

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

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

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

The Amendment also amended the covenant in the Loan Agreement that restricts acquisitions by the Company or its subsidiaries in order to allow, without the prior consent of the Lender, acquisitions of a business or its assets if there is no default under the Loan Agreement and the aggregate consideration does not exceed $7.5 million for any individual acquisition or $15.0 million on a cumulative basis for all such acquisitions.

The Loan Agreement requires the Company to maintain a Funded Debt to EBITDA (as each such term is defined in the Loan Agreement) ratio of 3.0 to 1.0 or less and a Basic Fixed Charge Coverage Ratio (as defined in the Loan Agreement) of at least 1.15 to 1.0.

The Loan Agreement also contains customary covenants, including covenants that, among other things, limit or restrict the Company’s and/or the Company’s subsidiaries ability, subject to certain exceptions and qualifications, to incur liens or indebtedness, or merge, consolidate or sell or otherwise transfer assets.

The Company was in compliance with all of its debt covenants as of January 31, 2023.

On November 30, 2023, the Company entered into Amendment No.

3 to the Loan Agreement by and between Bank of America, N.A.

(the “Lender”) and the Company (the “Third Amendment”).

Pursuant to the Third Amendment, the Lender consented to the Company’s acquisition of one hundred percent (100%) of the equity interests of Pacific.

The Third Amendment further provided for certain amendments to the Loan Agreement to permit additional indebtedness to be made available to Pacific, to exempt Pacific from certain requirements of the Loan Agreement pertaining to subsidiary guaranty and asset pledges that would otherwise be required under the Loan Agreement and to waive the Company’s borrowing base limitations through January 31, 2024.

The Third Amendment also provided for the reaffirmation of representations, warranties and covenants under the Loan Agreement as are customary in connection with similar amendments of credit documents.

As of January 31, 2024, the Company had no borrowings under the Loan Agreement, and there was $25 million of additional available credit under the Loan Agreement.

On February 5, 2024, the Company acquired Italy and Romania-based Jolly Scarpe S.p.A.

and Jolly Scarpe Romania S.R.L.

(collectively, "Jolly") in an all-cash transaction valued at approximately $9.3 million subject to post-closing adjustments and customary holdback provisions.

The Company drew down $12.3 million on its credit line to fund the acquisition which included paydown of existing Jolly debt.

Jolly is a leading designer and manufacturer of professional footwear for the firefighting, military, police, and rescue markets.

The company is headquartered in Montebelluna, Italy, with manufacturing operations in Bucharest, Romania, and has 150 employees.

On March 28, 2024, the Company entered into Amendment No.

4 to Loan Agreement by and between Bank of America, N.A.

(the “Lender”) and the Company (the “Fourth Amendment”).

and (iv) modify the interest rate based on Daily SOFR plus the Applicable Rate.

The Applicable Rate is based upon a Funded Debt to EBITDA Ratio and includes four (4) different levels constituting a SOFR margin range from 1.25% to 2.00%.

The Fourth Amendment provides for additional indebtedness or the assumption of existing indebtedness for acquisitions of foreign subsidiaries (not to exceed $10.0 million in USD) and increased the size of Permitted Acquisitions, without prior approval from the Lender, to $17.5 million per occurrence and $35.0 million in the aggregate.

We believe that our current cash, cash equivalents, borrowing capacity under our Loan Agreement and the cash to be generated from expected product sales will be sufficient to meet our projected operating and investing requirements for at least the next twelve months.

However, our liquidity assumptions may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect.

We were in compliance with all financial covenants of the Loan Agreement as of January 31, 2024.

Stock Repurchase Program.

On February 17, 2021, the Company’s Board of Directors approved a stock repurchase program under which the Company may repurchase up to $5 million of its outstanding common stock.

On July 6, 2021, the Board of Directors authorized an increase in the Company’s stock repurchase program under which the Company may repurchase up to an additional $5 million of its outstanding common stock.

On July 6, 2021, the Board of Directors authorized an increase in the Company’s then-current stock repurchase program under which the Company may repurchase up to an additional $5 million of its outstanding common stock.

On April 7, 2022, the Board of Directors authorized a new stock repurchase program under which the Company may repurchase up to $5 million of its outstanding common stock which became effective upon the completion of the prior share repurchase program.

On December 1, 2022, the Board of Directors authorized an increase in the Company’s stock repurchase program, under which the Company may repurchase up to an additional $5 million of its outstanding common stock.

On December 1, 2022, the Board of Directors authorized an increase in the share repurchase program under which the Company may repurchase up to an additional $5 million of its outstanding common stock.

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

The common shares available for repurchase under the authorizations currently in effect may be purchased from time to time, with consideration given to the market price of the common shares, the nature of other investment opportunities, cash flows from operations, general economic conditions and other relevant considerations.

Repurchases may be made on the open market or through privately negotiated transactions.

Shares repurchased in FY24 totaled 27,514 shares at a cost of $0.3 million, leaving $5.0 million remaining under the share repurchase program at January 31, 2024.

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

On February 1, 2023, the 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.

Capital Expenditures.

Our capital expenditures for FY23 of $2.0 million principally relate to our capital purchases for our manufacturing facilities in Vietnam, the enhancement of IT infrastructure, and equipment purchases supporting the new manufacturing facility under development in Monterey, Mexico.

We anticipate FY24 capital expenditures to be approximately $3.0 million as we continue to deploy our ERP solution globally, complete the new manufacturing facility in Monterrey, Mexico, and replace existing equipment in the normal course of operations.

Our capital expenditures for FY24 of $2.1 million principally relate to our capital purchases for our manufacturing facilities in Vietnam and Mexico.

We anticipate FY25 capital expenditures to be approximately $3.0 million to replace existing equipment in the normal course of operations and expand our fire services products manufacturing capabilities.

We expect to fund the capital expenditures from our cash flow from operations.

Recently Adopted and Recently Issued Accounting Standards

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

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” This guidance requires a public entity to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if the items meet a quantitative threshold.

The guidance also requires all entities to disclose annually income taxes paid (net of refunds received) disaggregated by federal (national), state and foreign taxes and to disaggregate the information by jurisdiction based on a quantitative threshold.

This guidance is effective for annual periods beginning after December 15, 2024.

Early adoption is permitted, and this guidance should be applied prospectively but there is the option to apply it retrospectively.

The Company plans to adopt the provisions of this guidance in conjunction with our Form 10-K for our fiscal year ending January 31, 2026.

Segment Reporting

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.” This guidance requires a public entity to disclose for each reportable segment, on an interim and annual basis, the significant expense categories and amounts that are regularly provided to the chief operating decision-maker (“CODM”) and included in each reported measure of a segment’s profit or loss.

Additionally, it requires a public entity to disclose the title and position of the individual or the name of the group or committee identified as the CODM.

This guidance is effective for fiscal years beginning after December 31, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted and the guidance should be applied retrospectively to all periods presented in the financial statements, unless it is impracticable.

The Company plans to adopt the provisions of this guidance in conjunction with our Form 10-K for the fiscal year ending January 31, 2025.

OECD and Pillar Two

In 2021, the Organization for Economic Cooperation and Development (OECD) announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%.

Subsequently multiple sets of administrative guidance have been issued.

Many non-U.S.

tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 with the adoption of additional components in later years or announced their plans to enact legislation in future years.

Although we expect increased tax compliance efforts as a result of new legislation, we do not expect Pillar Two to have a significant impact on our effective tax rate or our consolidated results of operations, financial position and cash flows.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-K

Item 7. Management’s Discussion and Analysis