Dear Fellow Shareholders:
I wanted to extend a traditional Lakeland welcome to you before
highlighting our progress during the past fiscal year 1996. As promised, we
continued to lay a strong financial foundation for your company, while adding
plants and equipment to handle the additional business we are enjoying.
Fiscal 1996 sales topped $40 million, an increase of more than $5
million (14.2%) over fiscal 1995. Net profits were $587,000 or 22(cents) a
share.
During fiscal 1996, according to our plan, necessary major expenses
were incurred in several key areas. These expenses lowered the per share
earnings, though I believe that the money was well-spent. A new 36,000 sq. ft.
expansion was added to the main building in Decatur, Alabama. This additional
space allows us to store increased amounts of both raw materials and finished
goods, enabling us to shorten response time to customers' orders. It permitted
us as well, to install a state of the art cutting operation. Though downtime and
extra labor for moves inside the factory were costly, we have already seen
material savings and a decrease in previous related labor costs. Teamed with
this computerized cutting operation is a fully automated, computerized pattern
and marking system that lets us monitor fabric costs while improving the quality
of our products. Encouraging proof that these costs represent money well spent
are requests coming from several multi-billion dollar companies outside our
industry asking to observe what our people are doing in this area.
Other expenses include the start up of our new factory in Celaya,
Mexico. This move permitted us to take better advantage of the peso devaluation
and augment our Mexican contractor network.
Yet another highlight was our successful entry into the substantial
Canadian market via our new subsidiary, Lakeland Protective Wear, Inc. Through
this entity, we are able to introduce our full line of products and, though
costly at first, we are now firmly "in the black".
In summary, Lakeland opened its own factory in one foreign country,
opened a distribution outlet in another, revamped and completely modernized its
main operation, negotiated a favorable and increased corporate credit line, and
finished fiscal year 1996 in a very strong cash position.
Though, like any other C.E.O., I would like to take credit for all of
these accomplishments, I must point to the unstinting hard work and dedication
of our entire team of people who take understandable pride in seeing their
company become successful. This dedication, coupled with the unflagging support
of a dynamic board of directors, is the winning formula that will sustain our
success in years to come.
I wish to thank all of our employees and the board of directors for
their full support this past year. Also, I wish to thank our shareholders for
their encouragement. Lakeland's progress has been steady. We are investing
constantly and with care to improve our competitive position today to ensure a
profitable tomorrow.
Sincerely,
/s/ Raymond J. Smith
Raymond J. Smith
President
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
For the Years Ended January 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
Net sales $40,189 $35,185 $30,143 $26,512 $25,829
Gross profit 6,288 6,346 4,763 3,885 4,081
Operating expenses (1) 4,882 4,704 4,739 4,281 4,377
Operating income (loss) 1,406 1,642 24 (396) (296)
Income (loss) from continuing operations
before provisions (benefits) for income
taxes and cumulative effect of change
in accounting principle 956 2,000 (137) (701) (433)
Income (loss)from continuing operations
before cumulative effect of change
in accountingg principle 587 1,421 (278) (683) (328)
Loss from discontinued
operations (86)
Cumulative effect of change in
accounting principle (2) 241
Net income (loss) 587 1,421 (37) (683) (414)
======= ======= ======= ======= =======
Earnings (loss) per share:
Continuing operations .22 .54 (.11) (.27) (.13)
Discontinued operations (3)
Cumulative effect of change in
accounting principle .10 (.03)
------- ------- ------- ------- -------
Net earnings (loss) $.22 $.54 $(.01) $(.27) $(.16)
======= ======= ======= ======= =======
Weighted average common
and common equivalent shares 2,637 2,641 2,550 2,550 2,550
BALANCE SHEET DATA (at end of year):
Working capital $13,618 $7,190 $8,871 $5,008 $8,828
Total assets 19,263 15,562 13,103 13,157 13,848
Current liabilities 3,894 6,813 2,464 5,752 2,318
L/T liabilities 6,492 441 3,680 615 4,056
Stockholders' equity $8,762 $8,175 $6,754 $6,790 $7,474
- - --------------------------------------------------------------------------------
(1) Includes a write-off of $583,669 in Notes receivable due from one customer
in 1994.
(2) Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"),
which requires an asset and liability approach to accounting for income taxes.
The cumulative effect as of February 1, 1993, of the adoption of SFAS No. 109,
resulted in a fiscal 1994 benefit of $241,000 or $.10 per common share. Prior
year's financial statements were not restated.
(3) Reflects the December 11, 1990 sale of the assets of the Company's
wholly-owned subsidiary Walter H. Mayer and Co., Inc. as a discontinued
operation. This subsidiary was acquired on September 30, 1987.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
In November 1995, the Company formed a new wholly-owned subsidiary,
Lakeland de Mexico S.A. de C.V. to assemble garments cut in the Company's
Alabama facility.
In August, 1995, the Company entered into a loan agreement with its
existing bank which provides for a three year secured $8,000,000 credit
facility. The increase in working capital at January 31, 1996 reflects the
classification of this loan as a long-term liability.
Fiscal Year Ended January 31, 1996 Compared to Fiscal Year Ended January 31,
1995
Net sales for the year ended January 31, 1996 increased $5,004,000 or
14.2% to $40,189,000 from $35,185,000 reported for the year ended January 31,
1995. Increased prices and unit shipments of various protective garment products
are the principal reason for this upward movement in sales. This industry,
however, continues to be highly competitive. Net sales increased 14.6% during
the quarter ended January 31, 1996 as compared to the immediate preceding
quarter, principally as the result of the Company's ability to maintain
inventory levels to meet sales demand.
Gross profit as a percentage of net sales decreased to 15.6% for the year
ended January 31, 1996 from 18.0% reported for the prior year, principally due
to the erosion of the price increase instituted at the beginning of the fiscal
year. Both years were negatively affected as a result of the competitive and
economic climate of the protective clothing industry. Margins decreased to 12.1%
during the quarter ended January 31, 1996 as compared to the immediate preceding
quarter as manufacturing difficulties were incurred during the fourth quarter.
Operating expenses as a percentage of net sales decreased to 12.1% for year
ended January 31, 1996 from 13.4% for the prior year, as sales continue to
increase without a corresponding increase in general and administrative
expenses.
Interest expense increased as borrowings increased during the current year,
while other income decreased as the prior year included a $625,000 law suit
settlement.
As a result of the foregoing, operating results decreased to net income of
$587,000 for the year ended January 31, 1996 from net income of $1,421,000 for
the year ended January 31, 1995.
Fiscal Year Ended January 31, 1995 Compared to Fiscal Year Ended January 31,
1994
Net sales for the year ended January 31, 1995 increased $5,042,000 or
16.7% to $35,185,000 from $30,143,000 reported for the year ended January 31,
1994. Increased prices and unit shipments of various protective garment products
are the principal reasons for this upward movement in sales. This industry,
however, continues to be highly competitive. Net sales increased 10.1% during
the quarter ended January 31, 1995 as compared to the immediate preceding
quarter, principally as the result of competitors of the Company exiting the
industry.
Gross profit as a percentage of net sales increased to 18.0% for the year
ended January 31, 1995 from 15.8% reported for the prior year principally due to
strengthening margins on various protective garment products. Gross margins for
the year ended January 31, 1994 were negatively affected by lost production at a
mid-west facility due to flooding conditions and the relocation of another
facility from Ohio to Alabama. Both years were negatively affected as a result
of the competitive and economic climate of protective clothing industry. Margins
decreased 9.7% during the quarter ended January 31, 1995 as compared to the
immediate preceding quarter, as the Company identified approximately $266,000 of
raw and finished goods inventory which did not have future utility.
Operating expenses as a percentage of net sales decreased to 13.4% for the
year ended January 31, 1995 from 15.7% for the corresponding period of the prior
year. However, operating expenses for the year ended January 31, 1994 included
the write-off of $583,669 (2.0% as a percentage of net sales) of long-term notes
receivable, as described above.
Other expenses - net, decreased as a result of a settlement of a lawsuit
against the Company's prior legal counsel.
As a result of the foregoing, operating results improved to a net income of
$1,421,000 for the year ended January 31, 1995 from a net loss of $37,000 for
the year ended January 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Lakeland has historically met its cash requirements through funds generated
from operations and borrowings under a revolving credit facility. On August 30,
1995, the Company entered into a new $8 million facility with its Bank. This
facility matures on July 31, 1998. Interest charges under this credit facility
are calculated on various optional formulas using the prime rate, LIBOR,
banker's acceptances and letters of credit. The Company's January 31, 1996
balance sheet shows a strong current ratio and working capital position and
management believes that its positive financial position, together with this new
credit agreement, will provide sufficient funds for operating purposes for the
next twelve months.
IMPACT OF INFLATION
Management believes inflation has not had a material effect on the
Company's operations or its financial condition. There can be no assurance,
however, that the Company's business will not be affected by inflation in the
future.
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Prior to September 9, 1986, there was no public market for the Company's
Common Stock. On September 9, 1986, the effective date of the Company's initial
public offering, the Company's Common Stock began trading in the
over-the-counter market. On June 2, 1987, the Company's Common Stock began
trading in the over-the-counter market as a National Market Issue. The Company's
Common Stock trades on The Nasdaq Stock Market under the symbol "LAKE". It is
listed in major publications under "Lakeland".
The following table sets forth the high and low trade prices, as reported
by NASDAQ for the last two fiscal years:
Fiscal 1996 Fiscal 1996
High Low High Low
---- --- ---- ---
First Quarter 6 1/8 4 3 1/8 2 5/8
Second Quarter 5 7/8 3 3/4 4 3/8 2 3/4
Third Quarter 4 7/8 3 1/4 4 5/8 3 1/8
Fourth Quarter 4 3/8 2 7/8 5 3 3/4
First Quarter fiscal 1997 4 1/4 3 3/16
(through April 18, 1996)
The Company has never declared or paid a cash dividend on its Common Stock,
and the Company has no present intention of declaring or paying any cash
dividends on the Common Stock in the foreseeable future.
The Company's revolving credit facility provides for certain restrictions
that, at January 31, 1996 prohibited the Company from paying any cash dividends.
As of April 19, 1996, there were 138 holders of record of the Common Stock
of the Company. There are believed to be in excess of 500 beneficial
shareholders in addition to those of record, since over 1 million shares are
held in street name by Cede & Co. a large financial clearing house.
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Lakeland Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Lakeland
Industries, Inc. and Subsidiaries (the "Company") as of January 31, 1996 and
1995, and the related consolidated statements of operations and retained
earnings and cash flows for each of the three years in the period ended January
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of January 31, 1996 and 1995, and the consolidated results of their
operations and their consolidated cash flows for each of the three years in the
period ended January 31, 1996, in conformity with generally accepted accounting
principles.
We have also audited the consolidated financial statement schedule listed in the
accompanying index at Item 14(a)2 for the years ended January 31, 1996, 1995 and
1994. In our opinion, the consolidated financial statement schedule presents
fairly, in all material respects, the information required to be set forth
therein.
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Melville, New York
April 9, 1996 (except for Note G, as to which
the date is April 22, 1996)
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31,
ASSETS 1996 1995
---- ----
CURRENT ASSETS
Cash $ 364,640 $ 119,919
Accounts receivable, net of allowance for doubtful
accounts of $263,000 and $376,000 at January 31,
1996 and 1995, respectively 4,979,975 4,408,871
Inventories 11,244,241 8,858,298
Deferred income taxes 432,000 455,000
Other current assets 490,776 160,551
------------- -------------
Total current assets 17,511,632 14,002,639
PROPERTY AND EQUIPMENT, NET 1,026,203 691,258
EXCESS OF COST OVER THE FAIR VALUE OF NET ASSETS
ACQUIRED, net of accumulated amortization of $223,000
and $194,000 at January 31, 1996 and 1995, respectively 367,104 396,428
NOTE RECEIVABLE 147,921 154,437
OTHER ASSETS 209,872 317,086
------------- -------------
$19,262,732 $15,561,848
============= =============
The accompanying notes are an integral part of these statements.
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS (continued)
January 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
---- ----
CURRENT LIABILITIES
Accounts payable $ 3,465,552 $ 2,824,548
Current portion of long-term liabilities 50,000 3,615,873
Accrued expenses and other current liabilities 378,524 372,416
----------- -----------
Total current liabilities 3,894,076 6,812,837
LONG-TERM LIABILITIES 6,491,938 440,915
DEFERRED INCOME TAXES 115,000 133,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par; 1,500,000
shares authorized; none issued
Common stock, $.01 par; 10,000,000
shares authorized; 2,550,000 shares
issued and outstanding 25,500 25,500
Additional paid-in capital 5,981,226 5,981,226
Retained earnings 2,754,992 2,168,370
----------- -----------
8,761,718 8,175,096
----------- -----------
$19,262,732 $15,561,848
=========== ===========
The accompanying notes are an integral part of these statements.
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
Fiscal year ended January 31,
1996 1995 1994
---- ---- ----
Net sales $40,188,916 $35,184,994 $30,143,340
Cost of goods sold 33,901,232 28,839,099 25,380,018
----------- ----------- -----------
Gross profit 6,287,684 6,345,895 4,763,322
----------- ----------- -----------
Operating expenses
Selling and shipping 2,691,193 2,288,602 2,098,564
General and administrative 2,163,621 2,315,611 2,017,582
Write-off of notes receivable 583,669
Research and development 27,298 99,795 39,519
----------- ----------- -----------
Total operating expenses 4,882,112 4,704,008 4,739,334
----------- ----------- -----------
Operating profit 1,405,572 1,641,887 23,988
----------- ----------- -----------
Other income (expense)
Other income 41,292 662,572 96,500
Interest income 19,938 632 19,639
Interest expense (511,180) (304,613) (276,781)
----------- ----------- -----------
(449,950) 358,591 (160,642)
----------- ----------- -----------
Income (loss) before income taxes and cumulative
effect of change in accounting for income taxes 955,622 2,000,478 (136,654)
Income tax expense (369,000) (579,000) (141,000)
----------- ----------- -----------
Income (loss) before cumulative effect of change
in accounting for income taxes 586,622 1,421,478 (277,654)
----------- ----------- -----------
Cumulative effect of change in accounting for income
taxes 241,000
----------- ----------- -----------
NET INCOME (LOSS) 586,622 1,421,478 (36,654)
Retained earnings at beginning of year 2,168,370 746,892 783,546
----------- ----------- -----------
Retained earnings at end of year $ 2,754,992 $ 2,168,370 $ 746,892
=========== =========== ===========
Income (loss) per common share
Income (loss) before cumulative effect of change
in accounting for income taxes $.22 $.54 $(.11)
Cumulative effect of change in accounting for
income taxes .10
----------- ----------- -----------
Net income (loss) per common share $.22 $.54 $(.01)
=========== =========== ===========
Average number of common shares outstanding 2,637,394 2,640,518 2,550,000
=========== =========== ===========
The accompanying notes are an integral part of these statements.
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal year ended January 31,
1996 1995 1994
---- ---- ----
Cash flows from operating activities
Net income (loss) $ 586,622 $ 1,421,478 $ (36,654)
Adjustments to reconcile net income (loss) to net
cash used in operating activities
Cumulative effect of change in accounting for
income taxes (241,000)
Deferred income taxes 5,000 (212,000) 130,000
Depreciation and amortization 272,135 266,565 271,996
Provision for doubtful accounts 112,832 141,606 152,000
Write-off of notes receivable 583,669
(Increase) decrease in operating assets
Accounts receivable (683,936) (495,478) (700,106)
Inventories (2,385,943) (2,157,905) (421,593)
Other current assets (330,225) 92,270 (93,253)
Other assets 137,065 (6,396) 133,006
Increase (decrease) in operating liabilities
Accounts payable 641,004 669,663 71,161
Accrued expenses and other liabilities 6,108 143,941 (2,300)
----------- ----------- ---------
Net cash used in operating activities (1,639,338) (136,256) (153,074)
----------- ----------- ---------
Cash flows from investing activities
Purchases of property and equipment - net (577,756) (84,099) (120,482)
Proceeds from sale of property 33,063
----------- ----------- ---------
Net cash used in investing activities (577,756) (51,036) (120,482)
----------- ----------- ---------
Cash flows from financing activities
Net borrowings (reductions) under line of credit agreement 2,485,150 295,904 (134,199)
Repayment of notes payable and capital lease obligations (27,371)
Deferred financing costs (23,335) (87,790)
----------- ----------- ---------
Net cash provided by (used in) financing activities 2,461,815 295,904 (249,360)
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH 244,721 108,612 (522,916)
Cash at beginning of year 119,919 11,307 534,223
----------- ----------- ---------
Cash at end of year $ 364,640 $ 119,919 $ 11,307
=========== =========== =========
The accompanying notes are an integral part of these statements.
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
1. Business
Lakeland Industries, Inc. and Subsidiaries (the "Company"), a Delaware
corporation, organized in April 1982, is engaged primarily in the
manufacture of disposable and reusable protective work clothing. The
principal market for the Company's products is in the United States. No
customer accounted for more than 10% of net sales during the fiscal
years ended January 31, 1996, 1995 and 1994.
2. Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Fireland
Industries, Inc., Lakeland Protective Wear, Inc. (a Canadian
corporation) and, in fiscal 1996, Lakeland de Mexico S.A. de C.V. (a
Mexican corporation). All significant intercompany accounts and
transactions have been eliminated.
3. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method.
4. Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are provided for in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated service lives,
on a straight-line basis. Leasehold improvements and leasehold costs
are amortized over the term of the lease or service lives of the
improvements, whichever is shorter. The costs of additions and
improvements which substantially extend the useful life of a particular
asset are capitalized. Repair and maintenance costs are charged to
expense.
5. Excess of Cost Over the Fair Value of Net Assets Acquired
The excess of cost over the fair value of net assets acquired
(goodwill) is amortized on a straight-line basis over a 30-year
period. On an ongoing basis, management reviews the valuation and
amortization of goodwill to determine possible impairment by comparing
the carrying value to the undiscounted future cash flows of the related
assets.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121") that
established accounting standards for the impairment of long-lived
assets, certain intangibles and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS 121 is required to be adopted for
fiscal years beginning after December 15, 1995. In accordance with SFAS
121, it is the Company's policy to periodically review and evaluate
whether there has been a permanent impairment in the value of
intangibles and adjust the carrying value accordingly. Factors
considered in the valuation include current operating results, trends
and anticipated undiscounted future cash flows. Accordingly, the
adoption of SFAS 121 is not expected to have a significant effect on
the consolidated financial statements of the Company.
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1996, 1995 and 1994
NOTE A (continued)
6. Income Taxes
Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Pursuant to SFAS 109, deferred income taxes are recognized for
temporary differences between financial statement and income tax bases
of assets and liabilities and loss carryforwards and tax credit
carryforwards for which income tax benefits are expected to be realized
in future years. A valuation allowance is established to reduce
deferred tax assets if it is more likely than not that all, or some
portion of, such deferred tax assets will not be realized. The effect
on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
7. Income (Loss) Per Common Share
Income per share for the fiscal years ended January 31, 1996 and 1995
are based on the weighted average number of common shares outstanding
and common share equivalents.
Loss per common share for the fiscal year ended January 31, 1994 is
based on the weighted average number of common shares outstanding
during the year. Stock options have not been included in the
calculation, since their effect would be antidilutive.
8. Statement of Cash Flows
Supplemental cash flow information for the fiscal years ended January
31 was as follows:
1996 1995 1994
---- ---- ----
Interest paid $431,555 $304,676 $276,781
Income taxes paid, net of refunds 618,853 665,488 39,755
9. Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of trade receivables.
Concentration of credit risk with respect to these receivables is
generally diversified due to the large number of entities comprising
the Company's customer base and their dispersion across geographic
areas within the United States. The Company routinely addresses the
financial strength of its customers and, as a consequence, believes
that its receivable credit risk exposure is limited.
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1996, 1995 and 1994
NOTE A (continued)
10. Stock-Based Compensation
Adoption of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") is required for
fiscal years beginning after December 15, 1995 and allows for a choice
of the method of accounting used for stock-based compensation. Entities
may elect the "intrinsic value" method based on APB No. 25 "Accounting
for Stock Issued to Employees" or the new "fair value" method contained
in SFAS 123. The Company intends to implement SFAS 123 in 1997 by
continuing to account for stock-based compensation under the guidelines
of APB No. 25. As required by SFAS 123, the pro forma effects on net
income (loss) and income (loss) per share will be determined as if the
fair value based method had been applied and disclosed in the notes to
the consolidated financial statements.
11. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
year-end and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
significant estimates include the allowance for doubtful accounts and
inventory reserves. It is reasonably possible that events could occur
during the upcoming year that could change such estimates.
NOTE B - NOTES RECEIVABLE
1. Sale of Property
In October 1994, the Company sold its Ohio facility to an unrelated
third party for $187,500 ($25,000 cash and a $162,500 mortgage note).
The selling price of the property approximated the net book value at
the time of sale. The mortgage note is payable in 47 consecutive
monthly payments of $1,523, including principal and interest at an
annual rate of 8%, until October 1998 when the entire unpaid balance of
the indebtedness shall be due and payable. This note is secured by a
mortgage on real estate located in the City of Newark, Licking County,
Ohio. To date, mortgage payments to the Company have been timely.
2. Customer Note
In August 1993, a former customer of the Company filed a petition for
bankruptcy proceedings in accordance with Chapter 11 of the Bankruptcy
Code. This customer had a series of interest-bearing notes payable to
the Company which originated in fiscal 1991 and 1992 and aggregated
$1,072,000 (including accrued interest of $105,000). In fiscal 1992,
this former customer defaulted on the original payment schedule, with
the Company receiving partial
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1996, 1995 and 1994
NOTE B (continued)
payments of $358,000 through January 31, 1993. In view of concerns with
respect to the customer's ability to repay such notes, the Company
stopped accruing interest on these notes at the beginning of fiscal
1993 and recorded a reserve of $130,000 in the fourth quarter of fiscal
1993 against the then outstanding principal and accrued interest
balance of $713,669. In March 1993, a potential purchaser of this
former customer offered the Company $670,000 to settle the balance due
on these outstanding notes, subject to a successful closing of the
proposed purchase of the customer's assets.
Such closing was not consummated and the former customer's lead lender
foreclosed on its primary operating assets, thus precipitating the
Chapter 11 filing by this former customer. Due to the degree of
uncertainty with respect to the collection of these notes caused by
these events, the Company elected to write off the entire balance
carried on these notes, in the amount of $583,669 in fiscal 1994.
NOTE C - INVENTORIES
Inventories consist of the following at January 31:
1996 1995
---- ----
Raw materials 2,980,137 $3,097,052
Work-in-process 3,225,272 2,092,028
Finished goods 5,038,832 3,669,218
----------- ----------
$11,244,241 $8,858,298
=========== ==========
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at January 31:
Useful life
in years 1996 1995
-------- ---- ----
Machinery and equipment 10 $2,180,832 $ 1,682,312
Furniture and fixtures 5 - 10 148,814 114,532
Leasehold improvements Lease term 147,374 102,420
---------- -----------
2,477,020 1,899,264
Less accumulated depreciation
and amortization 1,450,817 1,208,006
---------- -----------
$1,026,203 $ 691,258
========== ===========
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1996, 1995 and 1994
NOTE E - OTHER ASSETS
Other assets consist of the following at January 31:
1996 1995
---- ----
Pension asset (Note K) $151,089 $196,796
Deferred financing costs, net 18,076 29,264
Patents, net 30,016 31,892
Investment, at cost 35,000
Security deposits 10,691 12,134
Other 12,000
-------- --------
$209,872 $317,086
======== ========
In August 1994, the Company invested $35,000 in a company and received an
approximate 4.3% voting interest in such entity. The Company received 3,500
shares of Cumulative Convertible Exchangeable Preferred Stock (the
"Stock"). In addition to the investment in the Stock, the Company sold
$47,000 of product (included in accounts receivable at January 31, 1995)
and had consigned inventory of $210,000 (included in inventory at January
31, 1995) to this investee. In October 1995, this entity went out of
business; however, the Company recovered sufficient assets to equal the sum
of its original investment and outstanding receivables. Additionally, all
consigned inventory was returned to the Company.
Patents are amortized over a seventeen-year period.
NOTE F - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Fair
Value of Financial Instruments," requires disclosure of the estimated fair
value of an entity's financial instrument assets and liabilities. The
Company's principal financial instrument consists of its three-year
revolving credit facility with a bank. The Company believes that the
carrying amount of such debt approximates the fair value as the variable
interest rate approximates the current prevailing interest rate.
Additionally, the Company's financial position has not substantially
changed since the August 1995 inception of such credit facility.
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1996, 1995 and 1994
NOTE G - LONG-TERM LIABILITIES
Long-term liabilities consist of the following at January 31:
1996 1995
---- ----
Revolving credit facility $6,100,000 $ 3,565,873
Pension liability (Note K) 441,938 490,915
---------- -----------
6,541,938 4,056,788
Less current portion 50,000 3,615,873
---------- -----------
Long-term liabilities $6,491,938 $ 440,915
========== ===========
During August 1995, the Company entered into a $8,000,000, three-year
secured revolving credit facility with a bank, replacing the two-year
facility that was due to expire. Under this secured revolving credit
facility, which expires on July 31, 1998, the Company may borrow up to a
maximum of $8,000,000 based upon eligible accounts receivable and
inventories, as defined in the Agreement. Borrowings under the revolving
credit facility bear interest at a rate per annum equal to the prime
commercial lending rate or LIBOR plus 200 points (7.875% at January 31,
1996). Such interest is payable at the end of the respective interest
period, ranging from 30 to 180 days. A fee of 1/2% per annum is charged to
the Company on the unused portion of such facility. The loan is
collateralized by substantially all the assets of the Company. Deferred
financing fees of $20,000 are being amortized on a straight-line basis over
the three-year term of this facility. The revolving credit facility also
contains restrictive covenants, measurable on a quarterly or annual basis,
with respect to: tangible net worth, capital expenditures and certain
financial ratios, as defined. The revolving credit agreement restricts the
Company from declaring or paying any dividends. As of January 31, 1996, the
Company was not in compliance with the capital expenditures covenant, which
requirement was waived by the bank.
The maximum amounts borrowed under the revolving lines of credit during the
fiscal years ended January 31, 1996 and 1995 were $7,120,000 and
$4,700,000, respectively, and the average interest rate for each period
then ended was 9.4%.
NOTE H - COMMITMENTS AND CONTINGENCIES
1. Employment Contracts
The Company has employment contracts with three principal officers
expiring through January 31, 1998. Such contracts are automatically
renewable for one- or two-year terms, unless 90-day notice is given by
either party. Pursuant to such contracts, the Company is committed to
aggregate base remuneration of $455,000 and $225,000 for the fiscal
years ended January 31, 1997 and 1998, respectively.
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1996, 1995 and 1994
NOTE H (continued)
2. Leases
The Company leases the majority of its premises under various operating
leases expiring through fiscal 2000. The lease for the principal
manufacturing facility (located in Decatur, Alabama) is with a
partnership whose partners are principal officers and stockholders of
the Company. This lease expires on August 31, 1999 and requires annual
payments of approximately $365,000 plus certain operating expenses. The
Company received a rent reduction of $3,000 per month from this
partnership (August 1991 to August 1994), and in fiscal 1995, the
Company received an additional one-time rent reduction of $5,000. Such
rent reductions aggregated $21,000 and $41,000 for the fiscal years
ended January 31, 1995 and 1994, respectively. In addition, the Company
has several operating leases for machinery and equipment. Total rental
expense under all operating leases is summarized as follows:
Total Rentals
Gross sublease paid to
rental rental related
expense income parties
------- ------ -------
Year ended January 31,
1996 $483,690 $20,011 $369,150
1995 340,171 13,169 249,300
1994 337,767 8,554 229,300
Minimum annual rental commitments for the remaining term of the
Company's noncancellable operating leases relating to office space and
equipment rentals at January 31, 1996 are summarized as follows:
Year ending January 31,
1997 $ 496,340
1998 431,925
1999 405,713
2000 228,521
----------
$1,562,499
==========
Certain leases require additional payments based upon increases in
property taxes and other expenses.
3. Services Agreement
In August 1993, the Company entered into a services agreement with an
affiliated entity, principally owned by a principal officer and
stockholder of the Company. Pursuant to the terms of such agreement,
the affiliate provides professional and/or skilled labor to a division
of the Company, as needed, at contractual rates of compensation. Such
agreement is cancelable by either the Company or the affiliate upon
thirty days' written notice. Costs incurred by the Company in
connection with such agreement aggregated $520,000, $654,000 and
$273,000 for the fiscal years ended January 31, 1996, 1995 and 1994,
respectively.
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1996, 1995 and 1994
NOTE H (continued)
4. Litigation
In January 1995, the Company received a $625,000 cash settlement
pursuant to an action filed against its prior legal counsel, involving
a number of causes of action relating to that law firm's representation
of the Company between 1987 and 1991. This amount is included in "Other
income" for the fiscal year ended January 31, 1995.
The Company is involved in various litigation arising during the normal
course of business which, in the opinion of the management of the
Company, will not have a material adverse effect on the consolidated
financial position or results of operations of the Company.
5. Self-insurance
The Company maintains a self-insurance program for that portion of
health care costs not covered by insurance. The Company is liable for
claims up to defined limits. Self-insurance costs are based upon the
aggregate of the liability for reported claims and an estimated
liability for claims incurred but not reported.
NOTE I - STOCKHOLDERS' EQUITY
Stock Options
A Nonemployee Directors' Option Plan (the "Directors' Plan") was adopted by
the Board of Directors and approved by the stockholders during the year
ended January 31, 1990. Under the Directors' Plan, 60,000 shares of common
stock have been authorized for issuance. The Directors' Plan provides for
an automatic one-time grant of options to purchase 5,000 shares of common
stock to each nonemployee director elected or appointed to the Board.
Options become exercisable commencing six months from the date of grant and
expire six years from the date of grant. In addition, all nonemployee
directors re-elected to the Company's Board of Directors at any annual
meeting of the stockholders will be automatically granted additional
options to purchase 1,000 shares of common stock on each of such dates.
On May 1, 1986, the Company's 1986 Incentive and Nonstatutory Stock Option
Plan (the "Incentive Plan"), which provides for the granting of incentive
stock options and nonstatutory options, was adopted by the Board of
Directors and approved by the stockholders. This plan provides for the
grant of options to key employees and independent sales representatives to
purchase up to 400,000 shares of the Company's common stock, upon terms and
conditions determined by a committee of the Board of Directors which
administers the plan.
Options are granted at not less than fair market value (110 percent of fair
market value as to incentive stock options granted to ten percent
stockholders) and are exercisable over a period not to exceed ten years
(five years as to incentive stock options granted to ten percent
stockholders). On February 15, 1989, the Board of Directors approved a
restatement of the Incentive Plan to conform with certain changes required
by the Tax Reform Act of 1986. The Board of Directors also restated the
Incentive Plan to provide for stock appreciation rights and changed
provisions of the plan
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1996, 1995 and 1994
NOTE I (continued)
relative to option holders' rights upon termination of employment with the
Company and modified the language of the Incentive Plan in other sections
such as "Eligibility" and "Terms and Conditions of Options." The
restatement of the Incentive Plan was approved by the stockholders. For the
three years ended January 31, 1996, option activity is summarized as
follows:
Directors' Plan Incentive Plan
------------------------- ----------------------------
Number Range of Number Range of
of option of option
shares prices shares prices
------ ------ ------ ------
Balance, January 31, 1993 15,000 $1.44 - 1.56 74,000 $1.37 - 2.50
Granted - 76,000 2.25 - 2.48
------ -------
Balance, January 31, 1994 15,000 1.44 - 1.56 150,000 1.37 - 2.50
Granted 2,000 3.88 - -
------ -------
Balance, January 31, 1995 17,000 1.44 - 3.88 150,000 1.37 - 2.50
Granted 1,000 4.25 - -
------ -------
Balance, January 31, 1996 18,000 1.44 - 4.25 150,000 1.37 - 2.50
====== =========== ======= ============
Available for future grant 42,000 250,000
====== =======
Exercisable 18,000 150,000
====== =======
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1996, 1995 and 1994
NOTE J - INCOME TAXES
The provision for income taxes is summarized as follows:
Year ended January 31,
------------------------------------------------
1996 1995 1994
---- ---- ----
Current
Federal $382,000 $ 584,000 $ 1,000
State (18,000) 207,000 10,000
-------- --------- --------
364,000 791,000 11,000
Deferred 5,000 (212,000) 130,000
-------- --------- --------
$369,000 $ 579,000 $141,000
======== ========= ========
The following is a reconciliation of the effective income tax rate to the
Federal statutory rate:
Year ended January 31,
-------------------------
1996 1995 1994
---- ---- ----
Statutory rate 34.0% 34.0% (34.0)%
State income taxes, net of Federal tax benefit (.4) 4.6 4.8
Nondeductible expenses 1.7 .5 12.9
Operating loss generating no current tax benefit 2.5 24.4
Change in deferred assets/valuation allowance .5 (10.0) 95.1
Other .3 (.2)
---- ---- -----
Effective rate 38.6% 28.9% 103.2%
==== ==== =====
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1996, 1995 and 1994
NOTE J (continued)
The tax effects of temporary differences which give rise to deferred tax
assets at January 31, 1996 and 1995 are summarized as follows:
January 31,
---------------------------
1996 1995
---- ----
Deferred tax assets
Accounts receivable $100,000 $142,700
Inventories 271,300 278,400
Vacation accrual 36,300 29,500
Net operating loss carryforward -
Canadian subsidiary 24,400
Other 4,400
-------- --------
Gross deferred tax assets 432,000 455,000
-------- --------
Deferred tax liabilities
Depreciation 115,000 133,000
-------- --------
Gross deferred tax liabilities 115,000 133,000
-------- --------
Net deferred tax asset $317,000 $322,000
======== ========
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1996, 1995 and 1994
NOTE J (continued)
The net operating loss carryforwards applicable to the Company's Canadian
subsidiary expire in fiscal 2002 and 2003.
The Company's fiscal 1990, 1991 and 1992 New York and 1992, 1993 and 1994
Alabama state income tax returns are currently being examined. The
management of the Company does not expect that these examinations will have
a material adverse impact on the consolidated financial statements.
NOTE K - DEFINED BENEFIT PENSION PLAN
A former subsidiary of the Company has a defined benefit pension plan which
the Company assumed in connection with an acquisition made in fiscal 1987.
This plan covers substantially all of the former subsidiary's employees.
Benefits pursuant to this plan were frozen as of January 1, 1986.
The benefits earned are based on years of service and the employee's final
average annual salary which is based on the highest five consecutive of the
last ten years of employment prior to January 1, 1986. The Company's
funding policy is to contribute annually the recommended amount based on
computations made by its consulting actuary.
The components of the net periodic pension cost for the fiscal years ended
January 31 are summarized as follows:
1996 1995 1994
---- ---- ----
Normal cost $ 1,613 $ 1,613 $ 1,620
Interest cost on projected
benefit obligation 60,611 56,692 50,188
Actual return on assets (40,653) (4,322) (11,875)
Net amortization and deferral 25,159 (8,529) (6,326)
-------- -------- --------
Net periodic pension cost $ 46,730 $ 45,454 $ 33,607
======== ======== ========
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 1996, 1995 and 1994
NOTE K (continued)
The following is a summary of the plan's funded status and amounts
recognized in the Company's consolidated balance sheets at January 31:
1996 1995
---- ----
Actuarial present value of benefit obligation
Vested benefits $842,701 $790,492
Nonvested benefits 21,603
-------- --------
Projected benefit obligation 842,701 812,095
Plan assets at fair market value 400,763 321,180
-------- --------
Projected benefit obligation in excess of plan assets 441,938 490,915
Unrecognized loss (62,021) (97,873)
Unrecognized net obligation at transition amortized
over a 15-year period (89,068) (98,923)
Required minimum liability (also included as a
component of other assets) 151,089 196,796
-------- --------
Pension cost liability (included in long-term
liabilities) $441,938 $490,915
======== ========
An assumed discount rate of 7.5% was used in determining the actuarial
present value of benefit obligations for all periods presented. The
expected long-term rate of return on plan assets was 8% for all periods
presented. At January 31, 1996, approximately 70% of the plan's assets were
held in mutual funds invested primarily in equity securities, approximately
18% was invested in money market instruments and the remaining 12% was
invested in equity securities and debt instruments.
NOTE L - MAJOR SUPPLIER
The Company purchased approximately 75% of its raw materials from one
supplier under licensing agreements. The Company expects this relationship
to continue for the foreseeable future. If required, similar raw materials
could be purchased from other sources.
CORPORATE INFORMATION
Directors:
Raymond J. Smith, Chairman
Christopher J. Ryan
John J. Collins, Jr.
Senior Vice President of Liberty
Brokerage, Inc.
Eric O. Hallman
Officer of Sylvan -Lawrence
Walter J. Raleigh
Senior Advisor to CMI Industries,
Inc.
Market Makers:
Troster Singer Corp.
Legg Mason Wood Walker Inc.
Sherwood Securities Corp.
G.V.R. Company
Mayer & Schweitzer Inc.
Nash Weiss/Div of Shatkin Inv.
Herzog, Heine, Geduld, Inc.
Mercer Bokert Buckman & Reid
Worldco L.L.C.
M.H. Meyerson & Co.
Knight Securities L.P.
Officers:
Raymond J. Smith, President
Christopher J. Ryan
Executive Vice President of Finance
and Secretary
James M. McCormick
Vice President and Treasurer
Harvey Pride, Jr.
Vice President, Manufacturing
Auditors:
Grant Thornton LLP
Suite 3S01
One Huntington Quadrangle
Melville, NY 11747-4464
Counsel:
Wildman, Harrold, Allen, Dixon &
Smith
45 Rockefeller Plaza
Suite 353
New York, NY 10111-0100
Transfer Agent:
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
NASDAQ symbol: LAKE
Executive Offices:
711-2 Koehler Ave.
Ronkonkoma, NY 11779
(516) 981-9700
Subsidiaries:
Fireland Industries, Inc.
Lakeland Protective Wear, Inc.
(Canada)
Lakeland de Mexico S.A. de C.V.
Exhibits to Lakeland Industries, Inc.'s 1996 Form 10 - K are available
to shareholders for a fee equal to Lakeland's cost in furnishing such
exhibits, on written request to the Secretary, Lakeland Industries, Inc.,
Inc., 711-2 Koehler Avenue, Ronkonkoma, New York 11779.
DextraGard TM, Forcefield TM, Interceptor TM, Checkmate TM, Heatex TM,
Pyrolon TM, Sterling Heights TM, Fyrepel TM, Highland TM, Impede TM,
Chemland TM and Uniland TM are trademarks of Lakeland Industries, Inc.
Tyvek TM, Viton TM, Barricade TM, Nomex TM, Kevlar TM, Delrin TM, TyChem TM
and Teflon TM are registered trademarks of E.I.DuPont de Nemours and
Company. Saranex TM is a registered trademark of Dow Chemical. Spectra TM
is a registered trademark of Allied Signal, Inc.