-----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, F3FEPB9ifojXXtZ2WBRqTh1yr59gDJ+rp92Jhs1FMnPj4ilU5LESmltVPkQuBLTa PVREbYzCzXvSA+h43O6Y+w== 0000914317-03-001373.txt : 20030429 0000914317-03-001373.hdr.sgml : 20030429 20030429171503 ACCESSION NUMBER: 0000914317-03-001373 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030131 FILED AS OF DATE: 20030429 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: 03670266 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.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, 2003 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 closing price of the Common Stock on NASDAQ on the last day of the registrant's most recently completed second quarter (July 31, 2002) was approximately $16,648,694 (based on 1,922,482 shares held by non-affiliates). The number of shares outstanding of the Registrant's common stock, $.01 par value, on April 25, 2003 was 2,972,407. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended January 31, 2003 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 18, 2003, 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 MAY CONTAIN 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 THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS. 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, full body suits for use by toxic waste, 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 safety and mill supply distributors; The Company's disposable 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 five 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 enterprises in China and were accounted for as a wholly owned subsidiary of the Company and of the Company's subsidiary Laidlaw, Adams & Peck, Inc., respectively and QingDao MayTung Healthcare Co. Ltd. was registered as a business enterprise in China in August 20, 2001. 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 and Lakeland Industries Europe Ltd. was incorporated in the U.K. on August 1, 2002. These 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 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 continued 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 The Federal Government's response to the events of September 11, 2001. Homeland Security legislation already passed by Congress include the "Fire Act" and "Bioterrorism Act", which propose and provide for the release of more than a billion dollars for the purchase of equipment by fire, and police departments, hospitals, emergency medical personnel, military and federal law enforcement personnel and other so called "first responders" to a terrorist threat or attack from 2003 through 2005. 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. 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 few remaining companies making 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. A-3 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. 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 TyvekTM and Contaminants, irritants, o Chemical/petrochemical Protective Clothing TyvekQCTM laminates chemicals, fertilizers, industries of Polyethylene, pesticides, acids, o Automotive and pharma- MicromaxTM, asbestos, PCB(s), lead ceutical industries SMS,Polypropylene, and other hazardous o Public utilities PyrolonTM,and other chemicals o Government non-woven fabrics (Terrorist Response) o Janitorial _________________________________________________________________________________________________________________ o Gloves o KevlarTM yarns Cuts, lacerations, heat o Automotive, glass and o Arm guards o SpectraTM yarns and chemical irritants metal fabrication o KevlarTM wrapped steel industries core yarns o Chemical plants _________________________________________________________________________________________________________________ o Fire fighting apparel o PBITM Fire, burns and excessive o Municipal, corporate and o NomexTM heat volunteer fire departments o MilleniaTM o Wildland Fire Fighting o BasofilTM o Advance Indura Ultrasoft _________________________________________________________________________________________________________________ o Heat protective o Aluminized NomexTM Fire, burns and o Hot equipment maintenance aluminized fire suits o Aluminized KevlarTM excessive heat personnel and industrial fire departments o Airport crash rescue _________________________________________________________________________________________________________________ o Protective woven o StaticsorbTM Carbon o Protects manufactured o Hospital and Industrial reusable garments Thread with Polyester products from human Facilities o Cotton Polyester blends contamination or static o Clean room environments electrical charge o Cotton o Emergency Medical o Bacteria, viruses and o Polyester Ambulance Services blood borne pathogens o FR Cottons/NomexTM o Chemical and Refining o Protection from flash fires _________________________________________________________________________________________________________________ o High end Chemical o TyChem SLTM Chemical spills o Hazardous material teams protective suits o TyChem TKTM o Chemical and nuclear Toxic chemicals used in o TyChem BRTM manufacturing processes industries-various uses o Other Company patented Terrorist Threat or o Government Co-Polymer Laminates Attacks. (Terrorist Response) _________________________________________________________________________________________________________________
A-4 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, TyvekQC, TyChem SL, TK, and BR, Pyrolon FR, (all DuPont fabrics) and Company fabrics such as Pyrolon Plus 2 and XT, Micromax and Safegard76, Zonegard, Body Guard, RyTex and TomTex which are made of polypropylene and polyethylene materials, laminates, films, 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. 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, construction 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 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 cut into required patterns at its USA plant which is ISO 9001 certified or its Chinese Plants which are presently or will be ISO 9002 certified. The cut fabric and any necessary accessories, such as zippers or elastic, are then incorporated 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 primarily to the Company's USA plants, 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, 2003, no independent sewing contractors accounted for more than 5% of the Company's sales 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. Management believes that by its use of its facilities complemented by the use of independent sewing contractors, the Company is capable of reducing by 10% 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. The Company is one of six companies licensed in North America to sell 100% Kevlar gloves. Kevlar is a cut and heat resistant, high-strength lightweight, flexible and durable material produced by Dupont. Kevlar, 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 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 gloves can withstand A-5 temperatures of up to 400 degrees Fahrenheit and are sufficiently cut-resistant to allow workers to safely handle sharp or jagged unfinished sheet metal. Kevlar 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 , Spectra and Company patented yarns to make gloves, which carry a higher profit margin than commodity gloves. Spectra 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 some 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 and Spectra gloves range in price from $37.00 to $240.00 for a dozen pair. The Company manufactures gloves at its Decatur, Alabama facility. Computerized robotic knitters are used to weave gloves from both natural and synthetic materials, including Kevlar and Spectra on an automatic basis. These robotic knitters are generally in operation 20 hours a day, 5-1/2 days a week. The Company's robotic knitters allow flexibility in production as they can be easily reprogrammed in minutes to produce gloves and sleeves in different sizes, styles, weights, weaves or combinations of materials. Additionally, these robotic knitters can produce gloves and sleeves separately or as a one-piece garment. Gloves and sleeves can also be knitted in different weights and combinations of yarns, such as Kevlar mixed with cotton or polyester. The Company has applied for patents that allow 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 yarn 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, these patents 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 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 supplements both the firefighting apparel and 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 A-6 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 manu- facturing facilities, as well as pharmaceutical/manufacturing o hospital garments for protection against blood borne pathogens o jackets and bib overalls for use by emergency medical rescue teams o flame resistant coveralls/pants/jackets for chemical and petroleum plants and wild land firefighting The Company's reusable wovens range in price from $10 to $100 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 and TyChem BR 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 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 two National Fire Protection Agency ("NFPA") approved garments for varying levels of protection required depending on field conditions: TYCHEM TK - is a co-polymer film laminated to a durable spunbonded substrate. It offers the broadest temperature range for limited use garments - -25F degrees to 225F degrees. TyChem TK meets all OSHA Level A requirements. It is available in NFPA 1991-94 certified versions when worn with an aluminized over cover. TYCHEM BR - 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 and TyChem BR, 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 can protect against chemical, nuclear, and biological hazard will increase substantially over the next two years. In 2002, the federal government through the Federal Emergency Management Agency (FEMA) has allocated $360 Million to fire departments in the United States and its territories (the "Fire Act") 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". Such monies were not actually dispersed until January 2003. For 2003 appropriations under the Fire Act are expected to be $360 to $400 million while it is believed that the "Bio Terrorism Preparedness and Response Act of 2002" 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. These "Bio Terrorism" monies are expected to be disbursed in late 2004 and 2005. 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 A-7 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, 2003, no one distributor accounted for more than 5% of sales. 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 and an Internet Web Page. See the Company's website at www.Lakeland.com. The Company exhibits at both regional and national trade shows and was represented at the National Safety Congress in (Fall of 2002) and at the American Industrial Hygienists Convention (Spring of 2002). RESEARCH AND DEVELOPMENT The Company has a history of new product development and innovation and has introduced the Grapolator and Kut Buster 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 which provides heat protection for temperatures up to 600F degrees. The Company has 14 patents on various fabrics, patterns, 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 continue to expand its new specially knit and coated gloves, woven gowns for industrial and medical uses, and new fire retardant cotton fabrics. It will also continue to dedicate resources to research and development of protective non-woven fabrics. 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 and Kevlar, 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, used in the production of the Company's specialty safety gloves, is obtained from independent mills that purchase the fiber from Dupont. For the last 20 years 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 yarn used in its Dextra Guard gloves from Honeywell. The Company believes that Honeywell will be able to meet the Company's needs for Spectra. A-8 In manufacturing its fire and heat protective suits, the Company uses glass fabric, aluminized glass, Nomex, aluminized Nomex, Kevlar, aluminized Kevlar, polybenzimidazole (PBI) and Gortex, as well as combinations utilizing neoprene coatings. The chemical protective suits are made of Viton, butyl rubber, PVC (available from multiple sources), proprietary and Company patented laminates and Teflon, Tyvek QC, TyChemTK and TyChem BR 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 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 and technological innovation and may 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 production cycle, competitive pricing pressures, customer order deferrals in anticipation of new products, or government grants, 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, seven Company developed patents, three 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. As used here: Micromax(R), Safegard "76"(R) , Zone Gard (R), Body Gard (TM), Pyrolon (R), RyTex (R), TomTex (R), Thermbar (TM), Grapolator Mock Twist (TM), Despro(R), DextraGard (TM), Forcefield(TM) ,Kut Buster(TM), Interceptor (TM), Checkmate (TM), Heatex (TM), Sterling Heights (TM), Fyrepel (TM), Highland (TM), Chemland (TM) and Uniland (TM) are trademarks of Lakeland Industries, Inc. Tyvek (R), Viton (R), Barricade (R), Nomex (R), Kevlar (R), Delrin (R), TyChem(R) SL, TK and BR and Teflon (R) are registered trademarks of E.I.DuPont de Nemours and Company. Saranex (R) is a registered trademark of Dow Chemical. Spectra (R) is a registered trademark of Honeywell. Indura(R) is a registered trademark of Westex,Inc. Basofil(R) is a registered trademark of BASF. Millenia(R) is a registered trademark of Southern Mills. A-9 EMPLOYEES As of April 11, 2003, the Company had approximately 1,271 full-time employees ( 77.7% or 988 of whom were international and 22.3% or 283 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 each Canadian and United Kingdom warehouse facility and a corporate office headquarters. The Company's 141,288 approximate square foot manufacturing facilities in Decatur, Alabama, are used primarily 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 one 14,057 sq. ft. manufacturing facility on a two year lease dated August 1, 2002, expiring August 1, 2004, at an annual rent of $59,400. The employee manager of the Mexican subsidiary is the landlord. 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 provided 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. In August 2002 this facility was appraised by an independent Chinese government agency for $416,000 and was sold by the Consortium for $406,000 to the Company's Chinese subsidiary Weifang Lakeland Safety Products Co., Ltd. on installment basis with payments of $222,645 in December 2002, $89,000 in January 2003 with the remainder of $94,355 to be paid by June 2003. A second auxiliary facility to this main facility was rented on a annual basis starting April 10, 2001 at a monthly rent of $1,109 for 16,000 square feet. The Company leases a 8,250 square foot warehouse in Canada from a third party under a lease expiring on November 30, 2007. 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, 2004. The Company's Chinese subsidiary Qing Dao MayTung Healthcare Products, Co. Ltd. recently completed construction of and owns an 90,415 square foot facility on a 313,600 square foot plot of land leased from the Chinese government for 50 years in Jiazhou City, China. For the years ended January 31, 2003, 2002 and 2001, the Company paid total rent on property and all leased equipment of approximately $852,000, $858,000 and $891,000, respectively. The Company believes that these facilities are adequate for its present operations. A-10 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. The Company is involved as a defendant in one product liability suit and as a defendant and plaintiff in both the U.S. and China (involving two former employees) none of which individually or in 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 2003 Annual Report to Shareholders filed as Exhibit 13 hereto and incorporated herein by reference. (See Part IV, Item 15(c) Exhibits.) ITEM 6. SELECTED FINANCIAL DATA ________________________________________________________________________________ Reference is made to Page 1 ("Selected Financial Data") of the Registrant's 2003 Annual Report to Shareholders filed as Exhibit 13 hereto and incorporated herein by reference. (See Part IV, Item 15(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 2003 Annual Report to Shareholders filed as Exhibit 13 hereto and incorporated herein by reference. (See Part IV, Item 15(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 2003 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 26 of the Registrant's Annual Report to Shareholders for the year ended January 31, 2003: Report of Independent Accountants Report of Independent Accountants Consolidated Balance Sheets - January 31, 2003 and 2002 Consolidated Statements of Income for the years ended January 31, 2003, 2002 and 2001 Consolidated Statement of Stockholders' Equity for the years ended January 31, 2003, 2002 and 2001 Consolidated Statements of Cash Flows for the years ended January 31, 2003, 2002 and 2001 Notes to Consolidated Financial Statements A-11 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ________________________________________________________________________________ On October 15, 2002, the Registrant's Board of Directors dismissed Grant Thornton, LLP as its independent accountants for its fiscal year ending January 31, 2003. Grant Thornton, LLP's report, as previously issued, on the Registrant's consolidated financial statements for either of the past two years did not contain any adverse opinion or disclaimers of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles. The decision to change accountants was recommended and approved by the Registrant's Audit Committee. During the two most recent fiscal years and the subsequent interim periods through the date or termination (October 15, 2002), there were no disagreements with Grant Thornton, LLP, the Registrant's former independent accountants, on any matter of accounting principles or practice, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to the satisfaction of Grant Thornton, LLP would have caused it to make reference in connectioin with its report to the subject matter of the disagreements. During the two most recent fiscal years and the subsequent interim periods through October 15, 2002, there have been no reportable events. On October 29, 2002, the Registrant's Board of Directors engaged PricewaterhouseCoopers LLP as its independent accountants for its fiscal year ending January 31, 2003. During the two most recent fiscal years and the subsequent interim periods through October 15, 2002, the Registrant has not consulted with PricewaterhouseCoopers LLP regarding any matters referenced under items 304(a)(2) of Regulation S-K. 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 2003 Annual Meeting of Stockholders ("Proxy Statement"), which information is included in Exhibit 20 hereto and incorporated herein by reference. (See Part IV, Item 15(c) Exhibits.) The Company furnished to the SEC a definitive Proxy Statement within 120 days after the close of the fiscal year ended January 31, 2003. Certain information required by this item is incorporated herein by reference to the Proxy Statement. Also see "Executive Officers of the Registrant" in Part 1 of this Annual Report on Form 10-K. 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 15(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 15(c) Exhibits.) 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 15(c) Exhibits.) A-12 ITEM 14. CONTROLS AND PROCEDURES ________________________________________________________________________________ (a) The Company's chief executive officer and principal accounting officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act), as of a date within 90 days of the filing date of this Annual Report on Form 10-K. Based on such evaluation, they have concluded that as of such date, our disclosure controls and procedures are effective and designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms. (b) There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of evaluation by our chief executive officer and principal accounting officer. PART IV ITEM 15. 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, 2003, as noted in Item 8 hereof: Report of Independent Accountants Report of Independent Accountants Consolidated Balance Sheets - January 31, 2003 and 2002 Consolidated Statements of Income for the years ended January 31, 2003, 2002 and 2001 Consolidated Statement of Stockholders' Equity for the years ended January 31, 2003, 2002 and 2001 Consolidated Statements of Cash Flows for the years ended January 31, 2003, 2002 and 2001 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, 2003. (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** A-13 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 December 1, 2002, as revised March 2003. 10 (h) Employment agreement between the Company and Harvey Pride, Jr., dated December 1, 2002. 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 November 29, 2002. 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 December 1, 2002. 11 Consents of Grant Thornton LLP and PricewaterhouseCoopers LLP dated April 28, 2003 and April 21, 2003, respectively*** 13 Annual Report to Shareholders for the year ended January 31, 2003 20 Proxy Statement of the Registrant for Annual Meeting of Stock- holders - June 18, 2003 22 Subsidiaries of the Company (wholly-owned): LAKELAND PROTECTIVE WEAR, INC. LAKELAND DE MEXICO S.A. DE C.V. LAIDLAW, ADAMS & PECK, INC. AND SUBSIDIARY (MEIYANG PROTECTIVE PRODUCTS CO., LTD.) WEIFANG LAKELAND SAFETY PRODUCTS CO. LTD. QING DAO MAYTUNG HEALTHCARE CO., LTD. LAKELAND INDUSTRIES EUROPE 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-14 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, 2003 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 _______________________ Raymond J. Smith Chairman of the Board, April 30, 2003 President and Director (Principal Executive Officer) /s/ CHRISTOPHER J. RYAN _______________________ Christopher J. Ryan Executive V. P.- General Counsel, April 30, 2003 Secretary and Director /s/ JAMES M. MCCORMICK _______________________ James M. McCormick Vice President and Treasurer April 30, 2003 (Principal Financial and Accounting Officer) /s/ ERIC O. HALLMAN _______________________ Eric O. Hallman Director April 30, 2003 /s/ JOHN J. COLLINS, JR. _______________________ John J. Collins, Jr. Director April 30, 2003 /s/ WALTER J. RALEIGH _______________________ Walter J. Raleigh Director April 30, 2003 A-15
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Column A Column B Column C Column D Column E ___________________________ __________ ____________________________ __________ __________ Additions Balance at Charge to Charged to Balance at beginning costs and other end of of period expenses accounts Deductions period __________ _________ __________ __________ __________ Year ended January 31, 2003 Allowance for doubtful account (a) $221,000 $369,717 247,717 (b) $343,000 Year ended January 31, 2002 Allowance for doubtful account (a) $221,000 $ 83,965 83,965 (b) $221,000 Year ended January 31, 2001 Allowance for doubtful account (a) $200,000 $ 30,176 9,176 (b) $221,000 __________________ (a) Deducted from accounts receivable. (b) Uncollectible accounts receivable charged against allowance.
A-16 CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 AND SECURITIES AND EXCHANGE COMMISSION RELEASE 34-46427 I, Raymond J. Smith, the president and chief executive officer of Lakeland Industries, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Lakeland Industries, Inc. 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made not misleading with respect to the period covered by the report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report fairly present in all material respects the financial condition, result of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities particularly during the period in which this annuual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrar's ability to record process, summarize and report financial data and have identified for the registrant's auditors and material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 30,2003 /s/ RAYMOND J. SMITH _____________________________________ Raymond J. Smith President and Chief Executive Officer CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 AND SECURITIES AND EXCHANGE COMMISSION RELEASE 34-46427 I, James M. McCormick, the principal accounting officer of Lakeland Industries, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Lakeland Industries, Inc. 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made not misleading with respect to the period covered by the report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report fairly present in all material respects the financial condition, result of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrar's ability to record process, summarize and report financial data and have identified for the registrant's auditors and material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 30,2003 /s/ JAMES M. MCCORMICK __________________________________ James M. McCormick Vice President, Treasurer and Principal Accounting Officer CERTIFICATION OF EXECUTIVE VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 AND SECURITIES AND EXCHANGE COMMISSION RELEASE 34-46427 I, Christopher J. Ryan, Executive Vice President, Secretary and General Counsel of Lakeland Industries, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Lakeland Industries Inc. 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made not misleading with respect to the period covered by the report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report fairly present in all material respects the financial condition, result of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrar's ability to record process, summarize and report financial data and have identified for the registrant's auditors and material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 30,2003 /s/ CHRISTOPHER J. RYAN _______________________________________ Christopher J. Ryan Executive Vice President, Secretary and General Counsel CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SS. 1350, AS ADOPTED PURSUANT TO SS. 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing with the Securities and Exchange Commission of the Annual Report of Lakeland Industries, Inc. (the "Company") on Form 10-K for the year ending January 31, 2003 (the "Report"), I Raymond J. Smith, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.ss.1350, as adopted pursuant toss.906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents in all material respects, the financial condition and results of operations of the Company. /s/ RAYMOND J. SMITH _______________________ Raymond J. Smith Chief Executive Officer April 30, 2003 CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER PURSUANT TO 18 U.S.C. SS. 1350, AS ADOPTED PURSUANT TO SS. 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing with the Securities and Exchange Commission of the Annual Report of Lakeland Industries, Inc. (the "Company") on Form 10-K for the year ending January 31, 2003 (the "Report"), I James M. McCormick, Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C.ss.1350, as adopted pursuant toss.906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents in all material respects, the financial condition and results of operations of the Company. /s/ JAMES M. MCCORMICK ____________________________ James M. McCormick Principal Accounting Officer April 30, 2003 CERTIFICATION OF EXECUTIVE VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL PURSUANT TO 18 U.S.C. SS. 1350, AS ADOPTED PURSUANT TO SS. 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing with the Securities and Exchange Commission of the Annual Report of Lakeland Industries, Inc. (the "Company") on Form 10-K for the period ending January 31, 2003 (the "Report"), I Christopher J. Ryan Executive Vice President, Secretary and General Counsel of the Company, certify, pursuant to 18 U.S.C.ss.1350, as adopted pursuant toss.906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents in all material respects, the financial condition and results of operations of the Company. /s/ CHRISTOPHER J. RYAN ___________________________________ Christopher J. Ryan Executive Vice President, Secretary and General Counsel April 30, 2003 EX-10 3 exhibit10.txt December 1, 2002 EXHIBIT 10(h) Mr. Harvey Pride, Jr. 810-P Island Way NW Decatur, AL 35602 Dear Mr. Pride: The purpose of this letter is to confirm your continuing employment with Lakeland Industries Inc. on the following terms and conditions: 1. THE PARTIES ----------- This is an agreement between Harvey Pride, Jr. residing at 810-P Island Way NW, Decatur, Alabama 35602 (hereinafter referred to as "you") and Lakeland Industries, Inc., a Delaware corporation, with principal place of business located at 711-2 Koehler Avenue, Ronkonkoma, NY 11779-7410 (hereinafter the Company). 2. TERM; RENEWAL ------------- The term of the agreement shall be for a 3 year period from February 1, 2003 through and including January 31, 2005 which term shall be automatically renewed for a maximum of 2 successive annual periods unless either party notifies the other 30 days prior to the expiration of the original term or renewal thereof, that the agreement will not be renewed. 3. CAPACITY --------- You shall be employed in the capacity of Vice President of Lakeland Industries, Inc. and such other senior executive title or titles as may from time to time be determined by the Board of Directors of the Company. You shall be directly responsible to the Board of Directors of the Company and to the President of Lakeland. 4. COMPENSATION ------------ As full compensation for your services you shall receive following from the Company: (a) A base annual salary of $152,000 year one, $170,000 year two, and $190,000 year three payable bi-weekly; and (b) Participation when eligible in any of the Company's Pension, Profit Sharing Plans and ESOP - 401(K) when any such plans become effective: (c) Such other benefits as are consistent with the personnel benefits provided by the Company to its officers and employees; provided however that your vacation shall be for a period of no less than 5 weeks; and (d) You shall be entitled to an automobile allowance consistent with the allowance you have been receiving; and (e) Reimbursement for any dues and expenses incurred by you that are necessary and proper in the conduct of the Company's business; and (f) An annual bonus as set forth in this agreement. 5. ANNUAL BONUS ------------ In May of each year commencing in 2004, you shall be awarded an annual bonus based on the positive current year performance of the Company as compared to the prior Fiscal Year. The bonus to be awarded in May 2004 and upon the successive annual renewals, shall be based under an incentive compensation plan which equals $1,000.00 for each penny of additional after tax earnings incrementally earned over the prior years fiscal earnings. The earnings per share shall be the earnings per share of common stock of the Company as determined by the Company's auditors in the preparation of the annual audit and reported to the Company's shareholders. If during the fiscal year commencing February 1, 2004 the Company acquires all of the stock and/or assets of a separate business entity or divests itself of one or more subsidiaries or is involved in a recapitalization or other public offering of the Company's securities, then in that event the amount of the aforesaid annual bonus will be adjusted to reflect such change or changes. The adjustment to the annual bonus will be made by the Compensation Committee of the Board of Directors of the Company. The decision of the Compensation Committee of the Board of Directors as to any matter relating to the annual bonus or discretionary bonus shall be final, binding and conclusive and shall not be subject to any further review. 6. DISABILITY ----------- In the event that you shall incur a total disability which renders you unable to substantially perform your duties to the Company as determined by the Board of Directors you shall receive 100% of your base annual salary for the first year of such total disability reduced by the amount of any disability insurance payments received under a disability insurance policy maintained by the Company or you (Disability Insurance). Thereafter, and for the following six months you shall receive 50% of your base annual salary during the period of such total disability reduced by the amount of any such Disability Insurance. If such disability continues after such 18 month period your employment hereunder shall terminate. 7. CONFIDENTIALITY AND NO-COMPETE ------------------------------ A. Restrictive Covenants. ---------------------- The Company and you acknowledge and agree that: (i) the business contracts, joint ventures, Asian and all the Company's other U.S. and international suppliers, independent, contractors, customers, international and domestic vendors, joint venture or non-joint venture contractors and customers, patterns, know-how, trade secrets, marketing techniques and other aspects of the business of the Company are of value to the Company and will provide the Company with substantial competitive advantage in the operation of its business; (ii) the business of the Company is national and international in scope, and (iii) the Company is entitled to protect its goodwill during and after the term of this Agreement. (b) For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by you, you hereby agree that you nor any of your companies, corporations or subsidiaries thereof joint ventures, proprietorships or affiliates of same hereinafter referred to as ("the affiliates") shall in any manner, directly or indirectly: (i) at any time, divulge, transmit or otherwise disclose, or cause to be divulged, transmitted or otherwise disclosed, to any person or entity whatsoever, any confidential or proprietary information of the Company, including business contacts, customer lists, supplier lists, domestic and international vendors, suppliers, joint ventures and assembly contractors, technology know-how, trade secrets, marketing techniques, marketing plans and strategies, manufacturing methods, patterns, product development techniques or plans, patents, laminates, fabrics, contracts or other confidential or proprietary information of the Company (including such matters related to the business heretofore conducted by the Company); (ii) at any time during the period from the date hereof through and including the second (2nd) anniversary of any termination date this Agreement hereof (the "Restrictive Period"), anywhere in or out of the United States of America, render any services to or engage, participate, or have any interest or be involved in any capacity, whether as an owner, agent, stockholder (excluding ownership of not more than 5% of the outstanding shares of a publicly held corporation if such ownership does not involve, and neither Employee nor any of his affiliates, otherwise has, any managerial or operational responsibility in respect thereof), officer, director, manager, partner, joint venturer, employee, consultant or otherwise, in any business enterprise which is, or shall at any time during the Restrictive Period be, engaged in any manner in the business of designing, developing, manufacturing, marketing, selling and/or distributing any Products (as defined below); (iii) directly or indirectly solicit, request, cause or induce any person who is at the time or eighteen months prior thereto had been an employee of or consultant to the Company, to leave the employ of or terminate his relationship with the Company, or to employ, hire, engage or be associated with, or endeavor to entice away from the Company, any such person; and (iv) induce any customers, vendors, joint venturers or contract manufacturers of the Company, either domestically or internationally to discontinue doing business with the Company. (c) As used herein, the term "Products" means any and all goods and/or products of the type heretofore sold by the Company or any of its affiliates, including but not limited to the "Products" as listed in the company's product catalogs, pricing lists, or other literature and any functionally similar goods and/or products, already developed by the Company and shown in its catalogs, pricing lists or other literature or to be developed by the Company during the term of this Agreement. (d) For purposes hereof, information shall not be deemed "confidential" or "proprietary" to the extent that it (i) is a matter of common knowledge or of public record, or within the public domain (other than as a result of any breach hereof by Supplier); (ii) is generally known throughout the industry or was otherwise acquired from other legitimate sources; or (iii) is required to be disclosed by law or by order of any court or governmental authority. B. Specific Performance - ----------------------- You hereby acknowledges and agrees that any default by you or any of your affiliates, singly or collectively, in any of the foregoing restrictive covenants will cause the Company irreparable injury for which there is no adequate remedy at law. Accordingly, you expressly agree that, in the event of any breach or threatened breach of any such covenant or agreement by you or any of your affiliates the Company shall be entitled, in addition to any and all other remedies available, to seek and obtain injunctive and/or other equitable relief to require specific performance of or prevent a default under the provisions of this Agreement; and you hereby consent to each such application. 8. CHANGE IN CONTROL ----------------- Upon the occurrence of a change in control (as hereinafter defined) you shall have the right to terminate at your option this agreement within 10 days after the occurrence of such change in control. Upon the effective date of such termination you shall be entitled to receive a lump sum severance amount equal to the sum of (i) the greater of the present value of your base salary in effect at the time of the change of control for 1 year or the present value of your base salary in effect at the time of the change of control for the remainder of the term and (ii) the estimated amount which would have been payable to you pursuant to the bonus as set forth in this agreement for the fiscal year during which the change of control occurred as determined in good faith by the Compensation Committee of the Board of Directors of the Company based upon the Company's results of operations for the fiscal year through the effective date of the termination and its historical results of operations and pro-rated to the effective date of termination. You shall not be required to mitigate the amount of termination payment provided pursuant to this section nor will such payment be reduced by reason of your securing other employment. A change of control shall have occurred (i) upon the acquisition of any person (as such term is defined in sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 as amended), directly or indirectly of securities of the Company representing 66 2/3% or more of the combined voting power of the Company's then outstanding securities or (ii) upon the future disposition by the Company (whether direct or indirect by sale of assets or stock merger consolidation or otherwise) of all or substantially all of the Company's business and/or assets in the transaction. In the event of a future disposition by the Company (whether direct or indirect by sale of assets or stock, merger, consolidation or otherwise) of all or substantially all of its business and/or assets the Company will require any successor to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform, if no such disposition had taken place. 9. NOTICES ------- Any notices required to be give Under this Agreement shall unless otherwise agreed to by you and the Company be in writing and by certified mail return receipt requested and mailed to the Company at its headquarters at 711-2 Koehler Avenue Ronkonkoma, NY 11779-7410 or to you at your home address at 810-E Island NW, Decatur, Alabama 35602. 10. WAIVER OR MODIFICATION ---------------------- No waiver or modification in whole or in part of this agreement or any term or condition hereof shall be effective against any party unless in writing and duly signed by the party sought to be bound. Any waiver of any breach of any provision hereof or right or power by any party on one occasion shall not be construed as a waiver of or a bar to the exercise of such right or power on any other occasion or as a waiver of any subsequent breach. 11. SEPARABILITY ------------ Any provision of this agreement which is unenforceable or invalid in any respect in any jurisdiction shall be ineffective in such jurisdiction to the extent that it is unenforceable or invalid without effecting the remaining provisions hereof which shall continue in full force and effect. The unenforceability or invalidity of any provision of the agreement in one jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 12. HEADINGS -------- The headings contained in this agreement are for convenience only and shall not affect restrict or modify the interpretation this agreement. 13. CONTROLLING LAW --------------- This agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed therein, and you agree to the exclusive jurisdiction and venue of all State and Federal Courts sitting in the State of New York in connection with any claim, dispute, or controversy arising under or in connection with this Agreement. LAKELAND INDUSTRIES, INC. /s/ Harvey Pride, Jr. /s/ John J. Collins - ---------------------------- --------------------- Harvey Pride, Jr. By: John J. Collins Vice President Manufacturing /s/ Eric O. Hallman --------------------- By: Eric O. Hallman /s/ W. James Raleigh ---------------------- By: W. James Raleigh Board of Directors Compensation Committee Amendment EXHIBIT 10(g) --------- Section 5 Annual Bonus ---------------------- "Recapitalization" as used in the employment contract of Raymond J. Smith shall include stock splits or stock dividends which either increase or decrease the number of shares outstanding, and in the event of the issuance of stock splits or stock dividends the amount of the annual bonus will be appropriately adjusted to fairly reflect such changes in the number of shares outstanding. Lakeland Industries, Inc. Compensation Committee /s/John J. Collins --------------------------------- John J. Collins, Director /s/Walter James Raleigh --------------------------------- Walter James Raleigh, Director /s/Eric O. Hallman --------------------------------- Eric O. Hallman, Director EX-11 4 exhibit11.txt Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-92564) of Lakeland Industries, Inc. of our report dated April 7, 2003 relating to the financial statements and financial statement schedule of Lakeland Industries, Inc. as of and for the year ended January 31, 2003, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. Pricewaterhouse Coopers LLP Melville, New York April 21, 2003 EXHIBIT 11 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 10-K for the fiscal year ended January 31, 2003. 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). GRANT THORNTON LLP Melville, New York April 28, 2003 EX-20 5 exhibit20.txt Logo appears here Corporate Headquarters 711-2 Koehler Avenue Ronkonkoma, NY USA 11779-7410 Tel: 631-981-9700 Fax: 631-981-9751 E-Mail: info@lakeland.com Internet: http://www.lakeland.com Lakeland Limited-Use and Chemical Protective Clothing Customer Service 800-645-9291 Tel: 256-350-3873 Fax: 256-350-0773 Email: sales@lakeland-ind.com Hand/Arm Protection Division Customer Service 800-886-8010 Tel: 256-351-9126 Fax: 256-353-9463 Woven Clothing Division Customer Service 800-933-0115 Tel: 219-929-5536 Fax: 219-929-5562 Fire Protective Clothing Division Customer Service 800-645-9291 Tel: 256-350-3107 Fax: 256-350-3011 Lakeland Protective Wear Inc. Canada 5109 Harvestor Road Unit B-7 Burlington, Ontario L7L5Y9 800-489-9131 Tel: 905-634-6400 Fax: 905-634-6611May 9, 2003 Dear Stockholder, I am pleased to extend to you my personal invitation to attend the 2003 Annual Meeting of Stockholders of Lakeland Industries, Inc. (the "Company") on Wednesday, June 18, 2003 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, 2003 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 PricewaterhouseCoopers 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 President and Chairman of the Board LAKELAND INDUSTRIES, INC. NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON June 18, 2003 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 18, 2003 at 9:30 a.m. at the Holiday Inn, 3845 Veterans Memorial Highway, Ronkonkoma, NY 11779 for the following purposes: 1. To elect two Class II members and one Class I member of the Board of Directors, and 2. To ratify the appointment of PricewaterhouseCoopers LLP, as the Company's independent public accountants for fiscal years 2003 and 2004, and 3. 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 25, 2003 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 9, 2003 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 2003 Annual Meeting of Stockholders June 18, 2003 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 2003 Annual Meeting of Stockholders to be held on June 18, 2003, 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 2003 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 9, 2003 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 2003 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 25, 2003, 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, 2,972,407 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 2 Class II directors and 1 Class I director (see page 4), and o to ratify the appointment of PricewaterhouseCoopers LLP, as the Company's independent public accountants for the fiscal year ending January 31, 2003 and 2004. 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 25, 2003, 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. All share amounts have been adjusted for the 1 for 10 stock distribution to shareholders of record on July 31, 2002. Name and Address Number of Common Percent of Beneficial Owner Shares Beneficially Owned of Class ---------------- ------------------------- -------- Raymond J. Smith 603,130 18.5% 711-2 Koehler Ave. Ronkonkoma, NY 11779 Christopher J. Ryan 265,845 (1) (5) 8.1% 711-2 Koehler Ave. Ronkonkoma, NY 11779 John J. Collins, Jr. 125,620 (2) 3.8% Eric O. Hallman 46,750 (2) 1.4% 2 Name and Address Number of Common Percent of Beneficial Owner Shares Beneficially Owned of Class ---------------- ------------------------- -------- Walter J. Raleigh 8,800 (3) .3% All officers and directors as a group (7 persons) 1,060,980 (4) (5) 32.5% Mr. & Mrs. Luis Hernandez and 185,900 6.3% 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) 4,455 shares granted on January 1, 1994; (2) 1,100 shares granted on June 18, 1997 and 1,100 shares granted on June 21, 2000 to each of Mr. Hallman and Mr. Collins; (3) 1,100 shares granted on June 17, 1998 and 1,100 shares granted June 20, 2001; (4) 11,055 shares granted between January, 1, 1994 and June 21, 2001; (5) Mr. Ryan disclaims beneficial ownership of 11,000 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's Certificate of Incorporation and its By-Laws also provide that each class of directors shall be nearly equal in number as possible and consistent with this rule that the Board shall allocate such newly created directorships to that of the available classes whose term of office is due to expire at the earliest date following such allocation. Thus Mr. Michael Cirenza has been nominated unanimously by the current Board of Directors to be a Class I nominee for the Board of Directors subject to approval by the Stockholders. The Company currently has one Class I director, two Class II directors and two Class III directors. At the 2003 Annual Meeting there are two nominees for director in Class II and one nominee for director in Class I. The incumbent Class III and Class I directors have one year and two years, respectively, remaining on their terms of office. The Company has no reason to believe that the nominees 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 nominees for Class II named in the following table. The Board of Directors has nominated and Management recommends the election of the persons listed in the following table as Class II directors, and recommends the election of the person listed in the following table as a new Class I director. The table also sets forth the names of the two directors in Class III and the one director in Class I 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 ----------------------------------------------------------------------- NOMINEES FOR DIRECTOR - CLASS II Nominee for Three Year Term Expiring in June, 2006 -------------------------------------------------- John J. Collins, Jr. 60 Director 1986 Eric O. Hallman 59 Director 1982 INCUMBENT DIRECTORS - CLASS III One years remaining on Term Expiring in June, 2004 -------------------------------------------------- Raymond J. Smith 64 Chairman of the Board, 1982 President and Director Walter J. Raleigh 75 Director 1991 INCUMBENT DIRECTOR AND NOMINEE FOR DIRECTOR - CLASS I Two years remaining on Term Expiring in June, 2005 -------------------------------------------------- Christopher J. Ryan 51 Executive Vice President, 1986 General Counsel, Secretary and Director Michael E. Cirenza 47 Director 2003 4 The principal occupations and employment of the nominees for director and for the directors continuing in office are set forth below: 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 1974 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. Michael E. Cirenza Cirenza has been the Executive Vice President and Chief Financial Officer of Consac Industries, Inc., a manufacturer and distributor of vitamins and nutritional supplements, since September 2002. Mr. Cirenza was the Chief Financial Officer and Chief Operating Officer of Resilien, Inc., an independent distributor of computers, components and peripherals from January 2000 to September 2002. He was an Audit Partner with the international accounting firm of Grant Thornton LLP from August 1993 to January 2000 and an Audit Manager with Grant Thornton LLP from May 1989 to August 2000. Mr Cirenza was employed by the international accounting firm of Price Waterhouse from July 1980 to May 1989. Mr. Cirenza is a Certified Public Accountant in the State of New York and a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants. Raymond J. Smith, a co-founder of the Company, has been Chairman of the Board of Directors and President since its incorporation in 1982. Walter J. Raleigh is a director of 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. 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 During the year ended January 31, 2003, 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's 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. 5 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 transaction, 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 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 Committee was formed in September, 1987 and is responsible for recommending to the Board of Directors the appointment of independent auditors for the fiscal year, reviewing with the independent auditors the scope of their proposed and completed audits, 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. Mr. Michael Cirenza will be added to this committee subsequent to his election at the 2003 Annual Meeting of Stockholders. 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 met three times during the year ended January 31, 2003. 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". CHANGE IN AUDITORS On October 29, 2002, the Board of Directors, on the recommendation of the Audit Committee, appointed the firm of PricewaterhouseCoopers LLP as the Company's independent public accountants for the fiscal year ending January 31, 2003 and dismissed Grant Thornton LLP ("GT"). GT's report on the financial statements of the Company for fiscal 2002 did not contain any adverse opinion or disclaimer of opinion nor was it in any way qualified or modified as to uncertainty, audit scope or accounting principles. The decision to change accountants was recommended by and approved by the Audit Committee of the Board of Directors and the full Board as well. During fiscal 2002, and the interim period preceding the dismissal, there were no disagreements between the Company and GT on any matter of accounting principles or practices, financial statement disclosure or audit scope or procedure. The Company has never been advised by GT that internal controls necessary for the Company to develop reliable financial statements do not exist or that any information has come to the attention of GT which would have caused it not to be able to rely on management's representations or that has made GT unwilling to be associated with the financial statements prepared by management. GT has not advised the Company of any need to significantly 6 expand the scope of its audit or that information has come to their attention that upon further investigation may materially impact on the fairness or reliability of a previously issued audit report or financial statements issued or which would cause them to be unwilling to rely on management's representations or be associated with the Company's financial statements. GT has not advised the Company of any information which they concluded materially impacts upon the fairness or reliability of either a previously issued audit report, underlying financial statements or the financial statements issued or to be issued since the last financial statements covered by an audit report. 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 independent 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. 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 seven times during fiscal 2003. 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 PricewaterhouseCoopers 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, 2003, for filing with the Securities and Exchange Commission. The Committee and the Board have also recommended the selection of the Company's independent auditors. 7 THE AUDIT COMMITTEE: -------------------- John J. Collins, Jr. Eric O. Hallman Walter J. Raleigh Fees billed to the Company by PricewaterhouseCoopers LLP for the year ended January 31, 2003: Audit Fees: Aggregate fees for professional services rendered by PricewaterhouseCoopers LLP in connection with its audit of the Company's consolidated financial statements as of and for the year ended January 31, 2003 and its limited reviews of the Company's unaudited condensed consolidated interim financial statements were $89,000, of which an aggregate amount of $37,000 has been billed through January 31, 2003. Financial Information Systems Design and Implementation Fees: During the year ended January 31, 2003, PricewaterhouseCoopers LLP rendered no professional services to the Company in connection with the design and implementation of financial information systems. All Other Fees: In addition to the fees described above, aggregate fees of $30,140 were billed by PricewaterhouseCoopers LLP during the year ended January 31, 2003, primarily for the following professional services: Audit related services $ -0- Income tax compliance and related tax services $ -0- Other $30,140 Respectfully submitted, AUDIT COMMITTEE RATIFICATION OF AUDITORS (Item 2 on Proxy Card) The Board of Directors, on the recommendation of the Audit Committee, has appointed the firm PricewaterhouseCoopers LLP (hereinafter referred to as "PWC") as the Company's independent public accountants for the fiscal year ending January 31, 2003 and 2004 and recommends that the stockholders vote `FOR" ratification of such appointment. It is expected that a representative of PWC will be present at the Meeting and will have the opportunity to make a statement and will be available to respond to appropriate questions. Stockholder ratification of the appointment of PWC as the Company's independent public accountants is not required by the Company's bylaws or other applicable legal requirement. However, the Board is submitting the appointment of PWC to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the appointment, the Audit Committee and the Board will reconsider whether or not to retain that firm. Even if the appointment is ratified, the Board may direct the appointment of a different independent accounting firm at any time during the year if it determines that such a change would be in the Company's best interests and in the best interests of the Company's stockholders. Ratification of the appointment of auditors requires a majority of the votes cast thereon. Abstentions with respect to this proposal have the same effect as a vote against the proposal. Broker non-votes with respect to this proposal will not be counted with regard to this proposal. The Board of Directors recommends that stockholders vote "FOR" the ratification of the appointment of PWC as the Company's independent public accountants. 8 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, 2003, 2002 and 2001: Name and All Other Principal Position Year Salary Bonus Compensation ------------------ ---- ------ ----- ------------ Raymond J. Smith, 2003 $262,500 $82,500 $22,242 Chairman, President and CEO 2002 262,500 0 7,289 2001 262,500 62,500 7,767 Christopher J. Ryan, 2003 $215,000 $40,300 $8,927 Executive V.P., General Counsel 2002 215,000 0 8,548 and Secretary 2001 215,000 0 8,282 Harvey Pride, Jr. 2003 $135,000 $24,800 $4,503 Vice President- 2002 135,000 0 3,606 Manufacturing 2001 135,000 0 3,923 James M. McCormick 2003 $135,000 $31,000 $5,259 VP - Treasurer 2002 135,000 0 4,372 2001 135,000 8,000 4,574 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 2003.The Company has entered into employment contracts with all executive officers providing for annual compensation of $276,000 for Mr. Smith and $241,000 for Mr.Ryan,$152,000 for Mr.Pride,and $152,000 for Mr.McCormick.Messrs.Smith,Ryan and Pride each have a three year contract which expires on January 31,2006,Mr.McCormick has a one year contract expiring January 31,2004.All contracts are automatically renewable for two,one year terms,unless in various instances 30 to120 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 $88,901,during the plan year ended December 31,2002. 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 31,2003 (for payment in May 2003)were Messrs.Smith $132,500, Ryan $27,300,Pride $16,800 and McCormick $21,000.All contracts provide for lump sum payments of contracted salaries pursuant to various formulas should there be a change in control of the Company.Messrs.Smith and Ryan have minimum bonus provisions contained in their contracts of $25,000 and $20,000,respectively. STOCK OPTION AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION ------------------------- Policies: :The compensation policy of the Company is to provide its executive officers and management with a level of pay and benefits that will assure the Company's competitiveness and continued growth,and allow the Company to retain key executives critical to this long-term success and attract and retain qualified personnel.The Company competes for talented executives in a market segment where successful entrepreneurial executives are highly compensated.It also competes for executives with a background in manufacturing and selling protective safety garments.As a result,to obtain and retain highly qualified and motivated executives,the Compensation Committee has deemed it desirable to structure employment arrangements which compensate highly for high profitability and performance and to enter into written employment agreements with its senior executive officers. 9 The Compensation Committee's responsibilities include overseeing the Company's compensation policies, supervising compensation for management and employee benefits and administering the Company's stock option and other employee benefit plans. The Compensation Committee also develops and negotiates employment agreements with key executive officers.These employment agreements include base salaries and incentive compensation arrangements designed to reward management for achieving certain production or performance levels.The Compensation Committee is also responsible for developing or reviewing incentive compensation arrangements which the Company enters into with executive officers and key individuals,other than those senior executives 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 all four employment contracts in November 2002.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 $276,000,$241,000, $152,000 and $152,000,for fiscal 2004,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 2002 Officer Compensation Report,A Panel Publication,Aspen Publishers Inc. 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 2003 and no SAR grants have been made since inception of the Stock Option Plan.See "Directors'Compensation". 10 Graph info [GRAPH OMITTED] 11 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 31,2003 are as follows: No. of Date(s) Grant Name of Shares Option of Expiration Date Executive Granted Price Grant Date(s) Value - --------- ------- ----- ----- ------- ----- Mr.Ryan 4,455* $2.04545* 1/1/94 1/1/04 $9,113 There are currently 250,000 option shares available for future grant under this plan.During the year ended January 31,2003,no stock options were granted and the following stock options were exercised: No.of Date Name of Shares Exercise of Per Share Exercise Executive Exercised Price Exercise Date Value Mr.McCormick: 2,750* $3.1818* 12/18/02 $6.78 4,850 $2.25 5/3/02 $7.836 2,500 $3.50 5/3/02 $7.836 *Share amounts,option price,and exercise price have been adjusted for the 1 for 10 stock distribution to shareholders of record on July 31,2002. 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 $2,500 quarterly for meeting as compensation for serving on the Board and its committees.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 1,100 $4.6509 6/18/97 6/18/2003 1,100 5.39818 6/21/00 6/21/2006 Mr.Hallman 1,100 4.65909 6/18/97 6/18/2003 1,100 5.39818 6/21/00 6/21/2006 Mr.Raleigh 3,300 2.9545 4/18/97 4/18/2003 1,100 9.7727 6/17/98 6/17/2004 1,100 6.0818 6/20/01 6/20/2007 *Share amount and option price have been adjusted for this 1 for 10 stock distribution to shareholders of record on July 31,2002 There are currently 36,000 option shares available for future grant under this plan.During the year ended January 31,2003,no stock options were granted or exercised. 12 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)was formed in 1984 to lease both land and buildings to the Company because bank financing was unavailable.POMS presently 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. 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 31,2003,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, 2003,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.The real estate construction and land lease purchases in China were structured this way because no US bank was willing to make construction loans in China,nor hold a mortgage on Chinese based real estate assets.In consideration of this financing Weifang Lakeland Safety Products Co.,Ltd.(hereinafter referred to as OWeifang O)owns and utilizes the facility and was contractually obligated to pay the related Director/Officer An Qiu Partners,56.9%of any proceeds received upon the sale of the property,and annual payments of $27,881 were estimated to begin in October 2002,when all bank debt on the building was repaid.The Company was entitled to receive 31.36%of any such sale proceeds and annual payments of $15,369. In July 2002,it was decided by An Qui and its affiliate Weifang that An Qui would sell its contractual sale rights and future rent rights to Weifang.The Weifang real estate was appraised by an independent appraiser for $448,000. $12,175 was deducted from the appraised amount to compensate Weifang for transactional costs and $10,000 was deducted as an appraisal buffer.Of the final sale price $406,185 An Qui received in December 2002 and January 2003,$263,980 of the agreed purchase price with the remaining $94,500 to be paid in 2003.$47,705 of the purchase price was paid to two Chinese citizens who contributed capital to the project in 1998 and 2002. Beginning in 2001 An Qui again financed a new building project as no US bank would make construction loans or accept mortgages on Chinese real estate,and no Chinese bank would make construction loans.This construction loan was set up in 2 separate transactions with An Qui and a foreign investor jointly contributing $168,100 in unsecured loans bearing simple interest at 9%during the riskiest initial phase of the project,and loans from an affili- ated company Weifang MeiYang Protective Products Co.,Ltd.in the amount of $975,411 as of January 31,2003.A Project closing is scheduled on or about May 2003,when the Company will seek to refinance the finished Project with local Chinese Banks or affiliate loans. 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. 13 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 2004 ANNUAL MEETING --------------------------------------------- Stockholder proposals for inclusion in the Company's Proxy Statement for the 2004 Annual Meeting of Stockholders must be received by the Company not later than January 31,2004.The person submitting the proposal must have been a record or beneficial owner of the Company's Common Stock for at least one year and must continue to own such securities through the date on which the meeting is held,and the securities so held must have a market value of at least $1,000.Any such proposal will be included in the Proxy Statement for such Annual Meeting if the rules of the Securities and Exchange Commission are complied with as to the timing and form of such proposal,and the content of such stockholder's proposal is determined by the Company to be appropriate under rules promulgated by the Commission. By the Order of the Board of Directors Christopher J.Ryan, Secretary May 9,2003 14 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. A-1 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. 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). A-2 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 allLakeland 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 of Lakeland 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. Pay employees fairly in relation to their contributions to the company 's efforts,within the boundaries of current standards. B-1 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 It is the policy of Lakeland 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. B-2 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. B-3 PLEASE MARK VOTES AS IN THIS EXAMPLE THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. X With- For All For hold Except Detach above card, sign, date and mail in postage paid envelope provided. PLEASE ACT PROMPTLY SIGN, DATE & MAIL YOUR PROXY CARD TODAY LAKELAND INDUSTRIES, INC. REVOCABLE PROXY LAKELAND INDUSTRIES, INC. 711-2 Koehler Avenue, Ronkonkoma, New York 11779-7410 o o Date Stockholder sign above Co-holder (if any) sign above Please be sure to sign and date this Proxy in the box below. The undersigned hereby appoints Raymond J. Smith and Christopher J. Ryan 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 25, 2003 at the annual meeting of stockholders to be held on June 18, 2003 or any adjournment there of. 1. Election of Directors Eric O. Hallman John J. Collins, Jr. Michael E. Cirenza 2. Ratify appointment of Auditors PricewaterhouseCoopers LLP fiscal years 2003 and 2004. 3. Other Business In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2. Please sign exactly as your name appears on this card. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or 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. 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. ____________________________________________________ ____________________________________________________ ____________________________________________________ INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For All Except" and write that nominee's name in the space provided below. For Against Abstain EX-13 6 exhibit13.txt
SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS) FOR THE YEARS ENDED JANUARY 31, 2003 2002 2001 2000 1999 _________ _________ _________ _________ _________ INCOME STATEMENT DATA: Net sales $ 77,826 $ 76,431 $ 76,108 $ 58,644 $ 54,655 Gross profit 14,959 13,137 11,310 10,488 10,374 Operating expenses 10,600 9,549 8,619 7,191 6,451 Operating profit 4,359 3,589 2,691 3,297 3,923 Income before income taxes 3,776 2,816 1,485 2,509 3,222 Net income 2,604 1,970 1,123 1,748 2,080 Earnings per share - Basic* $ .88 $ .67 $ .39 $ .60 $ .72 ========= ========== ========== ========== ========== Earnings per share - Diluted* $ .88 $ .67 $ .38 $ .59 $ .70 ========= ========== ========== ========== ========== Weighted average common shares outstanding*: Basic 2,964,651 2,929,960 2,909,991 2,919,345 2,906,387 Diluted 2,971,854 2,952,082 2,933,877 2,940,794 2,960,012 BALANCE SHEET DATA (at end of year): Working capital $ 17,925 $ 16,766 $ 16,047 $ 15,909 $ 12,403 Total assets 42,823 42,417 38,628 34,770 27,160 Current liabilities 20,934 22,778 20,052 16,551 12,915 Long-term liabilities 529 912 1,981 2,759 465 Stockholders' equity $ 21,359 $ 18,727 $ 16,537 $ 15,405 $ 13,725 __________________ *Adjusted, retroactively, for the 10% stock dividend to shareholders of record on July 31, 2002.
1 CAUTIONARY 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 Tyvek 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. CRITICAL ACCOUNTING POLICIES The Company recognizes revenues when title and risk of loss passes to the customer upon shipment. 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. 2 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. YEARS ENDED JANUARY 31, 2003 2002 2001 ______ ______ ______ Revenues 100.0% 100.0% 100.0% Cost of Goods Sold 80.8 82.8 85.1 Selling, general and administrative expenses 13.6 12.5 11.3 Depreciation and amortization expense .8 .8 .9 Operating profit 5.6 4.7 3.5 Interest expense, net .8 1.1 1.6 Income tax expense 1.5 1.1 .5 Net income 3.3 2.6 1.5 EBITDA margin (1) 6.4 5.7 4.5 __________________ (1) EBITDA (earnings before interest, taxes, depreciation and amortization) margin represents EBITDA expressed as a percentage of revenues. FISCAL YEAR ENDED JANUARY 31, 2003 COMPARED TO FISCAL YEAR ENDED JANUARY 31, 2002 NET SALES. Net sales for the year ended January 31, 2003 increased $1,395,000, (or 1.8%) to $77,826,000 from $76,431,000 reported for the year ended January 31, 2002. The increase in sales was principally attributable to improving economic conditions and to the Company's April 1, 2002 sales price increase. The industry continues to be highly competitive. GROSS PROFIT. Gross profit for the year ended January 31, 2003, increased by $1,822,000, (or 13.9%) to $14,959,000 from $13,137,000 for the year ended January 31, 2002. Gross profit as a percentage of net sales increased to 19.2% for the year ended January 31, 2003 from 17.1% reported for the prior year principally due to the increase in selling prices and additionally by a decrease in labor and overhead costs, partially offset by an increase in inventory reserves. Commencing in March 2002 the company incurred an increase in the price of raw materials, (from DuPont), which had an effect on margins for the remainder of this fiscal year. A reserve for a bond posting and settlement has been recorded at January 31, 2003 in the amount of $48,000, relating to a dispute with Mexican officials, over custom's law for companies in the maquiladora program. The prior year included a reserve for a Canadian customs dispute of which approximately $12,000 remains. The company has presented the information required by the Canadian government and is awaiting their response. It is the Company's belief that no additional reserves are required for these disputes. OPERATING EXPENSES. Operating expenses for the year ended January 31, 2003 increased by $1,052,000 (or 11%) to $10,600,000, (or 12.5%) of net sales from $9,548,000, (or 12.5%) of net sales for the year ended January 31, 2002. Operating expenses increased principally as a result of increased freight costs, insurance costs, computer costs, bad debt expense, professional fees, sales and use taxes, and commission expense. INTEREST EXPENSE. Interest expense for the year ended January 31, 2003 decreased by $239,000 or 27.1% to $643,000 from $882,000 for the year ended January 31, 2002. This decrease was primarily due to a decrease in average borrowings under the Company's credit facility and to decreasing interest rates. INCOME TAX EXPENSE. The effective tax rate for the year ended January 31, 2003 and 2002 of 31.04% and 30.0%, respectively, deviates from the Federal statutory rate of 34.0%, which is primarily attributable to differing foreign tax rates and state income taxes. NET INCOME. As a result of the foregoing, net income increased to $2,604,000 for the year ended January 31, 2003, (or up 32.2%) from net income of $1,970,000 for the year ended January 31, 2002. 3 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 Tyvek 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. LIQUIDITY AND CAPITAL RESOURCES ________________________________________________________________________________ LIQUIDITY AND CAPITAL RESOURCES. The Company's working capital is equal to $17,925,000 at January 31, 2003. 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 provided by operating activities was $1,800,000 for the year ended January 31, 2003 and was due primarily to net income from operations of $2,604,000 and a decrease in inventories of $1,059,000 offset by a decrease in accounts payable of $1,913,000 and an increase in accounts receivable of $885,000. Net cash used in financing activities of $353,000 was primarily attributable to reduction in 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, 2003, and has therefore been classified as a short-term liability in the accompanying balance sheet at January 31, 2003. Borrowings under the revolving credit facility amounted to approximately $16,479,000 at January 31, 2003. The maturity date on the five year $3 million term-loan agreement entered into in November 1999 expires 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. Historically, the Company has been able to renew its credit facility on acceptable terms, however there can be no assurance that such financing will continue to be available. 4 The Company is in compliance with all covenants of its credit agreement and expects its line will be renewed on July 31, 2003, as it has been since it started dealing with its lender in 1998. The Company will make its last principal and interest payment on its $3 million term loan facility in April 2003, thereby extinguishing all long -term bank debt. Product Liability Claims have been diminimis over the last 10 years and those claims made have all been dismissed, except one that was settled in 1993 and paid by the Company's insurer. In fiscal 2004 the Company has $5 million of product liability insurance with a $10,000 deductible per occurence. Presently only one product liability suit is outstanding which has been sent to non-binding mediation. The Company's total exposure on this suit is $2,500. Suits are generally in the nature of slip and fall injuries or minor chemical or fire burns. All costs of administering and litigating claims is handled by attorneys appointed and paid by the Company's insurer, other than the deductible amount, which has ranged from $2,500 to $10,000 over the last 10 years. As of January 31, 2003, the Company has $1,474,135 in cash and unused credit line of $1,521,000. Long-term liquidity has always been available from commercial banks based upon the Company's tangible net worth and earnings before interest, depreciation, amortization and tax which are presently $21,063,300 and $5,013,902, respectively as at January 31, 2003. Capital spending plans for fiscal 2004 include the last payment of $94,500 on the Company's 53,300 square foot facility in An Qui, China completed in 1998 and $249,200 on its 90,400 square foot facility in Jiazhou, China the later amount to a construction company upon completion in June 2003.Neither of these facilities are encumbered by commercial bank mortgages and thus commercial mortgage loans are available with regard to these real estate assets comprising 366,955 square feet of land area on assignable 50 year leases and 143,752 square feet of 5 year old and new factory facilities. The Company estimates that these facilities could generate $700,000 of cash if mortgaged based upon 50% of their appraised value. New capital equipment expenditures for 2004 are not expected to exceed $450,000. Therefore, current cash levels are 200% of expected payments due this year on long-term assets.. 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, 2003, $16,658,000 was outstanding under the term-loan and revolving credit facilities. Changes in the above described interest rates during fiscal 2003 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 $167,000. Each 1% fluctuation in interest rates earned would not increase or decrease interest income on these deposits by a significant amount. 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS ________________________________________________________________________________ The Common Stock is listed on the Nasdaq National Market under the symbol "LAKE". The following table sets forth for the periods indicated the high and low sales prices for the Common Stock as reported by the Nasdaq National Market. The Company has a January 31, fiscal year end. Stock prices have been retroactively changed to reflect the 10% stock dividend to shareholders of record July 31, 2002. PRICE RANGE OF COMMON STOCK ________________ HIGH LOW ________________ FISCAL 2003 First Quarter ended April 30, 2002. . . . . . . . . . .$ 9.50 $7.73 Second Quarter ended July 31, 2002 . . . . . . . . . . 10.84 7.64 Third Quarter ended Oct. 31, 2002 . . . . . . . . . . . 9.53 6.10 Fourth Quarter ended January 31, 2003 . . . . . . . . . 8.00 6.67 First Quarter Fiscal 2004 (through April 17, 2003) . . 9.25 6.75 FISCAL 2002 First Quarter ended April 30, 2001. . . . . . . . . . .$ 4.55 $3.73 Second Quarter ended July 31, 2001 . . . . . . . . . . 6.32 3.69 Third Quarter ended October 31, 2001 . . . . . . . . . 12.12 5.35 Fourth Quarter ended January 31, 2002 . . . . . . . . . 11.59 7.51 As of April 17, 2003, there were approximately 89 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 clearinghouse. The Company issued a 10% Stock Dividend payable to holders of record as at July 31, 2002 and plans to issue a 10% Stock Dividend to holders of record on July 31, 2003. 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 a 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 To the Board of Directors and Shareholders of Lakeland Industries, Inc. and Subsidiaries In our opinion, the accompanying consolidated balance sheet and related consolidated statements of income, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Lakeland Industries, Inc. and Subsidiaries at January 31, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the Schedule II- Valuation and Qualifying Accounts for the year ended January 31, 2003 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1, the Company changed the manner in which it accounts for goodwill and other intangible assets upon adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," on February 1, 2002. /s/ PRICEWATERHOUSECOOPERS LLP ______________________________ Melville, New York April 7, 2003 7 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Lakeland Industries, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheet of Lakeland Industries, Inc. and Subsidiaries (the "Company") as of January 31, 2002, and the related consolidated statements of income, stockholders' equity and cash flows for each of the two 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 the consolidated results of their operations and their consolidated cash flows for each of the two 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 two 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. /s/ GRANT THORNTON LLP ______________________ GRANT THORNTON LLP Melville, New York April 15, 2002 8
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 31, 2003 2002 ___________ ___________ ASSETS Current Assets Cash and cash equivalents $ 1,474,135 $ 1,760,635 Accounts receivable, net of allowance for doubtful accounts of $343,000 and $221,000 at January 31, 2003 and 2002, respectively 10,364,188 9,600,738 Inventories 25,470,044 26,529,150 Prepaid income taxes - 242,029 Deferred income taxes 1,001,133 888,000 Other current assets 549,564 524,274 ___________ ___________ Total current assets 38,859,064 39,544,826 Property, Plant and equipment, net 3,356,835 2,218,459 Other assets, net 606,835 654,200 ___________ ___________ Total Assets $42,822,734 $42,417,485 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 3,014,038 $ 4,759,373 Accrued compensation and benefits 586,795 782,168 Other accrued expenses 675,380 208,853 Current portion of long-term debt 16,657,882 17,028,032 ___________ ___________ Total current liabilities 20,934,095 22,778,426 Long-term Debt - 179,104 Pension Liability 514,572 430,001 Deferred Income Taxes 14,643 303,000 ___________ ___________ Total Liabilities 21,463,310 23,690,531 ___________ ___________ 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; 2,969,107 and 2,684,600 shares issued and outstanding at January 31, 2003 and 2002, respectively 29,691 26,846 Additional paid-in capital 8,762,673 6,360,741 Retained earnings 12,567,060 12,339,367 ___________ ___________ Total Stockholders' Equity 21,359,424 18,726,954 ___________ ___________ Total Liabilities and Stockholders' Equity $42,822,734 $42,417,485 =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
9 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Fiscal year ended January 31, 2003 2002 2001 ___________ ___________ ___________ Net sales $77,825,717 $76,431,245 $76,108,038 Cost of goods sold 62,866,550 63,293,922 64,797,943 ___________ ___________ ___________ Gross profit 14,959,167 13,137,323 11,310,095 ___________ ___________ ___________ Operating expenses Selling and shipping 6,337,726 5,414,400 4,825,331 General and administrative 4,262,707 4,133,790 3,793,745 ___________ ___________ ___________ Total operating expenses 10,600,433 9,548,190 8,619,076 ___________ ___________ ___________ Operating profit 4,358,734 3,589,133 2,691,019 ___________ ___________ ___________ Other income (expense) Interest expense (642,595) (881,948) (1,247,708) Interest income 20,245 17,311 26,595 Other income - net 39,555 91,040 15,472 ___________ ___________ ___________ Total other expense (582,795) (773,597) (1,205,641) ___________ ___________ ___________ Income before income taxes 3,775,939 2,815,536 1,485,378 Income tax expense (1,171,881) (846,000) (362,000) ___________ ___________ ___________ Net income $ 2,604,058 $ 1,969,536 $1,123,378 =========== =========== =========== Net income per common share Basic $ .88 $ .67 $ .39 =========== =========== =========== Diluted $ .88 $ .67 $ .38 =========== =========== =========== Weighted average common shares outstanding Basic 2,964,651 2,929,960 2,909,991 =========== =========== =========== Diluted 2,971,854 2,952,082 2,933,877 =========== =========== =========== The accompanying notes are an integral part of these financial statements. 10
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Fiscal years ended January 31, 2003, 2002 and 2001 Common stock Additional ___________________ paid-in Retained Shares Amount capital earnings Total _________ _______ __________ ___________ ___________ 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 Net income 2,604,058 2,604,058 Exercise of stock options 10,100 101 28,311 28,412 10% stock dividend 274,407 2,744 2,373,621 (2,376,365) - _________ _______ __________ ___________ ___________ Balance, January 31, 2003 2,969,107 $29,691 $8,762,673 $12,567,060 $21,359,424 ========= ======= ========== =========== =========== The accompanying notes are an integral part of these financial statements.
11
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal year ended January 31, 2003 2002 2001 ____________ ____________ ____________ Cash flows from operating activities Net income $ 2,604,058 $ 1,969,536 $ 1,123,378 Adjustments to reconcile net income to net cash provided by (used in) operating activities Deferred income taxes (401,490) (19,000) 40,000 Depreciation and amortization 595,384 689,969 699,304 Provision for bad debts 122,000 83,965 30,176 Stock option income tax benefit 94,656 (Increase) decrease in operating assets Accounts receivable (885,450) 1,173,585 (2,508,987) Inventories 1,059,106 (3,819,067) (242,688) Prepaid income taxes and other current assets 216,739 355,587 (799,556) Other assets 47,365 (80,832) (187,882) Increase (decrease) in operating liabilities Accounts payable (1,913,434) (1,731,074) 2,247,573 Accrued expenses and other liabilities 355,724 312,638 11,073 ____________ ____________ ____________ Net cash provided by (used in) operating activities 1,800,002 (970,037) 412,391 ____________ ____________ ____________ Cash flows from investing activities Purchases of property and equipment (1,733,759) (831,919) (751,046) ____________ ____________ ____________ Net cash used in investing activities (1,733,759) (831,919) (751,046) ____________ ____________ ____________ Cash flows from financing activities Borrowings from related party to finance construction of a building 168,099 Net (payments) borrowings under credit agreements (549,254) 2,772,513 464,942 Proceeds from exercise of stock options 28,412 126,250 7,750 Deferred financing costs - (120,750) - ____________ ____________ ____________ Net cash (used in) provided by financing activities (352,743) 2,778,013 472,692 ____________ ____________ ____________ Net (decrease) increase in cash and cash equivalents (286,500) 976,057 134,037 Cash and cash equivalents at beginning of year 1,760,635 784,578 650,541 ____________ ____________ ____________ Cash and cash equivalents at end of year $ 1,474,135 $ 1,760,635 $ 784,578 ============ ============ ============ The accompanying notes are an integral part of these financial statements.
12 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 2003, 2002 and 2001 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 2003, 2002 and 2001 1. - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES ________________________________________________________________________________ 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, 2003, 2002 and 2001. 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), Qing Dao Maytung Healthcare Co., Ltd. (a Chinese corporation, formed during fiscal 2003), Lakeland Industries Europe Ltd. (a British corporation, formed during fiscal 2003) and Lakeland de Mexico S.A. de C.V. (a Mexican corporation). All significant intercompany accounts and transactions have been eliminated. REVENUE RECOGNITION Revenue is recognized when title and risk of loss passes to the customer upon shipment of goods. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using standard costing, which approximates the first-in, first-out method. 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. GOODWILL Goodwill represents the excess of cost over the fair value of net assets acquired . On an ongoing basis, management reviews the valuation 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. 13 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 1.(CONTINUED) STOCK-BASED COMPENSATION 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. All stock-based awards were fully vested at January 31, 2002 and no new option grants were made during the year ended January 31, 2003. Accordingly, no pro-forma compensation expense based on fair value exists for the year ended January 31, 2003. 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, 2003, 2002 and 2001 to the pro forma amounts indicated below: 2003 2002 2001 __________ __________ __________ Net income As reported $2,604,058 $1,969,536 $1,123,378 Pro forma 2,604,058 1,965,606 1,116,338 Basic earnings per common share As reported $.88 $.67 $.39 Pro forma .88 .67 .38 Diluted earnings per common share As reported $.88 $.67 $.38 Pro forma .88 .67 .38 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% and 6.3%, respectively; expected dividend yield of 0.0%; ad expected life of six years. No options were granted or vested during the year ended January 31, 2003. TRADE RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company derives revenue form selling goods manufactured or purchased for resale as a component part of goods manufactured to, primarily, safety distributors, utilizing both in house sales managers and independent sales representatives. The allowance for doubtful accounts generally covers any receivable older than 91 days. 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 $1,835,000, $1,532,000 and $1,381,000 in the fiscal years ended January 31, 2003,2002 and 2001, respectively. 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 $164,000, $378,000 and $160,000 in the fiscal years ended January 31, 2003, 2002 and 2001, respectively, paid to contractors for development of new raw materials. 14 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 1.(CONTINUED) 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. 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, 2003, 2002 and 2001 were 10,371, 20,111 and 21,715, 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 shares that may be repurchased with the funds received from the exercise, based on the average price during the fiscal year (as adjusted for the 1 for 10 stock distribution to holders of record July 31, 2002). Options to purchase 1,100, 1,000, and 5,000 shares of the Company's common stock have been excluded from the computation of diluted earnings per share in 2003, 2002 and 2001, respectively, as their inclusion would have been antidilutive. 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 $1,011,000 and $1,371,000 at January 31, 2003 and 2002, respectively. Supplemental cash flow information for the years ended January 31 is as follows: 2003 2002 2001 _________ _________ __________ Interest Paid $ 642,595 $ 881,934 $1,238,448 Income Taxes paid 895,401 606,700 688,142 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. 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. 15 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 1.(CONTINUED) 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 $95,000, $129,000 and $107,000 for the fiscal years ended January 31, 2003, 2002 and 2001, respectively. 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. 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. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFA") No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 modifies the accounting and reporting for acquired intangible assets at the time of acquisition and in subsequent periods. Intangible assets which have finite lives must be amortized over their estimated useful life. Intangible assets with indefinite lives will not be amortized, but evaluated annually for impairment. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. In fiscal 2003, the Company ceased amortization of goodwill. Had this pronouncement been retroactively applied net income would have increased approximately $12,000 net of tax in 2002 and 2001, respectively, and diluted earnings per share would have increased by less than one cent per share, in 2002 and 2001, respectively. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," that replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value, less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. Adoption of SFAS No. 144 did not have a material impact on the measurement of its long-lived assets. In April 2002, the FASB issued SFAS No. 145 "Rescission of FAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections as of April 2002." This Statement amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions as well as other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS No. 145 is effective for fiscal years beginning after December 31, 2002. The Company does not anticipate that the adoption of SFAS No. 145 will have a material impact on the consolidated financial statements. 16 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 1.(CONTINUED) In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities". This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is effective for fiscal years beginning after December 31, 2002. The Company does not anticipate that the adoption of SFAS No. 146 will have a material impact on the consolidated financial statements. In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based Compensation-Transition and Disclosure" that amends SFAS No. 123 "Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 amends the disclosure requirements of APB Opinion No. 28, "Interim Financial Reporting" and Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reporting results. SFAS No. 148 is effective for fiscal years ending after December 15, 2002. The adoption of SFAS No. 148 except for the disclosure requirements, had no impact on the consolidated financial statements. 2 -INVENTORIES Inventories consist of the following at January 31: 2003 2002 ___________ ___________ Raw materials $ 7,839,144 $ 6,248,990 Work-in-process 1,656,942 3,997,470 Finished goods 15,973,958 16,282,690 $25,470,044 $26,529,150 3 -PROPERTY, PLANT AND EQUIPMENT Property and equipment consist of the following at January 31: Useful life in years 2003 2002 ___________ ____________ ____________ Machinery and equipment 3 - 10 $ 4,815,225 $ 4,484,416 Furniture and fixtures 3 - 10 176,073 175,016 Leasehold improvements Lease term 778,514 671,694 Building ( in China) 20 1,295,074 0 ____________ ____________ 7,064,886 5,331,126 Less accumulated depreciation and amortization (3,708,051) (3,112,667) ____________ ____________ $ 3,356,835 $ 2,218,459 ============ ============ Depreciation expense incurred in fiscal 2003, 2002 and 2001 amounted to $595,383, $591,529 and $624,940, respectively. 17 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 4 -LONG-TERM DEBT Long-term debt consist of the following at January 31: 2003 2002 ___________ ___________ Revolving credit facility $16,478,781 $15,953,432 Term loan 179,101 1,253,704 ___________ ___________ 16,657,882 17,207,136 Less current portion 16,657,882 17,028,032 ___________ ___________ Long-term debt $ -0- $ 179,104 =========== =========== 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% ( 3.34% at January 31, 2003). 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 and on July 18, 2002 the Agreement was amended to extend the expiration date to July 31, 2003. The maximum amounts borrowed under the credit facility during the fiscal years ended January 31, 2003 and 2002 were $18,000,000 and 17,700,000, respectively, and the average interest rates during the periods were 3.73% and 5.93%, respectively. At January 31, 2003, the Company had approximately $1,521,000 in availability under the agreement. 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% (3.69% at January 31, 2003). 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. The fees incurred by the Company related to the credit facility amounted to $63,000, $106,750 and $52,500 during fiscal 2003, 2002 and 2001, respectively. 5.- 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. 18 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 5.(CONTINUED) 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). Additional information with respect to the Company's plans for the fiscal years ended January 31, 2003, 2002 and 2001 is summarized as follows:
2003 ________________________________________________ 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 9,000 $5.48 13,900 $2.70 10% STOCK DIVIDEND 900 6.55 655 EXERCISED 0 (10,100) ______ _________ _______ _________ OUTSTANDING AND EXERCISABLE AT END OF YEAR 9,900 4.98 4,455 2.05 ====== ========= ======= ========= WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE OF OPTIONS OUTSTANDING 1.5 YEARS 1 YEAR 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 19 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 5. (CONTINUED) 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
Summarized information about stock options outstanding under the two plans at January 31, 2003 is as follows (as adjusted for the 10% stock dividend): Options outstanding and exercisable _________________________________________ Weighted- Number average Outstanding remaining Weighted- at contractual average Range of January life in exercise exercise prices 31, 2003 years price _______________ ___________ ___________ _________ $2.05 - 2.95 7,755 1.67 $2.50 4.65 - 6.08 5,500 3.83 5.38 9.77 1,100 2.50 9.77 ______ $2.20 14,355 2.67 5.88 ====== 20 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 6. - INCOME TAXES The provision for income taxes is summarized as follows: Year ended January 31, ____________________________________ 2003 2002 2001 __________ ________ ________ Current Federal $1,273,371 $719,000 $189,000 State 163,984 78,000 27,000 Foreign 136,016 68,000 106,000 __________ ________ ________ 1,573,371 865,000 322,000 Deferred (401,490) (19,000) 40,000 __________ ________ ________ $1,171,881 $846,000 $362,000 ========== ======== ======== The following is a reconciliation of the effective income tax rate to the Federal statutory rate: Year ended January 31, ________________________ 2003 2002 2001 ____ ____ ____ Statutory rate 34.0% 34.0% 34.0% State income taxes, net of Federal tax benefit 2.3% 1.6 1.2 Nondeductible expenses - .6 1.1 Taxes on foreign income which differ from the statutory rate (4.7%) (5.6) (12.5) Other (.6%) (.6%) .6 ____ ____ ____ Effective rate 31.0% 30.0% 24.4% ==== ==== ==== The tax effects of temporary differences which give rise to deferred tax assets at January 31, 2003 and 2002 are summarized as follows: January 31, _______________________ 2003 2002 __________ ________ Deferred tax assets Inventories $ 505,680 $418,000 Net operating loss carryforward - foreign subsidiary 123,810 106,000 Accounts receivable 130,340 84,000 Accrued compensation and other 241,303 280,000 __________ ________ Gross deferred tax assets 1,001,133 888,000 __________ ________ Deferred tax liabilities Depreciation and other 14,643 303,000 __________ ________ Gross deferred tax liabilities 14,643 303,000 __________ ________ Net deferred tax asset $ 986,490 $585,000 ========== ======== 21 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2003, 2002 and 2001 6. (continued) The Company has foreign net operating loss carryforwards for the years ended January 31,2003 and January 31, 2002 of $354,000 and $305,000, respectively. These losses can be carried forward to offset income from foreign operations and will expire in fiscal 2005 through 2012. 7. - 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 year ended January 31: 2003 2002 __________ _________ CHANGE IN BENEFIT OBLIGATION Projected benefit obligation at beginning of year $ 998,058 $991,162 Interest cost 73,635 75,889 Actuarial (gain) loss 130,639 (27,602) Benefits paid (43,244) (41,391) __________ _________ Projected benefit obligation at end of year 1,159,088 998,058 __________ _________ CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 568,057 508,893 Actual return on plan assets 86,591 89,707 Employer contributions 22,000 10,848 Benefits paid (43,244) (41,391) __________ _________ Fair value of plan assets at end of year 633,404 568,057 __________ _________ FUNDED STATUS Pension Liability 525,684 430,001 Unrecognized net gain 8,971 97,287 Unrecognized net transition liability (20,083) (29,938) __________ _________ Accured pension cost $ 514,572 $497,350 ========== ========= The components of net periodic pension cost for the fiscal years ended January 31 are summarized as follows: 2003 2002 2001 ________ ________ ________ Interest cost $ 73,233 $ 75,889 $ 70,546 Actual return on plan assets (86,591) (89,707) (46,194) Net amortization and deferral 52,178 61,230 17,451 ________ ________ ________ Net periodic pension cost $ 38,820 $ 47,412 $ 41,803 ======== ======== ======== An assumed discount rate of 6.75%, 7.5% and 7.5% was used in determining the actuarial present value of benefit obligations for the years ended January 2002 and 2001, respectively. The expected long-term rate of 31, 2003, return on plan assets was 8% for all periods presented. At January 31, 2003, 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. 22 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 7.(CONTINUED) 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 $88,901, $81,225 and $83,947 in the fiscal years ended January 31, 2003, 2002 and 2001, respectively 8.- MAJOR SUPPLIER The Company purchased approximately 75%, 81% and 77% of its raw materials from one supplier under licensing agreements for the fiscal years ended January 31, 2003, 2002 and 2001, 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. 9.- COMMITMENTS AND CONTINGENCIES EMPLOYMENT CONTRACTS The Company has employment contracts with four principal officers expiring through January 2006. Such contracts are automatically renewable for two, one 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 $821,000 and $886,000 for the fiscal years ended January 31, 2004 and 2005. 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, 2003 (renewable at the Company's option for one 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 interest. 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 under all operating leases is summarized as follows: Total Rentals Gross sublease paid to rental rental related expense income parties _______ ________ _______ Year ended January 31, 2003 $827,187 $611,700 2002 858,429 596,437 2001 890,818 $2,144 630,990 23 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 9.(CONTINUED) Minimum annual rental commitments for the remaining term of the Company's non-cancelable operating leases relating to manufacturing facilities, office space and equipment rentals at January 31, 2002 are summarized as follows: Year ending January 31, 2004 $840,648 2005 439,959 2006 86,589 __________ $1,367,196 ========== Certain leases require additional payments based upon increases in property taxes and other expenses. 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 effect on the Company's financial position or results of operations. 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. 24 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 10. RELATED PARTY TRANSACTIONS An Qui Holdings Co., L.L.C. ("An Qui"), which consists of certain Officers and Directors of the Company, loaned $168,099 to Qing Dao Maytung Healthcare Co., Ltd. ("Maytung") in the form of an unsecured note bearing simple interest of 9%. This represented the partners capital contirbution for the construction of a manufacturing facility in China, by Maytung. Weifang MeiYang Proyective Products Co., Ltd. ("Meiyang") loaned Maytung $975,411 as of January 31, 2003, also for the construction of Maytung's manufacturing facility in China. This plant will be completed by June 2003 and has been partially occupied since March 2003. During fiscal 2003, Weifang Lakeland Safety Products Co., Ltd. ("Weifang") purchased from An Qui the manufacturing facility that had been built by An Qui and occupied by Weifang. The sale price amounted to $406,185 of which $263,980 had been paid by Weifang to An Qui as of January 31, 2003. The balance to be paid in calendar year 2003. Two of An Qui partners are Chinese citizens, who received an aggregate of $47,705 from the sale. 11. - UNAUDITED QUARTERLY RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS):
Fiscal Year Ended January 31, 2003: 1/31/03 10/31/02 7/31/02 4/30/02 _______ ________ _______ _______ Net Sales $19,684 $18,535 $18,964 $20,643 Cost of Sales(a) 15,993 15,084 15,321 16,469 _______ ________ _______ _______ Gross Profit $ 3,691 $ 3,451 $ 3,643 $ 4,174 ======= ======== ======= ======= Net Income $ 653 $ 496 $ 559 $ 896 ======= ======== ======= ======= Basic and Diluted income per common share*: Basic $ 0.22 $ 0.17 $ 0.19 $ 0.30 ======= ======== ======= ======= Diluted $ 0.22 $ 0.17 $ 0.19 $ 0.30 ======= ======== ======= ======= 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 $ 0.12 $ 0.13 $ 0.18 $ 0.24 ======= ======== ======= ======= Diluted $ 0.12 $ 0.13 $ 0.18 $ 0.24 ======= ======== ======= ======= (a) During the fourth quarter of fiscal 2003, the Company recorded an additional inventory reserve of $250,000 related to slow moving and obsolete finished goods inventory. *Adjusted, retroactively, for the 10% stock dividend to shareholders of records on July 31, 2002.
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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 Michael E. Cirenza VICE PRESIDENT AND TREASURER EXECUTIVE OFFICES: Harvey Pride, Jr. VICE PRESIDENT, MANUFACTURING 711-2 Koehler Ave. Ronkonkoma, NY 11779 AUDITORS: (631) 981-9700 PricewaterhouseCoopers LLP SUBSIDIARIES: 401 Broadhollow Road Melville, NY 11747-4862 Lakeland Protective Wear, Inc. Lakeland de Mexico S.A. de C.V. Laidlaw, Adams & Peck, Inc. and Subsidiary (Meiyang Protective Products Co., Ltd.) Weifang Lakeland Safety Products Co., Ltd. Qing Dao Maytung Healthcare Co.,Ltd. Lakeland Industries Europe Ltd.
Exhibits to Lakeland Industries, Inc.'s fiscal 2003 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. 26 -----END PRIVACY-ENHANCED MESSAGE-----