Lakeland Industries Inc (LAKE) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Lakeland Industries' January 2011 fiscal year earnings conference call. Today's call is being recorded. Before we begin, parties are reminded that statements made during this call contain forward-looking information within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking statements are all statements other than statements of historical fact, which reflect management's expectations regarding future events and operating performance, and speak only as of today, April 7, 2011. Forward-looking statements are based on current assumptions and analysis made by the Company, in light of it's experience and it's perception of historical trends, current conditions, expected future developments, and other factors that believe are appropriate under circumstances.

These statements are subject to a number of assumptions, risks, and uncertainties, and factored in the Company's filings with the Securities & Exchange Commission, general economic and business conditions, the business opportunities that may be presented to you and pursued by the Company, changes in law or regulation, and other factors, many of which are beyond the control of the Company. Listeners are cautioned that these statements are not guarantees of future performance, and the actual results or developments may differ materially from these projected, in any forward-looking statements.

All subsequent forward-looking statements attributable to the Company, or persons acting on behalf are expressly qualified in their entirety by these cautionary statements. At this time, I would like to introduce your host for this call, Lakeland Industries' President and Chief Executive Officer, Christopher Ryan. Mr. Ryan, you may begin.

Thank you, and good afternoon to you all. And thank you for joining our fiscal year 2011 fourth quarter and full-year financial results conference call. We are pleased to report consolidated fiscal year 2011 financial results, which benefit from significant progress achieved in the implementation of our international growth strategy. On the strength of our international operations, we reported an increase in consolidated sales, and our 19th consecutive year of profitability. This performance has been driven by rapid growth of our international revenues, and the higher margin contributions we received from these sales. Lakeland's total revenues increased 7.5% year-over-year, with international revenue growth offsetting declines in US sales.

As stated on our conference call for last quarter, despite a stabilizing economic environment in the US, we believe challenges remain for our business domestically, where our products generally deliver the lowest margins, as compared to our profitability elsewhere in the world. Our international growth strategy was in fact, intended for the very purpose of availing us to international growth, as the US market paled in comparison. We are now more encouraged than ever, that we have put in place the foundation for future growth, in both the top and bottom lines, that may far exceed whatever would have been achieved solely as a domestic Company.

International revenue accounted for 40.5% of consolidated fiscal 2011 sales, the highest level in our history, and far greater than the 34.7% for fiscal 2010, and 25% in fiscal 2009. The importance of our international presence, is that our business model is far superior to what we had been working with during the prior two decades, when we had been focused domestically. As we reflect on the completion of our fiscal year 2011, and contrast where we would stand today, as compared to with where, a mere three to five years ago, our accomplishments and progress are quite impressive. However, more important is our competitive position today, and what that will mean for the Company, and it's shareholders going forward.

In the past, as a US-centered Company, we knew there would be challenges domestically in sales volume, given the economic outlook and the changing face of the American workplace, as well as from margin pressures and other financing issues relating to our tenuous relationship with DuPont, which was both a supplier of raw materials, and a competitor in the sale of finished goods. Today, we have reframed our DuPont relationship. We are now in a more level playing field as a master distributor for DuPont domestically, for which we purchased finished goods from DuPont for resale at a margin. This has given us a better handle on the pricing climate, for the primary products we sell in the US.

Furthermore, as we have previously been manufacturing these finished goods in our China factories, from the raw materials purchased from DuPont, we have now made available that manufacturing capacity for other products requirements, from our sales efforts throughout our global operations, which generally provide much higher margins than DuPont products as we sell in the US. In other words, with the same overhead, we have the opportunity to substantially increase our consolidated sales, classify demand for products that will give us more diversified product mix and geographic presence, and attain higher profit margins.

In addition to the now reallocated China manufacturing capacity, which is primarily used for disposable garments in the past few years, and this past year, in particular, we have significantly added to our manufacturing operations. In Brazil, we have been aggressively expanding our manufacturing, as well as our sales and marketing efforts. Products made in Brazil for domestic sale, as well as for beginnings of exports to our other Latin America territories, and international markets, include turnout gear for fire fighters. We have glove-making capabilities from our India operations. Gloves made in India are being marketed by most of our global sales offices.

Our international business has enabled us to achieve higher gross margins, through better control of the supply chain. We source lower cost raw materials and produce industrial and protective garments in our geographically dispersed facilities. In many cases internationally, we are marketing and selling our products direct to end-users, as opposed to using distributors. So we have better price control, and can manage our customers more effectively.

Furthermore, we continue to build our brand throughout the world. Our efforts are gaining traction, and our reputation for quality garments, new products, and expedient delivery time is regarded world over. As a result of our international presence and improved market position, we are increasingly being given the opportunity to participate in large bids for government agencies and multi-national corporations.

To this end, we have increased inventory levels temporarily, in part to take advantage of seasonal build up, new products, and anticipated supplier price increases, which still avail us to much better gross margins than our historical US margins. We are growing rapidly in many foreign markets, with notable improvements in China and Brazil. We're particularly excited about the prospects for winning numerous large bid contracts in Brazil, that may span several years. We have available global manufacturing capacity in excess of 30% of our current revenue base, that can be used for new business or private labeling, while our direct sales and marketing initiatives expand our customer accounts for direct sales.

In total, during fiscal 2011, net cash used in investing activities was $1.7 million, an increase of over 40% from 2010, for the build out of fab facilities, and purchase and improvement to equipment and machinery. With other ongoing investment in our global manufacturing, we will further add to the available capacity, in anticipation of continued growth in our international operations. We are creating a more balanced and diversified platform for the long-term, with sales and operating profit generated in North America, South America, Europe and Asia. Our business units in the Brazil, Russia, India, and China, or BRIC nations, offer the promise -- the most promise with gross domestic product growth, well above the rest of the world.

Although there is anecdotal evidence of inflation around the world, BRIC nations continue to be heavily reliant on industrial garments, as these countries remain relatively low cost areas for manufacturing, and also have a significant presence in the oil and gas and petrochemicals industry, where protective garments are increasingly being specified as a workplace safety requirement. We are pleased to note that emerging nations are following the example set by the United States and other WTO members for workplace safety, which includes various specifications for industrial garments and protective gear.

In other international markets, we would be remiss, in not discussing the recent events in Japan. Our thoughts go out to the people of Japan and their families following the recent earthquakes, tsunami, and nuclear fallout. The present needs in Japan for the garments we make, have not materialized into demand for Lakeland, as the supply chain has sufficient inventory. However, we note that the cleanup protocol and related spending has yet to be implemented. Much like many other disastrous events such as H1N1, and September 11, our response strategy will be devised, and put into action thereafter.

By way of example, following the September 11, devastation, Lakeland did not receive significant first responder and other protective apparel orders until two years later. We anticipate that for recent events in Japan, there may be a requirement for about $5 million to $10 million worth of garments within the next three to twelve months for cleanup at ground zero of the nuclear reactors. Lakeland may be a recipient of some orders relating to the cleanup. But if we are not a direct recipient, the necessary quantity to be ordered in such a short period of time will result in tying up supply, from whichever company receives the order. As a result, Lakeland which has a significant presence in nearby China, may be called upon to assist the manufacturing of the garments. Or we may be able to pick up business from other markets, because their needs are not being met due to production being directed at near term Japan requirements.

Further out, perhaps in about one to two years from now, every government likely will be examining their emergency and natural disaster responses, with the development of protocols targeting the immediate vicinity of a nuclear reactor site, as well as treatment and remediation, encompassing secondary and tertiary areas. These protocols would most likely involve the need for several off site quantities of protective gear for use during a disaster cleanup period of about three to four weeks. We believe that with approximately 430 nuclear sites around the world, there could be a significant need for Lakeland products, similar to demand for first responder and other gear relating to the post-September 11, emergency response preparedness protocol.

Although our foreign exposure is relatively new and rapidly growing, we are pleased that they combined to contribute operating profits upon a consolidated basis, adding to the operating profits generated domestically. Our consolidated operating expenses as a percentage of revenues of 25.6% in the fourth quarter, is on the higher end of our historical range, which reflects the management, sales, and marketing personnel, and other overhead required to ramp up, and maintain our global presence. Yet even with the investment in our platform for an international growth and diversification, we continue to effectively manage our operating performance. Aided by increased revenues and improved gross margin from international sales, Lakeland's EBITDA as a percent of sales was 8.5% or $2.1 million in the fourth quarter of fiscal 2011, both the highest in the last ten quarters.

From this base, we had substantial operating leverage for continued sales, margin and profit expansion. This leverage, along with our excess manufacturing capacity position us to benefit from the demand for industrial garments and protective apparel in the markets we serve. The Company's global asset utilization provides significant upside to our financial results, as there is a substantial opportunity gap to capitalize on.

We recently took the opportunity to capitalize on the Company's current stock price, presently trading at about a 35% discount to our book -- net book value per share of $14.12 at January 31, 2011, by repurchasing 231,119 outstanding common shares from December 2010, through mid February 2011, representing cash value of approximately $2 million. The buyback will, upon full effect in our fiscal 2012 second quarter, result in an increase to diluted earnings per share by approximately 4%. Shareholders in Lakeland Industries may now look forward to their investment being enhanced by our international growth and diversification strategies, as well as our capital market initiatives. I will now pass the call over to our CFO, Gary Pokrassa, to provide a more detailed review of the Company's financial results.

Thank you, Chris. While Chris has provided an overview of some of our fourth quarter and full-year results and operational developments, I'll provide a more detailed review of our consolidated financial results. Our total sales increased by $0.2 million in Q4 this year from Q4 last year, resulting from a $0.6 million decrease in domestic sales, offset by growth of $0.8 million in foreign sales. Q4 FY 2011 domestic sales were $14.5 million, versus $15.1 million in the year earlier. Q4 international sales this year were $10.5 million, compared to $9.7 million the year earlier. Our Q4 2011 sales breakdown is 58% domestic, 42% foreign, comparing that with Q4 of last year of 61%, 39%. Backlog for disposables at January 31, was back to a normal level, at about $2.1 million.

As for the deferred profit referred to in Q3, this largely relates to our operations in China. Lakeland has always followed the practice of eliminating, or deferring any manufacturing profits on items sold to affiliated companies, until the items are shipped to the customers. Although these products are revenue for the China operation, at the parent company level, we eliminate the revenue, and defer the related profits until the products are sold and shipped to a third party customer. The aggregate amount of this deferment previously fluctuated within a range, which had not been material.

For the third quarter in October, due to the unusually high production levels in China, resulting from the earlier backlog and stock out conditions, a pre-tax profit of $694,000 or $0.10 a share had been deferred, since in accordance with our accounting practices, the products are still included in our consolidated inventory. Since we had built up inventory at January 31, 2011, this deferral only came down by a $0.01 a share in Q4. So only $0.01 of the $0.20 Q4 EPS is from the inventory profit deferral. We do expect to recapture much of the $0.10 in deferred EPS in Q1.

And now I'll discuss our revenue performance by country. In the US, disposable sales were down 16.7% in Q4 from Q4 last year, but the disposable's gross margin increased by 1.1 percentage points this year, compared with Q4 last year, mainly due to a better mix and price increases. On the international front, we spent the last few years building our foreign presence, as we viewed the most significant opportunities to be represented by higher growth markets, located outside of the US.

For listener purposes, here is some revenue highlights for a few of our more established international operations. I am going to quote percentages, which is Q4 growth in US dollars year-over-year, fourth quarter to fourth quarter. Brazil was up 14.2%, Chile 6.9%, the UK 41.7%, and Canada was up 73%. For our Brazil operations, sales in Q4 were $4.5 million, compared with $4.0 million in the prior year. This represents growth of -- in Q4 this year of 14.2% over last year's fourth quarter, and 45.8% over Q3 this year sequentially. Gross margins were 45.9% in Q4 this year, compared to 53.0% in the prior year.

On a sequential quarter basis, Brazil sales in Q3 and Q2 of this year, reflected the lack of large bid sales. However, we have several large orders for fire departments, municipalities, and national government agencies that we feel very confident in winning, and commencing shipments in the current fiscal year and beyond. There were large bid orders in each of Q4 this year and last year, but the raw material for this year had to be shipped by air freight to meet customer deadlines, and thus reduced the margins. In light of the number of large bid orders, and our prospects of winning share in these orders, I believe an increasingly more meaningful measure of sales growth in Brazil going forward, would be on a sequential basis, against the fourth quarter of fiscal 2011.

Further to our operations in Brazil, and as discussed on our prior conference calls, we have terminated for cause certain members of the management team, and promoted others from within to take their place. Lakeland and the two terminated sellers, unsuccessfully attempted to negotiate a settlement. The stop purchase agreement provides for arbitration to settle disputes, and Lakeland has asserted further damages in this arbitration proceeding. There have been charges of $175,000 in Q2, and $50,000 in Q3 this year, for the legal and professional fees incurred in this matter. Lakeland filed a formal request for arbitration, at the end of October. Future legal fees are contingency-based on the successful judgments by the arbitration panel.

To reiterate Chris' comments earlier in the conference call, regarding operations in Brazil, we really are both very excited about Lakeland's prospects in this country. We completed a plant expansion in late October, that I referred to in Q3. We are considering further expansions. Previously, we had included Argentina in our other Latin America operations, but with Argentina sales opportunities accelerating, we created a separate set. Of particular interest in this region, are fire codes and other garments worn in mining, and -- in energy industries. In Mexico, which for the most part had been a manufacturing operation, we are now in the process of setting up a sales office for direct sales activities, which are expected to begin ramping up orders in the middle of FY 2012, current year. For China, as previously mentioned, we began direct selling in country, following years of solely having operations in this country for just manufacturing.

The economic growth in this market, like most of our target international markets except Europe, is expected to be in the double-digit range. For Lakeland's fourth quarter, China external sales were flat, with Q4 from the year ago period. Flat sales from China are somewhat misleading, however. This is due in large part, to a decline in direct container shipments to the US. The Gulf oil spill was officially over in the fourth quarter. Most of our larger customers had already built adequate inventory, that did not necessitate reorders during Q4.

Through the use of this substantial portion of lower cost materials, this operation is very profitable for us. Fourth quarter operating profit in China increased 69% year-over-year. We recently opened direct sales of customer service offices, and hired sales personnel in Shanghai, and I have been rehearsing this, but I still can't pronounce it -- I am sorry -- Ningbo Zhejiang province. Furthermore, in addition to selling direct, we also are using distributors for coverage of neighboring Asian countries. Australia has no real operations, as we have a large distributor serving that market, with products sourced from our manufacturing facilities, primarily in China, with other products from the US, India and Mexico. These sales are included in China, external sales I referred to above.

Russia and Kazakhstan are relatively new offices for us. We have been stocking inventory, adding sales personnel, and have commenced sales activities, in large part addressing the manufacturing and energy industries. We have made our first small sales, in both Russia and Kazakhstan, so we are pleased that these operations are beginning to gain traction.

European sales were up 41% in Q4 from last year. That reflects partial recovery from the earlier backlogs and stock outs, which hurt earlier UK sales. We had 18 containers delivered to our UK warehouse in January, much of it will be shipped in Q1. In the UK, we're planning to move into a new lease facility, currently under construction which will greatly improve our storage and shipping capacities. Completion and move is expected shortly. In Canada, the fourth quarter was extremely strong, reflecting a 73% increase in sales over Q4 last year. We are selling products into fire departments, the defense-related initiatives, and into the refining and mining industries.

Moving further down the income statement, the consolidated SG&A expenses in Q4 were $6.4 million, compared to $6.1 million in last year, Q4. This included higher expenses, resulting largely from a $0.2 million increase in foreign exchange, which was due really to large gains in the previous year not recurring, as opposed to new costs this year. But that's an increase over last year. And $0.2 million resulting from terminations and severance pay in the US, and adding staffing in the UK, China, and Latin America.

Company's net income in the fourth quarter of FY 2011 was $1.1 million, flat with last year. Net income per share in fourth quarter was $0.20, and also $0.20 last year in Q4. Turning to cash flow in the balance sheet, FY year-to-date used $0.9 million of cash in operations, mainly as a result of operating profits, offset by an $8 million increase in inventory. We expect to level off our inventories, and have modest reduction by Q2. The increase in inventory at the end of FY 2011, was partly a result of the transition in the relationship with DuPont, and later due to anticipated sales increases, as well as increased inventory levels throughout our expanding international footprint.

As part of our value proposition to customers, as we build our global brand, Lakeland prides itself on offering the industry's fastest turn around time. This is accomplished by having garments in stock, and available to our customers as soon as they need it. Thus maintaining inventory in our warehouses around the world, is an investment we've made that positions us to be the best in the industry, and to take market share from incumbent, and offer the larger competitors wherever possible.

At January 31, the Company's outstanding loan balance was $11.5 million. From the end of the second quarter when the balance was $3 million, we borrowed more to accommodate the increases in purchases from DuPont, and overall increases in inventory, along with the stock repurchase program which is now complete. We expect our bank debt balance to increase somewhat in Q1, and then reduce throughout the year, as we purchase more, and replenish our finished foods inventory from DuPont going forward.

On November 30, 2010, TD Bank agreed to extend the Company's revolving line of credit for a two-year period, which now expires in January 2013. The bank facility allows total borrowings of $23.5 million, at an interest rate presently below 2%. We ended the year with cash of $6.1 million, an increase of about a $1 million from the beginning of the year. The Company's book value is now $14.12, therefore our share price is trading at a discount, of about 35% to book value. Current ratio was a strong 6.4 to 1. Working capital $62 million, and our enterprise value was only $50 million. That concludes my formal remarks, and I'll turn the call back to Chris.

Thank you, Gary. Before we turn the call over to the audience for questions, I would like to summarize some of our forward highlights, and investment merits for our shareholders and other followers. Looking ahead, our mission of delivering value for shareholders, is directly correlated to our international growth strategy. Our international diversification product provides us with many avenues to pursue growth. We are focused on the BRIC countries and surrounding territories, where we have significant operating leverage. To this point, our asset utilization is low and improving, which enables significant upside. And our balance sheet remains strong with minimal debt, and access to substantial capital for growth opportunities. To further discuss our growth prospects, and that LAKE shares are undervalued and worthy of investment which led us to repurchase 2 million of our outstanding shares, we have been invited to present at the Taglich Brothers Annual Small Cap Investor Conference in New York on May 3, and at Benchmark Capital's One-on-One Investor Conference in Milwaukee on May 12. I will now turn the call over to the operator for the Q&A session.

Thank you.

(Operator Instructions).

Our first question today will come from Doug Ruth with Lenox Financial Services.

Gary, this was just a beautiful report. And thank you, for -- both of you for your effort. Could you give us some further insight, as far as what -- I am sorry, Chris, I should of given you credit as well. Can you give us insight to the size of the orders, or what's pending in Brazil? Can we expect large orders, in the first quarter of 2012?

We have several, very large orders. In fact, there is one where we won the bid that -- we're waiting for the PO ,which in Brazil when you win a bid, that doesn't mean much. It is not a formal commitment. What really counts is when you get the PO. And one of these happens to be a government agency, and believe it or not, in Brazil with all the leftist politics and all that, they are cutting budgets. So when -- as soon as this agency gets it's funding, we should have a at least a sizable PO, for about a third of what that is, which is a sizable amount. We have several others in the works, and we are very confident that we will be getting more than one, several of these large bids throughout the year. And some of these will actually be multi-year arrangements.

That's really sounds awesome. And now can we anticipate anything for the first quarter, or would that be in the second quarter, do you think?

We should have some in the first quarter, nothing overwhelming, but it depends. If this one we are talking about with the budget, if we get the PO tomorrow, we could -- we're ready. We're stocked up, and we could probably ship out a large part of that on a few days notice. So I would not rule it out. I would say first quarter, in any case looks very strong in Brazil.

Okay.

And even without some very large orders. We're getting moderately large orders also. I would say, I am looking for very strong first quarter.

And are you looking for substantial, Chris, are you looking for substantial revenue growth out of Brazil, for this next fiscal year?

I will answer that. In a word, yes.

Anyway -- can we -- quantify it any further or -- ?

I am a little reluctant to do that, Doug. Let's just leave it at substantial.

Okay. And you also explained that there is still about $0.09 or $0.10 of earnings from China. And -- is that -- are going to come through the income statement, and you said a lot of that will happen in the first quarter?

Yes, and again, it is a complex interplay between the number of cases made in China that we still have on hand, compared to the profits that are recognized in China, and it's an interplay. So frankly, that's something -- that's the last thing we do at the end of each quarterly closing, and it's real hard to predict which way it could go. It could go either way. I am expecting that we'll pick up several cents, I would think, this quarter. I -- we're not going -- we won't pick it all up certainly, but we'll -- we should get a few cents coming in from that.

Okay. Can you give us some more color on Argentina, like can you give us revenue numbers? Or tell us how you're breaking out that segment of the market?

I can tell you Argentina had a about a $0.25 million in sales in Q4, up from almost nothing a year ago, and had about $900,000 for the year-to-date. Argentina is one -- we're -- and again, where we're getting orders. It was split. It had been considered part of Chile before. We've set up an office there. We have sales people now resident, as employees in Argentina, and we're looking at some better facilities there.

Argentina is probably the second largest market in South America after Brazil. And with commodity prices going up, the mining industry in Argentina is absolutely taking off. It is really hot. And to that extent, they're using a lot of protective clothing that we provide.

And could you get -- could we get a very large growth for this fiscal year from Argentina then, as well?

A percentage, Doug, but it's a very small base. I would expect some very nice, very respectable growth coming out of there, on a percentage basis, but in terms of dollars -- like I said, we had a $0.25 million in sales. Even if it doubles, I mean -- it's not -- it's very nice, but if we can do that in every international operation we start up, I think we'll all be very happy. But don't get ahead of yourself on Argentina. It's coming. It's moving along nicely, but these things take time to develop.

All right. And how are you feeling about the Indian glove operation at this point?

We are feeling -- I don't know how to describe it. We're working hard to get it into a break even situation. Essentially, it is a sales question, and we have to get our US sales force moving on selling the gloves, simply because it is the largest market.

You look like you made pretty good progress year-over-year, but it's still not to the level that you're -- it's still not profitable?

But we are not satisfied with India's results at this point, no.

Yes. And could you talk some about the private label manufacturing, and what's happening, and the opportunities there?

Well, a lot of private labeling, I can't mention names, because some of them have confidentiality agreements in their supply contracts, but it is picking up. We're seeing a lot of opportunities over seas for using our available capacity if we choose to. And it's sort of a balance of, do we want to do private label versus our own label business. But we have the capacity, and we've had people ask us.

Okay. Are you going to give us any kind of guidance, as far as sales or return on equity this year? You gave us a little bit of that last year.

We really don't give guidance, and certainly not on ROE. On sales, I would expect there to be a modest decline in the US sales, and a strong increase in international sales.

But overall, there would be a total -- the total revenue would increase?

Overall, it would be modest growth, when you net the two. We're looking -- we are not looking for a minus number at the end of the year.

Okay.

They'll -- should have modest growth overall.

And higher net margins?

Yes. And again, the sales that we lose in the US are the lowest margin sales, and the sales that we gain internationally are the highest margin sales, so that's compounded, the mix changes.

Okay. All right. Well, it was a great report. And thank you very much, Gary, and Chris, for your hard work.

Thank you, Doug.

We'll take our next question from Buzz Heidtke with Midsouth Investor Fund.

Can you hear me?

Yes, you're fine.

Okay. A couple questions. We're shareholders. I notice a new item, VAT taxes on your balance sheet of 3.3, and an expense of 1.6. Now, is this going to be something every year, we have this VAT tax, or how does this work?

No, no. I guess you missed our first quarter, I guess.

I did.

Yes, okay. We had -- all that's happened, just as we were putting together our first quarter numbers -- and I'll try to keep this as simple as possible.

You don't have to get too detailed.

Basically, we had a nonrecurring issue with a neighboring state's back tax. The procedures are no longer in place. We switched the way we imported two years ago. But state auditors came -- and we had paid the VAT tax properly, but to a neighboring state, And the state we reside in, came in and said, we don't care that you paid the tax to a neighboring state. We want you to pay the same tax to us yet again. And we have to pay it, and then we get credit -- we get a partial credit for that against future purchases.

Okay.

So the amount that resulted in not being eligible for a credit, is what we took, as a charge against P&L. Some of that is --

(Multiple speakers). Some of that -- will there be a charge for this year from the VAT tax --

I am sorry?

Will there be another charge this year on the VAT tax?

I certainly hope not, no.

Okay.

What we did -- is we anticipated, the entire universe, that was about six years going historically -- most -- long before we acquired the Company, where this type of transaction took place. What happened basically, we imported -- rather than through our resident port city in Salvador where we're at, the state of Bahia, we imported through the port of [Recife] in a neighboring state, just like a New York company importing through New Jersey, and then trucking it over.

Okay.

Two states, basically went to war with each other. And we're --

I got -- I got another one here. I notice your working capital improved to $62 million versus $48 million, because you moved an item revolving credit facility from your current liabilities to long-term liabilities.

That's because TD Bank worked out a two year extension. As of January of a year ago, it was due in less than one year, so we classified it as current.

Okay. I got you there. And then quickly, you guys are new in there. Can you just briefly tell about yourself, how long you have been with the Company and all?

Chris -- I have been with the Company full time since about 1992. So I have been here about 18 years. Gary, how long have you been here?

I have been here about six and-a-half years. I'm a CPA, with over 40 years experience.

Okay, well, I thought you guys -- you guys sounded like some old timers.

I'd say so. I just became a grandpa, so I guess so. (Laughter).

Well, I am older than you are, now don't take it the wrong way.

I'm not.

Thank you very much, guys, doing a good job.

Thank you.

Okay, good bye.

Our next question will come from Joe Munda with Sidoti.

Good afternoon, guys. Thanks for taking my call.

Hi, Joe.

I just wanted to catch up on a few things. When does Tyvek and Tychem come off patent?

My guess is about 2013, 2014. Tychem is a different bunch of patents than the Tyvek patent.

Okay. And when that occurs, do you see yourself coming back into the US market, and really making a push selling your proprietary product?

I don't know what's going to happen then. Firstly, I sort of suspect that DuPont will have sold that asset by that time.

Okay.

Number two, if they don't, then it is whether or not one of the other big non-woven companies come in, and start making Tyvek. The only thing they couldn't do, is call it Tyvek. That's obviously DuPont's trade name. But that would present I guess a lot of competition to DuPont, because there is a lot of margin in the product. We're just going our own way, basically with our own products right now. And we also sell the DuPont Tychem product. And it is a very good product, and I guess it will remain so, certainly for the next couple of years.

And in regards to Japan, I know you touched a little bit on it. Have you guys been actively soliciting business, in response to the -- to what the situation over there? And have you received any calls from any energy companies here state-side, asking for the capabilities of what Lakeland could provide in the future?

I will tell you what's going on. DuPont has a big facility in Japan. There is currently, apparently, plenty of product right now for the current needs. A number of the Japanese companies have asked us, to whether we would have availability, if they needed it in the future. And we, of course, we have responded yes. Okay? That's as far as it goes. We don't see any big demand, until the actual cleanup starts. The cleanup isn't -- they're not even thinking about the cleanup right now. They're thinking about stabilizing those four reactors.

When you say cleanup --you're just talking about the nuclear part?

Yes. You have 400 miles of coastline that's trashed, okay? The Japanese aren't even thinking about that now. They're just devoting all their energies to stabilizing those nuclear reactors. And the actual cleanup of the nuclear reactors will require some tough garments. And my guess is, is that the guys in Japan will have enough to do that.

The real, real demand for garments will come during that cleanup of 400 miles of coastline. And it depends on the protocol that the Japanese government decides upon, and what they're going to have their workers wear, when they do that clean up. So that will be -- say, they stabilize the operations, let's take a guess in another month. So over the next twelve months to eighteen months, there will be a rather large cleanup of the coastline of Japan. But what I view to be the big opportunity here, is neither of those.

The opportunity will be, when 400 nuclear -- 430 nuclear facilities around the world, start planning for the day that something may happen to them. And what the Japanese have found is, when you had the entire facilities crack, and everybody runs out of them, now all of the equipment they need is on the inside of the facility, not outside where they need it, okay? So what I suspect is going to happen, is a lot of nuclear facilities are going to try to keep protective clothing off site. And that may entail all the fire departments in a 20 mile radius, if they anticipate that the firemen are going to p be the first responders.

So that's where the real business is going to be. It is not going to be in cleaning up four nuclear plants, that might be $10 million worth of garments, okay? And a bigger cleanup of the Japanese coast, we'll see. We'll see how much nuclear fallout there is on the wreckage, the debris. And the Japanese government will either decide on a protocol to wear garments or not. If they decide on a protocol to wear garments, there will be a significant purchasing of these garments over the 12 to 18 month period.

But as I -- like 9/11, it took two to three years for the government agencies to evaluate what they needed, and then start buying chemical suits. And our chemical suits went from $2 million to $12 million in those -- say 2004 through 2007. But it -- for three years, it took them just to do their evaluation, and decide what they're going to buy. And that would probably be the big long-term positive for our industry, is that it takes them a year or 18 months or however long to decide, what kind of protective clothing they're going to keep off site, what kind of generators they're going to keep off site. And how do they respond to a crack in a nuclear facility, if there is an earthquake somewhere else. They all have to have some sort of plan. It's not going to happen over night, but when it does happen, there will be a very large demand for our product.

Okay. Also, I think Gary had mentioned the way to look at revenue going forward in Brazil, is to kind of take that fourth quarter number, and build off of that, going forward quarter-over-quarter? Is that correct?

Yes, that's right, because, again Brazil -- and one reason I am so reluctant to quote any specific numbers -- the way the revenue works in Brazil, is there is a very solid and very predictable base of smaller orders, that maybe is 60% of the sales over the course of a year. The other 40%, and maybe more than that, maybe much more than that, is comprised of these larger bid orders, and it's very unpredictable, and very irregular. We went two entire quarters, with almost none of these. We had a very nice one in the fourth quarter last year. We had a few more smaller, moderate size ones in Q1, and we got some very big ones pending.

Yes.

But who knows? And even the timing -- when you win a bid. We actually won this bid, and we got all excited, but then there was an election about a month ago in Brazil, and all of a sudden the socialists in Brazil are actually cutting budgets. And this agency, they desperately need our garments, but they don't have their budget funding yet. So as soon as --

No, that explains it.

(Multiple speakers). Very difficult. That's all I am saying.

I am sorry. I mean, does that explain the buildup in inventory that we saw here at the end of the year?

In part, more of that build up is in the US than Brazil, but Brazil is also building up inventory.

I mean, do you think that -- even though you guys won that bid, are you going to get stuck with that inventory that you did build out for Brazil, and you guys are waiting --?

First of all, the raw material can be used on virtually any garment that we produce. It's a basic -- it's a basic FR type of cotton material.

Okay. So there is no risk to -- Okay.

Not an issue at all.

And so, and I guess -- what do you see as far as US sales are concerned? Do you see that stabilizing, or do you still see a continuing decline going forward?

I would say we're looking at maybe two more quarters of drop -- of reduced sales in the US, and then pretty much stabilizing, and then growing back from there. So somewhere maybe in the third quarter would probably be the low point. And going forward, we see modest -- nothing great, but we do -- we would see the further erosion staunching, about the third quarter, and modest growth from there.

You think modest -- you think you're showing growth in fiscal 2013 then?

Modest growth, yes.

Yes.

I mean, are you saying zero to 5% is modest growth?

That's right. Correct.

That's right.

Okay.

That's in the US.

Yes, in the US.

That's right.

I just had two other questions. Going forward, are we going to see a similar CapEx number? I know you guys are doing a lot of expansion into other countries. You mentioned Kazakhstan, Russia, Argentina, Chile, are we going to see that number tick up going forward?

Well, the countries you mentioned actually, we have almost no CapEx. We've just rented some warehouse, rented a small office, and put -- and our real investment there is working capital for inventory. But we are expanding in Brazil with CapEx. There will be some more CapEx in Brazil, as we further expanded. There might be a little bit in Argentina. We're considering looking at some facilities there, but we haven't really found anything suitable. And we may very well upgrade Mexico. That's under consideration right now.

So that number, is that CapEx outlay of capital going to be more than what we saw in this past year?

Well, it depends on what we do with Mexico. I think Brazil, we're pretty much settled. If we don't do Mexico, if we don't do a major push in Mexico, the number might be just slightly higher, just due to some purchases in Brazil, not much. If we do Mexico, that might add another 700 to -- I am sorry, it might add a $1.5 million to $2 million, if we do Mexico, and that's under consideration.

And that -- the timetable on that is for this year, or would that be for 2013?

If we do Mexico, it would probably be later in this year, but this year.

Okay. And one other thing, can we expect a similar buildup in inventory for fiscal 2012 as well?

No.

No. Okay.

That is, certainly not in the US, no.

Okay, no.

I would expect -- from January, a modest additional buildup through Q1. And that's it. Then we level off, and start reducing inventory again.

Okay. Gary, and one -- I'm sorry, one other question. You had mentioned the share buyback program is done?

That's done, yes, authorized $2 million, we put out a press release as soon as the Board authorized it, and we did our $2 million, and we're done.

Okay. All right. Thanks, guys.

Okay.

(Operator Instructions).

We'll now move to Howard Halpern with Taglich Brothers.

Congratulations, guys.

Thank you.

In the US, the decline that's coming, is that primarily from the -- an expected contraction in the automotive sector, but less of the parts, and what went on in Japan?

Go ahead, Chris.

No, it is not. In fact, the automotive sector has picked up pretty nicely. I mean, from what I can see in the last two months, it is up -- well, our guys are up 15 or 20%. So we're happy to see that, but basically it is the new relationship with DuPont. Rather than being a competitor customer, we're really just now a customer. So rather than buying the fabric from them and making garments, we're just buying the finish goods, okay?

And we're selling them to like the smaller players out there, as opposed to the big players who, like W.W. Grainger who DuPont is supplying. So that's the primary down tick in revenues here, is sort of a phase out of the former DuPont relationship, where we just become a big customer. It results in lower revenues, but on the other hand, it also results in a situation where we're not competing any more with a behemoth.

And again, those revenues that we are losing, are by far and away the lowest margin sales that we have anywhere in the world.

Okay. And turning to international, you would expect based on what you had said to other questioners, that at least 50% of revenue will come from the international sales in this upcoming year?

I will go out on a limb and say, before the year is end -- not in Q1, but by the time we get through the year, that we will be -- we will be reporting quarterly results at least a 50/50 foreign.

Okay. And with everything that has gone on, Japan, Australia, and such, and the lead times it takes, you expect pricing to be maintained, and even increase as time goes on -- for your products?

That's a difficult question. It really depends on the amount of inflation we see country by country. And also the price of cotton, cotton has been a big -- a very volatile commodity, which is a large part of our -- at least in Brazil, is a big part of our raw materials.

I think we see first of all, we'll have to raise prices as these commodity prices go up. If the price of oil continues to go up, the price of all oil-based synthetics will go up. And we will raise prices based on that. We'll also have to try to raise prices based on inflation. And I don't know if I was around in the early 70s when inflation was running wild in the United States, and everyone just used to raise prices by 10% a year. And it was easy.

Yes.

I mean, it's an interesting question, because we haven't been in an inflationary environment since the 70s, and we're probably coming into one. It will be interesting, how easy or hard it will be to raise prices.

Okay. And have you -- did you see any pickup or is pickup anticipated from your Australian distributor, based on all the disaster that happened there, especially to their mining industry based on all the floods that went on there earlier this year?

They're growing nicely. They're growing very nicely. We're doing -- the business is growing there, probably at 20% a year.

Yes. That's a nice account for us, one of our most (inaudible) accounts worldwide actually.

And they're busy doing -- like Argentina, the mining industry is very hot, prices are high. So everybody is opening up mines.

Okay. And are there any anticipated new product launches that have been in the pipeline, tested, and are ready to go in this upcoming year?

Yes, there are. We're basically launching a new product every two months.

Okay. And is there one in particular, that you are really excited about? That is going to -- or you are excited about all of them, but is there one in particular, that's going to really hit the mark, and ramp up very quickly?

I would say in about a year -- we're looking -- well, probably a shorter time frame than that. By October we're looking at what we hope to be sort of a blockbuster. And don't want to talk to anybody about it, until we release it.

Okay. Okay. Well, guys, keep up the great work.

Thank you, Joe.

And we'll now take a follow-up from Doug Ruth.

Thank you. Chris, anything new on the acquisition front?

We are always looking, but nothing really hot, no.

We have spent a lot of time on it. We've looked at a number of companies.

Unfortunately, everybody wants 10 to 20 times EBITDA. I am sort of kidding, but the prices are -- being asked, are sort of ridiculous.

Yes, two - (Multiple speakers).

I am surprised that the private equity firms are willing to be fools, let them be fools.

Okay. I understand. And what about -- do you have a timeframe, as far as when you think this litigation might be resolved in Brazil?

You mean the arbitration?

The arbitration, yes.

Yes. Unlike litigation, the arbitration is not going to drag on for years. The lawyers have given us a timetable. There is a pretty decent shot that could be over by year end.

That would be encouraging, yes. And what about a tax rate for this year? That's one of the things that sort of --

That really jumps around so much. I would say, maybe as little as 18%. I am more conservative, and I'm using about a 23% or 24%.

Okay. Well, thank you again, Chris and Gary. It was a beautiful report.

Thank you, Doug.

And with no questions remaining, I'd like to turn the call back over to Mr. Ryan for any additional or closing comments.

Okay. We appreciate your participation in Lakeland's fourth quarter and full fiscal year 2011 financial results conference call. As we are committed to delivering value for our shareholders, we believe Lakeland will continue to effectively manage it's balance sheet, control expenses, and execute it's strategy for long-term growth. Please feel free to call us to discuss the Company's operations, or schedule a meeting with management, as we bring our investments story to prospective investors in the months to come. Thanks again, and goodbye.

Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation.