x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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13-3115216
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(State of incorporation)
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(IRS Employer Identification Number)
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701 Koehler Avenue, Suite 7, Ronkonkoma, New York
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11779
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
¨
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Accelerated filer
¨
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Nonaccelerated filer
¨
(Do not check if a smaller reporting company)
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Smaller reporting company
x
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Class
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Outstanding at December 6, 2011
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Common Stock, $0.01 par value per share
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5,225,237 shares
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·
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Our ability to obtain fabrics and components from suppliers and manufacturers at competitive prices or prices that vary from quarter to quarter;
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·
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Risks associated with our international manufacturing and start-up sales operations;
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·
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Potential fluctuations in foreign currency exchange rates;
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·
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Our ability to respond to rapid technological change;
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·
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Our ability to identify and complete acquisitions or future expansion;
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·
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Our ability to manage our growth;
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·
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Our ability to recruit and retain skilled employees, including our senior management;
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·
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Our ability to accurately estimate customer demand;
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·
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Competition from other companies, including some with greater resources;
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·
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Risks associated with sales to foreign buyers;
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·
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Restrictions on our financial and operating flexibility as a result of covenants in our credit facilities;
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·
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Our ability to obtain additional funding to expand or operate our business as planned;
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·
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The impact of potential product liability claims;
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·
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Liabilities under environmental laws and regulations;
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·
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Fluctuations in the price of our common stock;
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·
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Variations in our quarterly results of operations;
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·
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The cost of compliance with the Sarbanes-Oxley Act of 2002 and rules and regulations relating to corporate governance and public disclosure;
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·
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The significant influence of our directors and executive officers on our company and on matters subject to a vote of our stockholders;
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·
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The impact of a decline in federal funding for preparations for terrorist incidents;
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·
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The limited liquidity of our common stock;
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·
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The other factors referenced in this Form 10-Q, including, without limitation, in the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The factors described under “Risk Factors” disclosed in our fiscal 2011 Form 10-K.
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THREE MONTHS ENDED
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NINE MONTHS ENDED
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|||||||||||||||
October 31,
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October 31,
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|||||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
Net sales
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$ | 24,744,033 | $ | 25,680,587 | $ | 76,162,356 | $ | 74,693,511 | ||||||||
Cost of goods sold
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17,330,988 | 18,494,839 | 52,688,619 | 52,649,619 | ||||||||||||
Gross profit
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7,413,045 | 7,185,748 | 23,473,737 | 22,043,892 | ||||||||||||
Operating expenses
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7,184,167 | 6,280,544 | 20,594,448 | 19,642,005 | ||||||||||||
Operating profit
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228,878 | 905,204 | 2,879,289 | 2,401,887 | ||||||||||||
VAT tax charge Brazil
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— | — | — | (1,583,247 | ) | |||||||||||
Interest and other income, net
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(12,328 | ) | 15,602 | 53,302 | 49,867 | |||||||||||
Interest expense
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(161,914 | ) | (77,362 | ) | (425,471 | ) | (255,635 | ) | ||||||||
Income from continuing operations before income taxes
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54,636 | 843,444 | 2,507,120 | 612,872 | ||||||||||||
Provision (benefit) for income taxes
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(90,998 | ) | 144,125 | 411,650 | 453,345 | |||||||||||
Income from continuing operations
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145,634 | 699,319 | 2,095,470 | 159,527 | ||||||||||||
Discontinued operations:
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||||||||||||||||
Loss from operations of discontinued India glove manufacturing facility (including loss on disposal of $880,694 in 2011)
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(1,128,390 | ) | (78,855 | ) | (1,445,026 | ) | (444,024 | ) | ||||||||
Income tax benefit
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(406,120 | ) | (28,388 | ) | (520,210 | ) | (159,849 | ) | ||||||||
Loss on discontinued operations
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(722,270 | ) | (50,467 | ) | (924,816 | ) | (284,175 | ) | ||||||||
Net income (loss)
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$ | (576,636 | ) | $ | 648,852 | $ | 1,170,654 | $ | (124,648 | ) | ||||||
Earnings (loss) per share-basic
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||||||||||||||||
Income from continuing operations
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$ | 0.03 | $ | 0.13 | $ | 0.40 | $ | 0.03 | ||||||||
Discontinued operations
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$ | (0.13 | ) | $ | (0.01 | ) | $ | (0.18 | ) | $ | (0.05 | ) | ||||
Net income (loss)
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$ | (0.11 | ) | $ | 0.12 | $ | 0.22 | $ | (0.02 | ) | ||||||
Earnings (loss) per share - Diluted
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||||||||||||||||
Income from continuing operations
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$ | 0.03 | $ | 0.13 | $ | 0.39 | $ | 0.03 | ||||||||
Discontinued operations
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$ | (0.13 | ) | $ | (0.01 | ) | $ | (0.17 | ) | $ | (0.05 | ) | ||||
Net income (loss)
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$ | (0.11 | ) | $ | 0.12 | $ | 0.22 | $ | (0.02 | ) | ||||||
Weighted average common shares outstanding:
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||||||||||||||||
Basic
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5,225,020 | 5,440,520 | 5,224,371 | 5,440,396 | ||||||||||||
Diluted
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5,356,835 | 5,546,389 | 5,348,172 | 5,513,939 |
Three Months Ended
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Nine Months Ended
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|||||||||||||||
October 31
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October 31
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|||||||||||||||
2011
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2010
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2011
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2010
|
|||||||||||||
Net income (loss)
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$ | (576,636 | ) | $ | 648,852 | $ | 1,170,654 | $ | (124,648 | ) | ||||||
Other comprehensive income (loss):
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||||||||||||||||
Cash flow hedge in China
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40,698 | — | 108,375 | — | ||||||||||||
Foreign currency translation adjustments:
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||||||||||||||||
Lakeland Brazil, S.A.
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(1,904,804 | ) | 504,978 | (678,905 | ) | 1,333,788 | ||||||||||
Canada
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(25,641 | ) | 4,396 | (263 | ) | 26,861 | ||||||||||
United Kingdom
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(94,165 | ) | 34,850 | 11,494 | (73,660 | ) | ||||||||||
China
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19,908 | 55,018 | 46,645 | 59,991 | ||||||||||||
Russia/Kazakhstan
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(36,022 | ) | — | (25,950 | ) | — | ||||||||||
Other comprehensive income (loss)
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(2,000,026 | ) | 599,242 | (538,604 | ) | 1,346,980 | ||||||||||
Comprehensive income (loss)
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$ | (2,576,662 | ) | $ | 1,248,094 | $ | 632.050 | $ | 1,222,332 |
October 31,
2011
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January 31,
2011
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|||||||
(Unaudited)
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||||||||
ASSETS
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||||||||
Current assets:
|
||||||||
Cash and cash equivalents
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$ | 5,946,651 | $ | 5,953,069 | ||||
Accounts receivable, net of allowance for doubtful accounts of $222,300
at October 31, 2011 and $210,100 at January 31, 2011
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15,242,845 | 14,377,188 | ||||||
Inventories, net of reserves of $1,458,000 at October 31, 2011 and $1,495,000 at January 31, 2011
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47,312,694 | 45,295,295 | ||||||
Deferred income taxes
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2,262,174 | 2,296,941 | ||||||
Assets of discontinued operation in India
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2,980,841 | 3,669,601 | ||||||
Prepaid income and VAT tax
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1,225,235 | 1,814,691 | ||||||
Other current assets
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1,832,480 | 2,318,214 | ||||||
Total current assets
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76,802,920 | 75,724,999 | ||||||
Property and equipment, net
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13,588,861 | 11,096,329 | ||||||
Intangibles and other assets, net
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8,739,949 | 8,256,904 | ||||||
Goodwill
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6,258,740 | 6,297,751 | ||||||
Total assets
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$ | 105,390,470 | $ | 101,375,983 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
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$ | 5,389,716 | $ | 6,474,468 | ||||
Accrued compensation and benefits
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1,934,763 | 1,411,599 | ||||||
Other accrued expenses
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730,529 | 2,697,445 | ||||||
Liabilities of discontinued operation in India
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366,207 | 33,940 | ||||||
Current maturity of long-term debt and short-term borrowing
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1,455,508 | 100,050 | ||||||
Total current liabilities
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9,876,723 | 10,717,502 | ||||||
Borrowings under revolving credit facility
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12,705,632 | 11,485,698 | ||||||
Other long-term debt
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4,483,941 | 1,592,461 | ||||||
Other liabilities
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102,345 | 103,270 | ||||||
VAT taxes payable long-term
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3,312,846 | 3,309,811 | ||||||
Total liabilities
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30,481,487 | 27,208,742 | ||||||
Commitments and Contingencies
|
||||||||
Stockholders' equity:
|
||||||||
Preferred stock, $.01 par; authorized 1,500,000 shares
(none issued)
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— | — | ||||||
Common stock, $.01 par; authorized 10,000,000 shares,
issued, 5,581,678 and 5,568,744; outstanding, 5,225,237 and 5,254,303 at October 31, 2011 and January 31, 2011, respectively
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55,817 | 55,687 | ||||||
Treasury stock, at cost, 356,441 shares at October 31, 2011 and 314,441 shares at January 31, 2011
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(3,352,291 | ) | (3,012,920 | ) | ||||
Additional paid-in capital
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50,728,547 | 50,279,613 | ||||||
Retained earnings
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27,363,703 | 26,193,049 | ||||||
Other comprehensive income
|
113,207 | 651,812 | ||||||
Total stockholders' equity
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74,908,983 | 74,167,241 | ||||||
Total liabilities and stockholders’ equity
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$ | 105,390,470 | $ | 101,375,983 |
Common Stock
|
Treasury Stock
|
Additional
Paid
-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income
|
Total
|
|||||||||||||||||||||||||||
Shares
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Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||
Balance, January 31, 2011
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5,568,744 | $ | 55,687 | (314,441 | ) | $ | (3,012,920 | ) | $ | 50,279,613 | $ | 26,193,049 | $ | 651,812 | $ | 74,167,241 | ||||||||||||||||
Net income
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— | — | — | — | — | 1,170,654 | — | 1,170,654 | ||||||||||||||||||||||||
Other comprehensive income (loss)
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— | — | — | — | — | — | (538,605 | ) | (538,605 | ) | ||||||||||||||||||||||
Stock-based compensation:
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||||||||||||||||||||||||||||||||
Grant of director stock options
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— | — | — | — | 18,548 | — | — | 18,548 | ||||||||||||||||||||||||
Restricted Stock issued at par
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12,934 | 130 | — | — | (130 | ) | — | — | — | |||||||||||||||||||||||
Restricted Stock Plan:
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||||||||||||||||||||||||||||||||
2006 Plan
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— | — | — | — | 4,253 | — | — | 4,253 | ||||||||||||||||||||||||
2009 Plan
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— | — | — | — | 476,692 | — | — | 476,692 | ||||||||||||||||||||||||
Shares returned to Company in lieu of payroll taxes
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— | — | — | — | (50,429 | ) | — | — | (50,429 | ) | ||||||||||||||||||||||
Stock Buy-back Program
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— | — | (42,000 | ) | (339,371 | ) | — | — | — | (339,371 | ) | |||||||||||||||||||||
Balance October 31, 2011
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5,581,678 | $ | 55,817 | (356,441 | ) | $ | (3,352,291 | ) | $ | 50,728,547 | $ | 27,363,703 | $ | 113,207 | $ | 74,908,983 |
NINE MONTHS ENDED
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||||||||
October 31,
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||||||||
2011
|
2010
|
|||||||
Cash Flows from Operating Activities:
|
||||||||
Net income (loss)
|
$ | 1,170,654 | $ | (124,648 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
||||||||
Stock-based compensation
|
499,493 | 591,751 | ||||||
Provision for doubtful accounts
|
— | (6,509 | ) | |||||
Provision for inventory obsolescence
|
(37,000 | ) | 260,614 | |||||
Depreciation and amortization
|
1,207,135 | 1,478,761 | ||||||
Deferred income tax
|
28,786 | 3,169,278 | ||||||
Loss on disposal of discontinued operations
|
880,694 | — | ||||||
Changes in operating assets and liabilities:
|
||||||||
Increase in accounts receivable
|
(1,030,161 | ) | (1,220,955 | ) | ||||
(Increase) decrease in inventories
|
(2,158,394 | ) | 44,913 | |||||
(Increase) decrease in other assets
|
597,111 | (2,719,667 | ) | |||||
Increase (decrease) in accounts payable, accrued expenses and other liabilities
|
(2,545,306 | ) | 3,968,722 | |||||
Net cash provided by (used in) operating activities
|
(1,386,988 | ) | 5,442,260 | |||||
Cash Flows from Investing Activities:
|
||||||||
Purchases of property and equipment
|
(3,593,674 | ) | (1,235,789 | ) | ||||
Net cash used in investing activities
|
(3,593,674 | ) | (1,235,789 | ) | ||||
Cash Flows from Financing Activities:
|
||||||||
Purchases of stock under stock repurchase program
|
(339,371 | ) | — | |||||
Net (payments) borrowings under loan agreements
|
5,460,961 | (3,720,830 | ) | |||||
Cash paid for taxes in lieu of shares issued under restricted stock program
|
(50,429 | ) | — | |||||
Net cash provided by (used in) financing activities
|
5,071,161 | (3,720,830 | ) | |||||
Effect of exchange rate changes on cash
|
(96,917 | ) | (123,913 | ) | ||||
Net increase (decrease) in cash and cash equivalents
|
(6,418 | ) | 361,728 | |||||
Cash and cash equivalents at beginning of period
|
5,953,069 | 5,093,380 | ||||||
Cash and cash equivalents at end of period
|
$ | 5,946,651 | $ | 5,455,108 |
1.
|
Business
|
2.
|
Basis of Presentation
|
3.
|
Principles of Consolidation
|
4.
|
Inventories
|
October 31, 2011
|
January 31, 2011
|
|||||||
Raw materials
|
$ | 21,844,777 | $ | 17,830,675 | ||||
Work-in-process
|
2,026,618 | 2,796,825 | ||||||
Finished goods
|
23,441,299 | 24,667,795 | ||||||
$ | 47,312,694 | $ | 45,295,295 |
5.
|
Earnings Per Share
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October 31,
|
October 31,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Numerator
|
||||||||||||||||
Net income from continuing operations
|
$ | 145,634 | $ | 699,319 | $ | 2,095,470 | $ | 159,527 | ||||||||
Denominator
|
||||||||||||||||
Denominator for basic earnings per share
|
||||||||||||||||
(weighted-average shares which reflect 356,441 and 355,041 and 125,322 and 125,322 shares in the treasury as a result of the stock repurchase program for the three months and nine months in each of 2011 and 2010, respectively
|
5,225,020 | 5,440,520 | 5,224,371 | 5,440,396 | ||||||||||||
Effect of dilutive securities from restricted stock plan and from dilutive effect of stock options
|
131,815 | 105,869 | 123,801 | 73,543 | ||||||||||||
Denominator for diluted earnings per share (adjusted weighted average shares)
|
5,356,835 | 5,546,389 | 5,348,172 | 5,513,939 | ||||||||||||
Basic earnings per share from continuing operations
|
$ | 0.03 | $ | 0.13 | $ | 0.40 | $ | (0.03 | ) | |||||||
Diluted earnings per share from continuing operations
|
$ | 0.03 | $ | 0.13 | $ | 0.39 | $ | (0.03 | ) |
6.
|
Revolving Credit Facility
|
7.
|
Major Supplier
|
8.
|
Employee Stock Compensation
|
Nature and terms
|
|
Restricted Stock Plan - employees
|
Long-term incentive compensation-three-year plan. Employees are granted potential share awards at the beginning of the three-year cycle at baseline and maximum amounts. The level of award and final vesting is based on the Board of Director’s opinion as to the performance of the Company and management in the entire three year cycle. All vesting is three-year “cliff” vesting - there is no partial vesting. The valuation is based on the stock price at the grant date and amortized to expense over the three-year period.
|
Restricted Stock Plan – Directors
|
Long-term incentive compensation-three-year plan. Directors are granted potential share awards at the beginning of the three-year cycle at baseline and maximum amounts. The level of award and final vesting is based on the Board of Director’s opinion as to the performance of the Company and management in the entire three-year cycle. All vesting is three-year “cliff” vesting-there is no partial vesting. The valuation is based on the stock price at the grant date and amortized to expense over the three-year period.
|
Matching award program
|
All participating employees are eligible to receive one share of restricted stock awarded for each two shares of Lakeland stock purchased on the open market. Such restricted shares are subject to three-year time vesting. The valuation is based on the stock price at the grant date and amortized to expense over the three-year period.
|
Bonus in stock program - employees
|
All participating employees are eligible to elect to receive any cash bonus in shares of restricted stock. Such restricted shares are subject to two-year time vesting. The valuation is based on the stock price at the grant date and amortized to expense over the two-year period. Since the employee is giving up cash for unvested shares, the amount of shares awarded is 133% of the cash amount based on the grant date stock price.
|
Director fee in stock program
|
All directors are eligible to elect to receive any director fees in shares of restricted stock. Such restricted shares are subject to two- year time vesting. The valuation is based on the stock price at the grant date and amortized to expense over the two-year period. Since the director is giving up cash for unvested shares, the amount of shares awarded is 133% of the cash amount based on the grant date stock price.
|
Non-employee director stock option plan
|
The plan provides for an automatic one-time grant of options to purchase 5,000 shares of common stock to each nonemployee director newly elected or appointed. Options are granted at not less than fair market value, become exercisable commencing six months from the date of grant and expire six years from the date of grant. In addition, all nonemployee directors re-elected to the Company’s Board of Directors at any annual meeting of the stockholders will automatically be granted additional options to purchase 1,000 shares of common stock on that date.
|
Stock Options
|
Number of
Shares
|
Weighted Average
Exercise Price per
Share
|
Weighted Average
Remaining
Contractual Term
|
Aggregate
Intrinsic
Value
|
|||||||||
Outstanding at January 31, 2011
|
12,200 | $ | 9.02 |
3.61 years
|
$ | 17,030 | |||||||
Granted during the nine-months ended October 31, 2011
|
5,000 | $ | 8.28 |
6.00 years
|
$ | 0 | |||||||
Outstanding at October 31, 2011
|
17,200 | $ | 7.26 |
3.58 years
|
$ | 8,000 | |||||||
Exercisable at October 31, 2011
|
17,200 | $ | 7.26 |
3.58 years
|
$ | 8,000 |
Total Restricted Shares
|
Outstanding
unvested
grants at
maximum at
beginning of
FY12
|
Granted
during
FY12
through
October 31,
2011
|
Becoming
Vested
during FY12
through
October 31,
2011
|
Forfeited
during FY12
through
October 31,
2011
|
Outstanding
unvested
grants at
maximum at
October 31,
2011
|
|||||||||||||||
Restricted stock grants - employees
|
137,123 | 8,014 | - | - | 145,137 | |||||||||||||||
Restricted stock grants - directors
|
63,184 | 4,686 | - | (4,686 | ) | 63,184 | ||||||||||||||
Matching award program
|
3,058 | 3,000 | (2,220 | ) | - | 3,838 | ||||||||||||||
Bonus in stock - employees
|
19,479 | 22,801 | (16,479 | ) | - | 25,801 | ||||||||||||||
Retainer in stock - directors
|
- | 4,122 | - | - | 4,122 | |||||||||||||||
Total restricted stock plan
|
222,844 | 42,623 | (18,699 | ) | (4,686 | ) | 242,082 | |||||||||||||
Shares under 2009 plan
|
Outstanding
unvested
grants at
maximum at
beginning of
FY12
|
Granted
during
FY12
through
October 31,
2011
|
Becoming
Vested
during FY12
through
October 31,
2011
|
Forfeited
during FY12
through
October 31,
2011
|
Outstanding
unvested
grants at
maximum at
October 31,
2011
|
|||||||||||||||
Restricted stock grants - employees
|
137,123 | 8,014 | - | - | 145,137 | |||||||||||||||
Restricted stock grants - directors
|
63,184 | 4,686 | - | (4,686 | ) | 63,184 | ||||||||||||||
Matching award program
|
500 | 3,000 | - | - | 3,500 | |||||||||||||||
Bonus in stock - employees
|
3,000 | 22,801 | - | - | 25,801 | |||||||||||||||
Retainer in stock - directors
|
- | 4,122 | - | - | 4,122 | |||||||||||||||
Total restricted stock plan
|
203,807 | 42,623 | - | (4,686 | ) | 241,744 | ||||||||||||||
Shares under 2006 Plan
|
Outstanding
unvested
grants at
maximum at
beginning of
FY12
|
Granted
during
FY12
through
October 31,
2011
|
Becoming
Vested
during FY12
through
October 31,
2011
|
Forfeited
during FY12
through
October 31,
2011
|
Outstanding
unvested
grants at
maximum at
October 31,
2011
|
|||||||||||||||
Restricted stock grants - employees
|
- | - | - | - | - | |||||||||||||||
Restricted stock grants - directors
|
- | - | - | - | - | |||||||||||||||
Matching award program
|
2,558 | - | (2,220 | ) | - | 338 | ||||||||||||||
Bonus in stock - employees
|
16,479 | - | (16,479 | ) | - | - | ||||||||||||||
Retainer in stock - directors
|
- | - | - | - | - | |||||||||||||||
Total restricted stock plan
|
19,037 | - | (18,699 | ) | - | 338 |
Weighted average grant date fair value
|
||||||||||||||||||||
Shares under 2009 Equity Incentive Plan
|
Outstanding
unvested
grants at
maximum at
beginning of
FY12
|
Granted
during
FY12
through
October 31,
2011
|
Becoming
Vested
during FY12
through
October 31,
2011
|
Forfeited
during FY12
through
October 31,
2011
|
Outstanding
unvested
grants at
maximum at
October 31,
2011
|
|||||||||||||||
Restricted stock grants - employees
|
$ | 8.00 | $ | 8.00 | $ | - | $ | - | $ | 8.00 | ||||||||||
Restricted stock grants - directors
|
$ | 8.00 | $ | 8.00 | $ | - | $ | 8.00 | $ | 8.00 | ||||||||||
Matching award program
|
$ | 9.03 | $ | 7.99 | $ | - | $ | - | $ | 8.14 | ||||||||||
Bonus in stock - employees
|
$ | 9.31 | $ | 8.39 | $ | - | $ | - | $ | 8.50 | ||||||||||
Retainer in stock - directors
|
$ | - | $ | 8.17 | $ | - | $ | - | $ | 8.17 | ||||||||||
Shares under 2006 Equity Incentive Plan
|
Outstanding
unvested
grants at
maximum at
beginning of
FY12
|
Granted
during
FY12
through
October 31,
2011
|
Becoming
Vested
during FY12
through
October 31,
2011
|
Forfeited
during FY12
through
October 31,
2011
|
Outstanding
unvested
grants at
maximum at
October 31,
2011
|
|||||||||||||||
Restricted stock grants - employees
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Restricted stock grants - directors
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Matching award program
|
$ | 10.56 | $ | - | $ | 10.95 | $ | - | $ | 7.98 | ||||||||||
Bonus in stock - employees
|
$ | 5.63 | $ | - | $ | 5.63 | $ | - | $ | - | ||||||||||
Retainer in stock - directors
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Overall weighted average per share - all plans
|
||||||||||||||||||||
Restricted stock grants - employees
|
$ | 8.00 | $ | 8.00 | ||||||||||||||||
Restricted stock grants - directors
|
$ | 8.00 | $ | 8.00 | ||||||||||||||||
Matching award program
|
$ | 10.31 | $ | 8.14 | ||||||||||||||||
Bonus in stock - employees
|
$ | 6.20 | $ | 8.50 | ||||||||||||||||
Retainer in stock - directors
|
$ | - | $ | 8.17 | ||||||||||||||||
Total restricted stock plan
|
9.
|
Manufacturing Segment Data
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||||||||||||||||||||
October 31,
|
October 31,
|
|||||||||||||||||||||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||||||||||||||||||||
Domestic
|
$ | 12.7 | 51 | % | $ | 16.2 | 63 | % | $ | 41.0 | 53 | % | $ | 45.8 | 61 | % | ||||||||||||||||||
International
|
12.0 | 49 | % | 9.5 | 37 | % | 35.2 | 47 | % | 28.9 | 39 | % | ||||||||||||||||||||||
Total
|
$ | 24.7 | 100 | % | $ | 25.7 | 100 | % | $ | 76.2 | 100 | % | $ | 74.7 | 100 | % |
Three Months Ended
October 31
(in millions of dollars)
|
Nine Months Ended
October 31
(in millions of dollars)
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net Sales from Continuing Operations:
|
||||||||||||||||
USA
|
$ | 13.61 | $ | 16.44 | $ | 44.36 | $ | 47.52 | ||||||||
Other foreign
|
4.37 | 3.72 | 14.09 | 11.56 | ||||||||||||
China
|
6.54 | 9.12 | 21.35 | 24.10 | ||||||||||||
Brazil
|
4.87 | 3.11 | 12.96 | 8.96 | ||||||||||||
Less intersegment sales
|
(4.65 | ) | (6.71 | ) | (16.60 | ) | (17.45 | ) | ||||||||
Consolidated sales
|
$ | 24.74 | $ | 25.68 | $ | 76.16 | $ | 74.69 | ||||||||
External Sales from Continuing Operations:
|
||||||||||||||||
USA
|
$ | 12.88 | $ | 16.10 | $ | 41.36 | $ | 45.83 | ||||||||
Other foreign
|
3.65 | 2.65 | 11.85 | 8.71 | ||||||||||||
China
|
3.34 | 3.82 | 9.99 | 11.19 | ||||||||||||
Brazil
|
4.87 | 3.11 | 12.96 | 8.96 | ||||||||||||
Consolidated external sales
|
$ | 24.74 | $ | 25.68 | $ | 76.16 | $ | 74.69 | ||||||||
Intersegment Sales from Continuing Operations:
|
||||||||||||||||
USA
|
$ | 0.73 | $ | 0.34 | $ | 3.0 | $ | 1.69 | ||||||||
Other foreign
|
0.72 | 1.07 | 2.24 | 2.85 | ||||||||||||
China
|
3.20 | 5.30 | 11.36 | 12.91 | ||||||||||||
Brazil
|
0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Consolidated intersegment sales
|
$ | 4.65 | $ | 6.71 | $ | 16.60 | $ | 17.45 | ||||||||
Operating Profit from Continuing Operations:
|
||||||||||||||||
USA
|
$ | (0.60 | ) | $ | .24 | $ | (0.45 | ) | $ | 0.21 | ||||||
Other foreign
|
0.09 | (0.09 | ) | 0.49 | (0.05 | ) | ||||||||||
China
|
0.46 | 1.37 | 1.94 | 3.25 | ||||||||||||
Brazil
|
0.11 | 0.08 | 0.17 | (0.07 | ) | |||||||||||
Less intersegment profit
|
0.17 | (.70 | ) | 0.73 | (0.94 | ) | ||||||||||
Consolidated operating profit
|
$ | 0.23 | $ | .90 | $ | 2.88 | $ | 2.40 | ||||||||
Depreciation and Amortization Expense from Continuing Operations:
|
||||||||||||||||
USA
|
$ | 0.16 | $ | 0.18 | $ | 0.51 | $ | 0.57 | ||||||||
Other foreign
|
0.04 | 0.04 | 0.11 | 0.09 | ||||||||||||
China
|
0.08 | 0.06 | 0.24 | 0.24 | ||||||||||||
Brazil
|
0.10 | 0.08 | 0.35 | 0.25 | ||||||||||||
Consolidated depreciation and amortization expense
|
$ | 0.38 | $ | 0.36 | $ | 1.21 | $ | 1.15 | ||||||||
Interest Expense from Continuing Operations:
|
||||||||||||||||
USA
|
$ | 0.11 | $ | 0.03 | $ | 0.27 | $ | 0.09 | ||||||||
Other foreign
|
0.06 | 0.05 | 0.18 | 0.15 | ||||||||||||
China
|
0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Brazil
|
0.08 | 0.04 | 0.18 | 0.16 | ||||||||||||
Less intersegment
|
(0.09 | ) | (0.05 | ) | (0.21 | ) | (0.14 | ) | ||||||||
Consolidated interest expense
|
$ | 0.16 | $ | 0.07 | $ | 0.42 | $ | 0.26 | ||||||||
Income Tax Expense from Continuing Operations:
|
||||||||||||||||
USA
|
$ | (0.28 | ) | $ | 0.09 | $ | (0.29 | ) | $ | 0.16 | ||||||
Other foreign
|
0.05 | (0.37 | ) | 0.19 | (0.29 | ) | ||||||||||
China
|
0.18 | 0.31 | 0.56 | 0.78 | ||||||||||||
Brazil
|
(0.06 | ) | 0.37 | (0.20 | ) | 0.16 | ||||||||||
Less intersegment
|
0.02 | (0.26 | ) | 0.15 | (0.36 | ) | ||||||||||
Consolidated income tax expense
|
$ | (0.09 | ) | $ | 0.14 | $ | 0.41 | $ | 0.45 | |||||||
Total Assets (at Balance Sheet Date):
|
||||||||||||||||
USA
|
— | — | $ | 37.43 | $ | 36.78 | ||||||||||
Other foreign
|
— | — | 14.75 | 12.90 | ||||||||||||
China
|
— | — | 22.32 | 18.14 | ||||||||||||
India
|
— | — | 3.73 | 4.63 | ||||||||||||
Brazil
|
— | — | 27.16 | 22.75 | ||||||||||||
Consolidated assets
|
— | — | $ | 105.39 | $ | 95.20 | ||||||||||
Long-lived Assets (at Balance Sheet Date)
|
||||||||||||||||
USA
|
— | — | $ | 5.33 | $ | 4.14 | ||||||||||
Other foreign
|
— | — | 0.03 | 1.40 | ||||||||||||
China
|
— | — | 2.49 | 2.29 | ||||||||||||
India
|
— | — | 2.49 | 2.89 | ||||||||||||
Brazil
|
— | — | 3.25 | 3.06 | ||||||||||||
Consolidated long-lived assets
|
— | — | $ | 13.59 | $ | 13.78 |
10.
|
Income Tax Audit/Change in Accounting Estimate
|
11.
|
Derivative Instruments and Foreign Currency Exposure
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October 31, 2011
|
October 31, 2010
|
October 31, 2011
|
October 31, 2010
|
|||||||||||||
Notional Value in USD
|
$ | 3,444,100 | $ | 2,836,935 | $ | 9,950,406 | $ | 6,622,888 | ||||||||
Gain and loss reported in current operating income (expense)
|
$ | 41,307 | $ | (118,147 | ) | $ | (130,927 | ) | $ | (198,007 | ) |
As of
October 31, 2011
|
Reported in
balance sheet
|
||||
Notional value in USD
|
$ | 9,539,425 | |||
Gain and loss reported in equity as other comprehensive income
|
$ | 87,615 |
Other assets
|
Nine Months Ended
October 31, 2011
|
Three Months Ended
October 31, 2011
|
|||||||
Gain reclassed from other comprehensive income into current earnings during three months ended October 31, 2011 reported in operating income
|
$ | 30,243 | $ | — |
<——————-BRL——————->
|
<——————-USD —————->
|
|||||||||||||||||||||||
Foreign exchange rate
|
1.82 | 1.82 | 1.82 | |||||||||||||||||||||
Total Paid
Or To Be
Paid Into
Government
Under
Amnesty
Program
|
Total Not
Available
For Credit
1
|
Available
For
Credit
2
|
Total Paid
Or To Be
Paid Into
Government
Under
Amnesty
Program
|
Total Not
Available
For
Credit¹
|
Available
For
Credit
2
|
|||||||||||||||||||
Original claim 2004-2006
|
3,474,843 | 1,419,572 | 2,055,270 | 1,909,254 | 779,985 | 1,129,269 | ||||||||||||||||||
Second claim
|
||||||||||||||||||||||||
Pre-acquisition 2007-April 2008
|
2,371,196 | 981,185 | 1,390,011 | 1,302,855 | 539,112 | 763,743 | ||||||||||||||||||
Post-acquisition May 2008-April 2009
|
3,580,403 | 1,481,546 | 2,098,857 | 1,967,255 | 814,037 | 1,153,218 | ||||||||||||||||||
Totals
|
9,426,442 | 3,882,303 | 5,544,139 | 5,179,364 | 2,133,134 | 3,046,230 | ||||||||||||||||||
Escrow released from one seller released escrow
|
1,000,795 | 1,000,795 | - | 549,887 | 549,887 | - | ||||||||||||||||||
Charged to expense at April 30, 2010
|
- | 2,881,508 | - | - | 1,583,246 | - |
Claim period/description
|
Taxes
|
Fines
and
penalties
|
Maximum judicial
deposit
|
|||||||||||||
2004-2006 not paid into amnesty and being defended. Management does not plan to pay this into amnesty
|
R$ | 1.3 | R$ | 1.9 | R$ | 3.2 | US$ | 1.9 | ||||||||
2007-2009 claim by State of Bahia
(1)
|
R$ | 6.2 | R$ | 5.7 | R$ | 11.9 | US$ | 7.0 | ||||||||
TOTAL
|
R$ | 7.5 | R$ | 7.6 | R$ | 15.1 | US$ | 8.8 |
R$3.1 (US$1.9) million 2004-2006 Judicial deposit
|
Quarter One Fiscal year 2013
|
R$6.2 (US$3.9) million 2007-2009 claim into amnesty
|
Quarter One Fiscal year 2013 to Quarter Three Fiscal year 2013
|
|
·
|
If before judicial process
- still administration proceeding - the Company would pay just the taxes with no penalty or interest. This would then be recouped via credits against future taxes on future imports. As before, the Company would lose desenvolve
3
and interest.
|
|
·
|
If after judicial process commences
- the amount of the judicial deposit previously remitted would be reclassified to the taxes at issue, and the excess submitted to cover fines and interest would be refunded to QT. As above, the taxes would be recouped via credits against future taxes on future imports, but we would lose desenvolve
3
and interest.
|
|
·
|
The desenvolve
3
is scheduled to expire on February 2013 and will be partially phased out starting February 2011. Based on the anticipated timing of the next amnesty, there may be little amounts of lost desenvolve
3
since it would largely expire on its own terms in any case.
|
(R$ millions)
|
US$ millions
|
|||||||||
Noncurrent assets
|
VAT taxes eligible for future credit
|
$ | 3.5 | $ | 2.2 | |||||
Long-term liabilities
|
Taxes payable
|
$ | 6.0 | $ | 3.3 |
USA
|
Brazil
|
Total
|
||||||||||
Balance as of January 31, 2011
|
$ | 871,296 | $ | 5,426,455 | $ | 6,297,751 | ||||||
During fiscal year 2012 through October 31, 2011
|
||||||||||||
Effect of foreign currency translation
|
- | (39,011 | ) | (39,011 | ) | |||||||
Balance as of October 31, 2011
|
$ | 871,296 | $ | 5,387,444 | $ | 6,258,740 |
October 31, 2011
|
January 31, 2011
|
|||||||
Cash
|
$ | 193,110 | $ | 121,436 | ||||
Accounts receivable
|
70,606 | 100,254 | ||||||
Inventory
|
190,013 | 622,480 | ||||||
Other current asset
|
36,084 | 20,371 | ||||||
Property/equipment
|
2,491,028 | 2,805,060 | ||||||
Total assets of discontinued operations
|
2,980,841 | 3,669,601 | ||||||
Liabilities of discontinued operations
|
||||||||
Accounts payable
|
46,290 | 29,467 | ||||||
Other liabilities
|
319,917 | 4,473 | ||||||
Total liabilities of discontinued operations
|
366,207 | 33,940 | ||||||
Net assets of discontinued operations
|
$ | 2,614,634 | $ | 3,635,661 |
Three Months Ended
October 31,
|
Nine Months Ended
October 31,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net sales
|
$ | 225,307 | $ | 612,563 | $ | 742,055 | $ | 1,513,754 | ||||||||
Cost of goods sold
|
372,691 | 611,139 | 1,056,757 | 1,694,900 | ||||||||||||
Gross profit
|
(147,384 | ) | 1,424 | (314,702 | ) | (181,146 | ) | |||||||||
Operating expense
|
100,312 | 80,278 | 249,630 | 262,878 | ||||||||||||
Operating profit
|
(247,696 | ) | (78,855 | ) | (564,332 | ) | (444,024 | ) | ||||||||
Shutdown expense accrual
|
880,694 | — | 880,694 | — | ||||||||||||
Loss from discontinued operations before income taxes
|
(1,128,390 | ) | (78,855 | ) | (1,445,026 | ) | (444,024 | ) | ||||||||
Benefit from income taxes from discontinued operations
|
406,120 | 28,388 | 520,210 | 159,849 | ||||||||||||
Net loss from discontinued operations
|
(722,270 | ) | (50,467 | ) | (924,816 | ) | (284,648 | ) | ||||||||
Details of shut down expense:
|
||||||||||||||||
Inventory write down
|
$ | 585,000 | ||||||||||||||
Cost associated with shut down
|
145,694 | |||||||||||||||
Operating expense accrual
|
150,000 | |||||||||||||||
$ | 880,694 |
|
o
|
Disposables gross margin decreased by $1.4 million this year compared with last year. This decrease was mainly due to lower volume and lower margins in quarter three this year resulting from the sale in the current year of finished goods purchased from DuPont at a much lower margin than in the prior year.
|
|
o
|
Brazil’s gross margin was 44.9% this year compared with 41.7% last year. This increase was largely due to the sales mix.
|
|
o
|
Chemical division gross margin increased six percentage points resulting from sales mix.
|
|
o
|
Canada gross margin increased 1.4 percentage points due to higher volume and favorable exchange rates.
|
|
o
|
UK gross margin increased by 12.7 percentage points over the prior year due to more favorable market conditions and higher volume.
|
|
o
|
Reflective division margin increased by 20.6 percentage points due to higher volume and sales mix.
|
|
o
|
Chile and Argentina gross margin increased by approximately 10 percentage points due to higher volume and sales mix.
|
|
o
|
$(0.2) million decrease in freight out shipping costs, due to lower volume.
|
|
o
|
$0.1 million in increased operating costs in China were the result of the large increase in direct international sales made by China, now allocated to SG&A costs, previously allocated to cost of goods sold.
|
|
o
|
$0.1 million in increased expenses for trade shows over Q3 last year.
|
|
o
|
$0.3 million increase in administrative and office payroll, mainly resulting from Brazil as follows: a promotion to the national sales manager, who was converted to salary and off commission, several sales hires and a government mandated 6.8% increase for staff salaries, and a new contract for the President of the Brazilian operation.
|
|
o
|
$0.6 million increase in currency fluctuation loss resulting from a $0.4 million charge this year mainly resulting from Brazil where we do not hedge, compared to a gain of $0.2 million in the previous year.
|
o
|
Disposables gross margin decreased by 4.2 percentage points this year compared with last year, resulting from lower volume and the sales in the current year of finished goods purchased from DuPont at a much lower margin than in the prior year, when we manufactured these items ourselves.
|
o
|
Brazil’s gross margin was 42.3% this year compared with 45.9% last year. This decrease was largely due to a larger bid contract in the previous year.
|
o
|
Chemical division gross margin increased 1.5 percentage points, resulting from higher volume and more favorable conditions and mix in quarter three.
|
o
|
Canada gross margin increased 3.4 percentage points due to higher volume and favorable exchange rates.
|
o
|
Reflective division margin increased by 11.0 percentage points due to higher volume and sales mix.
|
o
|
Argentina and Chile gross margins increased due to higher volume and sales mix.
|
o
|
$(0.3) million in decreased sales commissions resulting from restructured rates.
|
|
o
|
$(0.2) million decrease in freight out shipping costs due to higher volume offset by prior year stock-out conditions and the need for multiple shipments to fulfill one order as stock arrived late from DuPont.
|
|
o
|
$(0.2) million decrease in professional and consulting fees, resulting from international tax planning in the prior year and the terminations in Brazil in the prior year.
|
|
o
|
$(0.2) million reduction in bank charges and payroll preparation fees, resulting from reduced acceptance of credit card payment from customers and new payroll provider.
|
|
o
|
$(0.1) million decrease in equity compensation, resulting from the 2009 restricted stock plan treated at the baseline performance level and the resulting cumulative charge in the previous year.
|
|
o
|
$0.1 million increase in miscellaneous expenses.
|
|
o
|
$0.1 million increase in bad debt expense, resulting from on large account in Chile.
|
|
o
|
$0.2 million increase in sales salaries, resulting from increased sales personnel in Argentina, China and the US wovens division.
|
|
o
|
$0.2 million in increased trade show expenses.
|
|
o
|
$0.2 million in increased officer salaries, mainly resulting from a new national sales manager and other changes.
|
|
o
|
$0.2 million increased rent expense mainly as a result of a new leased facility in the UK.
|
|
o
|
$0.2 million in increased R & D expenses, resulting from worldwide product development.
|
|
o
|
$0.4 million increase in administrative payroll, mainly resulting from Brazil as follows: a promotion to the national sales manager, who was converted to salary and off commission, several sales hires and a government mandated 6.8% increase for staff salaries, and a new contract for the President of the Brazilian operation. .
|
|
o
|
$0.4 million increase in foreign exchange costs, resulting from unhedged losses against the Brazilian Real compared with a gain in the prior year.
|
3.1
|
Amended and Restated By-laws (filed herewith)
|
|
3.2
|
Certificate of Incorporation (filed herewith)
|
|
31.1
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1
|
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.2
|
|
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
LAKELAND INDUSTRIES, INC.
|
|
(Registrant)
|
|
Date: December 7, 2011
|
/s/ Christopher J. Ryan
|
Christopher J. Ryan,
|
|
Chief Executive Officer, President,
|
|
Secretary and General Counsel
|
|
Date: December 7, 2011
|
/s/Gary Pokrassa
|
Gary Pokrassa,
|
|
Chief Financial Officer
|
|
(Principal Financial Officer)
|
By:
|
/s/ Christopher J. Ryan
|
|
Name:
|
Christopher J. Ryan
|
|
Title:
|
President and Chief Executive Officer
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
|
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
|
Date: December 7, 2011
|
/s/ Christopher J. Ryan
|
By: Christopher J. Ryan,
|
|
Chief Executive Officer,
|
|
President, Secretary and
|
|
General Counsel
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a.
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b.
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c.
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d.
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
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a.
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b.
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
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Date: December 7, 2011
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/s/ Gary Pokrassa
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By: Gary Pokrassa,
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Chief Financial Officer
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December 7, 2011
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/s/Christopher J. Ryan
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Christopher J. Ryan
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Chief Executive Officer, President,
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Secretary and General Counsel
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December 7, 2011
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/s/Gary Pokrassa
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Gary Pokrassa,
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Chief Financial Officer
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