Good afternoon and welcome to the Lakeland Industries Inc. Fiscal 2013 Third Quarter Financial Results Conference Call. 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 facts, which reflect management's expectations regarding future events and operating performance and speak only as of today, December 13, 2012. Forward-looking statements are based on current assumptions and analysis made by the company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes 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 and 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 those projected in any forward-looking statements. All subsequent forward-looking statements attributable to the company or persons acting on its 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, sir.

Thank you. Good afternoon to you all, and thank you for joining our fiscal 2013 third quarter financial results conference call. In the third quarter of our fiscal year 2013, we reported net earnings per share of $0.05. This performance is driven by a continued improvement in our other high-growth markets in Latin America and Asia. International revenues as a percentage of consolidated sales increased to 59% in the third quarter, the highest level in the company's history. Total international sales were a record $14.4 million, an increase of over 20% from $12.0 million in Q3 last year. Our international growth does not come without challenges, however. One such challenge pertains to one of our most promising foreign businesses in Brazil. We operate in many foreign countries, including Brazil, where we believe our competitors see corruption or bribery as a normal part of doing business. It is important that our stakeholders understand that Lakeland Industries is adamantly opposed to bribery, so upon our entry into Brazil, we took what we felt were the necessary precautions. This is in addition to vigilant compliance with American laws such as the Foreign Corrupt Practices Act and Sarbanes-Oxley and also with recently passed anticorruption legislation in the U.K. We continue to make progress with our international diversification and growth strategies while effectuating a turnaround for our domestic operations. In the U.S., our dependence on DuPont has been removed, including the elimination of related revenues from their product lines. This will cause an imbalance in year-over-year comparisons for our domestic and consolidated revenues, but we are executing internationally and this is clearly evident. Total international sales in the third quarter were $14.4 million. The turnaround in the U.S., along with the continued growth internationally, has put us in a position to accelerate earnings and cash…

Thank you, Chris. While Chris has provided an overview of some of our third quarter results and operational developments, I'll provide a more detailed review of our financial results. Consolidated net sales decreased to $24.2 million for the third quarter compared to $24.7 million for the same period last year. The decrease was mainly due to $2.9 million decrease in domestic sales, partially offset by increased sales on an aggregate basis from other foreign operations of $2.2 million. That decrease in the U.S. was primarily as a result of the DuPont license termination. International sales of $14.4 million versus $12.2 million in the year earlier. Domestic sales are $9.8 million. Our Q3 -- this year's sales breakdown is 59% foreign, 41% domestic. This reflects record levels of foreign sales in dollars and a percent of consolidated sales. On a year-over-year basis, increases in foreign sales include 83% increase in the U.K.; 91% growth in the combined Chile and Argentina sales; Canada sales were 22% lower, again, due to the DuPont termination; Brazil sales were down 12%, in part due to the completion of shipments relating to larger bid orders; and an increase in external sales for China at 24%. Gross profit decreased to $7.3 million from $7.4 million and remained at 30.1% of sales flat. Brazil margin was down significantly at -- by 17.8 percentage points in the third quarter from third quarter last year due to issues with the Brazilian Navy contract. This contract was to supply coveralls to the Brazilian Navy made from fire-resistant cotton for a total value of about $5 million. Brazilian currency weakened significantly in May of last year -- of this past year and thereby greatly increasing the material cost purchased from a U.S.A. supplier. Further, due to the length of time elapsed since…

Thank you, Gary. I will now turn the call over to the operator for the Q&A session.

[Operator Instructions] Our first question will come from James Fronda of Sidoti & Company.

When do you think you'll be able to make up the domestic revenue that you've lost from DuPont? And, I guess, how do you expect to achieve it?

Okay. Well, we covered a significant portion of it within the last year. I mean -- but it will probably take us a year to 2 years to fully recover the revenues. What's important to note though is that the DuPont business towards the very end there was only yielding about 13% gross margin, whereas our Lakeland branded products yield...

25% to 28%.

25% to 28%. So we really only have to -- say, for instance, we lost, I think, $5.4 million of DuPont revenues this -- from last quarter to this quarter, but we only need about half those revenues to get return to have the same profits. So...

Actually, it's even less than that because we've cut costs also. So our overhead now is -- is now much less than it was a year ago, too. You don't see that -- not in operating. That's buried in cost of goods sold. But our operating overhead has also been cut.

Okay. And I guess on the SG&A expense line of $7 million, do you think that's a good run rate to use going forward given the growth that you are seeing from international markets? Or will that come down a bit?

I'd say, yes, pretty much. The major components of that -- we have permissions in Brazil, and the SG&A in Brazil is higher. Otherwise -- and that will continue. Yes, that's [indiscernible].

All right. Oh, one more thing. Usually, you guys have mentioned 1 or 2 big contracts during the quarter, during the earnings call. Are you seeing anything? I mean, you guys up to bid for anything that you're allowed to mention?

We have a lot of activity going, and we're very confident we'll get some of them. But right now, if we have something to announce, we'll certainly announce it, but we are confident we'll get a few of those in. But right now, [indiscernible].

And our next question will come from Howard Halpern of Taglich Brothers.

In terms of the banking and professional fees, what were they in the quarter? And are they going to persist at that level?

Well, most of it -- a lot of it was related to the settlement, which was actually accrued in Q2 in terms of the expense. Other than that, what we have running through expense, $50,000 to $100,000, I guess, in terms of professional fees and other fees. We'll probably be at that level for another quarter or 2, I would think, until we get our situation -- the capital situation totally stabilized. We'll probably be running at a rate comparable to that.

Okay. And in terms of the Brazilian operations, when you get the next large contract, have you organized it or looked at it so that you might not be hit as much in the margin as you were with the Navy contract?

Very good question. Let me expand a bit and give you some color about how the Navy contract unfolded first and why we had a problem, then I'll answer the question in terms of what we're planning to do next time. The bid was prepared and submitted and priced out in December of 2010 for the Navy contract. We were told in April of 2011 that we won the bid. At the same time, we were told that the Brazilian Navy said, "Oops, their budget funding was cut back by the federal government, and they can only afford to give us a PO for about 10% of the bid -- of the total amount that was in the bid contract." So we said, "Okay." And then as a complete surprise to us, in mid-December of 2011, we get a PO out of the blue, totally unexpected from the Brazilian Navy, and the complete balance of the PO -- of the bid, plus a 25% overage, which was allowed in the contract. Okay. So now we're ready a year after we priced out the bid, and we had to first put our orders in for the fabric at that point. And by the time -- we actually started producing it in February and shifted out starting in February, about a 6-month period, and we finished in August, completed it. In the month of May, the Brazil Central Bank decided to lower their interest rates substantially, which had the immediate and intended impact of weakening their currency by roughly 15% to 18%. And what happened there is that, obviously -- since our main cost is the fabric, the fabric is roughly 80% of the -- of total cost of goods sold, and that comes from an American vendor unrelated to Lakeland. Obviously,…

Okay. Now that's important going forward then.

Other sophisticated companies got caught in this devaluation.

Oh, I can tell you, if you want to see your hair stand up, call up the Petrobras financial statements. They took, I think, a $6 billion charge in that same quarter for currency devaluation. They have -- they fund themselves -- they capitalize themselves with debt, U.S. dollars debt.

Okay. Okay. Was the increase in the U.K. a onetime contract? Or what was...

Oh, you mean the sales? Oh, no, no. That's several larger pieces of business, with good annual volume all coming in. And that growth rate there should continue at that rate in the near term and for the foreseeable future.

Yes. It's not a spike, it's repeatable business.

No. Absolutely.

Okay. Okay. And in terms of the 3 areas that you mentioned in the press release, Mexico, Russia, Kazakhstan, are you excited equally about all of them? Or will 1 or 2 outpace the others going forward?

I think Russia will certainly outpace Kazakhstan simply because it's a bigger market, but we're excited that things are now beginning to take off there, they are profitable there and we are making -- we are growing relationships that should provide continued 50%-type growth in sales.

Okay. That's encouraging, too. And in terms of the U.S., were there any decent-sized contract wins in the quarter or building of potential pipeline going forward?

Yes. We've been working with a couple of federal government agencies and our distributors, and we are working with that. In those situations, we don't have the bid per se, it's our distributor that has a bid. But we are working closely with the federal government on big contracts.

And our next question will come from Doug Ruth of Lenox Financial Services.

Was there -- is there revenue -- is there going to be some revenue from Hurricane Sandy?

Yes, we are seeing that. We saw a little in this quarter, but it should -- it's hard to put a peg on, but it should continue literally for the next 2 years. How much per month is hard to put a finger on. We saw a little bit of a surge there in November, which we haven't reported yet. So, I mean, it should help next quarter's numbers, but this is going to be a 2- or 3-year cleanup. I mean, I know, where we live here in Long Island, we lost 20,000 houses, totally destroyed. So there's a lot of cleanup in terms of mold remediation, cleaning up flooded basements. A lot of times, they'll use our garments for that.

Any way to quantify what that might be with dollars?

I'll tell you, next quarter, I'll be able to do that with some historical justifications. So put that in your notes, Doug.

Okay. Can you tell us about some of the successes you're having in the U.S. with the Lakeland brand?

Jesus, I wish Steven was here. We are having pretty good success. I mean, they have -- and honestly, if you look at the revenues from -- and if you looked at the revenues in the U.S. last quarter, last year and the revenues this quarter this year, you'll see that they have made some progress. I mean, we lost almost $5.4 million of DuPont revenue business. So they have made some real progress in the last year, and they only really got started 6 months ago because we had to get rid of all our DuPont tiebacks. So we couldn't go out with a new program until we've gotten rid of all that inventory. So we've only had 6 months to really promote the Lakeland branded product. Do I -- and that question was asked, "When do you think you can replace all $5.4 million quarterly of the lost DuPont product? And I figured that will be 2 years. But if we replace all the DuPont revenues at 25% versus 13%...

Oh, we'll be swimming in profit sectors. [ph]

Yes.

Yes, and we're waiting for that. Are you done writing off the tieback material that's still in inventory?

There's a few dregs left, Doug. If we have to reserve something, it won't be noticeable. It's well under $1 million total inventory at this point. It's not 0. We're still selling some dregs, but it's insignificant.

And then are you happy now with the way the Alabama and the Mexican operations are working? Do you feel like those challenges are behind you?

Yes. We've got all the moving expenses behind us. Mexico should be up and running on the turnout gear, which is the fire clothing that the municipal firing make. That all used to be made in St. Joseph, Missouri. So they'll be making that very soon. They're getting all their regulatory certifications right now. And basically, we cut -- basically, by closing St. Joe, we cut out a lot of overhead and shifted it down to Decatur where we're not -- where it's being absorbed much more cheaply. So they're making those turnout gear, they're making them in the United States for people who want them made in the United States and we'll be making them in Mexico. Oddly enough though, one of the interesting things we got a contract on, which won't be probably done until the first quarter of next year, is we got a huge order turnout gear from the City of Dali in China. So when I was selling turnout gear in China, very few people are doing that.

And what do you explain -- how do you explain that?

Well, because we have Chinese facilities that are NFPA-certified, CE-certified, we got them in the position such that we can make a fire coat and sell it in any country in the world.

Wow, that sounds terrific. Can we -- can you comment at all about Ansell and what's happening? As far as I can tell, they continue to hold their stock. Is that correct?

That's a topic I really can't talk about simply because of the regulatory restrictions. I can't talk about any strategic alternatives in any way and using any time...

Okay. I understand. How about a little more color then on some of the countries, Brazil and China. What -- do you think -- can the growth rate continue with the way you've been going?

I think you'll see the growth rate international pretty much grow along these lines. And what I'm really going to be interested to see is the U.S. to start growing again. And it is. We've seen it in the last 6 months. And I'd like to see the U.S. back to where it was, because you got to understand, at one point in 2006, almost $90 million of our $100 million was all U.S. revenues. And of that $90 million, $80 million was all DuPont products. But we've replaced $80 million -- we're still at $100 million in sales 6 years later, and we've replaced essentially $80 million of sales.

Yes. And you're seeing resurgence in the oil and gas industry, right? That's been built [ph]?

Well, it's very strong in the United States, particularly the gas drilling. So, yes, that is a real growing market in the United States, one of the few, and it's something where we can sell product into. And the other good thing about oil, the typical oil companies, is that they're not as concerned about the cost of the product as they are about the quality of the product. If you're Exxon and you are earning $40 billion a quarter, the costs of our products are not high on their expense list. Rather, they're more interested in getting the best quality product and the best delivery, and that's what we're good at.

Okay. What about Brazil? What about the World Cup and the Olympics? When would you expect to start seeing some revenue from those?

It's hard to say. The infrastructure is always there. We're looking at turnout gear bidding. There's pretty good activity in the bidding process, but we've got bids out on a lot of things. And we do expect to win a few -- our share of the major bids. The way Brazil is going, Chris always jokes that they'll be paving the runway as the first incoming plane is putting down landing gear, and that's the way they work, unfortunately.

You're right. The bidding activity is increasing, and we're working on a few large items. And we do expect to land a few of them.

Our next question will come from Sam Rebotsky of SER Asset Management.

Tell me, in the quarter's operating profit, it was off about $300,000 from the same period, and you feel you've sort of started to turn it around, where the operating profit will improve going forward?

Sequentially, quarter-over-quarter, yes, that's correct.

Okay. And as far as Brazil is concerned, to help eliminate the problems that you had, is there any way that you could bid a contract based on certain time frames? Or is there other people that are bidding against you that stand to come in based on prices subsequently? Because it seems that Brazil took advantage over the situation, and -- so is there any way you could bid a contract based on certain months of taking the product, et cetera?

The short answer is no, and I'll explain why. These large agencies put out specs -- they put out a tender for a bid with their specs on it. You bid according to their specs. And if you say, "Well, how about if we change this or we change that," they won't accept it. You respond to their specs or you don't bid at all. And there was no room -- I've asked that same question many times, unfortunately. There was just no room to change anything. And it's a little unusual to have the situation that we did with the Navy. It was so drawn out. Normally, if they hadn't had their budget funding problem, we would have gotten a PO back last April, and none of this probably would have happened and everybody would have been happy. This is a little unusual that they put out a bid and then they had, essentially, the rug pulled out from them by their own Brazil government. But the Brazilian government right now is looking to weaken the currency, I would say, which is not good for us. We're better off when the currency gets stronger. A weaker currency helps exporters. And we essentially sell in Brazil, but we import our -- our costs are largely imported with the fabric. So we are essentially an importer for the fabric. So a stronger Brazilian currency benefits us greatly, and at this point, it's clear the Brazilian government policy is a gradually weakening currency.

And as far as competition, how many other people would have been bidding for this Brazilian contract?

That depends on where you are. The fire gear has one set of competitors, and the fire-resistant coveralls and utilities have a different one. But there's 2, 3, possibly 4 bidders, and that's about it. You have to be capable of making this quantity and have the capital and resources and the technical expertise to bid on these things. So there's only -- for each one of these, there's maybe 3 or 4 competitors. That's all. Very limited.

Okay. Now as far as the sales, the fourth quarter last year was $20 million, and you've been running the $24 million, $25 million previously. So is it fair to say that you're ready to keep doing the kind of sales you've been doing now? That the fourth quarter is -- is it typically normal like the current one? Or is there -- and expect to improve with improvements? Or what's your thoughts going forward?

We expect the sequential improvement quarter-over-quarter, not year-over-year but quarter-over-quarter sequentially.

Proviso to that is that we do see the U.S. economy slowing down because of this fiscal cliff dilemma. A lot of people are not spending money. They are sitting back, waiting for a resolution in Washington. And when I talk to some of the international markets, they're doing the same thing. They're all sitting on their hands, waiting for the U.S. Congress to do something.

Okay. And is our inventory -- do we expect to reduce the inventory further? And what is the -- based on the oil and various other prices, is our inventory expected to increase? Or what do we expect on the inventory going forward?

We're looking at a further reduction. I think $2 million is certainly realistic. We'd like to do a bit more than that, but I can safely plan on $2 million, I think, over the next 9 months.

We are going to constantly make a real effort to reduce inventory, but we don't want to discount it to do it. I mean, we want to be able to report good profits, and one way of not reporting good profits is to go and discount the inventory. So it's finding a fine line of slowly moving that inventory out and you're getting a profit on it, rather than just saying, "Oh, we're going to dump it all at 50% to create cash and then take a $2 million loss."

Okay. And as far as the -- are the employees, the officers, allowed to buy stock, or as long as Raymond James is doing what they're doing, this will be a quiet period and nobody could buy or sell?

That is correct. We're in a quiet period, no question about it.

And is there a timetable for Raymond James to do what they're doing? Do they have an engagement for x period? Or is it just where you keep...

Very clever asking that question around. I can't comment on that.

Okay. Well, hopefully, you do something that people feel more comfortable in buying the stock. Even though everybody is complimenting you, when we look at the 5 -- the 10-Q, there's just about every negative that could happen as a qualification. But it'll be nice if you can put some positives in there to achieve.

I think come January 1, the stock will start reacting differently. I mean, if I was a typical stockholder, I might be selling for tax loss purposes in the last month or 2.

And at this time, showing no additional questions in the queue, this will conclude our question-and-answer session. I would like to turn the call back over to Mr. Ryan for his closing remarks.

Okay. We appreciate your participation on Lakeland's fiscal 2013 Third Quarter Financial Results Conference Call. As we are committed to delivering value for our shareholders, we believe Lakeland will continue to effectively manage its balance sheet, control expenses and execute its strategy for long-term growth. Thanks again, and goodbye.

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.