-----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, WKeohkUE0JKuhsYiP4Tesam96P3Sd6nPWwXQr50hxwZTGOSUS/P4mCX0dIHV7Qqi 90sgrZzWOf0rWeSQTg8pcA== 0000914317-02-000483.txt : 20020501 0000914317-02-000483.hdr.sgml : 20020501 ACCESSION NUMBER: 0000914317-02-000483 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020131 FILED AS OF DATE: 20020501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAKELAND INDUSTRIES INC CENTRAL INDEX KEY: 0000798081 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [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: 02629921 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 CITY: RONKONKOMA STATE: NY ZIP: 11779 10-K 1 form10k-44801.txt FORM 10-K - ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (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, 2002 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) (631) 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 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 [ ] 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 [ ]. The aggregate market value of the Common Stock outstanding and held by non-affiliates (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 17, 2002 was approximately $14,941,656 (based on 1,624,093 shares held by non-affiliates). The number of shares outstanding of the Registrant's common stock, $.01 par value, on April 26, 2002 was 2,684,600. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended January 31, 2002 are incorporated by reference in Items 5-7A of Part II and certain portions of the Registrant's Definitive Proxy Statement, for the Annual Meeting of Stockholders to be held June 19, 2002, are incorporated by reference in Items 10 - - 13 of Part III of this Annual Report on Form 10-K. A-1 THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN STATEMENTS THAT ARE NOT HISTORICAL FACTS AND MAY BE FORWARD-LOOKING. SUCH STATEMENTS INVOLVE ESTIMATES, ASSUMPTIONS, RISKS AND UNCERTAINTIES. THERE IS NO ASSURANCE THAT FUTURE RESULTS WILL NOT DIFFER MATERIALLY FROM THOS EXPRESSED IN THE FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO BE MATERIALLY DIFFERENT FROM THE FORWARD-LOOKING STATEMENTS WHICH ARE DISCLOSED THROUGHOUT THIS FORM 10-K. PART I ITEM 1. BUSINESS - -------------------------------------------------------------------------------- Lakeland Industries, Inc. (the "Company") believes that it is a leading manufacturer of a comprehensive line of safety garments and accessories for the industrial safety and protective clothing industries in the United States. The Company's major product areas include disposable / limited use protective industrial garments, specialty safety and industrial work gloves, reusable woven industrial and medical apparel, fire and heat protective clothing along with protective systems for personnel, and body suits for use by toxic waste, and hazmat clean up teams and "first responders" to acts of terrorism. Products are manufactured both domestically and internationally by the Company and by contract manufacturers. Products are sold by Company personnel and 44 independent sales representatives, primarily to a network of 500 safety and mill supply distributors. The Company's protective garments are used primarily for: (i) safety and hazard protection, to protect the wearer from contaminants or irritants, such as, chemicals, pesticides, fertilizers, paint, grease, and dust and from limited exposure to hazardous waste and toxic chemicals including acids, asbestos, lead, and hydro-carbon's (PCB's) (ii) clean room environments, for the prevention of human contamination of manufacturing processes in clean room environments, (iii) hand and arm protection, to protect the wearer's hand and arms from lacerations, heat and chemical irritants without sacrificing manual dexterity or comfort, (iv) heat and fire protection, to protect municipal fire fighters, military, airport and industrial fire fighting teams and for maintenance of "hot" equipment, such as, coke ovens, kilns, glass furnaces, refinery installations, and smelting plants, (v) protection from viral and bacterial microbiologicals, to protect the wearer from contagious diseases, such as AIDS and hepatitis, at hospitals, clinics and emergency rescue sites, and (vi) protection from highly concentrated and powerful chemical and biological toxins, to protect the wearer from toxic wastes at Super Fund sites, accidental toxic chemical spills or biological discharges, the handling of chemical or biological warfare weapons and the cleaning and maintenance of chemical, petro-chemical and nuclear facilities, and by first responders to acts of terrorism. These products are manufactured, distributed and sold through four divisions and four wholly owned subsidiaries. The Company was incorporated in New York in 1982 and later reincorporated in Delaware in 1986. A new subsidiary, Fireland Industries, Inc. was formed during fiscal 1994 to act as Trustee and Sponsor of the Fireland Industries, Inc. Pension Plan. During fiscal 1998, the name of this subsidiary was changed to Laidlaw, Adams & Peck, Inc. Effective February 1, 1999, and October 1999 the China divisions, Weifang Lakeland Safety Products Co., Ltd., and MeiYang Protective Products Co., Ltd. were registered as enterprises in China and are accounted for as a wholly owned subsidiary of the Company and of the Company's subsidiary Laidlaw, Adams & Peck, Inc., respectively. Lakeland de Mexico S. A. de C.V. was incorporated in Mexico on September 13, 1995 and Lakeland Protective Wear, Inc. was incorporated in Canada on December 13, 1994. Both are accounted for as wholly owned subsidiaries of the Company. 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. A-2 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. 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 as promulgated under prior Congressional Super Fund Acts. 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. Various states have also enacted worker safety laws which are equal to or go beyond OSHA standards and requirements, as it affects the Company's products. 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. The growth in the markets for disposable/limited use garments in the industrial safety market has resulted from the following factors: o lower cost of disposable/limited use garments as opposed to reusable woven and cloth garments due to the elimination of costs associated with laundering, decontaminating, handling, transporting and replacing reusable woven or cloth garments; o the promulgation of federal (OSHA) and state regulations requiring that employees wear protective clothing to protect against exposure to certain contaminants, such as, asbestos, PCB(s), lead, acids and other numerous hazardous chemicals and radioactive materials; o increasing workmen's' compensation claims and large class action liability suits instituted by both present and prior employees for failure to be protected against hazardous agents found in the workplace. o The Federal Government's response to the events of September 11, 2001. Homeland Security legislation already passed, and additional legislation in House and Senate Conference Committees propose and provide for the release of close to a billion dollars for the purchase of equipment by fire, and police departments, emergency medical personnel, military and federal law enforcement personnel and other so called "first responders" to a terrorist threat or attack. In general, manufacturers of industrial and safety clothing were considered to be highly fragmented, since they consisted of a large number of closely held small family businesses. However, most of the companies that competed directly with Lakeland in disposable limited use protective garments have closed their doors over the last couple of years or sold their assets. Accordingly, the Company believes that the industries encompassed by disposable/limited use protective garments, industrial work gloves, reusable woven industrial and medical apparel and fire and heat protective clothing could present attractive acquisition opportunities. There are few, if any, dominant personal protective apparel manufacturers, and the market is witnessing significant ongoing consolidation activity, both at the manufacturing level and at the safety distributor customer level. A-3 Products - General The following table summarizes the principal products manufactured and/or sold by the Company, organized by the respective fabric's principal markets/uses therefore:
- -------------------------------- ------------------------------ --------------------------- -------------------------------- Product Raw Material Protection Against User Industry - -------------------------------- ------------------------------ --------------------------- -------------------------------- o Limited Use/Disposable o Tyvek(TM)and Contaminants, irritants, o Chemical/petrochemical Protective Clothing TyvekQC(TM)laminates of chemicals, fertilizers, industries Polyethylene, MicromaxTM, pesticides, acids, SMS,Polypropylene, asbestos, PCB(s), lead o Automotive and PyrolonTM,and other and other hazardous pharmaceutical industries non-woven fabrics chemicals o Public utilities o Government (Terrorist Response) o Janitorial - -------------------------------- ------------------------------ --------------------------- -------------------------------- o Gloves o Kevlar(TM)yarns Cuts, lacerations, heat o Chemical plants o Arm guards o Spectra(TM)yarns and chemical irritants o Automotive, glass and metal fabrication industries - -------------------------------- ------------------------------ --------------------------- -------------------------------- o Fire fighting apparel o Neoprene Fire, burns and excessive o Municipal, corporate o Nomex(TM) heat and volunteer fire o Gortex(TM) departments o Indura(TM) o Airport crash rescue - -------------------------------- ------------------------------ --------------------------- -------------------------------- o Heat protective o Aluminized Nomex(TM) Fire, burns and excessive Hot equipment maintenance aluminized fire suits o Aluminized Kevlar(TM) heat personnel and industrial fire departments - -------------------------------- ------------------------------ --------------------------- -------------------------------- o Protective woven o Cotton Polyester blends o Protects o Hospital and reusable garments manufactured products Industrial Facilities o Cotton from human o clean room o Polyester contamination or environments o Staticsorb(TM)Carbon static electrical o Emergency Medical Thread C-3 Polyester charge Ambulance Services o FR Cottons o Bacteria, viruses and blood borne pathogens - -------------------------------- ------------------------------ --------------------------- -------------------------------- o High end Chemical o TyChem SL(TM) Chemical spills o Hazardous material protective suits o TyChem TK(TM) Toxic chemicals used in teams o TyChem BR(TM) manufacturing processes o Chemical and nuclear o Other Company Terrorist Threat or industries-various uses patented Co-Polymer Attacks. o Government (Terrorist Laminates Response) - -------------------------------- ------------------------------ --------------------------- --------------------------------
Limited Use/Disposable Protective Clothing The Company manufactures a complete line of disposable/limited use protective garments at its U.S., Mexican and Chinese assembly facilities. 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), TyvekQC(TM), TyChem SL(TM), TK(TM), and BR(TM), Pyrolon FR(TM), MicromaxTM and Safegard76TM, ZonegardTM, Body GuardTM, RyTexTM and TomTexTM which are made of polypropylene and polyethylene materials, laminates, 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. A-4 Disposable/limited use industrial garments are used in a wide variety of industries and applications. Typical industry users are chemical plants, petro chemical refineries and related installations, automotive manufacturers, pharmaceutical companies, coal and oil power generation utilities and telephone utility companies. There are many smaller industries that use these garments for specific safety applications unique to their situation. The Company's limited use garments range in price from $.06 for disposable/limited use shoe covers to approximately $14.00 for TyChem SL(TM) 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 $3.75 per garment. By comparison, similar re-usable cloth coveralls range in price from $20.00 to $60.00, exclusive of significant laundering, maintenance and shrinkage expenses. The Company cuts, warehouses and sells its disposable/limited use garments primarily at its Decatur, Alabama and China facilities. The fabric is first cut into required patterns at this plant which is ISO 9001 certified. The cut fabric and any necessary accessories, such as zippers or elastic, are then obtained from the Company's plant by the Company's wholly owned assembly facilities or independent sewing contractors. The Company's assembly facilities in China or Mexico and independent contractors sew and package the finished garments at their own facilities and return them to the Company's plant, normally within one to eight weeks for immediate shipment to the customer. The Company presently utilizes over 11 independent sewing contractors under agreements that are terminable at will by either party. These contractors employ approximately 140 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 fiscal year ended January 31, 2002, no independent sewing contractors accounted for more than 5% 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. 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 its facilities complemented by the use of independent sewing contractors, the Company is capable of reducing or alternately increasing by 20% its production capacity without incurring large on-going costs typical of many manufacturing operations. This allows the Company to react quickly to changing unit demand for its products. Gloves and Arm Guards The Company manufacturers and sells specially designed gloves and sleeves made from Kevlar(TM). The Company is one of five companies licensed in North America 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, glass and metal fabrication industries. The Company is devoting an increasing portion of its manufacturing capacity to the production of Kevlar(TM) , Spectra(TM) and Company patented yarns to make gloves, which carry a higher profit margin than commodity gloves. Spectra(TM) is a cut resistant fiber made by Honeywell. In order to maintain a full line of gloves, however, the Company intends to continue to produce or import commodity gloves as necessary to meet customer 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. The Company's Kevlar(TM) and Spectra(TM) gloves range in price from $37.00 to $240.00 for a dozen pair. The Company also manufactures gloves at its Decatur, 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. A-5 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. The Company has applied for patents that allows its manufacturing process to build in additional hand protection in the areas of a glove where it is needed in various applications. Until now the same level of protection was uniform in the entire glove. For example, the top or back of a glove does not usually need the same thickness as the palm or thumb of a glove. Consequently, this patent will allow the company to produce its gloves more economically. Heat Protective and Fire Fighting Apparel The Company's products protect individuals that must work in high heat environments and the Company has been the creator, innovator and inventor of protective systems for high heat or hazardous occupations for the last 14 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 protective aluminized fire suits 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 apparel 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 this product division, 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 standard fire department turn-out gear to $2,000 for the fire entry suit. All the manufacturing is done at the Company's facility in St. Joseph, Missouri. Protective Woven Reusable Garments The Company also manufactures and markets a line of reusable and washable woven cloth protective apparel which supplement the disposable / limited use garments, giving the Company access to the much larger woven industrial and health care related markets. Cloth reusable garments are more appropriate in certain situations or applications because of worker familiarity with and acceptance of these fabrics and woven cloth's heavier weight, durability and longevity. These products give the Company the flexibility to supply and satisfy a wider range of safety and customer needs. The Company designs and manufactures: o special anti-static apparel, primarily for the automotive industry (perceived as a premium-priced product) o clean room apparel as used in the most sophisticated semiconductor manufacturing facilities o hospital garments for protection against blood borne pathogens o jackets and bib overalls for use by emergency medical rescue teams The Company's reusable wovens range in price from $10 to $80 per garment. The Company manufactures and sells woven cloth garments at its facility in St. Joseph, 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. High-End Chemical Protective Suits The Company manufactures heavy duty fully encapsulated chemical suits made from Dupont TyChem TK(TM) and TyChem BR(TM) fabrics. 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, chemical and A-6 electronic plants. The Company's line of chemical suits range in cost from $24 per coverall to $1,926. 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 flash fire hazards. The Company has also introduced four National Fire Protection Agency ("NFPA") approved garments for varying levels of protection required depending on field conditions: TyChem TK(TM) - is a co-polymer film laminated to a durable spunbonded substrate. It offers the broadest temperature range for limited use garments -25F to 225F degrees. TyChem TK(TM) meets all OSHA Level A requirements. It is available in NFPA 1991-94 certified versions when worn with an aluminized over cover. TyChem BR(TM) - meets all OSHA Level B and all NFPA 1993 fabric requirements and offers excellent splash protection against a wide array of chemicals. The Company manufactures chemical protective clothing at its facilities in Decatur, AL, St. Joseph, MO and Mexico. After the Company obtains fabrics such as TyChem TK(TM) and TyChem BR(TM), it designs, cuts, glues and/or sews the materials to meet customer purchase orders. Due to Homeland Security Measures and governmental funding of Personal Protective Equipment for "first responders" to terrorist threats or attack, the Company believes demand for these suits which protect against chemical, nuclear, and biological hazard will increase substantially over the next two years. Sales of TyChem TK(TM), TyChem SL & Coated Tyvek and and TyChem BR(TM) increased by 36.7% in the last fiscal year, with much of the increased sales coming in the four months after the events of September 11, 2001. The federal government through the Federal Emergency Management Agency (FEMA) has already allocated $360 Million to fire departments in the United States and its territories to purchase among other things "Personal Protective Equipment" which include two of the Company's product lines "Heat Protective and Fire Fighting Apparel" and "High-end Chemical Protective Suits". The Administration's proposed budget for Homeland Security includes an additional $337 Million for Bio-Defense Equipment and another $770 Million to purchase equipment for "first responders" such as fire, police, medical and military personnel. Such purchases of equipment will include Personal Protective Equipment made by the Company. Quality Control To assure quality, Company employees monitor the sewing of disposable / limited use garments at its own Mexican and Chinese facilities and at the facilities of independent sewing contractors and also inspect the garment upon delivery to the Company's facilities. Finished product that is below standard is returned to the contractor for reworking. The Company has been required on a few occasions to return product to its independent sewing contractors. The Company conducts quality control inspections of its industrial gloves, cloth, fire and chemical garments throughout the manufacturing process. The Company's Alabama, Missouri, Mexico and China manufacturing facilities are ISO 9001 or 9002 certified. ISO standards are internationally recognized quality manufacturing standards established by the International Organization for Standardization based in Geneva, Switzerland. To obtain its ISO registration, the Company's factories were independently audited to ensure compliance with the applicable standards, and to maintain registration, the factories receive regular announced inspections by an independent certification organization. The Company believes that the ISO 9001 and 9002 registration makes it more competitive in the marketplace, as customers are increasingly recognizing the standard as an indication of product quality. Marketing and Sales The Company's products are sold primarily by over 500 safety and mill supply distributors including four of the five leading North American distributors. Sales of the Company's products are solicited by (16) agencies engaging 44 independent sales representatives. The Company also employs an in-house sales force of nine (9) people. These independent representatives call on over 500 safety and industrial distributors nationwide and promote and sell the Company's products to 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 service accounts properly. The independent representatives maintain regular interaction with end users and decision makers at the distribution level, thereby providing the Company with valuable feedback on market perception of the Company's products, as well as new developments within the industry. During the year ended January 31, 2002, no one distributor accounted for more than 5% of sales. A-7 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 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 Atlanta, GA (Fall of 2001) and at the American Industrial Hygienists Convention (Spring of 2001). Research and Development The Company has a history of new product development and innovation and has recently introduced the Grapolator(TM) and Kut Buster(TM) glove and sleeve lines which combine a stainless steel wire core combined with high strength man made fibers providing the ultimate in cut protection without sacrificing dexterity, and additionally the patented Thermbar Mock Twist(TM) which provides heat protection for temperatures up to 600o F. The Company has 12 patents on various fabrics and production machinery. The Company plans to continue to be an innovator in protective apparel fabrics, manufacturing equipment, and intends to introduce new products to the market place in the future. Specifically, the Company plans to develop new anti-static reusable gowns for the automotive industry made of specially knit polyester with carbon threads, new fire retardant cotton fabrics and will continue to dedicate resources to research and development. 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 product lines. Tyvek(TM) and Kevlar(TM), however, are purchased from Dupont under trademark licensing agreements. Polypropylene, Polyethylene, Polyvinyl Chloride, Spunlaced Polyester and their derivatives are available from thirty or more major mills, while 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 thread, boxes, 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 also has not experienced difficulty in obtaining materials, including cotton, polyester and nylon, used in the production of reusable non-wovens and 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 its raw materials, fabrics or components on any of the above described products. The Company obtains the Spectra(TM) yarn used in its Dextra Guard(TM) gloves from Honeywell. The Company believes that Honeywell will be able to meet the Company's needs for Spectra(TM). 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) and Gortex(TM), as well as combinations utilizing neoprene coatings. The chemical protective suits are made of Viton(TM), butyl rubber, PVC (available from multiple sources), proprietary and Company patented laminates and Teflon(TM), Tyvek QC(TM), TyChemTK(TM) and TyChem BR(TM) from Dupont. The Company has not experienced difficulty obtaining any of the aforementioned materials. Competition The Company's business is in a highly competitive industry. The Company believes that the barriers to entry in each of the fields in which it operates are relatively low, except in Tyvek(TM) disposable limited use clothing and TyChem High-end Chemical Protective Suits, because of the limited number of licensees that DuPont sells these fabrics to. The Company faces competition in some of its other product markets from large established companies that have greater financial, managerial, sales and technical resources than the Company. Where larger competitors offer products that are directly competitive with the Company's products, particularly as part of an established line of products, there can be no assurance that the Company can successfully compete for sales and customers. Larger competitors also may be able to benefit from economies of scale or introduce new products that compete with the Company's products. Seasonality The Company's quarterly operating results have varied and are expected to continue to vary in the future. These fluctuations may be caused by many factors, including seasonal buying patterns, demand for the Company's products, competitive pricing and services, the size and timing of individual sales, the lengthening of the Company's sales and A-8 production cycle, competitive pricing pressures, customer order deferrals in anticipation of new products, changes in the mix of products and services sold, the timing of introductions and enhancements of products by the Company or its competitors, market acceptance of new products, technological changes in fabrics or production equipment used to make the Company's products, changes in the Company's operating expenses, changes in the mix of domestic and international revenues, the Company's ability to complete fixed price government or private long-term contracts within a budget, personnel changes, expansion of international operations, changes in the Company's strategies, and general industry and economic conditions. The Company's business has experienced, and is expected to continue to experience, seasonal fluctuations due in large part to the cyclical nature of certain industrial customers' businesses, and governmental budget cycles. 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 ten year licensing arrangement covering seven patents in the Company's name, five Company developed patents, two additional patents in the application and approval process with the U.S. Patent and Trademark office, and has one non-exclusive agreement with Dupont regarding patented materials used in the manufacture of chemical suits, and one patent with Lavian Corporation providing for exclusive rights to the North American markets and semi-exclusive rights to other international markets subject to royalty payments based on yards sold and annual dollar minimums. Employees As of April 17, 2002, the Company had approximately 1,311 full-time employees (79.7% or 1,045 of whom were international and 266 or 20.3% of whom were domestic). The Company has experienced a low turnover rate among its employees. The Company believes its employee relations to be excellent. ITEM 2 Properties - -------------------------------------------------------------------------------- The Company leases three domestic manufacturing facilities, four foreign manufacturing facilities, one Canadian warehouse facility and a corporate office headquarters. The Company's 141,288 approximate square foot manufacturing facilities in Decatur, Alabama, are used in the production and storage of disposable / limited use garments. The Alabama facilities are leased entirely by the Company from partnerships consisting primarily of Directors, certain officers and certain stockholders of the Company, pursuant to two lease agreements expiring on May 31, 2004 and August 31, 2004. Early in 1999, the Company entered into a one year (renewable for four additional one year terms) lease agreement with an officer of the Company, for 2400 sq. ft. customer service office. This is located next to the existing Decatur, Alabama facility mentioned above. The Company leases 44,000 square feet of manufacturing space in St. Joseph, Missouri, from a third party, which is used in the manufacturing of chemical suits, woven cloth garments and other cloth products. This lease expires on July 31, 2004. The Company's Mexican subsidiary leases two manufacturing facilities from third parties, on open contracts, totaling 28,816 square feet. The Company also utilizes a 46,000 square foot manufacturing facility in China. There is a real estate appreciation rights and rent sharing agreement with a consortium of American and Chinese individuals (which include the Company itself, and certain officers, employees and the directors of the Company). This agreement provides that in consideration of the Consortium's financing the construction of the building and leasing of the real property in 1997, that Weifang Lakeland Safety Products Co., Ltd. pay the Consortium $49,000 a year starting in October 2002, or sooner, when all bank debt on the property is paid off, and to release to the Consortium the proceeds of any sale of the building and real property leases. The Company has a 28% interest in this Consortium. A second auxiliary facility to this main facility is rented on an annual basis starting April 10, 2001 at a monthly rent of $1,109 for 16,000 square feet. The Company leases a 5,600 square foot warehouse in Canada from a third party under a lease expiring on November 30, 2002, a renewal is expected prior to expiration. A-9 The Company leases 4,362 square feet of office space in Ronkonkoma, New York, from a third party, in which its corporate, executive and sales offices are located. This lease expires on June 30, 2003 with an option to renew for an additional year. For the years ended January 31, 2002, 2001 and 2000, the Company paid total rent on property and all leased equipment of approximately $858,000, $891,000 and $833,000, respectively. 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 individually or in the aggregate 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 6 ("Market for the Registrant's Common Stock and Related Stockholder Matters") of the Registrant's 2002 Annual Report to Shareholders filed as Exhibit 13 hereto and incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.) ITEM 6. SELECTED FINANCIAL DATA - -------------------------------------------------------------------------------- Reference is made to Page 1 ("Selected Financial Data") of the Registrant's 2002 Annual Report to Shareholders filed as Exhibit 13 hereto and incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.) ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - -------------------------------------------------------------------------------- Reference is made to Page 2 ("Management's Discussion and Analysis of Financial Condition and Results of Operations") of the Registrant's 2002 Annual Report to Shareholders filed as Exhibit 13 hereto and incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.) ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------------------- Reference is made to Page 5 ("Quantitative and Qualitative Disclosures about Market Risk") of the Registrant's 2002 Annual Report to Shareholders filed as Exhibit 13 hereto and incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - -------------------------------------------------------------------------------- The following Consolidated Financial Statements are incorporated herein by reference to Pages 7 to 21 of the Registrant's Annual Report to Shareholders for the year ended January 31, 2002: Report of Independent Certified Public Accountants Consolidated Balance Sheets - January 31, 2002 and 2001 Consolidated Statements of Income for the years ended January 31, 2002, 2001 and 2000 Consolidated Statement of Stockholders' Equity for the years ended January 31, 2002, 2001 and 2000 Consolidated Statements of Cash Flows for the years ended January 31, 2002, 2001 and 2000 Notes to Consolidated Financial Statements A-10 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 2002 Annual Meeting of Stockholders ("Proxy Statement"), which information is included in Exhibit 20 hereto and incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.) 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 63 Chairman of the Board, President and Director Christopher J. Ryan 50 Executive Vice President, General Counsel, Secretary and Director Harvey Pride, Jr. 55 Vice President - Manufacturing James M. McCormick 54 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 and director since May, 1986, Secretary since April 1991and General Counsel since February 2000. From October 1989 until February 1991 Mr. Ryan was employed by Sands Brothers & 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 included in Exhibit 20 hereto and incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.) 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 included in Exhibit 20 hereto and incorporated herein by reference. (See Part IV, Item 14(c) Exhibits.) A-11 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. (See Part IV, Item 14(c) Exhibits.) PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8 - K - -------------------------------------------------------------------------------- (a) Index to Consolidated Financial Statements and Schedule: 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, 2002, as noted in Item 8 hereof: Report of Independent Certified Public Accountants Consolidated Balance Sheets - January 31, 2002 and 2001 Consolidated Statements of Income for the years ended January 31, 2002, 2001 and 2000 Consolidated Statement of Stockholders' Equity for the years ended January 31, 2002, 2001 and 2000 Consolidated Statements of Cash Flows for the years ended January 31, 2002, 2001 and 2000 Notes to Consolidated Financial Statements 2. Financial Statement Schedules The following consolidated financial statement schedule is included in Part IV of this report: Schedule II - Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. (b) Reports on Form 8 - K. No report on Form 8 - K has been filed for the quarter ended January 31, 2002. (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 September 1, 1999 10 (b) Lease agreement between Southwest Parkway, Inc., as lessor, and the Company, as lessee, dated August 1, 2001. 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 January 23, 1998. A-12 10 (h) Employment agreement between the Company and Harvey Pride, Jr., dated January 31, 1998. 10 (i) Lease between Lakeland Industries, Inc. and JBJ Realty, dated April 16, 1999. 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 1,2000. 10 (l) Loan agreement dated March 9, 2001 between the Company and Merrill Lynch. 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. 10 (o) Lease Agreement between River Group Holding Co., LLP, as lessor, and the Company, as lessee, dated June 1, 1999. 10 (p) Lease Agreement between Harvey Pride, Jr., as lessor, and the Company, as lessee, dated March 1, 1999. 10 (q) Term loan and security agreement between the Company and Merrill Lynch, dated November 1, 1999. 10 (r) Employment Agreement between the Company and James M. McCormick dated February 2,2000. 11 Consent of Grant Thornton LLP dated April 15, 2002*** 13 Annual Report to Shareholders for the year ended January 31, 2002 20 Proxy Statement of the Registrant for Annual Meeting of Stockholders - June 19, 2002 22 Subsidiaries of the Company (wholly-owned): Lakeland Protective Wear, Inc. Lakeland de Mexico S.A. de C.V. Laidlaw, Adams & Peck, Inc. Weifang Lakeland Safety Products Co. Ltd. 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. A-13 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 30, 2002 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, - ------------------------ President and Director April 30, 2002 Raymond J. Smith (Principal Executive Officer) /s/ Christopher J. Ryan Executive V. P. - Finance April 30, 2002 - ------------------------ & Secretary and Director Christopher J. Ryan /s/ James M. McCormick Vice President and Treasurer April 30, 2002 - ------------------------ (Principal Financial and James M. McCormick Accounting Officer) /s/ Eric O. Hallman Director April 30, 2002 - ------------------------ Eric O. Hallman /s/ John J. Collins, Jr. Director April 30, 2002 - ------------------------ John J. Collins, Jr. /s/ Walter J. Raleigh Director April 30, 2002 - ------------------------ Walter J. Raleigh A-14 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, 2002 Allowance for doubtful accounts (a) $221,000 $83,965 $83,965 (b) $221,000 ======== ======= ======= ======== Year ended January 31, 2001 Allowance for doubtful accounts (a) $200,000 $30,176 $ 9,176 (b) $221,000 ======== ======= ======= ======== Year ended January 31, 2000 Allowance for doubtful accounts (a) $200,000 $20,700 $20,700 (b) $200,000 ======== ======= ======= ========
- ---------------------------- (a) Deducted from accounts receivable. (b) Uncollectible accounts receivable charged against allowance. EX-11 3 exhibit11.txt EXHIBIT II CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated April 15, 2002, accompanying the consolidated financial statements and schedule included in the Annual Report of Lakeland Industries, Inc. and Subsidiaries on Form 1O-K for the fiscal year ended January 31, 2002. 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 15, 2002 EX-13 4 exhibit13.txt SELECTED FINANCIAL DATA (In thousands, except per share and share amounts)
For the Years Ended January 31, 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- INCOME STATEMENT DATA: Net sales $ 76,431 $ 76,108 $ 58,644 $ 54,655 $ 47,263 Gross profit 13,137 11,310 10,488 10,374 9,195 Operating expenses 9,549 8,619 7,191 6,451 6,157 Operating profit 3,589 2,691 3,297 3,923 3,038 Income before income taxes 2,816 1,485 2,509 3,222 2,590 Net income 1,970 1,123 1,748 2,080 1,600 Earnings per share - Basic $ .74 $ .42 $ .66 $ .79 $ .63 ========== ========== ========== ========== ========== Earnings per share - Diluted $ .73 $ .42 $ .65 $ .77 $ .61 ========== ========== ========== ========== ========== Weighted average common shares outstanding: Basic 2,663,600 2,645,446 2,653,950 2,642,170 2,558,541 Diluted 2,683,711 2,667,161 2,673,449 2,690,920 2,627,425 BALANCE SHEET DATA(at end of year): Working capital $ 16,766 $ 16,047 $ 15,909 $ 12,403 $ 18,903 Total assets 42,417 38,628 34,770 27,160 25,812 Current liabilities 22,778 20,052 16,551 12,915 5,007 Long-term liabilities 609 1,981 2,759 465 9,217 Stockholders' equity $ 18,727 $ 16,537 $ 15,405 $ 13,725 $ 11,518
1 AUTIONARY STATEMENTS - -------------------------------------------------------------------------------- This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are all statements other than statements of historical fact included in this report, including, without limitation, the statements under the headings "Business", "Properties", "Legal Proceedings", "Market for Registrant's Common Stock and Related Stockholder Matters", and "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position, liquidity, capital resources and the Company's strategic alternatives, future capital needs, development and capital expenditures (including the amount and nature thereof), future net revenues, business strategies, competitive and supply relationships between the Company and its primary supplier, new products, government purchasing patterns and contracts and other plans and objectives of management of the Company for future operations and activities. We may use words such as "believe", "anticipate", "expect", "will", "intend", "estimate" and similar expressions to identify forward looking statements. Forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances. These statements are subject to a number of assumptions, risks and uncertainties, and factors in the Company's other filings with the Securities and Exchange Commission (the "Commission"), general economic and business conditions, the business opportunities that may be presented to and pursued by the Company, changes in law or regulations and other factors, many of which are beyond the control of the Company. Readers are cautioned that these statements are not guarantees of future performance, and that actual results or developments may differ materially from those projected in the forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- The following Management's Discussion and Analysis of Financial Condition and Results of Operations may include forward-looking statements with respect to the Company's future financial performance. These forward-looking statements are subject to various risks and uncertainties, including the factors described elsewhere in this Report, that could cause actual results to differ materially from historical results or those currently anticipated. Overview - -------- The Company derives the majority of its revenues from the sale of its TyvekTM disposable limited/use garments and secondarily from the sales of its cut and heat resistant gloves, woven reusable garments, heat and fire protective clothing, and chemical suits all to safety and mill supply distributors. The Company generally recognizes revenues when it ships its product to its customers. Cost of goods sold includes all direct costs to manufacture the finished product, plus related costs associated with inland or ocean freight on incoming raw materials, customs duty and warehousing, and manufacturing overhead expenses. Selling expenses include all salaries for sales and marketing staffs together with other related expenses such as sales commissions, travel costs, trade shows, advertising and delivery expenses. General and administrative expenses include salaries for executives and administrative and MIS staff, together with related expenses such as travel costs, non-manufacturing facilities costs and consulting and professional fees. Result of Operations - -------------------- The following table sets forth items in the Company's consolidated statement of operations as a percentage of revenues for the periods indicated. 2 Years Ended January 31, 2002 2001 2000 ---- ---- ---- Revenues 100.0% 100.0% 100.0% Cost of Goods Sold 82.8 85.1 82.1 Selling, general and administrative expenses 12.5 11.3 12.3 Depreciation and amortization expense .8 .9 1.0 Operating profit 4.7 3.5 5.6 Interest expense, net 1.1 1.6 1.4 Income tax expense 1.1 .48 1.3 Net income 2.6 1.5 3.0 EBITDA margin (1) 5.7 4.5 6.7 - ------------- (1) EBITDA (earnings before interest, taxes, depreciation and amortization) margin represents EBITDA expressed as a percentage of revenues. Fiscal Year Ended January 31, 2002 Compared to Fiscal Year Ended January 31, 2001 - -------------------------------------------------------------------------------- Net Sales.Net sales for the year ended January 31,2002 increased $323,000 or .42% to $76,431,000 from $76,108,000 for the year ended January 31, 2001. The small increase in sales was principally attributable to recessionary economic conditions, partially offset by a February 1, 2001 price increase in the Company's TyvekTM line of products. Gross Profit. Gross profit for the year ended January 31, 2002 increased by $1,827,000, or 16.2% to $13,137,000, or 17.2% of net sales, from $11,310,000, or 14.9% of net sales, for the year ended January 31, 2001. Gross profit as a percentage of sales increased by 2.3% due to increased selling prices, offset by an increase in the cost of raw materials (from a major supplier and competitor, DuPont) in February 2001, and a $150,000 reserve for a customs duty dispute related to the Company's Canadian subsidiary. It is anticipated that the reserve, set up in October 2001, will be adequate to cover future consulting charges and duty payments, if any. Operating Expenses. Operating expenses for the year ended January 31, 2002 increased by $929,000 or 10.8% to $9,548,000, or 12.5% of net sales, from $8,619,000, or 11.3% of net sales, for the year ended January 31, 2001. This increase was mainly due to higher freight costs, salaries and sales commissions, accrued bonus, insurance expense, and research and development expense. The Company paid $60,000 (during fiscal 2002) in consulting fees for representation to Canadian officials regarding the customs duty dispute mentioned above. Interest Expense. Interest expense for the year ended January 31, 2002 decreased by $366,000, or 29.5% to $882,000 from $1,248,000 for the year ended January 31, 2001. This decrease was principally due to a decrease in average borrowings under the Company's credit facility and to decreasing interest rates. Other Income, Net. Other income, net increased due to the receipt of $73,400 relating to the partial collection of an outstanding judgment. Income Tax Expense. The effective tax rate for the year ended January 31, 2002 and 2001 of 30 % and 24.4% respectively, deviates from the Federal statutory rate of 34%, mainly attributable to differing foreign tax rates and exemptions as well as to state income taxes. Net Income. As a result of the foregoing, net income for the year ended January 31, 2002, increased by $847,000 to $1,970,000 from $1,123,000 for the year ended January 31, 2001. 3 Fiscal Year Ended January 31, 2001 Compared to Fiscal Year Ended January 31, 2000 - -------------------------------------------------------------------------------- Net Sales. Net sales for the year ended January 31, 2001 increased $17,464,000 or 29.8% to $76,108,000 from $58,644,000 for the year ended January 31, 2000. The increase in sales was principally attributable to the Company's ability to increase its production capacity, maintain adequate inventory levels, and to the withdrawal of a major competitor from the TyvekTM markets, in which the Company secured certain business. The Company initiated a sales price increase effective with the commencement of fiscal 2002, which stimulated sales during the last month of fiscal 2001. Gross Profit. Gross profit for the year ended January 31, 2001 increased by $822,000, or 7.8% to $11,310,000, or 14.9% of net sales, from $10,488,000, or 17.9% of net sales, for the year ended January 31, 2000. The gross profit percentage decreased as a result of an increase in the cost of raw materials (from a major supplier [and now competitor] in February 2000) without a corresponding increase in selling prices. This was partially offset by manufacturing efficiencies (due to the use of automated equipment) and to higher sales volume. Competition increased during the second half of the year ended January 31, 2001, most severely in the fourth quarter as the industry's newest competitor lowered prices to gain market share. In most cases, the Company was forced to meet the competition. The second half of fiscal 2001 was also negatively affected by the relocation of manufacturing from an independent contractor to the company's facility in Missouri. Operating Expenses. Operating expenses for the year ended January 31, 2001 increased by $1,428,000 or 19.9%, to $8,619,000, or 11.3% of net sales, from $7,191,000, or 12.3% of net sales, for the year ended January 31, 2000. The increase in operating expenses is principally as a result of higher cost of freight, sales commissions, travel and show participation and use of temporary help due to higher sales volume, and also to increased medical expense, research and development expense. Interest Expense. Interest expense for the year ended January 31, 2001 increased by $426,000, or 52% to $1,248,000 from $821,000 for the year ended January 31, 2000. Interest expense increase was principally due to higher interest costs reflecting an increase in average borrowings under the Company's credit facility and to increasing interest rates. Income Tax Expense. The effective tax rate for the year ended January 31, 2001 and 2000 of 24.4% and 30.3% respectively, deviates from the Federal statutory rate of 34%, mainly attributable to differing foreign tax rates and exemptions as well as to state income taxes. Net Income. As a result of the foregoing, net income for the year ended January 31, 2001 decreased by $625,000 to $1,123,000 from $1,748,000 for the year ended January 31, 2000. - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Liquidity and Capital Resources. The Company's working capital is equal to $16,766,000 at January 31, 2002. The Company's primary sources of funds for conducting its business activities have been from cash flow provided by operations and borrowings under its credit facilities. The Company requires liquidity and working capital primarily to fund increases in inventories and accounts receivable associated with sales growth and, to a lesser extent, for capital expenditures. Net cash used in operating activities was $970,000 for the year ended January 31, 2002 and was due primarily to an increase in inventories of $3,819,000 and a decrease in accounts payable of $1,731,000 and offset by an increase in accounts receivable of $1,174,000 and net income from operations of $1,970,000. Net cash provided by financing activities of $2,778,000 was primarily attributable to net borrowings during the year in connection with a term loan and revolving credit facility. The revolving credit facility permits the Company to borrow up to a maximum of $18 million. The revolving credit agreement expires on July 31, 2002, and has therefore been classified as a short-term liability in the accompanying balance sheet at January 31, 2002. Borrowings under the revolving credit facility amounted to approximately $15,953,000 at January 31, 2002. The maturity date on the five year $3 million term-loan agreement entered into in November 1999 has been accelerated to expire on March 31, 2003. The Company believes that cash flow from operations and the expected renewal of the revolving credit facility will be sufficient to meet its currently anticipated operating, capital expenditures and debt service requirements for at least the next 12 months. Foreign Currency Activity - ------------------------- The Company's foreign exchange exposure is principally limited to the relationship of the U.S. Dollar to the Mexican Peso, Canadian Dollar and the Chinese RMB. 4 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk - ----------- The Company is exposed to market risk, including changes in interest rates and currency exchange rates. To manage the volatility relating to these exposures, the Company seeks to limit, to the extent possible its non-U.S. dollar denominated purchases and sales. Foreign exchange risk occurs principally with regard to Canadian subsidiary sales. Foreign Exchange Risk Management - -------------------------------- As a multinational corporation, the Company is exposed to changes in foreign exchange rates. As the Company's non-denominated U.S. dollar international sales grow, exposure to volatility in exchange rates could have an adverse impact on the Company's financial results. The Company's risk from exchange rate changes is presently related to non-dollar denominated sales in Canada. Interest Rate Risk - ------------------ The Company is exposed to interest rate change market risk with respect to its credit facility with a financial institution which is priced based upon LIBOR or 30 day commercial paper interest rates. At January 31, 2002, $17,207,000 was outstanding under the term-loan and revolving credit facilities. Changes in the above described interest rates during fiscal 2002 will have a positive or negative effect on the Company's interest expense. Each 1% fluctuation in one or both of the above rates will increase or decrease interest expense for the Company by approximately $172,000. Each 1% fluctuation in interest rates earned would not increase or decrease interest income on these deposits by a significant amount. Unaudited Quarterly Results of Operations (In thousands, except for per share amounts):
Fiscal Year Ended January 31, 2002: 1/31/02 10/31/01 7/31/01 4/30/01 Net Sales $ 19,858 $ 19,206 $ 17,932 $ 19,435 Cost of Sales 16,335 16,202 14,719 16,038 -------- -------- -------- -------- Gross Profit $ 3,523 $ 3,004 $ 3,213 $ 3,397 ======== ======== ======== ======== Net Income $ 367 $ 384 $ 530 $ 689 ======== ======== ======== ======== Basic and Diluted income per common share: Basic $ 0.14 $ 0.14 $ 0.20 $ 0.26 ======== ======== ======== ======== Diluted $ 0.13 $ 0.14 $ 0.20 $ 0.26 ======== ======== ======== ======== Fiscal Year Ended January 31, 2001: 1/31/01 10/31/00 7/31/00 4/30/00 Net Sales $ 20,130 $ 15,762 $ 18,109 $ 22,107 Cost of Sales 17,802 13,353 14,890 18,753 -------- -------- -------- -------- Gross Profit $ 2,328 $ 2,409 $ 3,219 $ 3,354 ======== ======== ======== ======== Net Income (loss) $ (64) $ 150 $ 376 $ 661 ======== ======== ======== ======== Basic and Diluted income (loss) per common share: Basic $ (.03) $ 0.06 $ 0.14 $ 0.25 ======== ======== ======== ======== Diluted $ (.03) $ 0.06 $ 0.14 $ 0.25 ======== ======== ======== ========
5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Common Stock is listed on the Nasdaq National Market under the symbol "LAKE". The following table sets forth for the periods indicated the high and low sales prices for the Common Stock as reported by the Nasdaq National Market. The Company has a January 31, fiscal year end.
Price Range of Common Stock --------------- High Low ---- --- Fiscal 2002 First Quarter ended April 30, 2001. . . . . . . . . . . . . $ 5 $3.99 Second Quarter ended July 31, 2001 . . . . . . . . . . . . 6.95 3.937 Third Quarter ended October 31, 2001 . . . . . . . . . . . 13.74 5.75 Fourth Quarter ended January 31, 2002. . . . . . . . . . . 13.10 8.11 First Quarter Fiscal 2003 (through April 19, 2002) . . . . 10.45 8.55 Fiscal 2001 First Quarter ended April 30, 2000. . . . . . . . . . . . . $4.75 $3.75 Second Quarter ended July 31, 2000 . . . . . . . . . . . . 7.50 5.375 Third Quarter ended Oct. 31, 2000 . . . . . . . . . . . . . 6.50 4.75 Fourth Quarter ended January 31, 2001. . . . . . . . . . . 5.25 3.375
As of April 17, 2002, there were approximately 77 record holders of shares of Common Stock. There are believed to be in excess of 500 beneficial shareholders in addition to those of record, since over 1.0 million shares are held in "street" name by Cede & Co., a large financial clearing house. The Company, on March 5, 2002 announced that it plans to issue a 10% Stock Dividend payable to holders of record as at July 31, 2002. This policy may continue on an annual basis, subject to approval by the Company's Board of Directors. The Company feels that over time that this dividend will increase the share float and trading activity in the Company's stock. The Company intends to retain any future earnings, for the operation and expansion of its business. The payment and rate of future cash dividends, if any, will depend upon the Company's earnings, financial condition, capital requirements, contractual restrictions under its agreement with its institutional lender and other factors. 6 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, 2002 and 2001, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended January 31, 2002. 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 auditing standards generally accepted in the United States of America. 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, 2002 and 2001, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended January 31, 2002, in conformity with accounting principles generally accepted in the United States of America. We have also audited Schedule II - Valuation and Qualifying Accounts for each of the three years in the period ended January 31, 2002. In our opinion, this schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information therein. GRANT THORNTON LLP Melville, New York April 15, 2002 7 Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS
January 31, 2002 2001 ---- ---- ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,760,635 $ 784,578 Accounts receivable, net of allowance for doubtful accounts of $221,000 at January 31, 2002 and 2001 9,600,738 10,858,288 Inventories 26,529,150 22,710,083 Prepaid income taxes 242,029 461,113 Deferred income taxes 888,000 624,000 Other current assets 524,274 660,777 ----------- ----------- Total current assets 39,544,826 36,098,839 PROPERTY AND EQUIPMENT, NET 2,218,459 1,978,070 OTHER ASSETS, NET 654,200 551,057 ----------- ----------- $42,417,485 $38,627,966 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 4,759,373 $ 6,490,447 Accrued compensation and benefits 782,168 418,320 Other accrued expenses 208,853 207,795 Current portion of long-term debt 17,028,032 12,935,416 ----------- ----------- Total current liabilities 22,778,426 20,051,978 LONG-TERM DEBT 179,104 1,499,207 PENSION LIABILITY 430,001 482,269 DEFERRED INCOME TAXES 303,000 58,000 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; 2,684,600 and 2,646,000 shares issued and outstanding at January 31, 2002 and 2001, respectively 26,846 26,460 Additional paid-in capital 6,360,741 6,140,221 Retained earnings 12,339,367 10,369,831 ----------- ----------- 18,726,954 16,536,512 ----------- ----------- $42,417,485 $38,627,966 =========== ===========
The accompanying notes are an integral part of these statements. 8 Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME
Fiscal year ended January 31, 2002 2001 2000 ---- ---- ---- Net sales $ 76,431,245 $ 76,108,038 $ 58,644,181 Cost of goods sold 63,293,922 64,797,943 48,155,753 ------------ ------------ ------------ Gross profit 13,137,323 11,310,095 10,488,428 ------------ ------------ ------------ Operating expenses Selling and shipping 5,414,400 4,825,331 4,177,171 General and administrative 4,133,790 3,793,745 3,013,780 ------------ ------------ ------------ Total operating expenses 9,548,190 8,619,076 7,190,951 ------------ ------------ ------------ Operating profit 3,589,133 2,691,019 3,297,477 ------------ ------------ ------------ Other income(expense) Interest expense (881,948) (1,247,708) (821,333) Interest income 17,311 26,595 25,716 Other income - net 91,040 15,472 7,346 ------------ ------------ ------------ Total other expense (773,597) (1,205,641) (788,271) ------------ ------------ ------------ Income before income taxes 2,815,536 1,485,378 2,509,206 Income tax expense (846,000) (362,000) (761,000) ------------ ------------ ------------ NET INCOME $ 1,969,536 $ 1,123,378 $ 1,748,206 ============ ============ ============ Net income per common share Basic $ .74 $ .42 $ .66 ============ ============ ============ Diluted $ .73 $ .42 $ .65 ============ ============ ============ Weighted average common shares outstanding Basic 2,663,600 2,645,446 2,653,950 ============ ============ ============ Diluted 2,683,711 2,667,161 2,673,449 ============ ============ ============
The accompanying notes are an integral part of these statements. 9 Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Fiscal years ended January 31, 2002, 2001 and 2000
Common stock ------------ Additional paid-in Retained Shares Amount capital earnings Total ------ ------ ------- -------- ----- Balance, January 31, 1999 2,660,500 $ 26,605 $ 6,199,656 $ 7,498,247 $ 13,724,508 Net income 1,748,206 1,748,206 Purchase and retirement of common stock (16,500) (165) (67,165) (67,330) --------- ------------ ------------ ------------ ------------ Balance, January 31, 2000 2,644,000 26,440 6,132,491 9,246,453 15,405,384 Net income 1,123,378 1,123,378 Exercise of stock options 2,000 20 7,730 7,750 --------- ------------ ------------ ------------ ------------ Balance, January 31, 2001 2,646,000 26,460 6,140,221 10,369,831 16,536,512 Net income 1,969,536 1,969,536 Exercise of stock options 38,600 386 125,864 126,250 Stock option income tax benefit 94,656 94,656 --------- ------------ ------------ ------------ ------------ Balance, January 31, 2002 2,684,600 $ 26,846 $ 6,360,741 $ 12,339,367 $ 18,726,954 ========= ============ ============ ============ ============
The accompanying notes are an integral part of this statement. 10 Lakeland Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal year ended January 31, 2002 2001 2000 ---- ---- ---- Cash flows from operating activities Net income $ 1,969,536 $ 1,123,378 $ 1,748,206 Adjustments to reconcile net income to net cash provided by (used in) operating activities Deferred income taxes (19,000) 40,000 (95,000) Depreciation and amortization 689,969 699,304 598,095 Provision for bad debts 83,965 30,176 20,700 Stock option income tax benefit 94,656 (Increase) decrease in operating assets Accounts receivable 1,173,585 (2,508,987) (1,656,836) Inventories (3,819,067) (242,688) (6,356,485) Prepaid income taxes and other current assets 355,587 (799,556) 159,533 Other assets (80,832) (187,882) (20,823) Increase (decrease) in operating liabilities Accounts payable (1,731,074) 2,247,573 2,787,684 Accrued expenses and other liabilities 312,638 11,073 (43,480) ----------- ----------- ----------- Net cash provided by (used in) operating activities (970,037) 412,391 (2,858,406) ----------- ----------- ----------- Cash flows from investing activities Purchases of property and equipment (831,919) (751,046) (1,049,124) ----------- ----------- ----------- Net cash used in investing activities (831,919) (751,046) (1,049,124) ----------- ----------- ----------- Cash flows from financing activities Net borrowings under credit agreements 2,772,513 464,942 3,241,818 Proceeds from exercise of stock options 126,250 7,750 Purchase and retirement of common stock (67,330) Deferred financing costs (120,750) (52,500) ----------- ----------- ----------- Net cash provided by financing activities 2,778,013 472,692 3,121,988 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 976,057 134,037 (785,542) Cash and cash equivalents at beginning of year 784,578 650,541 1,436,083 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 1,760,635 $ 784,578 $ 650,541 =========== =========== ===========
The accompanying notes are an integral part of these statements 11 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 2002, 2001 and 2000 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 personal safety 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, 2002, 2001 and 2000. 2. Principles of Consolidation - ------------------------------ The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Laidlaw, Adams & Peck, Inc. and Subsidiary (MeiYang Protective Products Co., Ltd. (a Chinese corporation)), Lakeland Protective Wear, Inc. (a Canadian corporation), Weifang Lakeland Safety Products Co. Ltd. (a Chinese corporation) and Lakeland de Mexico S.A. de C.V. (a Mexican corporation). All significant intercompany accounts and transactions have been eliminated. 3. Revenue Recognition - ---------------------- Revenue is recognized when title passes to the customer upon shipment of goods. 4. Inventories - -------------- Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. 5. 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. 6. 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 considering current operating results and comparing the carrying value to the anticipated undiscounted future cash flows of the related assets. Included in other assets in the accompanying consolidated balance sheets is goodwill aggregating $249,000 and $269,000, net of accumulated amortization of $296,000 and $276,000 at January 31, 2002 and 2001, respectively. 7. Shipping and Handling Costs - ------------------------------ The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with inbound freight are included in cost of sales. Shipping and handling costs associated with outbound freight are included in selling and shipping expenses and aggregated approximately $1,532,000, $1,381,000 and $1,182,000 in the fiscal years ended January 31, 2002, 2001 and 2000, respectively. 12 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) January 31, 2002, 2001 and 2000 NOTE A(continued) - ----------------- 8. Research and Development Costs - --------------------------------- Research and development costs are expensed as incurred and included in general and administrative expenses. Research and development expenses aggregated approximately $378,000, $160,000 and $22,000 in the fiscal years ended January 31, 2002, 2001 and 2000, respectively. 9. Income Taxes - --------------- 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 would be 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. 10. Earnings Per Share - ---------------------- Basic earnings per share are based on the weighted average number of common shares outstanding without consideration of potential common shares. Diluted earnings per share are based on the weighted average number of common and potential common shares outstanding. The potential common shares for the years ended January 31, 2002, 2001 and 2000 were 20,111, 21,715, and 19,499, respectively, representing the dilutive effect of stock options. The diluted earnings per share calculation takes into account the shares that may be issued upon exercise of stock options, reduced by the shares that may be repurchased with the funds received from the exercise, based on the average price during the fiscal year. Options to purchase 1,000, 5,000, and 3,000 shares of the Company's common stock have been excluded from the computation of diluted earnings per share in 2002, 2001 and 2000, respectively, as their inclusion would have been antidilutive. 11. Statement of Cash Flows - --------------------------- The Company considers highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of money market funds. The market value of the cash equivalents approximates cost. Foreign denominated cash and cash equivalents were approximately $1,371,000 and $334,000 at January 31, 2002 and 2001, respectively. Supplemental cash flow information for the fiscal years ended January 31 is as follows: 2002 2001 2000 ---- ---- ---- Interest paid $881,934 $1,238,448 $783,664 Income taxes paid 606,700 688,412 693,456 12. 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 principally within the United States. The Company routinely addresses the financial strength of its customers and, as a consequence, believes that it's receivable credit risk exposure is limited. 13 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) January 31, 2002, 2001 and 2000 NOTE A(continued) - ----------------- 13. Foreign Operations and Foreign Currency Translation - ------------------------------------------------------- The Company maintains manufacturing operations and uses independent contractors in Mexico and the People's Republic of China. It also maintains a sales and distribution entity located in Canada. The Company is vulnerable to currency risks in these countries. The monetary assets and liabilities of the Company's foreign operations are translated into U.S. dollars at current exchange rates, while nonmonetary items are translated at historical rates. Revenues and expenses are generally translated at average exchange rates for the year. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred and aggregated approximately $129,000, $107,000 and $60,000 for the fiscal years ended January 31, 2002, 2001 and 2000, respectively. 14. Use of Estimates - -------------------- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. 15.Reclassifications - -------------------- Certain prior year amounts have been reclassified to conform with the 2002 presentation. 16. Effects of Recent Accounting Pronouncements - ----------------------------------------------- On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." The new standards require that all business combinations initiated after June 30, 2001 be accounted for under the purchase method. In addition, all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged shall be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives will no longer be subject to amortization, but will be subject to at least an annual assessment for impairment by applying a fair value based test. The impact of adopting these statements is not expected to be material to the Company's financial position or results of operations. In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 clarifies accounting and reporting for assets held for sale, scheduled for abandonment or other disposal and recognition of impairment loss related to the carrying value of long-lived assets. The impact of adopting this statement is not expected to be material to the Company's financial position or results of operations. NOTE B - INVENTORIES - -------------------- Inventories consist of the following at January 31: 2002 2001 ---- ---- Raw materials $ 6,248,990 $ 4,088,498 Work-in-process 3,997,470 6,467,779 Finished goods 16,282,690 12,153,806 ----------- ----------- $26,529,150 $22,710,083 =========== =========== 14 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) January 31, 2002, 2001 and 2000 NOTE C - PROPERTY AND EQUIPMENT - ------------------------------- Property and equipment consist of the following at January 31:
Useful life in years 2002 2001 -------- ---- ---- Machinery and equipment 3 - 10 $4,484,416 $4,701,148 Furniture and fixtures 3 - 10 175,016 261,737 Leasehold improvements Lease term 671,694 703,958 ------- ------- 5,331,126 5,666,843 Less accumulated depreciation and amortization (3,112,667) (3,688,773) ---------- ---------- $2,218,459 $1,978,070 ========== ==========
NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS - -------------------------------------------- The Company's principal financial instrument consists of its outstanding revolving credit facility and term loan. The Company believes that the carrying amount of such debt approximates the fair value as the variable interest rates approximate the current prevailing interest rate. NOTE E - LONG-TERM DEBT - ----------------------- Long-term debt consist of the following at January 31: 2002 2001 ---- ---- Revolving credit facility $15,953,432 $12,335,416 Term loan 1,253,704 2,099,207 ----------- ---------- 17,207,136 14,434,623 Less current portion 17,028,032 12,935,416 ----------- ---------- Long-term debt $ 179,104 $1,499,207 =========== ========== Revolving Credit Facility The Company's agreement with its lending institution, as amended, provides the Company with a revolving line of credit facility of $18 million. This credit facility, which is based on a percentage of eligible accounts receivable and inventory as defined, bears interest at LIBOR plus 2% (3.83% at January 31, 2002). The agreement was amended on March 9, 2001 to (i) extend the maturity date to October 31, 2001, (ii) modify the interest rate, and (iii) modify certain financial covenants. The agreement was amended on July 12, 2001 to (i) extend the maturity date to July 31, 2002, (ii) increase the amount available under the revolving line of credit from $14 million to a percentage of eligible accounts receivable and inventory as defined, up to a maximum of $18 million, (iii) modify the interest rate, and (iv) modify a certain financial covenant. The agreement was amended on December 31, 2001 to modify a certain financial covenant. The maximum amounts borrowed under the credit facility during the fiscal years ended January 31, 2002 and 2001 were $17,700,000 and $14,000,000, respectively, and the average interest rates during the periods were 5.93% and 8.1%, respectively. At January 31, 2002, the Company had approximately $2,047,000 in availability under the agreement. 15 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) January 31, 2002, 2001 and 2000 NOTE E(continued) - ----------------- Term Loan In November 1999, the Company entered into a $3,000,000, five-year term loan. On March 9, 2001, the Company accelerated the term loan to expire on March 31, 2003. The term loan is payable in monthly installments of $89,550, plus interest payable at the 30-day commercial paper rate plus 2.45% (4.18% at January 31, 2002). The credit facility and term loan are collateralized by substantially all of the assets of the Company and guaranteed by certain of the Company's subsidiaries. The credit facility and term loan contain financial covenants, including, but not limited to, minimum levels of earnings and maintenance of minimum tangible net worth and other certain ratios at all times. NOTE F - STOCKHOLDERS' EQUITY AND STOCK OPTIONS - ----------------------------------------------- The Nonemployee Directors' Option Plan (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 of Directors. Under the Directors' Plan, 60,000 shares of common stock have been authorized for issuance. Options are granted at not less than fair market value, become exercisable commencing six months from the date of grant and expire six years from the date of grant. In addition, all nonemployee directors re-elected to the Company's Board of Directors at any annual meeting of the stockholders will automatically be granted additional options to purchase 1,000 shares of common stock on each of such dates. In April 1997, the Company extended the term on 5,000 expiring options for an additional six years. The Company's 1986 Incentive and Nonstatutory Stock Option Plan (the "Plan") provides for the granting of incentive stock options and nonstatutory options. The 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). The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans and does not recognize compensation expense for its employee stock-based compensation plans. If the Company had elected to recognize compensation expense based upon the fair value at the date of grant for awards under these plans, consistent with the methodology prescribed by SFAS 123, the effect on the Company's net income and earnings per share as reported would be reduced for the years ended January 31, 2002 and 2001 to the pro forma amounts indicated below: 2002 2001 ---- ---- Net income As reported $1,969,536 $1,123,378 Pro forma 1,965,606 1,116,338 Basic earnings per common share As reported $.74 $.42 Pro forma .74 .42 Diluted earnings per common share As reported $.73 $.42 Pro forma .73 .42 16 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) January 31, 2002, 2001 and 2000 NOTE F(continued) - ----------------- The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions for the years ended January 31, 2002 and 2001: expected volatility of 57% and 55%, respectively; risk-free interest rate of 5.0% and 6.3%, respectively; expected dividend yield of 0.0%; and expected life of six years. No options were granted or vested during the year ended January 31, 2000. Additional information with respect to the Company's plans for the fiscal years ended January 31, 2002, 2001 and 2000 is summarized as follows:
2002 -------------------------------------------------- Directors' Plan Plan ----------------------- --------------------- Weighted- Weighted- Number average Number average of exercise of exercise shares price shares price ----------------------- --------------------- Shares under option Outstanding at beginning of year 8,000 $ 5.53 52,500 $ 3.06 Granted 1,000 6.69 Exercised (38,600) 3.27 ----- ------- Outstanding and exercisable at end of year 9,000 5.48 13,900 2.70 ===== ======= Weighted-average remaining contractual life of options outstanding 2.7 years 2.5 years Weighted-average fair value per shares of options granted during 2002 $ 6.69 2001 -------------------------------------------------- Directors' Plan Plan ---------------------- ---------------------- Weighted- Weighted- Number average Number average of exercise of exercise shares price shares price ---------------------- ---------------------- Shares under option Outstanding at beginning of year 8,000 $4.81 52,500 $3.06 Granted 2,000 5.94 Exercised (2,000) 3.88 ----- ------- Outstanding and exercisable at end of year 8,000 5.33 52,500 3.06 ===== ====== Weighted-average remaining contractual life of options outstanding 3.3 years 4 years Weighted-average fair value per shares of options granted during 2001 $5.94
17 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) January 31,2002, 2001 and 2000 NOTE F(continued) - -----------------
2000 ------------------------------------------------------- Directors' Plan Plan ------------------------ ----------------------- Weighted- Weighted- Number average Number average of exercise of exercise shares price shares price ------ ----- ------ ----- Shares under option Outstanding at beginning of year 8,000 $4.81 52,500 $3.06 ----- ----- ------ ----- Outstanding and exercisable at end of year 8,000 4.81 52,500 3.06 ===== ==== ====== ===== Weighted-average remaining contractual life of options outstanding 2.6 years 5 years
Summarized information about stock options outstanding under the two plans at January 31, 2002 is as follows: Options outstanding and exercisable ----------------------------------- Weighted- Number average Outstanding remaining Weighted- at contractual average Range of January life in exercise exercise prices 31, 2002 years price - --------------- -------- ----- ----- $2.25 - 3.38 11,900 1.83 $ 2.50 3.39 - 5.13 7,000 2.93 3.96 5.14 - 6.69 3,000 4.83 6.19 10.75 1,000 2.50 10.75 $2.25 - 10.75 22,900 2.59 3.79 NOTE G - INCOME TAXES - --------------------- The provision for income taxes is summarized as follows: Year ended January 31, ------------------------------------------------- 2002 2001 2000 ---- ---- ---- Current Federal $ 719,000 $ 189,000 $ 756,000 State 78,000 27,000 100,000 Foreign 68,000 106,000 --------- ------- ---------- 865,000 322,000 856,000 Deferred (19,000) 40,000 (95,000) --------- ------- ---------- $ 846,000 $ 362,000 $ 761,000 ========= ========= ========= 18 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) January 31, 2002, 2001 and 2000 NOTE G(continued) - ----------------- The following is a reconciliation of the effective income tax rate to the Federal statutory rate: Year ended January 31, -------------------------- 2002 2001 2000 ---- ---- ---- Statutory rate 34.0% 34.0% 34.0% State income taxes, net of Federal tax benefit 1.6 1.2 2.7 Nondeductible expenses .6 1.1 .8 Taxes on foreign income which differ from the statutory rate (5.6) (12.5) (2.4) Change in deferred assets (3.8) Other (.6) .6 (1.0) ---- ---- ---- Effective rate 30.0% 24.4% 30.3% ==== ==== ==== The tax effects of temporary differences which give rise to deferred tax assets at January 31, 2002 and 2001 are summarized as follows: January 31, --------------------- 2001 2002 -------- -------- Deferred tax assets Inventories $418,000 $391,000 Net operating loss carryforward - foreign subsidiary 106,000 29,000 Accounts receivable 84,000 84,000 Accrued compensation and other 280,000 120,000 -------- -------- Gross deferred tax assets 888,000 624,000 -------- -------- Deferred tax liabilities Depreciation and other 303,000 58,000 -------- -------- Gross deferred tax liabilities 303,000 58,000 -------- -------- Net deferred tax asset $585,000 $566,000 ======== ======== Net operating loss carryforwards of $177,000 attributable to its foreign subsidiary in Canada will expire in fiscal 2003 through 2009. Net operating loss carryforwards of $128,000 attributable to its foreign subsidiary in Mexico will expire in fiscal 2007. NOTE H - BENEFIT PLANS - ---------------------- Defined Benefit Plan The Company has a frozen defined benefit pension plan that covers former employees of an acquired entity. The Company's funding policy is to contribute annually the recommended amount based on computations made by its consulting actuary. The following table sets forth the plan's funded status for the fiscal years ended January 31: 19 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) January 31, 2002, 2001 and 2000 NOTE H(continued) - ----------------- 2002 2001 Change in benefit obligation - ---------------------------- Projected benefit obligation at beginning of year $ 991,162 $ 961,492 Interest cost 75,889 70,546 Actuarial (gain) loss (27,602) 874 Benefits paid (41,391) (41,750) ------- -------- Projected benefit obligation at end of year 998,058 991,162 ------- -------- Change in plan assets - --------------------- Fair value of plan assets at beginning of year 508,893 502,849 Actual return on plan assets 89,707 46,194 Employer contributions 10,848 1,600 Benefits paid (41,391) (41,750) ------- -------- Fair value of plan assets at end of year 568,057 508,893 ------- -------- Funded status - ------------- Pension liability $430,001 $482,269 ======== ========= The components of net periodic pension cost for the fiscal years ended January 31 are summarized as follows: 2002 2001 2000 ---- ---- ---- Service cost $ 1,613 Interest cost $75,889 $ 70,546 70,579 Actual return on plan assets (89,707) (46,194) (87,626) Net amortization and deferral 61,230 17,451 62,896 ------ ------ ------ Net periodic pension cost $47,412 $41,803 $47,462 ======= ======= ======= 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, 2002, approximately 60% of the plan's assets was held in mutual funds invested primarily in equity securities, 37% was invested in equity securities and debt instruments and 3% was invested in money market and other instruments. Defined Contribution Plan Pursuant to the terms of the Company's 401(k) plan, substantially all U.S. employees over 21 years of age with a minimum period of service are eligible to participate. The 401(k) plan is administered by the Company and provides for voluntary employee contributions ranging from 1% to 15% of the employee's compensation. The Company made discretionary contributions of $81,225, $83,947 and $57,642 in the fiscal years ended January 31, 2002, 2001 and 2000, respectively. NOTE I - MAJOR SUPPLIER - ----------------------- The Company purchased approximately 81%, 77% and 74% of its raw materials from one supplier under licensing agreements for the fiscal years ended January 31, 2002, 2001 and 2000, respectively. The Company expects this relationship to continue for the foreseeable future. If required, similar raw materials could be purchased from other sources; although, the Company's competitive position in the marketplace could be affected. 20 Lakeland Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued) January 31, 2002, 2001 and 2000 NOTE J - COMMITMENTS AND CONTINGENCIES - -------------------------------------- 1. Employment Contracts The Company has employment contracts with four principal officers expiring through January 2004. Such contracts are automatically renewable for two-year terms unless 30 to 120 days' notice is given by either party. Pursuant to such contracts, the Company is committed to aggregate annual base remuneration of $747,500 and $397,500 for the fiscal years ended January 31, 2003 and 2004, respectively. 2. Leases The Company leases the majority of its premises under various operating leases expiring through fiscal 2005. The leases for the manufacturing facilities (located in Decatur, Alabama) are with two partnerships whose partners are principal officers and stockholders of the Company. One lease expires on August 31, 2004 and requires annual payments of approximately $365,000 plus certain operating expenses and the second lease expires on May 31, 2004 and requires annual payments of approximately $199,000 plus certain operating expenses. The Company also leases one customer service facility pursuant to a one-year lease which expires on March 31, 2002 (renewable at the Company's option for two additional one-year terms), from an officer of the Company. Monthly payments are $1,500. In addition, the Company has several operating leases for machinery and equipment. The Company has a one-year lease with a related partnership for a manufacturing facility in the People's Republic of China. The related lessor is a partnership in which the Company's directors, one officer and three employees hold partnership interests. In addition, during the fiscal year ended January 31, 2002, the Company obtained a 28% interest in this partnership. Rent paid under this agreement aggregated $14,433 for the fiscal year ended January 31, 2002. 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, 2002 $858,429 $596,437 2001 890,818 $ 2,144 630,990 2000 833,274 10,578 545,136 Minimum annual rental commitments for the remaining term of the Company's noncancellable operating leases relating to manufacturing facilities, office space and equipment rentals at January 31, 2002 are summarized as follows: Year ended January 31, 2003 $730,136 2004 682,910 2005 333,796 ---------- $1,746,842 ========== Certain leases require additional payments based upon increases in property taxes and other expenses. 3. Litigation 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 Company's financial position or results of operations. 4. 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. 21
Directors: Officers: Transfer Agent: Raymond J. Smith, Chairman Raymond J. Smith, President Registrar and Transfer Company Christopher J. Ryan Christopher J. Ryan 10 Commerce Drive John J. Collins, Jr. Executive Vice President, Cranford, NJ 07016 Eric O. Hallman Secretary and General Counsel NASDAQ symbol: LAKE Walter J. Raleigh James M. McCormick Executive Offices: Vice President and Treasurer Harvey Pride, Jr. 711-2 Koehler Ave. Vice President, Manufacturing Ronkonkoma, NY 11779 (631) 981-9700 Auditors: Subsidiaries: Grant Thornton LLP Suite 3S01 Lakeland Protective Wear, Inc. One Huntington Quadrangle Lakeland de Mexico S.A. de C.V. Melville, NY 11747-4464 Laidlaw, Adams & Peck, Inc. Weifang Lakeland Safety Products, Co. Ltd.
Exhibits to Lakeland Industries, Inc.'s fiscal 2002 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., 711-2 Koehler Avenue, Ronkonkoma, New York 11779. ThermbarTM, Kut BusterTM, Grapolator Mock TwistTM, Safegard "76"TM, Body GardTM, Zone GardTM, RyTexTM, TomTexTM, DextraGardTM, ForcefieldTM, InterceptorTM, CheckmateTM, HeatexTM, PyrolonTM, Sterling HeightsTM, FyrepelTM, HighlandTM, ChemlandTM and UnilandTM are trademarks of Lakeland Industries, Inc. TyvekTM, VitonTM, BarricadeTM, NomexTM, KevlarTM, DelrinTM, TyChem SL, TK and BRTM and TeflonTM are registered trademarks of E.I.DuPont de Nemours and Company. SaranexTM is a registered trademark of Dow Chemical. SpectraTM is a registered trademark of Honeywell. 22 EX-20 5 exhibit20.txt SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [_] Preliminary Proxy Statement [_] Soliciting Material Under Rule [_] Confidential, For Use of the 14a-12 Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [_] Definitive Additional Materials LAKELAND INDUSTRIES, INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: ________________________________________________________________________________ 2) Aggregate number of securities to which transaction applies: ________________________________________________________________________________ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ________________________________________________________________________________ 4) Proposed maximum aggregate value of transaction: ________________________________________________________________________________ 5) Total fee paid: ________________________________________________________________________________ [_] Fee paid previously with preliminary materials: ________________________________________________________________________________ [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. 1) Amount previously paid: ________________________________________________________________________________ 2) Form, Schedule or Registration Statement No.: ________________________________________________________________________________ 3) Filing Party: ________________________________________________________________________________ 4) Date Filed: ________________________________________________________________________________ [LETTERHEAD] LAKELAND INDUSTRIES, INC. May 10, 2002 Dear Stockholder, I am pleased to extend to you my personal invitation to attend the 2002 Annual Meeting of Stockholders of Lakeland Industries, Inc. (the "Company") on Wednesday, June 19, 2002 at 9:30 a.m. at the Holiday Inn, 3845 Veterans Memorial Highway, 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, 2002 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 a representative of Grant Thornton LLP, 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 2002 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON June 19, 2002 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, 2002 at 9:30 a.m. at the Holiday Inn, 3845 Veterans Memorial Highway, 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 26, 2002 will be entitled to notice and to vote at the meeting. Only stockholders of record at the close of business on the date above will be entitled to notice of and to vote at the Annual Meeting of Stockholders and any adjournment thereof. A list of all stockholders entitled to vote at the Annual Meeting of Stockholders will be open for examination by any stockholder for any purpose germane to the Meeting during ordinary business hours for a period of ten (10) days before the Meeting at the offices of the Company located at 711-2 Koehler Ave., Ronkonkoma, NY 11779. May 10, 2002 BY ORDER OF THE BOARD OF DIRECTORS Christopher J. Ryan, Secretary Whether or not you plan to attend the Annual Meeting, please complete, date and sign the enclosed proxy card and return it promptly in the enclosed postage prepaid envelope. If you sign and return your proxy card without specifying a choice, your shares will be voted in accordance with the recommendations of the Board of Directors. You may, if you wish, revoke your proxy at any time prior to the time it is voted by filing with the Secretary of the Company a written revocation or a duly executed proxy bearing a later date or by attending the Annual Meeting and voting in person. LAKELAND INDUSTRIES, INC. 711-2 Koehler Ave. Ronkonkoma, New York 11779 (631) 981-9700 PROXY STATEMENT 2002 Annual Meeting of Stockholders June 19, 2002 GENERAL INFORMATION This Proxy Statement and the accompanying Proxy Card are 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 2002 Annual Meeting of Stockholders to be held on June 19, 2002, and at any adjournment thereof (the "Annual Meeting"). This Proxy Statement, the Notice of Annual Meeting of Stockholders, the Proxy Card and the Company's 2002 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 10, 2002. About the Annual Meeting What is the purpose of the Annual Meeting? At the Annual Meeting, stockholders will act upon the matters outlined in the accompanying notice of meeting, including the election of directors. In addition, the Company's management will report on the performance of the Company during fiscal 2002 and respond to appropriate questions from stockholders. Who is entitled to vote? Only stockholders of record at the close of business on the record dated, April 26, 2002, are entitled to receive notice of the annual meeting and to vote the shares of common shares that they held on that date at the meeting, or any postponement or adjournment of the meeting. Each outstanding share entitles its holder to cast one vote on each matter to be voted upon. Please note that if you hold your shares in "street name" (that is, through a broker or other nominee), you will need to bring appropriate documentation from your broker or nominee to vote personally at the meeting. What constitutes a quorum? The presence at the meeting, in person or by proxy, of the holders of a majority of the shares of common stock outstanding on the record date will constitute a quorum, permitting the meeting to conduct its business. As of the record date, 2,684,600 shares of common stock of the Company were outstanding. Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting for purposes of determining the presence of a quorum. A "broker non-vote" occurs when a broker or other nominee indicates on the proxy card that it does not have discretionary authority to vote on a particular matter. How do I vote? If you complete and properly sign the accompanying proxy card and return it to the Company, it will be voted as you direct. If you are a registered stockholder and attend the meeting, you may deliver your completed proxy card in person. "Street name" stockholders who wish to vote at the meeting will need to obtain and vote a proxy from the institution that holds their shares. The Company has made proxy statements, proxies and annual reports available to the nominee institutions for delivery to "street name" stockholders. 1 Can I change my vote after I return my proxy card? Yes. Even after you have submitted your proxy, you may change your vote at any time before the proxy is exercised by filing with the secretary of the Company either a notice of revocation or a duly executed proxy, bearing a later date. The powers of the proxy holders will be suspended if you attend the meeting in person and so request, although attendance at the meeting will not by itself revoke a previously granted proxy. What are the Board's recommendations? Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the Board of Directors. The Board's recommendation is set forth together with the description of each item in this proxy statement. The Board recommends a vote: o for election of the nominated slate of 1 director (see page 4), and With respect to any other matter that properly comes before the meeting, the proxy holders will vote as recommended by the Board of Directors or, if no recommendation is given, in their own discretion. What vote is required to approve each item? Election of Directors.The affirmative vote of plurality of the votes cast at the meeting is required for the election of directors. A properly executed proxy marked "WITHHOLD AUTHORITY" with respect to the election of one or more directors will not be voted with respect to the director or directors indicated although it will be counted for purposes of determining whether there is a quorum. Abstentions and broker non-votes will have no legal effect on the election of directors. The Certificate of Incorporation does not provide for cumulative voting in the election of directors. Who will bear the costs of soliciting proxies for the Annual Meeting? The Cost of soliciting proxies for the Annual Meeting will be borne by the Company. In addition to the use of the mails, proxies may be solicited personally or by telephone, by officers and employees of the Company who will not receive any additional compensation for their services. Proxies and proxy material will also be distributed at the expense of the Company by broker, nominees, custodians, and other similar parties. VOTING SECURITIES AND STOCK OWNERSHIP OF OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS The following table sets forth information as of April 26, 2002, 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 of Class - ---------------- ------------------------- -------- Raymond J. Smith 548,300 (1) 20.42% 711-2 Koehler Ave. Ronkonkoma, NY 11779 Christopher J. Ryan 241,677 (1) (5) 9.00% 711-2 Koehler Ave. Ronkonkoma, NY 11779 John J. Collins, Jr. 114,200 (2) 4.25% Eric O. Hallman 42,500 (2) 1.58% Walter J. Raleigh 8,000 (3) .298% 2 Name and Address Number of Common Percent of Beneficial Owner Shares Beneficially Owned of Class - ---------------- ------------------------- -------- All officers and directors as a group (7 persons) 964,527 (4) (5) 35.93% Mr. & Mrs. Luis Hernandez and 169,000 6.295% Anthony Hernandez 3069 Misty Harbor Las Vegas, NV 89117 Included in the above are fully exercisable options to purchase the Company's common stock, as follows: (1) 4,050 shares granted on January 1, 1994; (2) 1,000 shares granted on June 18, 1997 and 1,000 shares granted on June 21, 2000 to each of Mr. Hallman and Mr. Collins; (3) 3,000 shares granted on April 18, 1997, 1,000 shares granted on June 17, 1998 and 1,000 shares granted June 20, 2001; (4) 22,900 shares granted between January, 1, 1994 and June 21, 2001; (5) Mr. Ryan disclaims beneficial ownership of 10,000 shares owned by his wife. 3 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 2002 Annual Meeting there is one nominee for director in Class I. The incumbent Class II and Class III directors have one year and two years, 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 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 Three Year Term Expiring in June, 2005 -------------------------------------------------- Christopher J. Ryan 50 Executive Vice President, 1986 General Counsel, Secretary and Director INCUMBENT DIRECTOR - CLASS II One year remaining on Term Expiring in June, 2003 -------------------------------------------------- John J. Collins, Jr. 59 Director 1986 Eric O. Hallman 58 Director 1982 INCUMBENT DIRECTORS - CLASS III Two years remaining on Term Expiring in June, 2004 -------------------------------------------------- Raymond J. Smith 63 Chairman of the Board, 1982 President and Director Walter J. Raleigh 74 Director 1991 4 The principal occupations and employment of the nominees 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 1991and General Counsel since February 2000. From October 1989 until February 1991 Mr. Ryan was employed by Sands Brothers 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.was Executive Vice President of Chapdelaine GSI, a government securities firm from 1977 to January 1987. He was Senior Vice President of Liberty Brokerage, a government securities firm between January 1987 and November 1998. Presently, Mr. Collins is self-employed, managing a direct investment portfolio of small business enterprises for his own accounts. Eric O. Hallman has been a director of the Company since its incorporation. He was President of Naess Hallman Inc., a ship brokering firm, between 1984 and 1991. Mr. Hallman was also affiliated between 1991 and 1992 with Finanshuset (U.S.A.), Inc., a ship brokering and international financial services and consulting concern, and was an officer of Sylvan Lawrence, a real estate development company, between 1992 and 1998. Mr. Hallman between 1998-2000 was President of PREMCO, a real estate management company and currently is Comptroller of the law firm, Murphy, Bartol & O'Brien, LLP. 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. Raleighis a director of CMI Industries, Inc., the successor company to 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 was a Senior Adviser to CMI Industries, Inc. between 1995-2000. Mr. Raleigh is a former director of Kerry Petroleum Company, an oil and gas development company. During the year ended January 31, 2002, the Board of Directors of the Company met two 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). Potential Anti-Takeover Effect The Board of Directors has the authority, without further approval of the Company'ss shareholders, to issue preferred shares (the "Preferred Shares") having such rights, preferences and privileges as the Board of Directors may determine. Any such issuance of Preferred Shares could, under certain circumstances, have the effect of delaying or preventing a change in control of the Company and may adversely affect the rights of holders of Common Stock. In addition, the Company is subject to Delaware statutes regulating business combinations, takeovers and control share acquisitions which might hinder or delay a change in control of the Company. Anti-takeover provisions that could be included in the Preferred Shares when issued and the Delaware statutes regulating business combinations, takeovers and control share acquisitions can have a depressive effect on the market price of the Company's securities and can limit shareholders' ability to receive a premium on their shares by discouraging takeover and tender offer bids. The Directors of the Company serve staggered three-year terms. The Company's Restated Certificate of Incorporation sets forth a provision that requires certain business combinations to be approved by at least 66.66% of the Company's voting securities, unless 66.66% of the members of the Board of Directors have approved the transac- tion, and require approval of holders of 66.66% of the Company's voting shares to amend these provisions. In addition, the shareholders have authorized an Employee Stock Ownership Plan ("ESOP"). In the past, other companies have used similar plans to hinder or prevent a takeover situation. The Company has also entered into employment contracts with certain executive officers providing for lump sum payments of contracted salaries pursuant to various formulas, should there be a change in control of the Company. These factors could have an anti- takeover effect by making it more difficult to acquire the Company by means of a tender offer, a proxy contest or 5 otherwise or the removal of incumbent officers and directors. These provisions could delay, deter or prevent a tender offer or takeover attempt that a shareholder might consider in his or her best interest, including those attempts that might result in a premium over the market price for the Common Stock held by the Company's shareholders. Committees of the Board of Directors are as follows: 1-The Audit Committeewas 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, reviewing the Company's financial management, its independent auditors and other matters relating to audits and the adequacy of the Company's internal control structure. The committee members are: John J. Collins, Jr., Eric O. Hallman, and Walter J. Raleigh 2- 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 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. 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 did not meet during the year ended January 31, 2002. The committee members are: John J. Collins, Jr., Eric O. Hallman, and Walter J. Raleigh Compensation Committee Interlocks and Insider Participation Members of the Stock Option and Compensation Committee are outside directors who 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. and Messrs. Collins, Hallman and Raleigh are partners of River Group Holding Co., LLP, and An Qiu Holding Co., LLC. See "Certain Relationships and Related Transactions". REPORT OF THE AUDIT COMMITTEE The following Report of the Audit Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein. During fiscal 2001, the Audit Committee of the Board of Directors developed a charter for the Committee, which was approved by the full Board of Directors on June 21, 2000. The complete text of the new charter, which reflects standards set forth in the regulations of the Securities and Exchange Commission ("SEC") and NASDAQ Stock Exchange rules, is reproduced in Appendix A to this Proxy Statement. As set forth in more detail in the charter, the Audit Committee's primary duties and responsibilities fall into three broad categories: o first, the Committee will serve as an independent and objective party to monitor the Company's financial reporting process and internal control system; o second, the Committee is responsible for reviewing and appraising the audit efforts of the Company's indepen- dent accountants and internal auditing department; this includes matters concerning the relationship between the Company and its outside auditors, including recommending their appointment or removal; reviewing the scope of their audit services and related fees, as well as any other services being provided to the Company; and determining whether the outside auditors are independent (based in part on the annual letter provided to the Company pursuant to Independence Standards Board Standard No. 1); and o third, to provide an open avenue of communication among the independent accountants, financial and senior management, and the Board of Directors. 6 The Committee has implemented procedures to ensure that during the course of each fiscal year it devotes the attention that it deems necessary or appropriate to each of the matters assigned to it under the Committee's charter. To carry out its responsibilities, the Committee met four times during fiscal 2002. In overseeing the preparation of the Company's financial statements, the Committee met with both management who has the primary responsibility for the financial statements, the reporting process and the systems of internal control, and the Company's outside auditors who are responsible for expressing an opinion on the conformity of the Company's audited financial statements under generally accepted auditing standards, to review and discuss all financial statements under generally accepted auditing standards, to review and discuss all financial statements prior to their issuance and to discuss significant accounting issues. Management advised the Committee that all financial statements were prepared in accordance with generally accepted accounting principles, and the Committee discussed the statements with both management and the outside auditors. The Committee's review included discussion with the outside auditors of matters required to be discussed pursuant to Statement on Auditing Standards Nos. 61 and 90, "Communication With Audit Committees". With respect to the Company's outside auditors, the Committee, among other things, discussed with Grant Thornton LLP matters relating to its independence, including the disclosures made to the Committee and received written disclosure and the letter from the independent auditors as required by the Independence Standards Board Standard No. 1, "Independence Discussions with Audit Committees". The current members of the Audit Committee meet the independence and experience requirements set forth in Rule 4200 (a) (15) of the listing standards of the National Association of Security Dealers, Inc. On the basis of these reviews and discussions, the Committee recommended to the Board of Directors that the Board approve the inclusion of the Company's audited financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2002, for filing with the Securities and Exchange Commission. The Committee and the Board have also recommended the selection of the Company's independent auditors. THE AUDIT COMMITTEE: -------------------- John J. Collins, Jr. Eric O. Hallman Walter J. Raleigh Fees billed to the Company by Grant Thornton LLP for the year ended January 31, 2002: Audit Fees: Audit fees billed to the Company by Grant Thornton LLP during the Company's 2002 fiscal year for the annual audit of the Company's financial statements and quarterly review of those financial statements included in the Company's quarterly reports on Form 10-Q totaled $83,450. Financial Information Systems Design and Implementation Fees: The Company did not engage Grant Thornton LLP to provide advice to the Company regarding financial information systems design and implementation during the fiscal year ended January 31, 2002. All Other Fees: Fees billed to the Company by Grant Thornton LLP during the Company's 2002 fiscal year for all other non- audit services rendered to the Company, principally for the preparation of corporate income tax returns and tax related services totaled $29,550. Respectfully submitted, AUDIT COMMITTEE 7 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, 2002, 2001 and 2000:
Name and All Other Principal Position Year Salary Bonus Compensation - ------------------ ---- ------ ----- ------------ Raymond J. Smith, 2002 $262,500 $0 $7,289 Chairman, President and CEO 2001 262,500 62,500 7,767 2000 262,500 92,500 6,716 Christopher J. Ryan, 2002 $215,000 $0 $8,548 Executive V.P., General Counsel 2001 215,000 0 8,282 and Secretary 2000 175,000 16,000 3,252 Harvey Pride, Jr. 2002 $135,000 $0 $3,606 Vice President- 2001 135,000 0 3,923 Manufacturing 2000 135,000 12,800 3,864 James M. McCormick 2002 $135,000 $0 $4,372 VP - Treasurer 2001 135,000 8,000 4,574 2000 115,000 16,500 4,139
There are four executive officers with salary and bonus individually exceeding $100,000. There were no pension or retirement plans or other benefits, payable or accrued, for such persons during fiscal year 2002. The Company has entered into employment contracts with all executive officers providing for annual compensation of $262,500 for Mr. Smith and $215,000 for Mr. Ryan, $135,000 for Mr. Pride, and $135,000 for Mr. McCormick. Messrs. Smith and Pride each have a three year contract which expires on January 31, 2002, Mr. Ryan has a three year contract which expires on February 1, 2003 and Mr. McCormick has a three year contract expiring January 31, 2003 . 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 made a contribution to this plan totaling $81,225, during the plan year ended December 31, 2001. 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, Pride and McCormick'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. Accordingly, the annual bonus accrued at January 31, 2002 (for payment in May 2002) were Messrs. Smith $82,500, Ryan $40,300, Pride $24,800 and McCormick $31,000. All contracts provide for lump sum payments of contracted salaries pursuant to various formulas should there be a change in control of the Company. 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 compen- sated. 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. 8 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 respon- sible for developing or reviewing incentive compensation arrangements which the Company enters into with executive officers and key individuals, other than those senior executives who 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 based on both the profitability of the Company as a whole. 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 and Mr. Pride's employment contracts in January 1998, and Mr. Ryan's which was ratified in July 2000 and Mr. McCormick's in June 2000. 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, Ryan, Pride and McCormick were awarded base compensations of $262,500, $215,000, $135,000 and $135,000, for fiscal 2003, respectively. In addition, the Committee reviewed what was normally paid the President and Chairman in Mr. Smith's case and Executive Vice President, Secretary and General Counsel in Mr. Ryan's case, the Chief Manufacturing Executive in Mr. Pride's case and VP and Treasurer in Mr. McCormick'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 Eleventh Edition Panel Publications. These contracts also provide for bonuses in addition to salary based upon the Company's increase in earnings. (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 at or 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 20 years ago there have been no executive pension plans, deferred compensation plans, or other compensation or benefit plans for executives of the Company other than the Company's Stock Option Plan and the 401-K/ESOP Plan, the latter of which went into effect January 1, 1995. 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 of 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, 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 2002 and no SAR grants have been made since inception of the Stock Option Plan. See "Directors' Compensation". 9 COMPARE 5-YEAR CUMULATIVE TOTAL RETURN AMONG LAKELAND INDUSTRIES, INC. S&P INDUSTRIES INDEX AND PEER GROUP INDEX LAKELAND INDUSTRIES, INC. 1996 1997 1998 1999 2000 2001 S&P INDUSTRIALS PEER GROUP INDEX ASSUMES $100 INVESTED ON FEB. 1, 1997 ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING JAN. 31, 2002 10 Stock Option Plan Messrs. Smith, Ryan, Pride and McCormick participate in the Company's Incentive Stock Option Plan (common stock). The outstanding incentive stock options as of January 31, 2002 are as follows:
No.of Date(s) Grant Name of Shares Option of Expiration Date Executive Granted Price Grant Date(s) Value - ----------------- ------- ------ ------- ---------- ----- Mr. Ryan 4,050 $2.25 1/1/94 1/1/04 $9,113 Mr. McCormick 9,850 $2.25 - 3.50 6/5/96 & 1/1/94 6/4/06 & 1/1/04 $28,413
There are currently 250,000 option shares available for future grant under thisplan. During the year ended January 31, 2002, no stock options were granted and the following stock options were exercised: No. of Date Name of Shares Exercise of Per Share Exercise Executive Exercise Price Exercise Date Value - --------- -------- ----- -------- ---------- Mr. Smith 9,000 $3.85 5/16/01 $4.00 Mr. Pride 20,000 $3.50 10/5/01 $11.51 Mr. Pride 9,600 $2.25 10/5/01 $11.51 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. Outside Directors received $1,250 for each meeting as compensation for serving on the Board. There are no charitable award or director legacy programs. 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. Collins 1,000 $5.125 6/18/97 6/18/2003 Mr. Collins 1,000 5.938 6/21/00 6/21/2006 Mr. Hallman 1,000 5.125 6/18/97 6/18/2003 Mr. Hallman 1,000 5.938 6/21/00 6/21/2006 Mr. Raleigh 3,000 3.25 4/18/97 4/18/2003 Mr. Raleigh 1,000 10.75 6/17/98 6/17/2004 Mr. Raleigh 1,000* 6.69 6/20/01 6/20/2007 *Granted during fiscal year ended January 31, 2002, upon re-election as member of Board of Directors. There are currently 36,000 option shares available for future grant under this plan. During the year ended January 31, 2002, no stock options were exercised. 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 91,788 square foot disposable garment manufacturing facility in Decatur, Alabama. Under a lease effective September 1, 1999 and expiring on August 31, 2004, the Company pays an annual rent of $364,900 and is the sole occupant of the facility. 11 On June 1, 1999, the Company entered into a five year lease agreement with River Group Holding Co., L.L.P. for a 49,500 sq. ft. warehouse facility located next to the existing facility in Decatur, Alabama. River Group Holding Co., L.L.P. is a limited liability partnership made up of the Directors and certain officers of the Company. The annual rent for this facility is $199,100 and the Company is the sole occupant of the facility. On March 1, 1999, the Company entered into a one year (renewable for four additional one year terms) lease agreement with Harvey Pride, Jr., an officer of the Company, for 2400 sq. ft. customer service office for $18,000 annually. This is located next to the existing Decatur, Alabama facility mentioned above. The Company believes that all rents paid to POMS, River Group Holding Co., L.L.P. and Harvey Pride, Jr. by the Company, are comparable to what would be charged by an unrelated third party. The net rent paid to POMS, River Group Holding Co., L.L.P. by the Company for the year ended January 31, 2002, amounted to $564,000 and the total rent paid to Harvey Pride, Jr. by the Company for use of the customer service office, for the year ended January 31, 2002, amounted to $18,000. An Qiu Holdings Co., L.L.C. (Hereinafter referred to as "An Qiu") a limited liability company consisting of the Company, all the Company's Directors and one officer, financed in 1997 the construction of a 46,000 square foot building and the leasing of the real property underlying the building for 50 years. In consideration of this financing Weifang Lakeland Safety Products Co., Ltd. owns and utilizes the facility and is contractually obligated to pay the related Director/Officer An Qiu Partners, 51.6% of any proceeds received upon the sale of the property, and annual payments of $25,285 estimated to begin in October 2002, when all bank debt on the building is repaid. The Company will receive 28% of any such sale proceeds and annual payments of $13,720. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's directors, officers and beneficial owners of more than 10% of the Common Stock to file with the SEC initial reports of ownership of the Company's equity securities and to file subsequent reports when there are changes in such ownership. Officers, directors and beneficial owners of more than 10% of the Common Stock are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports they file. 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 2003 ANNUAL MEETING --------------------------------------------- Stockholder proposals for inclusion in the Company's Proxy Statement for the 2003 Annual Meeting of Stockholders must be received by the Company not later than January 31, 2003. 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 /s/Christopher J. Ryan, ----------------------- Christopher J. Ryan, Secretary May 10, 2002 12 Appendix A - ---------- LAKELAND INDUSTRIES, INC. AUDIT COMMITTEE CHARTER Membership The audit committee will be composed of not less than three members of the board. They will be selected by the board, taking into account prior experience in matters to be considered by the committee, probable availability at times required for consideration of these matters, and their individual independence and objectivity. The committee membership will meet the requirements of the audit committee policy of the NASDAQ Independent Director and Audit Committee Requirements. Accordingly, all of the members will be directors indepen- dent of management and free from any relationship that, in the opinion of the board of directors, would interfere with the exercise of independent judgment as a committee member. No officers or employees of the company or its subsidiaries will serve on the committee. A former officer of the company or any of its subsidiaries may serve on the committee (even though the former officer may be receiving pension or deferred compensation payments from the company) if, in the opinion of the board of directors, the former officer will exercise independent judgment and will materially assist the committee's function. However, a majority of the committee will be directors who were not formerly officers of the company or any of its subsidiaries. In considering relationships that might affect independence, including possible affiliate status, the board of directors will give appropriate consideration to guidelines issued by the NASDAQ as supplementary material to its audit committee policy, which were provided to assist boards of directors in observing the spirit of the policy. Actions of the Committee The activities of the committee may result in the following types of actions. a. Those in which the committee will inform the board that action has been taken in the board's interest and does not require prior board approval. 1. Review and approve the scope of the annual audit for the company and its subsidiaries recommended jointly by the independent CPAs and the president. 2. Review and approve the scope of the company's annual profit and pension trusts audits. 3. When requested by the chairman of the board during an annual shareholders' meeting, the committee chairman will answer questions raised by a shareholder on matters relating to the committee's activities. 4. Request the president to have the internal audit staff study a particular area of interest or concern. b Those which the committee will review and study and then recommend action by the board. 1. Appoint independent public accountants. 2. Review major accounting policy changes before implementation. 3. Review SEC registration statements before signature by other board members. 4. Review annual audit reports and the content of proposed published reports. c. Those which the committee will review and study and provide summary information reports to the board when appropriate. 1. Review trends in accounting policy changes proposed or adopted by organizations such as the Financial Accounting Standards Board, the Securities and Exchange Commission (SEC), and the American Institute of Certified Public Accountants or by comparable bodies outside the United States. 2. Interview independent CPAs for review and analysis of strengths and weaknesses of the company's financial staff, systems, adequacy of controls, and other factors which might be pertinent to the integrity of published financial reports. A-1 3. Participate in financial review preceding publication of quarterly reports. 4. Review administration of the company's "conflict of interest" policy. 5. Review the performance of management and operating personnel under the company's code of ethics. 6. Review insurance programs from the standpoint of gaps and exposure as well as fraud. 7. Review reports on the company or its subsidiaries by agencies of governments in countries where the company or its subsidiaries operate. 8. Review periodic SEC filings by the company and assure that adequate programs and procedures exist to comply with SEC regulations and regulations of securities exchanges (such as the NASDAQ). Appendix B - ---------- LAKELAND INDUSTRIES, INC. CODE OF ETHICS Introduction For the past several years, the activities of business organizations, both large and small, have been the subject of increased scrutiny and criticism by the public, the government, and the news media. This is particularly true of multinational corporations, which have been the object of worldwide demands for public statements of their corporate codes of ethics. For that reason, it is appropriate for Lakeland Industries, Inc. to restate it position on ethical conduct, based on the original precepts of the business and on policies formulated as the corporation has grown. As a good corporate citizen, Lakeland Industries, Inc. has always endeavored to conduct its business in a manner conforming to the highest ethical standards. The company's reputation for unquestionable integrity is its most valuable asset in its relationships with its customers, employees, shareholders, and the communities in which its plants are located. The following statement of business principles has been prepared to guide the future conduct of company activi- ties in an ethical and legal manner. It is not intended to supply answers for every business activity; rather, it is an effort to reiterate the continuing policies of the corporation on ethical business behavior, which must be observed by all Lakeland Industries, Inc. employees and representatives throughout the world. It is essential that all employees and representatives conform to these principles as they perform their activities on behalf of Lakeland Industries, Inc. Lakeland and its employees Employees are the corporation's greatest asset, and it is a Lakeland Industries, Inc. policy to treat them fairly in all matters and to pay them competitively. Lakeland and its domestic subsidiaries are engaged in a program of full compliance with all federal and state laws applicable to hiring and promoting people on the basis of demonstrated ability, experience, and training without regard to race, religion, sex age, national origin, or other factors requiring affirmative action. The corporation requires continuous management attention at all corporate levels to assure compliance with the spirit and letter of this policy. With this in mind, it is the intent ofLakeland to: Choose its employees on the basis of their ability to perform the work for which they are hired without regard to race, religion, sex, age, national origin, or other factors requiring affirmative action. Offer employees a safe, healthy, and clean work environment. Offer work that challenges the employees and gives them a feeling of satisfaction. A-2 Pay employees fairly in relation to their contributions to the company's efforts, within the boundaries of current standards. Lakeland and the Community The corporation shall conduct its business in a manner that is socially responsible. In addition to manufacturing and selling products, it shall protect the quality of the environment and endeavor to conserve energy and other valuable resources. Each of the corporation's facilities is expected to make every effort to be an integral part of the community in which it operates, and to participate in its activities as a concerned and responsible citizen. Like individual citizens, it benefits from such activities as health, welfare, character building, education, and culture. And like individuals, it has the responsibility to support and develop these social and civic activities. The company recognizes that employee participation in cultural, social or volunteer organizations can be public service of a higher order, and all Lakeland employees are encouraged to participate in public activities of their individual choice. Lakeland and its Customers The corporation shall endeavor to supply its customers with quality products, delivered on schedule and sold at a fair price.Lakeland products will be manufactured to the company's high quality standards and will offer customers all the technical skills of its employees and the expertise of Lakeland technology and know-how. Lakeland and the Law IIt is the policy ofLakeland to comply fully with all valid laws and regulations that govern its operations in the various communities, states and countries in which it operates and to conduct its affairs in keeping with the highest moral, legal and ethical standards. There is an obligation, both corporate and individual, to fulfill the intent of the above statement. It is not expected that every employee will have full knowledge of the laws affecting his or her responsibilities. The company does, however, expect that employees with significant responsibilities will have a general knowledge of prohibited activi- ties involved in their work and will seek guidance on any matter on which there is a question, either directly from the corporation's legal department or through their supervisors. Honesty is not subject to equivocation at any time in any culture, and even where the law may be permissive, your corporation chooses to follow the course of highest integrity. The reputation of the company for scrupulous dealing is a priceless asset, just as it is for individuals. The intent of these principles is to maintain and develop the corporation's reputation in the future as it has in the past. Lakeland and Business Ethics The law is a base for ethical business conduct which should normally be at a level well above the minimum required by law. In its relationships with customers, the corporation will offer the same advantages to all and will be fair in all its endeavors. Gifts or bribes for the purpose of influencing the buying decisions of employees of customers or potential customers or persons in a position to influence a buying decision are clearly improper and prohibited. In dealing with suppliers, an employee shall not solicit, accept, or countenance payments or substantial gifts, regardless of motive, from either a vendor or a potential vendor. In its relationships with its competitors, the corporation and its employees will fully understand and strictly adhere to the requirements of the antitrust laws. These laws, which, in the United States, include the Sherman Act, Clayton Act, Robinson-Patman Act, and Federal Trade Commission Act, seek to advance and maintain the free enterprise system and take precedence over any business objective of the corporation, notwithstanding any resulting increases in sales or profits. Such acts as price-fixing, restrictive agreements, boycotts, tie-in arrangements exclusive of reciprocal dealings, monopolizing, price inducements, and discriminatory allowances are or may be illegal. All employees shall scrupu- lously avoid violations of the antitrust laws. The corporation will not condone any actions which an employee knew or should have known would violate the antitrust laws or any other valid law or regulation. A-3 The corporation and its units shall make no financial contributions to a political party or to a candidate running for any elective office. This policy applies to all political parties or candidates worldwide, even when permitted by local law. Payments, regardless of amount, to any government employee, or gifts or services of substantial value or lavish entertainment, regardless of motive, are prohibited. Relationships with public employees shall be so conducted that neither the officials nor the company's integrity would be compromised if the full details of the relationship became a matter of public knowledge. Lakeland and Conflicts of Interest It has always been, and continues to be, the corporation's intent that its employees maintain the highest standards of loyalty in their conduct of company affairs. In essence, company employees shall deal with suppliers, customers, and other persons doing business or seeking to do business with the corporation in a manner that eliminates consid- erations of personal advantage. Because they hold positions of trust in the corporation, a director, an officer, or any employees may not make a profit from the corporation because of their official position. They are also clearly prohibited from engaging in a competing business. In addition to the legal responsibility of the directors and officers, it is the duty of all employees to act in the best interests of the corporation and to avoid situations which might produce a conflict between their own interests and those of the corporation. Employees shall have no financial interest in any firm doing business with or seeking to do business with the corporation, nor shall they accept employment outside the company which may result in a conflict of interest, unless same is fully disclosed and approved by a disinterested group of officers and/or directors. A-4 [X] PLEASE MARK VOTES AS IN THIS EXAMPLE REVOCABLE PROXY LAKELAND INDUSTRIES, INC. 711-2 Koehler Avenue, Ronkonkoma, New York 11779-7410 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The undersigned hereby appoints Raymond J. Smith and Eric O. Hallman as proxies, each with power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated hereon, all the shares of common stock of Lakeland Industries, Inc., held of record by the undersigned on April 26, 2002 at the annual meeting of stockholders to be held on June 19, 2002 or any adjournment there of. 1. Election of Director Christopher J. Ryan With- For hold [_] [_] 2. Other Business 1. In their discretion, the Proxies areauthorized to vote upon such other business as may properly come before the meeting. THIS PROXY WHEN PROPERLYEXECUTED 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. Please sign exactly as your name appears on this card. When shares are held by joint tenants, bothshould sign. When signing as attorney, executor, administrator, trusteeor guardian, please give full 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 be sure to sign and date this Proxy in the box below. ____________________________________________________ Date ____________________________________________________ Stockholder sign above ____________________________________________________ Co-holder (if any) sign above Detach above card, sign, date and mail in postage paid envelope provided. LAKELAND INDUSTRIES, INC. PLEASE ACT PROMPTLY SIGN, DATE & MAIL YOUR PROXY CARD TODAY IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED. ____________________________________________________ ____________________________________________________ ____________________________________________________ -----END PRIVACY-ENHANCED MESSAGE-----