-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IgGnvuvj1F4/9Jy8aa2bT19bqWjyvU/euSpyHluVio0RrR8WeAyPrZRgcX6V8/ra iAZTrKmwuhGDtu0BFZdO1w== 0000889812-96-000382.txt : 19960613 0000889812-96-000382.hdr.sgml : 19960613 ACCESSION NUMBER: 0000889812-96-000382 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960131 FILED AS OF DATE: 19960426 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAKELAND INDUSTRIES INC CENTRAL INDEX KEY: 0000798081 STANDARD INDUSTRIAL CLASSIFICATION: 3842 IRS NUMBER: 133115216 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15535 FILM NUMBER: 96551555 BUSINESS ADDRESS: STREET 1: 711-2 KOEHLER AVENUE CITY: RONKONKOMA STATE: NY ZIP: 11779 BUSINESS PHONE: 5169819700 MAIL ADDRESS: STREET 1: 711- 2 KOEHLER AVENUE STREET 2: 711- 2 KOEHLER AVENUE CITY: RONKONKOMA STATE: NY ZIP: 11779 10-K 1 ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10 - K (Mark one) X ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES ---- EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended, January 31, 1996 OR ____ TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required) For the transition period from _____________ to ______________ Commission File Number: 0 - 15535 LAKELAND INDUSTRIES, INC. ----------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 13-3115216 (State of Incorporation) (I.R.S. Employer Identification Number) 711-2 Koehler Ave., Ronkonkoma, NY 11779 (Address of Principal Executive Offices, Including Zip Code) (516) 981-9700 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $.01 Par Value ------------------------------------------------------------- (Title of class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S - K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10 - K or any amendment to this Form 10 - K _____. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ The aggregate market value of the Common Stock outstanding and held by nonaffiliates (as defined in Rule 405 under the Securities Exchange Act of 1934) of the Registrant, based upon the average high and low bid price of the Common Stock on NASDAQ on April 22, 1996 was approximately $4,868,979 (based on 1,498,378 shares held by nonaffiliates). The number of shares outstanding of the Registrant's common stock, $.01 par value, on April 26, 1996 was 2,550,000. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended January 31, 1996 are incorporated by reference in Items 5 - 7 of Part II and certain portions of the Registrant's Definitive Proxy Statement, for the Annual Meeting of Stockholders to be held June 19, 1996, are incorporated by reference in Items 10 - 13 of Part III of this Annual Report on Form 10 - K. PART I ITEM 1. BUSINESS Lakeland Industries, Inc. (the"Company") is a company with five divisions and three wholly-owned subsidiaries: One large division of the Company manufactures disposable / limited use garments and its four smaller divisions, Chemland ("Chemland"), manufactures suits for use by toxic waste clean up teams; Fireland ("Fireland") d/b/a Fyrepel Products, manufactures fire and heat protective apparel and protective systems for personnel; Highland ("Highland"), manufacturers specialty safety and industrial work gloves and Uniland ("Uniland"), manufactures industrial and medical woven cloth garments. A predecessor corporation of the Company was incorporated in New York in April 1982. In September 1986, the Company completed its initial public offering for 950,000 shares of common stock at $6.75 per share. The Company formed two new subsidiaries in December 1986, Chemland and Fireland (both Delaware corporations), which purchased the assets and certain liabilities of Siena Industries, Inc. and Fyrepel Products, Inc., respectively, both located in Ohio. Chemland, Fireland, Highland and Uniland were all formerly wholly-owned subsidiaries of the Company. Highland was merged into the Company on June 30, 1993 and Chemland, Fireland and Uniland were merged into the Company on August 31, 1993. A new subsidiary Fireland Industries, Inc. was formed during fiscal 1994 to hold the land and building currently owned in Ohio and act as Trustee and Sponsor of the Fireland Industries, Inc. Pension Plan. During fiscal 1988, the Company formed two new subsidiaries, Highland (a Delaware corporation) which opened an office and warehouse in Edison, New Jersey and Mayer (a Delaware corporation), formed to purchase the assets of Walter H. Mayer & Co., located in Chicago, Illinois. Later that year, a subsidiary, Uniland (an Arkansas corporation), opened a 30,000 square foot manufacturing facility in St. Joseph, Missouri. During fiscal 1989, a former subsidiary, Triland Mfg.Co., Inc. ("Triland", a New Jersey corporation), was merged into Highland on January 31, 1989. Highland's warehousing and manufacturing were relocated to Alabama (from New Jersey) while the administrative operations were absorbed by the Company in New York. Uniland's Arkansas facility was relocated to the larger facility in St. Joseph, Missouri. During fiscal 1990, Chemland moved its small chemical suit manufacturing facility in Coshocton, Ohio to Somerville, Alabama and opened a larger facility in Coshocton to replace the firecoat manufacturing previously done in St. Joseph, Missouri. A former subsidiary Ryland Mfg., Inc. ("Ryland", an Alabama corporation) was merged into the Company as of January 31, 1990 to eliminate duplication of record keeping. During fiscal 1991, Chemland closed its Coshocton, Ohio facility due to manufacturing inefficiencies and Uniland was reorganized as a Delaware corporation. On December 11, 1990, the Company's subsidiary, Mayer sold substantially all of the operating assets of its health care and hospitality divisions to a private investor group located in Charlotte, North Carolina. Pursuant to the terms of the Asset Purchase Agreement, Mayer's name was changed to Oakdale Distribution Company, Inc. Oakdale Distribution Company, Inc. was later merged into the Company on January 31, 1992. Cash proceeds received at closing were utilized to pay down bank indebtedness of the Company under a revolving credit facility. During fiscal 1993, in-house manufacturing was phased out at Fireland's Ohio facility. Additionally, Highland relocated from the Decatur, Alabama plant to share space with Chemland which has a larger facility in Somerville, Alabama. During fiscal 1994, the Company entered into a new, $5 million, secured, two year revolving credit agreement with a bank replacing a $3.4 million line which was due to expire in November 1993. During fiscal 1995 (December 1994), Lakeland Protective Wear, Inc. was formed and opened an office with warehouse facilities in Burlington, Ontario to serve the Canadian market. The Company markets and sells all the products manufactured by the Lakeland group of companies through a network of safety and industrial distributors, including a national distributor with over 100 branches. As the NAFTA Trade Agreement continues to be implemented with duties and tariffs being reduced each year, the trade borders will be eliminated, offering the possibility of this facility to also service the northeast U.S. market. During fiscal 1996 (November 1995) Lakeland de Mexico S.A. de C.V. was formed, as a wholly owned subsidiary, to assemble disposable/limited use garments on a contract basis. The Company also entered into a new $8 million, secured, three year revolving credit agreement with its Bank, to replace its existing loan facility which was about to expire. Background and Market The market for disposable industrial garments has increased substantially in the past 20 years. In 1970, Congress enacted the Occupational Safety and Health Act ("OSHA"), which requires employers to supply protective clothing in certain work environments. At about the same time, DuPont developed Tyvek TM which, for the first time, allowed for the economical production of lightweight, disposable protective clothing. The attraction of disposable garments grew in the late 1970's with the increases in both labor and material costs of producing cloth garments and the promulgation of federal, state and local regulations requiring that employees wear protective clothing to protect against exposure to certain contaminants, such as asbestos and P.C.B.s. During the second half of 1989, polypropylene materials became a major competitor to Tyvek TM. Beginning in the second quarter of fiscal 1990 the Company encountered erosions in margins in its disposable garment business due to a movement by asbestos removal contractors away from Tyvek TM materials to polypropylene materials and concomitant pricing pressures in the industry as a whole. The industry pricing pressures, most intense during the fourth quarter of fiscal 1990, continued through fiscal 1991. While the Company was able to maintain its sales volume at a level comparable to fiscal 1989, a substantial portion of fiscal 1990 and 1991 sales were of polypropylene garments in lieu of Tyvek TM garments; resulting in reduced gross profit margins. During fiscal 1991, the Company attempted to increase selling prices, however, these new selling prices were still below those of prior years. During fiscal 1992, the erosion in gross margins began to stabilize. However, competition and recessionary economic conditions adversely affected sales volume, especially during the second half of fiscal 1992 and into fiscal 1993 and 1994. The use of disposable garments avoids the continuing costs of laundering and decontaminating woven cloth work garments and reduces the overhead costs associated with handling, transporting and replacing such garments. As manufacturers have become aware of the advantages of disposable clothing, the demand for such garments has increased. This has allowed for greater production volume and, in turn, has reduced the cost of manufacturing disposable industrial garments. With the acquisition of the assets and certain liabilities of Fyrepel Products, Inc., the Company entered, via Fireland, into the field of manufacturing and selling fire and heat protective garments. Fyrepel Products, Inc. conducted business in this field for 40 years, and the Company acquired its assets as well as the right to use its trade name. During fiscal 1992, the Company re-evaluated the product lines manufactured at this facility in order to reduce the operating losses that occurred in prior fiscal years. Orders that would not assure an acceptable return were not booked, causing a decrease in overall sales, but an improved bottom line. A new management team was in place at this facility to initiate a turn around. In December 1991, it was determined that even with the efforts of this new team it was apparent that the Ohio facility would be negatively affected by union related problems. The Company continued to market Fyrepel's product line and furnishes these products utilizing domestic or international independent manufacturing contractors while internal manufacturing was phased out. Chemland was formed in December 1986 to purchase the assets and certain liabilities of Siena Industries, Inc. Chemland manufactures protective garments for use in hazardous chemical environments. All of its products are sold through the Company's distributor network. The Company believes that this market will grow due to the extensive government legislation which mandates the clean up of toxic waste sites and the elimination of hazardous materials from the environment. The Environmental Protection Agency ("EPA") designated OSHA to be responsible for the health and safety of workers in and around areas of hazardous materials and contaminated waste, OSHA responded by formulating an all encompassing compendium of safety regulations that prescribe operating standards for all aspects of OSHA projects. Almost 2 million people are affected by OSHA Standards today. In 1990, additional standards proposed and developed by the National Fire Protection Association ("NFPA") and the American Society for Testing and Materials ("ASTM") were accepted by OSHA. NFPA Standard 1991 set performance requirements for total-encapsulating vapor-proof chemical suits and includes rigid chemical and flame resistance tests and a permeability test against 17 challenge chemicals. The basic OSHA Standards call for 4 levels of protection, A through D, and specify in detail the equipment and clothing required to adequately protect the wearer at corresponding danger levels. A summary of these four levels follows: NFPA 1991 / Level A calls for total encapsulation in a vapor-proof chemical suit with self-contained breathing apparatus ("SCBA") and appropriate accessories. Level B calls for SCBA or positive pressure supplied respirator with escape SCBA, plus hooded chemical resistant clothing (overalls, and long sleeved jacket; coveralls; one or two piece chemical-splash suit; or disposable chemical-resistant overalls. Level C requires hooded chemical-resistant clothing (overalls; two-piece chemical-splash suit; disposable chemical-resistant overalls). Level D is basically a work and/or training situation requiring minimal coverall protection. Highland, formed in 1987, was organized for the importation of high quality work gloves for sale primarily in retail outlets. Since another then subsidiary of the Company, Triland, was a manufacturer of industrial gloves, management combined the two operations as a cost saving measure. This merger was completed on January 31, 1989 and during fiscal 1990, the Company phased out the importation of retail gloves, concentrating solely on the manufacture of Kevlar TM and other industrial safety gloves. Products General Prior to acquiring Fyrepel Products, Inc. and Siena Industries, Inc. in December 1986, the Company's product line consisted principally of two product groups: disposable / limited use protective industrial garments and specialty safety and industrial work gloves. With the formation of Fireland and Chemland, the Company entered the field of fire, heat and chemical protective garments. The Company also manufactures and sells gloves made from Kevlar TM and Spectra TM, both high-strength fibers. These gloves provide the wearer with a high degree of protection against cuts and lacerations in a glove that is both lightweight and flexible. The Company anticipates strong demand for these gloves in the manufacturing and food service industries. Disposable / Limited Use Garments The Company manufactures a complete line of limited use protective garments. These garments are offered in coveralls, lab-coats, shirts, pants, hoods, aprons, sleeves and smocks. The Company offers these garments in a number of sizes and styles to fit the end users' needs. Limited-use garments can also be coated or laminated to increase splash protection against many inorganic acids, bases, and other liquid chemicals. Limited use garments are made from several non-woven fabrics including Tyvek (TM), Tyvek(R)QC, Tyvek/Saranex 23- P, Tychem 7500, Barricade, Tychem 9400, Tychem 10,000, Pyrolon FR, and Polypropylene materials and derivatives. The Company incorporates many seaming techniques depending on the level of hold-out needed in the end use application. Seam types utilized include standard serge seam, bound seam, and heat sealed seam. During fiscal 1995, the Company continued to market the Pyrolon(TM) flame retardant garments. Pyrolon garments meet the stringent requirements of NFPA 701. This material offers multiple benefits; replacing traditional bulky layers of clothing, reducing overall weight and reducing both inventory and storage and replacement costs. The Company's limited use garments range in price from $.50 for limited use shoe covers to approximately $12.00 for Tyvek/Saranex 23-P laminated hood and booted coverall. The Company's largest selling item, a standard white limited-use Tyvek coverall, costs the end user approximately $2.75 to $3.25 per garment. By comparison, similar re-usable cloth coveralls range in price from $10.00 to $35.00, exclusive of significant laundering and maintenance expenses. Industrial and Medical Cloth Garments The Company also manufactures and markets a line of reusable and launderable woven cloth protective apparel which supplement the disposable / limited use garments, giving the Company access to the broader industrial and health care related markets. Cloth re-usable garments are more appropriate in certain situations because of their heavier weight and greater durability which gives the Company the flexibility to supply and satisfy a wider range of safety and customer needs. The Company also designs and manufactures: o special apparel for the auto industry's paint systems, o hospital garments for protection against blood borne pathogens, o clean room apparel as used in the most sophisticated semiconductor manufacturing facilities, and o jackets and bib overalls for use by emergency medical teams around the country. Safety and Industrial Gloves The Company manufactures and sells specialty safety gloves and sleeves made from Kevlar TM. The Company is one of four companies licensed to sell 100% Kevlar TM gloves. Kevlar TM is a cut and heat resistant, high-strength, lightweight, flexible and durable material produced by DuPont. Kevlar TM, on an equivalent weight basis, is five times stronger than steel and has increasingly been used in manufacturing such diverse products as airplane fuselage components and bullet-resistant vests. Gloves made of Kevlar TM offer a better overall level of protection, lower the injury rate and are more cost effective than work gloves made from such traditional material as leather, canvas and coated gloves. Kevlar TM gloves can withstand temperatures of up to 400 degrees F and are sufficiently cut-resistant to allow workers to safely handle sharp or jagged unfinished sheet metal. Kevlar TM gloves are used primarily in the automotive and metal fabrication industries. The Company also markets approximately 30 different types of commodity industrial work gloves to a small extent made from such materials as cotton, polyester, terry cloth and nylon. Sales of these commodity gloves are used to augment the Company's product line. Kevlar TM gloves and sleeves represent a large portion of the Company's glove production and therefore a majority of the Company's dollar volume of glove and sleeve sales. The Company has been manufacturing and selling knit gloves and sleeves made of Spectra TM since 1989. The Company expects the continued demand for these gloves to increase as users become familiar with the cut resistance and versatility of these gloves. New markets are continuously being explored for these gloves whose sales account for less than 10% of the Company' dollar volume of glove and sleeve sales. The Company phased out its importation of gloves for distribution into retail sales channels during 1989 to concentrate on the more profitable manufactured gloves. The Company is devoting an increasing portion of its manufacturing capacity to the production of Kevlar TM and Spectra TM gloves, which carry a higher profit margin than commodity gloves. In order to maintain a full line of gloves, however, the Company intends to continue to produce commodity gloves and to import such additional commodity gloves as are necessary to meet demand for its glove products. The Company believes that there are adequate and reliable foreign manufacturers available to meet the Company's import requirements of commodity gloves, if needed. Fire and Heat Protective Apparel and Protective Systems for Personnel The Company's products protect individuals that must work in hostile environments and the Company has been the creator, innovator and inventor of protective systems for hazardous occupations for the last 12 years. The brand name FYREPEL TM is recognized nationally and internationally. The Company has completed an intensive redesign and engineering study to address the ergonomic needs of stressful occupations. The Company's products include: Fire entry suit - for total flame entry for industries dealing with volatile and highly flammable products. Kiln Entry suit - to protect kiln maintenance workers from extreme heat. Proximity suits - designed for performance in high heat areas to give protection where exposure to hot liquids, steam or hot vapors is possible. Approach suits - for personnel engaged in maintenance, repair and operational tasks where temperatures do not exceed 200F degrees ambient, with a radiant heat exposure up to 2,000F degrees. The Company also manufactures Fire Fighters Protective Clothing for domestic and foreign fire departments and developed the popular Sterling Heights style (short coat and bib pants) bunker gear. Crash Rescue has been a major market for the Company, which was the first to produce and supply military and civilian markets with protection worn at airports, petrochemical plants and in the marine industry. Each of the fire suits range in cost to the end user from $450 for a standard fire department turn-out gear to $2,000 for the fire entry suit. The Company anticipates continuing growth and emphasis in the industrial fire market and the international markets. With greater emphasis being placed on the globalization of the industrial manufacturing capacity, it is expected that the Company's products will receive more attention and will be in grater demand worldwide. Chemical Protective Garments The Company manufactures heavy duty fully encapsulated chemical suits which are made of Viton TM, butyl rubber, polyvinylchloride ("PVC") TyChem TM and Teflon TM. These suits are worn to protect the user from exposure to hazardous chemicals. Hazardous material teams or individuals use chemical suits for toxic cleanups, chemical spills, or in industrial and electronic plants. The Company also makes a line of lighter weight chemical suits using such materials as Saranex-coated Tyvek TM and Barricade TM, both DuPont products. The Company's line of chemical suits range in cost from $25 for the Saranex-coated Tyvek suits to $3,400 for the Teflon suits. The chemical suits can be used in conjunction with a fire protective shell manufactured by the Company which will protect the user from both chemical and fire hazards. During the fourth quarter of fiscal 1991, the Company introduced two new NFPA approved garments: Forcefield TM - A lightweight hazmat suit, totally encapsulized providing greater mobility, visibility, dependability and versatility in dealing safely and effectively with most types of chemical hazards. This product meets NFPA 1991 standards for a fully certified chemical protective suit. When combined with an Aluminized PBI/Kevlar over cover, it provides NFPA 1991 / Level A protection; Interceptor TM - Model A meets all OSHA Level A requirements as a vapor-proof suit. Model 1 meets and exceeds NFPA 1991 requirements of certification for vapor-proof suit when used with an Aluminized PBI / Kevlar over cover. The Company also manufactures and sells a Level B worksuit called Checkmate TM. This suit is lightweight, tough, versatile, durable and cost effective and can be used for: splash protection, basic clean up, toxic waste dumps and post fire monitoring of toxic residue. Manufacturing Disposable / Limited Use Garments The Company manufactures its disposable / limited use garments primarily at its Decatur, Alabama facility. The fabric is first cut into required patterns at the Company's own plant. The cut fabric and any necessary accessories, such as zippers or elastic, are then obtained at the Company's plant by independent sewing contractors. These contractors sew and package the finished garments at their own facilities and return them to the Company's plant, normally within one week for immediate shipment to the customer. This quick turn-around time enables the Company to operate with relatively low inventory levels of finished goods. The Company presently utilizes over 90 independent sewing contractors under agreements that are terminable at will by either party. These contractors employ approximately 1,000 people full-time (both domestically and internationally) and operate and maintain their own industrial sewing machines. The Company believes that it is the only customer of the majority of its independent sewing contractors and considers its relations with such contractors to be excellent. In the year ended January 31, 1996 two independent sewing contractors accounted for more than 10% of the Company's production of disposable / limited use garments. The Company believes that it can obtain adequate alternative production capacity should any of its independent contractors become unavailable. The Company believes that its manufacturing system permits it considerable flexibility. Through the use of independent sewing contractors, the Company has achieved its current level of production on a relatively small capital investment. Furthermore, by employing additional sewing contractors, the Company can increase production without substantial additional capital expenditures. While the Company has not experienced reduced demand for its disposable / limited use garments, management believes that by its use of independent sewing contractors, the Company is capable of reducing or alternately increasing its production capacity without incurring large on-going costs typical of many manufacturing operations. Industrial and Medical Woven Garments The Company manufactures and sells woven cloth garments at its facility in Missouri. After the Company receives fabrics from suppliers, principally blends of polyester and cotton, the Company cuts and sews the fabrics at its own facilities to meet customer purchase orders. Some of the items manufactured at this facility are static-free clean room garments, coveralls, lab coats, shirts, pants, jackets, protective covers for industrial robots and other garments. Fire and Heat Protective Apparel Prior to 1992, the Company solely manufactured fire and heat protective garments at its Newark, Ohio facility, which facility was subsequently sold. Independent manufacturing contractors have been utilized subsequently. The Company receives fabric from its suppliers and sends it to the contractor who cuts the fabric, assembles the suits, boxes the finished product and delivers it pursuant to customer purchase orders or to a warehouse. The fire and heat protective suits are manufactured to the purchaser's specifications and delivered upon completion. Chemical Protective Garments The Company manufactures chemical protective clothing at its facility in Somerville, Alabama. After the Company obtains such materials as Saranex-coated Tyvek TM, Barricade TM, TyChem TM, Viton TM, butyl rubber and PVC, it designs, cuts, glues and/or sews the materials to meet customer purchase orders. Forcefield suits (a Teflon level A sophisticated chemical suit) and the Interceptor line of suits, used by hazardous materials response teams have been developed internally to provide chemical protection at the highest level of barrier available today. Safety and Industrial Work Gloves The Company also manufactures gloves at its Somerville, Alabama facility. Computerized robotic knitters are used to weave gloves from both natural and synthetic materials, including Kevlar TM and Spectra TM, on an automatic basis. These robotic knitters are generally in operation 20 hours a day, 5-1/2 days a week. The Company's robotic knitters allow flexibility in production as they can be easily reprogrammed in minutes to produce gloves and sleeves in different sizes, styles, weights, weaves or combinations of materials. Additionally, these robotic knitters can produce gloves and sleeves separately or as a one-piece garment. Gloves and sleeves can also be knitted in different weights and combinations of yarns, such as Kevlar TM mixed with cotton or polyester. Additional processing is sometimes provided by independent sewing contractors. The acquisition of a glove dotting machine, during fiscal 1992, allowed the Company to eliminate the cost of out-of-factory processing. Quality Control To assure quality, Company employees monitor the sewing of disposable / limited use garments at the facilities of the independent sewing contractors and also inspect the garments upon delivery to the Company's facilities. Finished product that is below standard is returned to the contractor for reworking. The Company has rarely been required to return product to its independent sewing contractors. The Company also actively participates in the Industrial Safety Equipment Association's (ISEA) frequent independent quality inspection programs. The Company conducts quality control inspections of its industrial gloves, cloth, fire and chemical garments throughout the manufacturing process. Marketing The Company markets and sells its products through a minimum of 22 independent manufacturers' representatives. The Company believes that these representatives constitute one of the largest and most sophisticated independent sales force in its industry. These independent representatives call on over 500 safety and industrial distributors nationwide and promote and sell the Company's products to these safety and industrial distributors and provide product information. The distributors buy the Company's products and maintain inventory at the local level in order to assure quick response time and the ability to serve accounts properly. During the year ended January 31, 1996, no one distributor accounted for more than 5% of sales. Fire, heat and chemical suits were sold through the sales force which was previously used by Fyrepel Products, Inc. and Siena Industries, Inc. Starting in fiscal 1989, the Company increased sales of these products by having them sold through the Company's entire sales network. During fiscal 1992, Fireland ceased using independent sales representatives, utilizing in house personnel only. Products are sold to the steel industry, aluminum industry, nuclear industry, utilities, refineries, chemical industry, ammunition plants, automotive, glass industry and fire departments. Highland uses independent sales representatives, exclusively. The Company's marketing plan is to maximize the efficiency of its established distribution network by direct promotion at the end-user level. Advertising is primarily through trade publications. Promotional activities will include sales catalogs, mailings to end users and a nationwide publicity program. The Company exhibits at both regional and national trade shows and was represented at the National Safety Congress in Dallas, TX (Fall of 1995) and will be represented at the American Industrial Hygienists Convention (Spring of 1996). Suppliers and Materials The Company does not have long-term, formal agreements with unaffiliated suppliers of non-woven fabric raw materials used by the Company in the production of its disposable garments. Tyvek TM, Tychem TM and Kevlar TM, however, are purchased from DuPont under licensing agreements; Polypropylene is available from ten or more major mills; flame retardant fabrics are also available from a number of both domestic and international mills. The accessories used in the production of the Company's disposable garments such as zippers, snaps and elastics are obtained from unaffiliated suppliers. The Company has not experienced difficulty in obtaining its requirements for these commodity component items. The Company has not experienced difficulty in obtaining materials, including cotton, polyester and nylon, used in Highland's production of commodity gloves. Kevlar TM, used in the production of the Company's specialty safety gloves, is obtained from independent mills that purchase the fiber from DuPont. The Company has not experienced difficulty in obtaining its requirements for Kevlar TM. The Company obtains the Spectra yarn used in its Dextra Guard gloves from mills that purchase the fiber from Allied Signal Company, Inc. ("Allied"). The Company believes that Allied will be able to meet the Company's needs for Spectra. In manufacturing its fire and heat protective suits, the Company uses glass fabric, aluminized glass, Nomex TM, aluminized Nomex TM, Kevlar TM, aluminized Kevlar TM, polybenzimidazole (PBI) as well as combinations utilizing neoprene coating. The chemical protective suits are made of Viton TM, butyl rubber, PVC, proprietary patented laminates, Teflon TM, Saranex TM coated Tyvek TM, TyChem TM and Barricade TM from DuPont. The Company has not experienced difficulty obtaining any of the aforementioned materials. Competition Competition in the market for all of the Company's products is intense, more so in the five most recent fiscal years than in previous fiscal years. The Company competes with a large number of domestic and foreign companies, public and private, some of which are larger and have substantially greater financial resources. Competition within the industry is on the basis of price, quality, timely delivery, consistency of product, and support services to distributors and end users. Beginning in the third quarter of fiscal 1990, intense competition in the disposable garment business drove margins on non- Tyvek TM garments down. This competition and the concomitant sales price erosion noted earlier continued through fiscal 1993. However, small price increases on the core Tyvek disposable line in February of 1993, 1994 and 1996 have and should continue to result in gross margin increases. Management continued to take steps to reduce the Company's manufacturing costs and overhead in order to improve operating results in fiscal 1996. The Company continues to focus its efforts to increase sales and profitability of all products, and to redeploy its capital toward higher margin proprietary products. Seasonality Historically, more disposable garments are sold in spring and summer due to the asbestos abatement industry, which has its highest level of activity in the spring months. This does not materially affect the total sales of the Company. The fourth quarters of fiscal years 1990 and 1991 yielded the lowest sales volume of each fiscal year. However, during fiscal 1992 and 1993 the third quarter and second quarter, respectively, yielded the lowest sales volume. During fiscal 1994, 1995 and 1996, the third quarter was the only seasonally weak quarter. Patents and Trademarks At this time, there are no patents or trademarks which are significant to the Company's operations; however, the Company has one exclusive licensing arrangement covering seven patents in the Company's name and has one non- exclusive agreement with DuPont regarding patented materials used in the manufacture of chemical suits. Employees As of April 22, 1996, the Company had approximately 222 full-time employees and meets its manpower requirements at one division through an employee leasing agreement with Madison Manpower and Mobile Storage, Inc., the president and principal stockholder of which is also an officer of the Company. The Company has experienced a low turnover rate among its employees. The one former subsidiary that had been represented by a union phased out manufacturing and utilizes independent contract manufacturers. The Company believes its employee relations to be excellent. ITEM 2. PROPERTIES The Company leases three manufacturing facilities, one warehouse facility and a corporate office headquarters. The Company's 90,308 square foot facility in Decatur, Alabama, is used in the production of disposable / limited use garments. The Alabama facility is leased entirely by the Company from a partnership consisting primarily of certain stockholders of the Company, pursuant to two lease agreements expiring on August 31, 1999. Chemland and Highland lease 12,000 sq. ft. of manufacturing space, each, on a month to month basis in Somerville, Alabama. This Somerville facility is owned by an officer of the Company. The Company leases 30,000 square feet of manufacturing space in St. Joseph, Missouri used in the manufacturing of woven cloth garments and other cloth products. This lease expires on November 11, 1996. Additionally, a 4,000 square foot warehouse facility is leased for a one year period expiring in July 1996. Both leases are expected to be renewed prior to expiration. The Company leases 4,362 square feet of office space in Ronkonkoma, New York, in which its corporate, executive and sales offices are located. This lease expires on June 30, 1999. For the year ended January 31, 1996, the Company paid total rent on property and all leased equipment of approximately $490,000 on a net basis. The Company believes that these facilities are adequate for its present operations. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are involved as plaintiffs in certain receivable collection actions and claims arising in the ordinary course of business, none of which are of a material nature. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders of the Company. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Reference is made to Page 4 ("Market for the Registrant's Common Stock and Related Stockholder Matters") of the Registrant's 1996 Annual Report to Shareholders filed as an exhibit hereto, which information is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Reference is made to Page 2 ("Selected Financial Data") of the Registrant's 1996 Annual Report to Shareholders filed as an exhibit hereto, which information is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Reference is made to Page 3 ("Management's Discussion and Analysis of Financial Condition and Results of Operation") of the Registrant's 1996 Annual Report to Shareholders filed as an exhibit hereto, which information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following Consolidated Financial Statements are incorporated herein by reference to Pages 5 to 22 of the Registrant's Annual Report to Shareholders for the year ended January 31, 1996: Consolidated Balance Sheets as of January 31, 1996 and 1995 Consolidated Statements of Operations and Retained Earnings for the years ended January 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended January 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See the information under the caption "Election of Directors" in the Company's Proxy Statement relating to the 1996 Annual Meeting of Stockholders ("Proxy Statement"), which information is incorporated herein by reference. The following table sets forth the names and ages of all executive officers of the Company, and all positions and offices within the Company presently held by such executive officers. None of the directors, executive officers or nominees for director has any family relationship with any other director, executive officer or nominee for director of the Company. Name Age Position Held - - ---- --- ------------- Raymond J. Smith 57 Chairman of the Board, President and Director Christopher J. Ryan 44 Executive Vice President - Finance & Secretary and Director Harvey Pride, Jr. 49 Vice President - Manufacturing James M. McCormick 48 Vice President and Treasurer Mr. Smith, a co-founder of the Company, has been Chairman of the Board and President since its incorporation. Prior to 1982, he was employed for 16 years by Disposables, Inc., a manufacturer of disposable garments, first as sales manager, then as Executive Vice President and subsequently as President and Director. Mr. Christopher J. Ryan has served as Executive Vice President- Finance and director since May, 1986 and Secretary since April 1991. From October 1989 until February 1991 Mr. Ryan was employed by Sands Brothers, Mitchell Co. Ltd. and Rodman & Renshaw, Inc., both investment banking firms. Prior to that, he was an independent consultant with Laidlaw Holding Co., Inc., an investment banking firm, from January 1989 until September 1989. From February, 1987 to January, 1989 he was employed as the Managing Director of Corporate Finance for Brean Murray, Foster Securities, Inc. Mr. Pride has been Vice President of the Company since May 1986. He was Vice President of Ryland (the Company's former subsidiary) from May 1982 to June 1986, and President of Ryland until its merger into Lakeland on January 31, 1990. Mr. McCormick has been Vice President and Treasurer since May 1986. Between January 1986 and May 1986 he was the Company's Controller. ITEM 11. EXECUTIVE COMPENSATION See information under the caption "Compensation of Executive Officers" in the Company's Proxy Statement, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See the information under the caption "Voting Securities and Stock Ownership of Officers, Directors and Principal Stockholders" in the Company's Proxy Statement, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the information under the caption "Certain Relationships and Related Transactions" in the Company's Proxy Statement, which information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Index to Consolidated Financial Statements and Schedules: (1) Financial Statements: The following Consolidated Financial Statements of the Registrant are incorporated herein by reference to the Registrant's Annual Report to Shareholders for the year ended January 31, 1996, as noted in Item 8 hereof: Accountant's Report Consolidated Balance Sheets as of January 31, 1996 and 1995 Consolidated Statements of Operations and Retained Earnings for the years ended January 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended January 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements (2) Financial Statement Schedule: Schedule for the years ended January 31, 1996, 1995 and 1994: II - Valuation and Qualifying Accounts All other schedules to the Consolidated Financial Statements are omitted because the required information is inapplicable or has been presented in the consolidated financial statements or related notes thereto. (b) Reports on Form 8 - K. No report on Form 8 - K has been filed for the Quarter ended January 31, 1996. (c) Exhibits: 3 (a) Restated Certificate of Incorporation* 3 (b) By-Laws, as amended* 10 (a) Lease agreements between POMS Holding Co., as lessor, and the Company, as lessee, dated January 1, 1995 10 (b) Lease agreement between Central Life Assurance Company, as lessor, and the Company, as lessee, dated September 10, 1987. (Incorporated by reference to the Company's Form 10 - K for the year ended January 31, 1988). 10 (c) The Company's Stock Option Plan* 10 (d) Asset Purchase Agreement, dated as of December 26, 1986, by and among the Company, Fireland, Fyrepel Products, Inc. and John H. Weaver, James R. Gauerke and Vernon W. Lenz** 10 (e) Asset Purchase Agreement, dated as of December 26, 1986, by and among the Company, Chemland, Siena Industries, Inc. and John H. Weaver, James R. Gauerke, Eugene R. Weir, John E. Oberfield and Frank Randles** 10 (f) Asset Purchase Agreement, dated September 30, 1987 by and among the Company and Walter H. Mayer & Co. (Incorporated by reference to the report on Form 8 - K filed by the Company on October 14, 1987.) 10 (g) Employment agreement between the Company and Raymond J. Smith, dated September 7, 1994 10 (h) Employment agreement between the Company and Harvey Pride, Jr., dated January 31, 1995 10 (i) Lease between Lakeland Industries, Inc. and JBJ Realty, dated April 11, 1994 10 (j) Asset Purchase Agreement, dated November 19, 1990 by and among the Company, Mayer and WHM Acquisition Corp. (Incorporated by reference to the report on Form 10 - Q for the quarter ended October 31, 1990, filed by the Company on December 14, 1990). 10 (k) Employment agreement between the Company and Christopher J. Ryan, dated February 1, 1995. 10 (l) Loan agreement dated August 30, 1995 between the Company and its bank (Incorporated by reference to the report on Form 10 - Q for the quarter ended October 31, 1995). 10 (m) Consulting and License Agreements between the Company and W. Novis Smith dated December 10, 1991. 10 (n) Agreement dated June 17, 1993 between the Company and Madison Manpower and Mobile Storage, Inc. 11 Consent of Grant Thornton LLP dated April 25,1996*** 13 Annual Report to Shareholders for the year ended January 31, 1996 20 Proxy Statement of the Registrant for Shareholders' Meeting - June 19, 1996 22 Subsidiaries of the Company (wholly-owned): Fireland Industries, Inc. Lakeland Protective Wear Inc. Lakeland de Mexico S.A. de C.V. All other exhibits are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. ________________________ * Incorporated by reference to Registration Statement on Form S - 18 on file with the Securities and Exchange Commission No.33-7512-NY. ** Incorporated by reference to report on Form 8 - K filed by the Company on January 9, 1987. *** Incorporated by reference to Registration Statement on Form S-8 on file with the Securities & Exchange Commission No. 33-92564 - NY. The Exhibits listed above (with the exception of the Annual Report to Shareholders) have been filed separately with the Securities and Exchange Commission in conjunction with this Annual Report on Form 10-K. On request, Lakeland Industries, Inc. will furnish to each of its shareholders a copy of any such Exhibit for a fee equal to Lakeland's cost in furnishing such Exhibit. Requests should be addressed to the Office of the Secretary, Lakeland Industries, Inc., 711-2 Koehler Avenue, Ronkonkoma, New York 11779. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: April 26, 1996 LAKELAND INDUSTRIES, INC. By: /s/ Raymond J. Smith Raymond J. Smith, Chairman of the Board and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Name Title Date - - ---- ----- ---- /s/ Raymond J. Smith Chairman of the Board, Raymond J. Smith President and Director April 26, 1996 (Principal Executive Officer) /s/ Christopher J. Ryan Executive V.P.-Finance April 26, 1996 Christopher J. Ryan & Secretary and Director /s/ James M. McCormick Vice President and Treasurer April 26, 1996 James M. McCormick (Principal Financial and Accounting Officer) /s/ Eric O. Hallman Director April 26, 1996 Eric O. Hallman /s/ John J. Collins Director April 26, 1996 John J. Collins,Jr. /s/ Walter J. Raleigh Director April 26, 1996 Walter J. Raleigh Lakeland Industries, Inc. and Subsidiaries SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Additions ------------------------------ Balance at Charged to Charged to Balance at beginning costs and other end of of period expenses accounts Deductions period --------- ---------- ---------- ---------- ---------- Year ended January 31, 1996 Allowance for doubtful accounts (a) $375,597 $ 32,069 $144,901 (b) $262,765 ======== ========= ======== ======== Year ended January 31, 1995 Allowance for doubtful accounts (a) $516,757 $141,606 $282,766 (b) $375,597 ======== ========= ======== ======== Year ended January 31, 1994 Allowance for doubtful accounts (a) $593,070 $152,000 $228,313 (b) $516,757 ======== ========= ======== ========
(a) Deducted from accounts receivable. (b) Uncollectible accounts receivable charged against allowance. EX-11 2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS EXHIBIT 11 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated April 9, 1996, accompanying the consolidated financial statements and schedule incorporated by reference in the Annual Report of Lakeland Industries, Inc. and Subsidiaries on Form 10-K for the fiscal year ended January 31, 1996. We hereby consent to the incorporation by reference of said report in the Registration Statement of Lakeland Industries, Inc. and Subsidiaries on Form S-8 (File No. 33-92564, effective May 15, 1995). /s/ Grant Thornton LLP GRANT THORNTON LLP Melville, New York April 25, 1996 EX-13 3 1996 ANNUAL REPORT TO SHAREHOLDERS Dear Fellow Shareholders: I wanted to extend a traditional Lakeland welcome to you before highlighting our progress during the past fiscal year 1996. As promised, we continued to lay a strong financial foundation for your company, while adding plants and equipment to handle the additional business we are enjoying. Fiscal 1996 sales topped $40 million, an increase of more than $5 million (14.2%) over fiscal 1995. Net profits were $587,000 or 22(cents) a share. During fiscal 1996, according to our plan, necessary major expenses were incurred in several key areas. These expenses lowered the per share earnings, though I believe that the money was well-spent. A new 36,000 sq. ft. expansion was added to the main building in Decatur, Alabama. This additional space allows us to store increased amounts of both raw materials and finished goods, enabling us to shorten response time to customers' orders. It permitted us as well, to install a state of the art cutting operation. Though downtime and extra labor for moves inside the factory were costly, we have already seen material savings and a decrease in previous related labor costs. Teamed with this computerized cutting operation is a fully automated, computerized pattern and marking system that lets us monitor fabric costs while improving the quality of our products. Encouraging proof that these costs represent money well spent are requests coming from several multi-billion dollar companies outside our industry asking to observe what our people are doing in this area. Other expenses include the start up of our new factory in Celaya, Mexico. This move permitted us to take better advantage of the peso devaluation and augment our Mexican contractor network. Yet another highlight was our successful entry into the substantial Canadian market via our new subsidiary, Lakeland Protective Wear, Inc. Through this entity, we are able to introduce our full line of products and, though costly at first, we are now firmly "in the black". In summary, Lakeland opened its own factory in one foreign country, opened a distribution outlet in another, revamped and completely modernized its main operation, negotiated a favorable and increased corporate credit line, and finished fiscal year 1996 in a very strong cash position. Though, like any other C.E.O., I would like to take credit for all of these accomplishments, I must point to the unstinting hard work and dedication of our entire team of people who take understandable pride in seeing their company become successful. This dedication, coupled with the unflagging support of a dynamic board of directors, is the winning formula that will sustain our success in years to come. I wish to thank all of our employees and the board of directors for their full support this past year. Also, I wish to thank our shareholders for their encouragement. Lakeland's progress has been steady. We are investing constantly and with care to improve our competitive position today to ensure a profitable tomorrow. Sincerely, /s/ Raymond J. Smith Raymond J. Smith President SELECTED FINANCIAL DATA
(In thousands, except per share amounts) For the Years Ended January 31, 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- INCOME STATEMENT DATA: Net sales $40,189 $35,185 $30,143 $26,512 $25,829 Gross profit 6,288 6,346 4,763 3,885 4,081 Operating expenses (1) 4,882 4,704 4,739 4,281 4,377 Operating income (loss) 1,406 1,642 24 (396) (296) Income (loss) from continuing operations before provisions (benefits) for income taxes and cumulative effect of change in accounting principle 956 2,000 (137) (701) (433) Income (loss)from continuing operations before cumulative effect of change in accountingg principle 587 1,421 (278) (683) (328) Loss from discontinued operations (86) Cumulative effect of change in accounting principle (2) 241 Net income (loss) 587 1,421 (37) (683) (414) ======= ======= ======= ======= ======= Earnings (loss) per share: Continuing operations .22 .54 (.11) (.27) (.13) Discontinued operations (3) Cumulative effect of change in accounting principle .10 (.03) ------- ------- ------- ------- ------- Net earnings (loss) $.22 $.54 $(.01) $(.27) $(.16) ======= ======= ======= ======= ======= Weighted average common and common equivalent shares 2,637 2,641 2,550 2,550 2,550 BALANCE SHEET DATA (at end of year): Working capital $13,618 $7,190 $8,871 $5,008 $8,828 Total assets 19,263 15,562 13,103 13,157 13,848 Current liabilities 3,894 6,813 2,464 5,752 2,318 L/T liabilities 6,492 441 3,680 615 4,056 Stockholders' equity $8,762 $8,175 $6,754 $6,790 $7,474
- - -------------------------------------------------------------------------------- (1) Includes a write-off of $583,669 in Notes receivable due from one customer in 1994. (2) Effective February 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), which requires an asset and liability approach to accounting for income taxes. The cumulative effect as of February 1, 1993, of the adoption of SFAS No. 109, resulted in a fiscal 1994 benefit of $241,000 or $.10 per common share. Prior year's financial statements were not restated. (3) Reflects the December 11, 1990 sale of the assets of the Company's wholly-owned subsidiary Walter H. Mayer and Co., Inc. as a discontinued operation. This subsidiary was acquired on September 30, 1987. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General In November 1995, the Company formed a new wholly-owned subsidiary, Lakeland de Mexico S.A. de C.V. to assemble garments cut in the Company's Alabama facility. In August, 1995, the Company entered into a loan agreement with its existing bank which provides for a three year secured $8,000,000 credit facility. The increase in working capital at January 31, 1996 reflects the classification of this loan as a long-term liability. Fiscal Year Ended January 31, 1996 Compared to Fiscal Year Ended January 31, 1995 Net sales for the year ended January 31, 1996 increased $5,004,000 or 14.2% to $40,189,000 from $35,185,000 reported for the year ended January 31, 1995. Increased prices and unit shipments of various protective garment products are the principal reason for this upward movement in sales. This industry, however, continues to be highly competitive. Net sales increased 14.6% during the quarter ended January 31, 1996 as compared to the immediate preceding quarter, principally as the result of the Company's ability to maintain inventory levels to meet sales demand. Gross profit as a percentage of net sales decreased to 15.6% for the year ended January 31, 1996 from 18.0% reported for the prior year, principally due to the erosion of the price increase instituted at the beginning of the fiscal year. Both years were negatively affected as a result of the competitive and economic climate of the protective clothing industry. Margins decreased to 12.1% during the quarter ended January 31, 1996 as compared to the immediate preceding quarter as manufacturing difficulties were incurred during the fourth quarter. Operating expenses as a percentage of net sales decreased to 12.1% for year ended January 31, 1996 from 13.4% for the prior year, as sales continue to increase without a corresponding increase in general and administrative expenses. Interest expense increased as borrowings increased during the current year, while other income decreased as the prior year included a $625,000 law suit settlement. As a result of the foregoing, operating results decreased to net income of $587,000 for the year ended January 31, 1996 from net income of $1,421,000 for the year ended January 31, 1995. Fiscal Year Ended January 31, 1995 Compared to Fiscal Year Ended January 31, 1994 Net sales for the year ended January 31, 1995 increased $5,042,000 or 16.7% to $35,185,000 from $30,143,000 reported for the year ended January 31, 1994. Increased prices and unit shipments of various protective garment products are the principal reasons for this upward movement in sales. This industry, however, continues to be highly competitive. Net sales increased 10.1% during the quarter ended January 31, 1995 as compared to the immediate preceding quarter, principally as the result of competitors of the Company exiting the industry. Gross profit as a percentage of net sales increased to 18.0% for the year ended January 31, 1995 from 15.8% reported for the prior year principally due to strengthening margins on various protective garment products. Gross margins for the year ended January 31, 1994 were negatively affected by lost production at a mid-west facility due to flooding conditions and the relocation of another facility from Ohio to Alabama. Both years were negatively affected as a result of the competitive and economic climate of protective clothing industry. Margins decreased 9.7% during the quarter ended January 31, 1995 as compared to the immediate preceding quarter, as the Company identified approximately $266,000 of raw and finished goods inventory which did not have future utility. Operating expenses as a percentage of net sales decreased to 13.4% for the year ended January 31, 1995 from 15.7% for the corresponding period of the prior year. However, operating expenses for the year ended January 31, 1994 included the write-off of $583,669 (2.0% as a percentage of net sales) of long-term notes receivable, as described above. Other expenses - net, decreased as a result of a settlement of a lawsuit against the Company's prior legal counsel. As a result of the foregoing, operating results improved to a net income of $1,421,000 for the year ended January 31, 1995 from a net loss of $37,000 for the year ended January 31, 1994. LIQUIDITY AND CAPITAL RESOURCES Lakeland has historically met its cash requirements through funds generated from operations and borrowings under a revolving credit facility. On August 30, 1995, the Company entered into a new $8 million facility with its Bank. This facility matures on July 31, 1998. Interest charges under this credit facility are calculated on various optional formulas using the prime rate, LIBOR, banker's acceptances and letters of credit. The Company's January 31, 1996 balance sheet shows a strong current ratio and working capital position and management believes that its positive financial position, together with this new credit agreement, will provide sufficient funds for operating purposes for the next twelve months. IMPACT OF INFLATION Management believes inflation has not had a material effect on the Company's operations or its financial condition. There can be no assurance, however, that the Company's business will not be affected by inflation in the future. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Prior to September 9, 1986, there was no public market for the Company's Common Stock. On September 9, 1986, the effective date of the Company's initial public offering, the Company's Common Stock began trading in the over-the-counter market. On June 2, 1987, the Company's Common Stock began trading in the over-the-counter market as a National Market Issue. The Company's Common Stock trades on The Nasdaq Stock Market under the symbol "LAKE". It is listed in major publications under "Lakeland". The following table sets forth the high and low trade prices, as reported by NASDAQ for the last two fiscal years: Fiscal 1996 Fiscal 1996 High Low High Low ---- --- ---- --- First Quarter 6 1/8 4 3 1/8 2 5/8 Second Quarter 5 7/8 3 3/4 4 3/8 2 3/4 Third Quarter 4 7/8 3 1/4 4 5/8 3 1/8 Fourth Quarter 4 3/8 2 7/8 5 3 3/4 First Quarter fiscal 1997 4 1/4 3 3/16 (through April 18, 1996) The Company has never declared or paid a cash dividend on its Common Stock, and the Company has no present intention of declaring or paying any cash dividends on the Common Stock in the foreseeable future. The Company's revolving credit facility provides for certain restrictions that, at January 31, 1996 prohibited the Company from paying any cash dividends. As of April 19, 1996, there were 138 holders of record of the Common Stock of the Company. There are believed to be in excess of 500 beneficial shareholders in addition to those of record, since over 1 million shares are held in street name by Cede & Co. a large financial clearing house. REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Lakeland Industries, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Lakeland Industries, Inc. and Subsidiaries (the "Company") as of January 31, 1996 and 1995, and the related consolidated statements of operations and retained earnings and cash flows for each of the three years in the period ended January 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of January 31, 1996 and 1995, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended January 31, 1996, in conformity with generally accepted accounting principles. We have also audited the consolidated financial statement schedule listed in the accompanying index at Item 14(a)2 for the years ended January 31, 1996, 1995 and 1994. In our opinion, the consolidated financial statement schedule presents fairly, in all material respects, the information required to be set forth therein. /s/ GRANT THORNTON LLP GRANT THORNTON LLP Melville, New York April 9, 1996 (except for Note G, as to which the date is April 22, 1996) Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS January 31,
ASSETS 1996 1995 ---- ---- CURRENT ASSETS Cash $ 364,640 $ 119,919 Accounts receivable, net of allowance for doubtful accounts of $263,000 and $376,000 at January 31, 1996 and 1995, respectively 4,979,975 4,408,871 Inventories 11,244,241 8,858,298 Deferred income taxes 432,000 455,000 Other current assets 490,776 160,551 ------------- ------------- Total current assets 17,511,632 14,002,639 PROPERTY AND EQUIPMENT, NET 1,026,203 691,258 EXCESS OF COST OVER THE FAIR VALUE OF NET ASSETS ACQUIRED, net of accumulated amortization of $223,000 and $194,000 at January 31, 1996 and 1995, respectively 367,104 396,428 NOTE RECEIVABLE 147,921 154,437 OTHER ASSETS 209,872 317,086 ------------- ------------- $19,262,732 $15,561,848 ============= =============
The accompanying notes are an integral part of these statements. Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (continued) January 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 ---- ---- CURRENT LIABILITIES Accounts payable $ 3,465,552 $ 2,824,548 Current portion of long-term liabilities 50,000 3,615,873 Accrued expenses and other current liabilities 378,524 372,416 ----------- ----------- Total current liabilities 3,894,076 6,812,837 LONG-TERM LIABILITIES 6,491,938 440,915 DEFERRED INCOME TAXES 115,000 133,000 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock, $.01 par; 1,500,000 shares authorized; none issued Common stock, $.01 par; 10,000,000 shares authorized; 2,550,000 shares issued and outstanding 25,500 25,500 Additional paid-in capital 5,981,226 5,981,226 Retained earnings 2,754,992 2,168,370 ----------- ----------- 8,761,718 8,175,096 ----------- ----------- $19,262,732 $15,561,848 =========== ===========
The accompanying notes are an integral part of these statements. Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS Fiscal year ended January 31,
1996 1995 1994 ---- ---- ---- Net sales $40,188,916 $35,184,994 $30,143,340 Cost of goods sold 33,901,232 28,839,099 25,380,018 ----------- ----------- ----------- Gross profit 6,287,684 6,345,895 4,763,322 ----------- ----------- ----------- Operating expenses Selling and shipping 2,691,193 2,288,602 2,098,564 General and administrative 2,163,621 2,315,611 2,017,582 Write-off of notes receivable 583,669 Research and development 27,298 99,795 39,519 ----------- ----------- ----------- Total operating expenses 4,882,112 4,704,008 4,739,334 ----------- ----------- ----------- Operating profit 1,405,572 1,641,887 23,988 ----------- ----------- ----------- Other income (expense) Other income 41,292 662,572 96,500 Interest income 19,938 632 19,639 Interest expense (511,180) (304,613) (276,781) ----------- ----------- ----------- (449,950) 358,591 (160,642) ----------- ----------- ----------- Income (loss) before income taxes and cumulative effect of change in accounting for income taxes 955,622 2,000,478 (136,654) Income tax expense (369,000) (579,000) (141,000) ----------- ----------- ----------- Income (loss) before cumulative effect of change in accounting for income taxes 586,622 1,421,478 (277,654) ----------- ----------- ----------- Cumulative effect of change in accounting for income taxes 241,000 ----------- ----------- ----------- NET INCOME (LOSS) 586,622 1,421,478 (36,654) Retained earnings at beginning of year 2,168,370 746,892 783,546 ----------- ----------- ----------- Retained earnings at end of year $ 2,754,992 $ 2,168,370 $ 746,892 =========== =========== =========== Income (loss) per common share Income (loss) before cumulative effect of change in accounting for income taxes $.22 $.54 $(.11) Cumulative effect of change in accounting for income taxes .10 ----------- ----------- ----------- Net income (loss) per common share $.22 $.54 $(.01) =========== =========== =========== Average number of common shares outstanding 2,637,394 2,640,518 2,550,000 =========== =========== ===========
The accompanying notes are an integral part of these statements. Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal year ended January 31,
1996 1995 1994 ---- ---- ---- Cash flows from operating activities Net income (loss) $ 586,622 $ 1,421,478 $ (36,654) Adjustments to reconcile net income (loss) to net cash used in operating activities Cumulative effect of change in accounting for income taxes (241,000) Deferred income taxes 5,000 (212,000) 130,000 Depreciation and amortization 272,135 266,565 271,996 Provision for doubtful accounts 112,832 141,606 152,000 Write-off of notes receivable 583,669 (Increase) decrease in operating assets Accounts receivable (683,936) (495,478) (700,106) Inventories (2,385,943) (2,157,905) (421,593) Other current assets (330,225) 92,270 (93,253) Other assets 137,065 (6,396) 133,006 Increase (decrease) in operating liabilities Accounts payable 641,004 669,663 71,161 Accrued expenses and other liabilities 6,108 143,941 (2,300) ----------- ----------- --------- Net cash used in operating activities (1,639,338) (136,256) (153,074) ----------- ----------- --------- Cash flows from investing activities Purchases of property and equipment - net (577,756) (84,099) (120,482) Proceeds from sale of property 33,063 ----------- ----------- --------- Net cash used in investing activities (577,756) (51,036) (120,482) ----------- ----------- --------- Cash flows from financing activities Net borrowings (reductions) under line of credit agreement 2,485,150 295,904 (134,199) Repayment of notes payable and capital lease obligations (27,371) Deferred financing costs (23,335) (87,790) ----------- ----------- --------- Net cash provided by (used in) financing activities 2,461,815 295,904 (249,360) ----------- ----------- --------- NET INCREASE (DECREASE) IN CASH 244,721 108,612 (522,916) Cash at beginning of year 119,919 11,307 534,223 ----------- ----------- --------- Cash at end of year $ 364,640 $ 119,919 $ 11,307 =========== =========== =========
The accompanying notes are an integral part of these statements. Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 1996, 1995 and 1994 NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES 1. Business Lakeland Industries, Inc. and Subsidiaries (the "Company"), a Delaware corporation, organized in April 1982, is engaged primarily in the manufacture of disposable and reusable protective work clothing. The principal market for the Company's products is in the United States. No customer accounted for more than 10% of net sales during the fiscal years ended January 31, 1996, 1995 and 1994. 2. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Fireland Industries, Inc., Lakeland Protective Wear, Inc. (a Canadian corporation) and, in fiscal 1996, Lakeland de Mexico S.A. de C.V. (a Mexican corporation). All significant intercompany accounts and transactions have been eliminated. 3. Inventories Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. 4. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, on a straight-line basis. Leasehold improvements and leasehold costs are amortized over the term of the lease or service lives of the improvements, whichever is shorter. The costs of additions and improvements which substantially extend the useful life of a particular asset are capitalized. Repair and maintenance costs are charged to expense. 5. Excess of Cost Over the Fair Value of Net Assets Acquired The excess of cost over the fair value of net assets acquired (goodwill) is amortized on a straight-line basis over a 30-year period. On an ongoing basis, management reviews the valuation and amortization of goodwill to determine possible impairment by comparing the carrying value to the undiscounted future cash flows of the related assets. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("SFAS 121") that established accounting standards for the impairment of long-lived assets, certain intangibles and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS 121 is required to be adopted for fiscal years beginning after December 15, 1995. In accordance with SFAS 121, it is the Company's policy to periodically review and evaluate whether there has been a permanent impairment in the value of intangibles and adjust the carrying value accordingly. Factors considered in the valuation include current operating results, trends and anticipated undiscounted future cash flows. Accordingly, the adoption of SFAS 121 is not expected to have a significant effect on the consolidated financial statements of the Company. Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 1996, 1995 and 1994 NOTE A (continued) 6. Income Taxes Effective February 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Pursuant to SFAS 109, deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities and loss carryforwards and tax credit carryforwards for which income tax benefits are expected to be realized in future years. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that all, or some portion of, such deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. 7. Income (Loss) Per Common Share Income per share for the fiscal years ended January 31, 1996 and 1995 are based on the weighted average number of common shares outstanding and common share equivalents. Loss per common share for the fiscal year ended January 31, 1994 is based on the weighted average number of common shares outstanding during the year. Stock options have not been included in the calculation, since their effect would be antidilutive. 8. Statement of Cash Flows Supplemental cash flow information for the fiscal years ended January 31 was as follows: 1996 1995 1994 ---- ---- ---- Interest paid $431,555 $304,676 $276,781 Income taxes paid, net of refunds 618,853 665,488 39,755 9. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentration of credit risk consist principally of trade receivables. Concentration of credit risk with respect to these receivables is generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across geographic areas within the United States. The Company routinely addresses the financial strength of its customers and, as a consequence, believes that its receivable credit risk exposure is limited. Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 1996, 1995 and 1994 NOTE A (continued) 10. Stock-Based Compensation Adoption of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") is required for fiscal years beginning after December 15, 1995 and allows for a choice of the method of accounting used for stock-based compensation. Entities may elect the "intrinsic value" method based on APB No. 25 "Accounting for Stock Issued to Employees" or the new "fair value" method contained in SFAS 123. The Company intends to implement SFAS 123 in 1997 by continuing to account for stock-based compensation under the guidelines of APB No. 25. As required by SFAS 123, the pro forma effects on net income (loss) and income (loss) per share will be determined as if the fair value based method had been applied and disclosed in the notes to the consolidated financial statements. 11. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at year-end and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates include the allowance for doubtful accounts and inventory reserves. It is reasonably possible that events could occur during the upcoming year that could change such estimates. NOTE B - NOTES RECEIVABLE 1. Sale of Property In October 1994, the Company sold its Ohio facility to an unrelated third party for $187,500 ($25,000 cash and a $162,500 mortgage note). The selling price of the property approximated the net book value at the time of sale. The mortgage note is payable in 47 consecutive monthly payments of $1,523, including principal and interest at an annual rate of 8%, until October 1998 when the entire unpaid balance of the indebtedness shall be due and payable. This note is secured by a mortgage on real estate located in the City of Newark, Licking County, Ohio. To date, mortgage payments to the Company have been timely. 2. Customer Note In August 1993, a former customer of the Company filed a petition for bankruptcy proceedings in accordance with Chapter 11 of the Bankruptcy Code. This customer had a series of interest-bearing notes payable to the Company which originated in fiscal 1991 and 1992 and aggregated $1,072,000 (including accrued interest of $105,000). In fiscal 1992, this former customer defaulted on the original payment schedule, with the Company receiving partial Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 1996, 1995 and 1994 NOTE B (continued) payments of $358,000 through January 31, 1993. In view of concerns with respect to the customer's ability to repay such notes, the Company stopped accruing interest on these notes at the beginning of fiscal 1993 and recorded a reserve of $130,000 in the fourth quarter of fiscal 1993 against the then outstanding principal and accrued interest balance of $713,669. In March 1993, a potential purchaser of this former customer offered the Company $670,000 to settle the balance due on these outstanding notes, subject to a successful closing of the proposed purchase of the customer's assets. Such closing was not consummated and the former customer's lead lender foreclosed on its primary operating assets, thus precipitating the Chapter 11 filing by this former customer. Due to the degree of uncertainty with respect to the collection of these notes caused by these events, the Company elected to write off the entire balance carried on these notes, in the amount of $583,669 in fiscal 1994. NOTE C - INVENTORIES Inventories consist of the following at January 31: 1996 1995 ---- ---- Raw materials 2,980,137 $3,097,052 Work-in-process 3,225,272 2,092,028 Finished goods 5,038,832 3,669,218 ----------- ---------- $11,244,241 $8,858,298 =========== ========== NOTE D - PROPERTY AND EQUIPMENT Property and equipment consist of the following at January 31: Useful life in years 1996 1995 -------- ---- ---- Machinery and equipment 10 $2,180,832 $ 1,682,312 Furniture and fixtures 5 - 10 148,814 114,532 Leasehold improvements Lease term 147,374 102,420 ---------- ----------- 2,477,020 1,899,264 Less accumulated depreciation and amortization 1,450,817 1,208,006 ---------- ----------- $1,026,203 $ 691,258 ========== =========== Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 1996, 1995 and 1994 NOTE E - OTHER ASSETS Other assets consist of the following at January 31: 1996 1995 ---- ---- Pension asset (Note K) $151,089 $196,796 Deferred financing costs, net 18,076 29,264 Patents, net 30,016 31,892 Investment, at cost 35,000 Security deposits 10,691 12,134 Other 12,000 -------- -------- $209,872 $317,086 ======== ======== In August 1994, the Company invested $35,000 in a company and received an approximate 4.3% voting interest in such entity. The Company received 3,500 shares of Cumulative Convertible Exchangeable Preferred Stock (the "Stock"). In addition to the investment in the Stock, the Company sold $47,000 of product (included in accounts receivable at January 31, 1995) and had consigned inventory of $210,000 (included in inventory at January 31, 1995) to this investee. In October 1995, this entity went out of business; however, the Company recovered sufficient assets to equal the sum of its original investment and outstanding receivables. Additionally, all consigned inventory was returned to the Company. Patents are amortized over a seventeen-year period. NOTE F - FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Fair Value of Financial Instruments," requires disclosure of the estimated fair value of an entity's financial instrument assets and liabilities. The Company's principal financial instrument consists of its three-year revolving credit facility with a bank. The Company believes that the carrying amount of such debt approximates the fair value as the variable interest rate approximates the current prevailing interest rate. Additionally, the Company's financial position has not substantially changed since the August 1995 inception of such credit facility. Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 1996, 1995 and 1994 NOTE G - LONG-TERM LIABILITIES Long-term liabilities consist of the following at January 31: 1996 1995 ---- ---- Revolving credit facility $6,100,000 $ 3,565,873 Pension liability (Note K) 441,938 490,915 ---------- ----------- 6,541,938 4,056,788 Less current portion 50,000 3,615,873 ---------- ----------- Long-term liabilities $6,491,938 $ 440,915 ========== =========== During August 1995, the Company entered into a $8,000,000, three-year secured revolving credit facility with a bank, replacing the two-year facility that was due to expire. Under this secured revolving credit facility, which expires on July 31, 1998, the Company may borrow up to a maximum of $8,000,000 based upon eligible accounts receivable and inventories, as defined in the Agreement. Borrowings under the revolving credit facility bear interest at a rate per annum equal to the prime commercial lending rate or LIBOR plus 200 points (7.875% at January 31, 1996). Such interest is payable at the end of the respective interest period, ranging from 30 to 180 days. A fee of 1/2% per annum is charged to the Company on the unused portion of such facility. The loan is collateralized by substantially all the assets of the Company. Deferred financing fees of $20,000 are being amortized on a straight-line basis over the three-year term of this facility. The revolving credit facility also contains restrictive covenants, measurable on a quarterly or annual basis, with respect to: tangible net worth, capital expenditures and certain financial ratios, as defined. The revolving credit agreement restricts the Company from declaring or paying any dividends. As of January 31, 1996, the Company was not in compliance with the capital expenditures covenant, which requirement was waived by the bank. The maximum amounts borrowed under the revolving lines of credit during the fiscal years ended January 31, 1996 and 1995 were $7,120,000 and $4,700,000, respectively, and the average interest rate for each period then ended was 9.4%. NOTE H - COMMITMENTS AND CONTINGENCIES 1. Employment Contracts The Company has employment contracts with three principal officers expiring through January 31, 1998. Such contracts are automatically renewable for one- or two-year terms, unless 90-day notice is given by either party. Pursuant to such contracts, the Company is committed to aggregate base remuneration of $455,000 and $225,000 for the fiscal years ended January 31, 1997 and 1998, respectively. Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 1996, 1995 and 1994 NOTE H (continued) 2. Leases The Company leases the majority of its premises under various operating leases expiring through fiscal 2000. The lease for the principal manufacturing facility (located in Decatur, Alabama) is with a partnership whose partners are principal officers and stockholders of the Company. This lease expires on August 31, 1999 and requires annual payments of approximately $365,000 plus certain operating expenses. The Company received a rent reduction of $3,000 per month from this partnership (August 1991 to August 1994), and in fiscal 1995, the Company received an additional one-time rent reduction of $5,000. Such rent reductions aggregated $21,000 and $41,000 for the fiscal years ended January 31, 1995 and 1994, respectively. In addition, the Company has several operating leases for machinery and equipment. Total rental expense under all operating leases is summarized as follows: Total Rentals Gross sublease paid to rental rental related expense income parties ------- ------ ------- Year ended January 31, 1996 $483,690 $20,011 $369,150 1995 340,171 13,169 249,300 1994 337,767 8,554 229,300 Minimum annual rental commitments for the remaining term of the Company's noncancellable operating leases relating to office space and equipment rentals at January 31, 1996 are summarized as follows: Year ending January 31, 1997 $ 496,340 1998 431,925 1999 405,713 2000 228,521 ---------- $1,562,499 ========== Certain leases require additional payments based upon increases in property taxes and other expenses. 3. Services Agreement In August 1993, the Company entered into a services agreement with an affiliated entity, principally owned by a principal officer and stockholder of the Company. Pursuant to the terms of such agreement, the affiliate provides professional and/or skilled labor to a division of the Company, as needed, at contractual rates of compensation. Such agreement is cancelable by either the Company or the affiliate upon thirty days' written notice. Costs incurred by the Company in connection with such agreement aggregated $520,000, $654,000 and $273,000 for the fiscal years ended January 31, 1996, 1995 and 1994, respectively. Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 1996, 1995 and 1994 NOTE H (continued) 4. Litigation In January 1995, the Company received a $625,000 cash settlement pursuant to an action filed against its prior legal counsel, involving a number of causes of action relating to that law firm's representation of the Company between 1987 and 1991. This amount is included in "Other income" for the fiscal year ended January 31, 1995. The Company is involved in various litigation arising during the normal course of business which, in the opinion of the management of the Company, will not have a material adverse effect on the consolidated financial position or results of operations of the Company. 5. Self-insurance The Company maintains a self-insurance program for that portion of health care costs not covered by insurance. The Company is liable for claims up to defined limits. Self-insurance costs are based upon the aggregate of the liability for reported claims and an estimated liability for claims incurred but not reported. NOTE I - STOCKHOLDERS' EQUITY Stock Options A Nonemployee Directors' Option Plan (the "Directors' Plan") was adopted by the Board of Directors and approved by the stockholders during the year ended January 31, 1990. Under the Directors' Plan, 60,000 shares of common stock have been authorized for issuance. The Directors' Plan provides for an automatic one-time grant of options to purchase 5,000 shares of common stock to each nonemployee director elected or appointed to the Board. Options 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 be automatically granted additional options to purchase 1,000 shares of common stock on each of such dates. On May 1, 1986, the Company's 1986 Incentive and Nonstatutory Stock Option Plan (the "Incentive Plan"), which provides for the granting of incentive stock options and nonstatutory options, was adopted by the Board of Directors and approved by the stockholders. This plan provides for the grant of options to key employees and independent sales representatives to purchase up to 400,000 shares of the Company's common stock, upon terms and conditions determined by a committee of the Board of Directors which administers the plan. Options are granted at not less than fair market value (110 percent of fair market value as to incentive stock options granted to ten percent stockholders) and are exercisable over a period not to exceed ten years (five years as to incentive stock options granted to ten percent stockholders). On February 15, 1989, the Board of Directors approved a restatement of the Incentive Plan to conform with certain changes required by the Tax Reform Act of 1986. The Board of Directors also restated the Incentive Plan to provide for stock appreciation rights and changed provisions of the plan Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 1996, 1995 and 1994 NOTE I (continued) relative to option holders' rights upon termination of employment with the Company and modified the language of the Incentive Plan in other sections such as "Eligibility" and "Terms and Conditions of Options." The restatement of the Incentive Plan was approved by the stockholders. For the three years ended January 31, 1996, option activity is summarized as follows:
Directors' Plan Incentive Plan ------------------------- ---------------------------- Number Range of Number Range of of option of option shares prices shares prices ------ ------ ------ ------ Balance, January 31, 1993 15,000 $1.44 - 1.56 74,000 $1.37 - 2.50 Granted - 76,000 2.25 - 2.48 ------ ------- Balance, January 31, 1994 15,000 1.44 - 1.56 150,000 1.37 - 2.50 Granted 2,000 3.88 - - ------ ------- Balance, January 31, 1995 17,000 1.44 - 3.88 150,000 1.37 - 2.50 Granted 1,000 4.25 - - ------ ------- Balance, January 31, 1996 18,000 1.44 - 4.25 150,000 1.37 - 2.50 ====== =========== ======= ============ Available for future grant 42,000 250,000 ====== ======= Exercisable 18,000 150,000 ====== =======
Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 1996, 1995 and 1994 NOTE J - INCOME TAXES The provision for income taxes is summarized as follows: Year ended January 31, ------------------------------------------------ 1996 1995 1994 ---- ---- ---- Current Federal $382,000 $ 584,000 $ 1,000 State (18,000) 207,000 10,000 -------- --------- -------- 364,000 791,000 11,000 Deferred 5,000 (212,000) 130,000 -------- --------- -------- $369,000 $ 579,000 $141,000 ======== ========= ======== The following is a reconciliation of the effective income tax rate to the Federal statutory rate: Year ended January 31, ------------------------- 1996 1995 1994 ---- ---- ---- Statutory rate 34.0% 34.0% (34.0)% State income taxes, net of Federal tax benefit (.4) 4.6 4.8 Nondeductible expenses 1.7 .5 12.9 Operating loss generating no current tax benefit 2.5 24.4 Change in deferred assets/valuation allowance .5 (10.0) 95.1 Other .3 (.2) ---- ---- ----- Effective rate 38.6% 28.9% 103.2% ==== ==== ===== Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 1996, 1995 and 1994 NOTE J (continued) The tax effects of temporary differences which give rise to deferred tax assets at January 31, 1996 and 1995 are summarized as follows: January 31, --------------------------- 1996 1995 ---- ---- Deferred tax assets Accounts receivable $100,000 $142,700 Inventories 271,300 278,400 Vacation accrual 36,300 29,500 Net operating loss carryforward - Canadian subsidiary 24,400 Other 4,400 -------- -------- Gross deferred tax assets 432,000 455,000 -------- -------- Deferred tax liabilities Depreciation 115,000 133,000 -------- -------- Gross deferred tax liabilities 115,000 133,000 -------- -------- Net deferred tax asset $317,000 $322,000 ======== ======== Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 1996, 1995 and 1994 NOTE J (continued) The net operating loss carryforwards applicable to the Company's Canadian subsidiary expire in fiscal 2002 and 2003. The Company's fiscal 1990, 1991 and 1992 New York and 1992, 1993 and 1994 Alabama state income tax returns are currently being examined. The management of the Company does not expect that these examinations will have a material adverse impact on the consolidated financial statements. NOTE K - DEFINED BENEFIT PENSION PLAN A former subsidiary of the Company has a defined benefit pension plan which the Company assumed in connection with an acquisition made in fiscal 1987. This plan covers substantially all of the former subsidiary's employees. Benefits pursuant to this plan were frozen as of January 1, 1986. The benefits earned are based on years of service and the employee's final average annual salary which is based on the highest five consecutive of the last ten years of employment prior to January 1, 1986. The Company's funding policy is to contribute annually the recommended amount based on computations made by its consulting actuary. The components of the net periodic pension cost for the fiscal years ended January 31 are summarized as follows: 1996 1995 1994 ---- ---- ---- Normal cost $ 1,613 $ 1,613 $ 1,620 Interest cost on projected benefit obligation 60,611 56,692 50,188 Actual return on assets (40,653) (4,322) (11,875) Net amortization and deferral 25,159 (8,529) (6,326) -------- -------- -------- Net periodic pension cost $ 46,730 $ 45,454 $ 33,607 ======== ======== ======== Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 1996, 1995 and 1994 NOTE K (continued) The following is a summary of the plan's funded status and amounts recognized in the Company's consolidated balance sheets at January 31: 1996 1995 ---- ---- Actuarial present value of benefit obligation Vested benefits $842,701 $790,492 Nonvested benefits 21,603 -------- -------- Projected benefit obligation 842,701 812,095 Plan assets at fair market value 400,763 321,180 -------- -------- Projected benefit obligation in excess of plan assets 441,938 490,915 Unrecognized loss (62,021) (97,873) Unrecognized net obligation at transition amortized over a 15-year period (89,068) (98,923) Required minimum liability (also included as a component of other assets) 151,089 196,796 -------- -------- Pension cost liability (included in long-term liabilities) $441,938 $490,915 ======== ======== An assumed discount rate of 7.5% was used in determining the actuarial present value of benefit obligations for all periods presented. The expected long-term rate of return on plan assets was 8% for all periods presented. At January 31, 1996, approximately 70% of the plan's assets were held in mutual funds invested primarily in equity securities, approximately 18% was invested in money market instruments and the remaining 12% was invested in equity securities and debt instruments. NOTE L - MAJOR SUPPLIER The Company purchased approximately 75% of its raw materials from one supplier under licensing agreements. The Company expects this relationship to continue for the foreseeable future. If required, similar raw materials could be purchased from other sources. CORPORATE INFORMATION Directors: Raymond J. Smith, Chairman Christopher J. Ryan John J. Collins, Jr. Senior Vice President of Liberty Brokerage, Inc. Eric O. Hallman Officer of Sylvan -Lawrence Walter J. Raleigh Senior Advisor to CMI Industries, Inc. Market Makers: Troster Singer Corp. Legg Mason Wood Walker Inc. Sherwood Securities Corp. G.V.R. Company Mayer & Schweitzer Inc. Nash Weiss/Div of Shatkin Inv. Herzog, Heine, Geduld, Inc. Mercer Bokert Buckman & Reid Worldco L.L.C. M.H. Meyerson & Co. Knight Securities L.P. Officers: Raymond J. Smith, President Christopher J. Ryan Executive Vice President of Finance and Secretary James M. McCormick Vice President and Treasurer Harvey Pride, Jr. Vice President, Manufacturing Auditors: Grant Thornton LLP Suite 3S01 One Huntington Quadrangle Melville, NY 11747-4464 Counsel: Wildman, Harrold, Allen, Dixon & Smith 45 Rockefeller Plaza Suite 353 New York, NY 10111-0100 Transfer Agent: Registrar and Transfer Company 10 Commerce Drive Cranford, NJ 07016 NASDAQ symbol: LAKE Executive Offices: 711-2 Koehler Ave. Ronkonkoma, NY 11779 (516) 981-9700 Subsidiaries: Fireland Industries, Inc. Lakeland Protective Wear, Inc. (Canada) Lakeland de Mexico S.A. de C.V. Exhibits to Lakeland Industries, Inc.'s 1996 Form 10 - K are available to shareholders for a fee equal to Lakeland's cost in furnishing such exhibits, on written request to the Secretary, Lakeland Industries, Inc., Inc., 711-2 Koehler Avenue, Ronkonkoma, New York 11779. DextraGard TM, Forcefield TM, Interceptor TM, Checkmate TM, Heatex TM, Pyrolon TM, Sterling Heights TM, Fyrepel TM, Highland TM, Impede TM, Chemland TM and Uniland TM are trademarks of Lakeland Industries, Inc. Tyvek TM, Viton TM, Barricade TM, Nomex TM, Kevlar TM, Delrin TM, TyChem TM and Teflon TM are registered trademarks of E.I.DuPont de Nemours and Company. Saranex TM is a registered trademark of Dow Chemical. Spectra TM is a registered trademark of Allied Signal, Inc. EX-20 4 PROXY STATEMENT [LETTERHEAD OF LAKELAND INDUSTRIES, INC.] May 13, 1996 Dear Stockholder, I am pleased to extend to you my personal invitation to attend the 1996 Annual Meeting of Stockholders of Lakeland Industries, Inc. (the "Company") on Wednesday, June 19, 1996 at 10:00 a.m. at the Holiday Inn, 3845 Veterans Memorial Hwy, Ronkonkoma, NY 11779. The accompanying Notice of Annual Meeting and Proxy Statement contain a description of the formal business to be acted upon by the stockholders. At the meeting, I intend to discuss the Company's performance for its fiscal year ended January 31, 1996 and its plans for the current fiscal year. Certain members of the Company's Board of Directors and officers of the Company, as well as representatives of Grant Thornton, the Company's independent auditors, will be available to answer any questions you may have, or to make a statement if they wish to. While I am looking forward to seeing you at the meeting, it is very important that those of you who cannot personally attend assure your shares are represented. I urge you therefore to sign and date the enclosed form of proxy and return it promptly in the accompanying envelope. If you attend the meeting, you may, if you wish, withdraw any proxy previously given and vote your shares in person. Sincerely, /s/ Raymond J. Smith Raymond J. Smith President and Chairman of the Board LAKELAND INDUSTRIES, INC. NOTICE OF 1996 ANNUAL MEETING OF STOCKHOLDERS June 19, 1996 TO THE STOCKHOLDERS OF LAKELAND INDUSTRIES, INC.: Notice is hereby given that the Annual Meeting of Stockholders of Lakeland Industries, Inc., a Delaware corporation (the "Company"), will be held on Wednesday, June 19, 1996 at 10:00 a.m. at the Holiday Inn, 3845 Veterans Memorial Hwy, Ronkonkoma, NY 11779 for the following purposes: 1. To elect one Class I member of the Board of Directors, and 2. To transact such other business as properly may come before the meeting or any adjournment thereof. Each share of the Company's Common Stock will be entitled to one vote upon all matters described above. Stockholders of record at the close of business on April 29, 1996 will be entitled to notice and to vote at the meeting. May 13, 1996 BY ORDER OF THE BOARD OF DIRECTORS Christopher J. Ryan, Secretary PLEASE DATE, VOTE AND SIGN THE ENCLOSED PROXY AND RETURN PROMPTLY. AN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THIS PURPOSE. LAKELAND INDUSTRIES, INC. 711-2 Koehler Ave. Ronkonkoma, New York 11779 PROXY STATEMENT 1996 Annual Meeting of Stockholders June 19, 1996 GENERAL INFORMATION ------------------------- This proxy statement is furnished in connection with the solicitation by the Board of Directors of Lakeland Industries, Inc. (the "Company") of proxies from the holders of the Company's $.01 par value Common Stock (the "Common Stock") for use at the 1996 Annual Meeting of Stockholders to be held on June 19, 1996, and at any adjournment thereof (the "Annual Meeting"). This proxy statement, the accompanying form of proxy and the Company's 1996 Form 10-K (which includes the Company's Annual Report to Stockholders) are first being sent to the Company's stockholders on or about May 13, 1996. The accompanying proxy may be revoked by the person giving it at any time prior to its being voted; such revocation may be accomplished by a letter, or by a properly signed proxy bearing a later date, filed with the Secretary of the Company prior to the Annual Meeting. If the person giving the proxy is present at the meeting and wishes to vote in person, he or she may withdraw his or her proxy at that time. The Company has borne all costs of solicitation of proxies. In addition to solicitation by mail, there may be incidental personal solicitations made by directors, officers and regular employees of the Company and its subsidiaries. The cost of solicitation, including the payments to nominees who at the request of the Company mail such material to their customers, will be borne by the Company. VOTING SECURITIES AND STOCK OWNERSHIP OF OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS All holders of record of the Common Stock at the close of business on April 29, 1996, are entitled to notice of and to vote at the Annual Meeting. At the close of business on April 29, 1996, there were 2,550,000 shares of outstanding Common Stock, each entitled to one vote per share on all matters to be voted upon at the Annual Meeting. The Company's stockholders do not have cumulative voting rights. The following table sets forth information as of April 29, 1996, with respect to beneficial ownership of the Company's Common Stock by all persons known by the Company to own beneficially more than 5% of the Common Stock, each director and nominee for director of the Company and all directors and officers of the Company as a group. All persons listed have sole voting and investment power with respect to their shares of Common Stock. Name and Address Number of Common Percent of Beneficial Owner Shares Beneficially Owned Class - - ------------------- ------------------------ ----- Raymond J. Smith 579,500 (1) 21.323% 711-2 Koehler Ave. Ronkonkoma, NY 11779 Christopher J. Ryan 248,972 (2)(6) 9.16% 711-2 Koehler Ave. Ronkonkoma, NY 11779 Joseph P. Gordon 140,500 5.17% 177-23 Union Tpke., Flushing, NY 11366 John J. Collins, Jr. 126,400 (3) 4.65% Eric O. Hallman 70,000 (3) 2.57% Walter J. Raleigh 6,000 (4) .022% All officers and directors as a group (7 persons) 1,075,822 (5) 39.65% - - -------------------------- Included in the above are fully exercisable options to purchase the Company's common stock, as follows: (1) 9,000 shares granted on June 5, 1991; and 44,500 shares granted January 1 and 2, 1994; (2) 40,000 shares granted on May 28, 1991; and 8,750 shares granted January 1, 1994; (3) 5,000 shares granted on June 5, 1991; and 1,000 shares granted on June 15, 1994 to each of Mr. Hallman and Mr. Collins; (4) 5,000 shares granted on April 18, 1991 and 1,000 shares granted June 15, 1995; (5) 164,700 shares (at $1.37 to $4.25 per share) granted between June 4, 1986 and June 15, 1995 (6) Mr. Ryan disclaims beneficial ownership of 15,000 shares owned by his wife. Proposal 1 - ELECTION OF DIRECTORS The Company's Certificate of Incorporation provides for three classes of directors with staggered terms of office and provides that upon the expiration of the terms of office for a class of directors, nominees for each class shall be elected for a term of three years to serve until the election and qualification of their successors or until their earlier resignation, death or removal from office. The Company currently has one Class I director, two Class II directors and two Class III directors. At the 1996 Annual Meeting there is one nominee for director in Class I. The incumbent Class III and Class II directors have two years and one year, respectively, remaining on their terms of office. The Company has no reason to believe that the nominee will be disqualified or unable to serve, or will refuse to serve if elected. However, if a nominee is unable or unwilling to accept election, the proxies will be voted for such substitute as the Board of Directors may select. It is intended that the shares represented by proxies will be voted, in the absence of contrary instructions, for the election as director of the nominee for Class I named in the following table. The Board of Directors has nominated and Management recommends the election of the person listed in the following table as a Class I director. The table also sets forth the names of the two directors in Class II and the two directors in Class III whose terms of office have not expired, their ages, their positions with the Company and the period each has served as a director of the Company. There are no family relationships among the Board members. Position With the Director Name Age Company Since ----------------------------------------------------------------------------- NOMINEE FOR DIRECTOR CLASS I (Nominee for 3 Year Term Expiring in June, 1999) ----------------------------------------- Christopher J. Ryan 44 Executive Vice President - 1986 Finance, Secretary and Director INCUMBENT DIRECTORS - CLASS II (1 Year Remaining on Term Expiring in June, 1997) ----------------------------------------- John J. Collins, Jr. 53 Director 1986 Eric O. Hallman 52 Director 1982 INCUMBENT DIRECTORS - CLASS III (Two Years remaining on Term Expiring in June, 1998) ------------------------------------------ Raymond J. Smith 57 Chairman of the Board, 1982 President and Director Walter J. Raleigh 68 Director 1991 The principal occupations and employment of the nominee for director and for the directors continuing in office are set forth below: Christopher J. Ryan has served as Executive Vice President-Finance and director since May, 1986 and Secretary since April 1991. From October 1989 until February 1991 Mr. Ryan was employed by Sands Brothers, Mitchell Co. Ltd. and Rodman & Renshaw, Inc., both investment banking firms. Prior to that, he was an independent consultant with Laidlaw Holding Co., Inc., an investment banking firm, from January 1989 until September 1989. From February, 1987 to January, 1989 he was employed as the Managing Director of Corporate Finance for Brean Murray, Foster Securities, Inc. He was employed from June, 1985 to March, 1986 as a Senior Vice President with the investment banking firm of Laidlaw Adams Peck, Inc., a predecessor firm to Laidlaw Holdings, Inc. John J. Collins, Jr. has been Senior Vice President of Liberty Brokerage, a government securities firm, since January 1987. From 1977 to January, 1987, he was Executive Vice President of Chapdelaine GSI, a government securities firm. Eric O. Hallman has been a director of the Company since its incorporation. He was President of Naess Hallman Inc., a shipbrokering firm, between 1984 and 1991. Mr. Hallman was also affiliated between 1991 and 1992 with Finanshuset (U.S.A.), Inc., a shipbrokering and international financial services and consulting concern, and is currently an officer of Sylvan Lawrence, a real estate development company. Raymond J. Smith, a co-founder of the Company, has been Chairman of the Board of Directors and President since its incorporation in 1982. Walter J. Raleigh, is a director of Clinton Mills, Inc. and was president of Clinton Mills Sales, Co. Division, N.Y. from 1974 to 1995. Clinton Mills was a textile manufacturer of woven fabrics. Mr. Raleigh retired from Clinton Mills in 1995 and now is a Senior Adviser to CMI Industries, Inc., the successor company to Clinton Mills. Mr. Raleigh is a director of Kerry Petroleum Company, an oil and gas development company, and the New York Board of Trade, on which he has also served as a Senior Vice President since 1981. During the year ended January 31, 1996, the Board of Directors of the Company met three times, and four of the five members of the Board of Directors attended at least 75% of the aggregate of (1) the total number of meetings of the Board of Directors held during the period when he was a director, and (2) the total number of meetings held by all committees of the Board of Directors on which he served (during the periods when he served). Committees of the Board of Directors are as follows: 1- The Stock Option and Compensation Committee is responsible for evaluating the performance of the Company's management, fixing or determining the method of fixing compensation of the Company's salaried employees, administering the Company's Stock Option and 401K/ESOP Plans, and reviewing significant amendments to a subsidiary's employee pension benefit plan. The Committee also, in conjunction with the Chief Executive Officer, considers the qualifications of prospective Directors of the Company and, as vacancies occur, recommends nominees to the Board of Directors for appropriate action. The Stock Option and Compensation Committee (which also functions as a nominating committee for nominations to the Board) will consider nominees to the Board recommended by stockholders. Such recommendations must be in writing and sent to the Secretary of the Company no later than January 31st of the year in which the Annual Meeting is to be held, accompanied by a brief description of the proposed nominee's principal occupation and his or her other qualifications which, in the stockholder's opinion, make such person a suitable candidate for nomination to the Board. This Committee met once during the year ended January 31, 1996. The committee members are: John J. Collins, Jr., Eric O. Hallman, and Walter J. Raleigh Compensation Committee Interlocks and Insider Participation Committee members are outside directors that do not serve in any other capacity with respect to the Company or any of its subsidiaries. Messrs. Collins and Hallman are partners of POMS Holding Co., see Certain Relationships and Related Transactions (Page 9). 2- The Audit Committee was formed in September, 1987 and is responsible for recommending to the Board of Directors the appointment of independent auditors for the fiscal year, reviewing with the independent auditors the scope of their proposed and completed audits, and reviewing with the Company's financial management and its independent and internal auditors and other matters relating to audits and to the adequacy of the Company's internal controls structure. This Committee met once during the year ended January 31, 1996. The committee members are: John J. Collins, Jr., Eric O. Hallman, and Christopher J. Ryan COMPENSATION OF EXECUTIVE OFFICERS ______________________________________ The table below sets forth all salary, bonus and all other compensation paid to the Company's chief executive officer and each of the Company's other executive officers (who earned more than $100,000 per year in salary and bonus) for the years ended January 31, 1996, 1995 and 1994: Name and All Other Principal Position Year Salary Bonus Compensation - - ------------------ ---- ------ ----- ------------ Raymond J. Smith, 1996 $225,000 $28,653 Chairman, President and CEO 1995 195,000 29,250 1994 180,000 Christopher J. Ryan, 1996 115,000 55,956 Executive V.P.-Finance 1995 115,000 17,250 and Secretary 1994 106,154 Harvey Pride, Jr. 1996 115,000 9,044 Vice President- 1995 108,619 16,044 Manufacturing 1994 105,950 There are three executive officers with salary and bonus totaling $100,000. There were no pension or retirement plans or other benefits, payable or accrued, for such persons during fiscal year 1996. The Company has entered into employment contracts with certain executive officers providing for annual compensation of $225,000 for Mr. Smith and $115,000 each, for Messrs. Ryan and Pride. Mr. Smith has a three year contract which expires on January 31, 1998, Mr. Pride has a two year contract which expires on January 31, 1997 and Mr. Ryan has a two year contract which expires on January 31, 1997. All contracts are automatically renewable for one or two year terms, unless in various instances 30 to 120 days notice is given by either party. The above named executives participate in the Company's 401-K Plan which commenced on January 1, 1995. The Company has not made a contribution to this plan. These employment contracts are similar in nature and include disability benefits, vacation time, non-compete and confidentiality clauses. There are no provisions for retirement. Messrs. Smith, Ryan and Pride's contracts have an additional provision for annual bonus based on the Company's performance and based upon earnings per share formulas determined by the Stock Option and Compensation Committee of the Board of Directors of the Company. All contracts contain language substantially similar to the following change in control clause: "Upon the occurrence of a change in control..., you shall have the right to terminate, at your option this agreement within 10 to 45 days after the occurrence of such change in control. Upon the effective date of such termination, you shall be entitled to receive a lump sum severance amount equal to the sum of (i) the greater of the present value of your base salary in effect at the time of the change in control for one year or the present value of your base salary in effect at the time of the change of control for the remainder of the term and (ii) the estimated amount which would have been payable to you pursuant to any bonus as set forth in this agreement for the fiscal year during which the change in control occurred, as determined in good faith by the (Stock Option and Compensation Committee) Board of Directors of the Company based upon the Company's results of operations for the fiscal year through the effective date of the termination and its historical results of operations and pro-rated to the effective date of termination... In the event of a disposition by the Company (whether direct or indirect, by sale of assets or stock, merger, consolidation or otherwise) of all or substantially all of its business and/or assets the Company will require any successor, to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform if no such disposition had taken place." STOCK OPTION AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION Policies: The compensation policy of the Company is to provide its executive officers and management with a level of pay and benefits that will assure the Company's competitiveness and continued growth, and allow the Company to retain key executives critical to this long-term success and attract and retain qualified personnel. The Company competes for talented executives in a market segment where successful entrepreneurial executives are highly compensated. It also competes for executives with a background in manufacturing and selling protective safety garments. As a result, to obtain and retain highly qualified and motivated executives, the Compensation Committee has deemed it desirable to structure employment arrangements which compensate highly for high profitability and performance and to enter into written employment agreements with its senior executive officers. The Compensation Committee's responsibilities include overseeing the Company's compensation policies., supervising compensation for management and employee benefits and administering the Company's stock option and other employee benefit plans. The Compensation Committee also develops and negotiates employment agreements with key executive officers. These employment agreements include base salaries and incentive compensation arrangements designed to reward management for achieving certain production or performance levels. The Compensation Committee is also responsible for developing or reviewing incentive compensation arrangements which the Company enters into with executive officers and key individuals, other than those senior executives that have written employment agreements. See "Compensation of Executive Officers". In order to determine appropriate levels of executive compensation, the Compensation Committee reviews various factors, including individual performance, and evaluates the progress of the Company towards attaining its long-term profit and return on equity goals. Compensation packages for senior executive officers have been structured to attempt to compensate them to a substantial extent on a combination of the profitability of the Company as a whole and the productivity of their individual departments. Particulars: Messrs. Eric O. Hallman, John J. Collins, Jr. and Walter J. Raleigh were members of the Company's Stock Option and Compensation Committee when it ratified Mr. Smith's employment contract on September 7, 1994, and also Mr. Ryan's and Pride's employment contracts which were renewed February 1, 1995. Mr. Walter J. Raleigh joined the Board of Directors on April 18, 1991, as a third outside director and with Messrs. Hallman and Collins, these three outside directors presently make up the Stock Option and Compensation Committee. Messrs. Smith, Pride and Ryan were awarded base compensations of $225,00, $115,000 and $115,000, for fiscal 1996, respectively. In addition, the Committee reviewed what was normally paid the President and Chairman in Mr. Smith's case and Executive Vice President Finance and In-House Counsel in Mr. Ryan's case and the Chief Manufacturing Executive in Mr. Pride's case, in public companies of Lakeland's size and concluded that the compensation package represented close to the median of what other officers were being compensated in like public companies of comparable size after reviewing Growth Resources Officer Compensation Report Tenth Edition - Panel Publications. These contracts also provide for bonuses in addition to salary based upon the Company's increase in earnings. No options were granted to any executive officers during this period and no existing options were exercised by any officer. (See Directors and Principal Stockholders.) The Stock Option and Compensation Committee believes that the contracts covering Messrs. Smith, Pride and Ryan are appropriately tied to their respective levels of expertise, were constructed below industry norms, and any increases in compensation were and will be tied to increases in the Company's earnings. The Stock Option and Compensation Committee also took into consideration that since the inception of the Company 13 years ago there have been no executive pension plans, deferred compensation plans, or other compensation or benefit plans for executives in the Company other than the Company Stock Option Plan and the 401-K/ESOP Plan, the latter which went into effect 1/1/95. The Board Compensation Committee Report on Executive Compensation shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. Performance Graph The Corporate Performance Graph, appearing on the following page, obtained from Media General Financial Services of Virginia, compares the five year cumulative total return of the Company's common stock with that of a broad equity market index (NASDAQ), including dividend reinvestment and with that of a peer group: Option/SAR Grants in Last Fiscal Year - No stock options were granted to any employee in fiscal 1996 and no SAR grants have been made since inception of the Stock Option Plan. However, 1,000 stock options were granted to one non-employee Director pursuant to the Directors' Plan. See Directors' Compensation. Stock Option Plan Messrs. Smith, Ryan and Pride participate in the Company's Incentive Stock Option Plan (common stock) as follows: # of Date Grant Shares Option of Expiration Date Granted Price Grant Date Value - - ----------------------------------------------------------------------------- Mr. Smith 53,500 $1.65 - 2.48 6/5/91 & 1/1/94 6/4/96 & 1/1/99 $124,244 Mr. Ryan 48,750 $1.37 - 2.25 5/28/91 & 1/1/94 5/27/01 & 1/1/2004 $ 74,487 Mr. Pride 29,600 $2.25 - 2.50 6/4/86 & 1/1/94 6/4/96 & 1/1/2004 $ 71,600 There are currently 250,000 option shares available for future grant under this plan. During the year ended January 31, 1996, no stock options were granted and no stock options have ever been exerecised under this plan. COMPARISON OF CUMULATIVE TOTAL RETURN OF COMPANY, PEER GROUP AND BROAD MARKET [GRAPH] FISCAL YEAR ENDING COMPANY 1991 1992 1993 1994 1995 1996 LAKELAND IND INC 100 47.06 88.24 123.53 223.53 201.47 PEER GROUP 100 131.57 132.07 138.68 118.68 125.34 BROAD MARKET 100 123.52 123.1 155.07 146.55 205.2 ASSUMES $100 INVESTED ON FEB. 1, 1991 ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING JAN. 31, 1996 THE PEER GROUP CHOSEN WAS: Customer Selected Stock List THE BROAD MARKET INDEX CHOSEN WAS: NASDAQ MARKET INDEX THE PEER GROUP IS MADE UP OF THE FOLLOWING SECURITIES: ANGELICA CP EASTCO IND SAFETY CP SUPERIOR SURGICAL MFG UNIFIRST CP SOURCE: MEDIA GENERAL FINANCIAL SERVICES P.O. BOX 85333 RICHMOND, VA 23293 PHONE: 1- (800) 446-7922 FAX: 1- (804) 649-6097 DIRECTORS' COMPENSATION Members of the Board of Directors, in their capacity as directors, are reimbursed for all travel expenses to and from meetings of the board and Messrs. Collins, Hallman and Raleigh participate in the Company's Non-employee Directors' Option Plan as follows: # of Option Date of Expiration Director Shares Price Grant Date -------- ------ ----- ----- ---- Mr. Raleigh 5,000 $1.56 4/18/91 4/18/97 Mr. Collins 5,000 1.43 6/5/91 6/5/97 Mr. Hallman 5,000 1.43 6/5/91 6/5/97 Mr. Collins 1,000 3.88 6/15/94 6/15/2000 Mr. Hallman 1,000 3.88 6/15/94 6/15/2000 Mr. Raleigh 1,000 4.25 6/15/95 6/15/2001 There are currently 42,000 option shares available for future grant under this plan. During the year ended January 31, 1996, 1,000 options were granted to Mr. Raleigh and no options have ever been exercised under this plan. Outside Directors received $750 each as compensation for serving on the Board. There are no charitable award or director legacy programs. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS POMS Holding Co. ("POMS", a partnership consisting of Raymond J. Smith, Eric O. Hallman, John J. Collins, Jr., Joseph P. Gordon, Harvey Pride, Jr. and certain other stockholders of the Company) leases to the Company a 90,308 square foot disposable garment manufacturing facility in Decatur, Alabama. Under leases effective January 1 and March 1, 1995 and expiring on August 31, 1999, the Company pays an annual rent of $364,900 and is the sole occupant of the facility. The Company received a $3,000 monthly rent reduction from POMS (that commenced August 1, 1991 and continued until August 31, 1994, and during January 1994, the Company received an additional one time rent reduction of $5,000. For the years ended January 31, 1996, 1995 and 1994 this rent reduction amounted to $0, $21,000, and $41,000, respectively. During September 1992 Highland, a former wholly-owned subsidiary of the Company, relocated to Somerville, Alabama from the above mentioned Decatur facility. Highland entered into $1,500 month to month lease agreement for 12,000 sq. ft. of manufacturing space, sharing this same Somerville location with Chemland, another former wholly-owned subsidiary of the Company. Chemland currently has a $1,600 month to month lease agreement for 12,000 sq. ft. This Somerville facility is owned by Harvey Pride, Jr., an officer of the Company. The Company believes that all rents paid to POMS and Harvey Pride, Jr. by the Company, Highland and Chemland Divisions are comparable to what would be charged by an unrelated third party. The net rent paid to POMS by the Company for the year ended January 31, 1996, amounted to $331,950 and the total rent paid to Harvey Pride, Jr. by the Company for use by its Highland and Chemland divisions, for the year ended January 31, 1996, amounted to $37,200. During the year ended January 31, 1996 the Company made payments totaling $11,430 to Madison Mobile Storage, Inc. for trailer rentals, and $564,519 for expenses incurred by Madison Mobile Storage, Inc. in running the Company's Missouri facility. Such expenses included payroll, insurance, auto and other miscellaneous expenses. The principal shareholder of Madison Mobile Storage, Inc. is Mr. Harvey Pride, Jr. who is also an officer of the Company. The Company paid or accrued legal fees of $375 for the fiscal year ended January 31, 1996 to the law firm of Wildman, Harrold, Allen, Dixon & Smith, the Company's General Counsel, of which a partner, Mr. Thomas Smith, is the brother of Raymond J. Smith. OTHER MATTERS The Board of Directors knows of no matters other than those described above that may come before the Annual Meeting. As to other matters, if any, that properly may come before the Annual Meeting, the Board of Directors intends that proxies in the accompanying form will be voted in respect thereof in accordance with the judgment of the person or persons voting the proxies. STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING Stockholder proposals for inclusion in the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders must be received by the Company not later than January 1, 1997. The person submitting the proposal must have been a record or beneficial owner of the Company's Common Stock for at least one year and must continue to own such securities through the date on which the meeting is held, and the securities so held must have a market value of at least $1,000. Any such proposal will be included in the Proxy Statement for such Annual Meeting if the rules of the Securities and Exchange Commission are complied with as to the timing and form of such proposal, and the content of such stockholder's proposal is determined by the Company to be appropriate under rules promulgated by the Commission. By the Order of the Board of Directors Christopher J. Ryan, Secretary May 13, 1996 Lakeland Industries, Inc. o 711-2 Koehler Avenue o Ronkonkoma, New York 11779-7410 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Raymond J. Smith and John J. Collins as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated below, all the shares of common stock of Lakeland Industries, Inc. held of record by the undersigned on April 29, 1996, at the annual meeting of stockholders to be held on June 19, 1996 or any adjournment thereof. 1. ELECTION OF DIRECTORS / / FOR nominee listed below / / WITHHOLD AUTHORITY (except as marked to the contrary below) to vote for nominee listed below Christopher J. Ryan (Instruction: To withhold authority to vote for any individual nominee write that nominee's name on the space provided below.) _______________________________________________________________________________ 2. OTHER BUSINESS 1. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. (Continued and to be signed on the other side) This proxy when properly executed will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, this proxy will be voted for Proposal 1. DATED:________________1996 _________________________ Signature _________________________ Signature if held jointly Please sign exactly as name appears below. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. PLEASE DATE, VOTE, SIGN AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. EX-27 5 FINANCIAL DATA SCHEDULE
5 The schedule contains summary financial information extracted from [identify specific financial statements[s]] and is qualified in its entirety by reference to such financial statement[s]. 1 YEAR JAN-31-1996 FEB-01-1995 JAN-31-1996 364,640 0 4,979,975 0 11,244,241 17,511,632 1,026,203 0 19,262,732 3,894,076 0 0 0 25,500 5,981,226 19,262,732 40,188,916 40,188,916 33,901,232 4,882,112 0 0 511,180 955,622 369,000 586,622 0 0 0 586,622 .22 .22
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