[LOGO] Lakeland
Industries, Inc.
Corporate Headquarters
711-2 Koehler Avenue
Ronkonkoma, NY U.S.A.11779-7410
Tel: 631-981-9700
Fax: 631-981-9751
E-Mail: info@lakeland.com
Internet: http://www.lakeland.com
[GRAPHIC]
Lakeland Industries, Inc.
2001 ANNUAL REPORT AND FORM 10-K
[GRAPHIC]
Safety. It's elusive, and often changing.
Lakeland Industries, Inc. strives to make quality products that keep safety in
hand. Our goal is to make sure that the work force of America goes home, safe
and sound, ready for another day.
contrasts...
[PHOTO]
To put your all into your job has always been a trait of the American worker.
The work was often simple, but tough, and sometimes dangerous. Even one
generation back, employees didn't enjoy the protection and production-enhancing
peace of mind lent by modern, quality protective clothing.
The total number of injury cases reported per 100 employees has dropped by
nearly 50% from 1973-1999.
[PHOTO]
In contrast, today's work environment can be highly technical and complicated.
Dangers from chemicals, vapors and particles that are inhaled are factors that
were not present in the workplace of yesteryear. Employees are protected by a
multitude of regulations and requirements. Among the new advances is the
clothing worn on the job, with Lakeland at the forefront of protective clothing
design and development.
costs...
In the Roaring Twenties, gloveless, bare-faced workers operated grinding mills
and inhaled lungs full of all kinds of harmful particles. Both health and
economic costs were high.
[PHOTO]
Among all operators and fabricators from 1992 to 1999, injury and illness
cases have decreased 24.2%.
[PHOTO]
Lakeland's limited-use and disposable garments keep particulates away from those
who grind, mill and spray. Our low cost limited use garments let employees work
easily and safely. These days, they're covered correctly, particularly by
Lakeland.
Encapsulated suits offer reliable protection against today's workplace
chemicals. These suits are disposable and do away with the expensive and risky
practice of decontamination and re-use. Hot zones are set up around a
contaminated area, which utilize various chemical protective garments. Lakeland
is a leader in the development of chemical protective clothing products. In
Lakeland garments, people are safer.
[PHOTO]
dangers...
Among lost work time injuries and illnesses recorded by the Bureau of
Labor, the number for chemical burns dropped 4,100 cases from 1993 to 1999.
Part of this encouraging decrease is due to proper protective clothing.
[PHOTO]
Exposed skin spelled danger and sometimes disaster years ago. Knowledge of how
chemicals reacted to our bodies was at best minimal.
This photo, taken during World War II years, is mute testimony to the patterns
of negligence that occurred at the time. The gloveless worker is taking an awful
risk with her fingers and hands.
[PHOTO]
patterns...
[PHOTO]
Today, Lakeland materials and glove patterns are designed for maximum grip on
the job at hand. Cut resistance can be built into the arm and hand protective
product, while the glove dots provide grip while protecting workers' precious
hands.
[PHOTO]
The man with the ladle is wearing a hat, goggles, gloves and shin guards, while
handling molten steel. A lack of heat and respiratory protection made injuries
commonplace.
Technology has made it possible to design protective garments that
drop injuries substantially in high risk work areas. This kiln worker is
completely protected by aluminized heat protective clothing from head to foot.
Air conditioned vests keep him cool physically and mentally. Dressing for the
job is now part of the job.
[PHOTO]
Because more and more hot-spot workers are wearing quality protective gear, the
number of lost-work time heat burns and scalds was reduced by 10,600 cases from
1993 to 1999.
technology...
science...
[PHOTO]
It was white shirts, trousers and ties for the "angels of mercy" in times past.
The science of healing was unexposed to many of the deadly germs and bacteria
that are threatening lives in the world of today.
[PHOTO]
The science of healing has been joined by the science of protection for the
medical work force. Bloodborne pathogen protective wear is a must, along with
splash resistance, high visibility, and comfort.
1930's turnout gear was "whatever." Street clothes were often used, and the
turnout gear that existed at the time made advancing upon a fire a very
uncomfortable task.
[PHOTO]
advances...
[PHOTO]
Turnout gear design has advanced into a highly specialized craft. Lightweight
materials that offer superior protection greatly reduce the risk to fire
injuries.
One of the main causes of injuries to fire fighters is heat exhaustion.
Lakeland is at the forefront of turnout gear design and is striving to
reduce turnout gear weight.
Dear Fellow Shareholders,
Once again, it is with great pleasure that I extend a warm welcome to each of
you, and do so on behalf of every Lakeland employee. Thanks to their dedication
to the Company's many and diverse tasks, Lakeland has increased its sales for
the sixth consecutive year.
Revenues for the year just ended were $76.1 million compared to last year's
$58.6 million; an increase of approximately 30 percent. I must report, however,
that earnings decreased from $1.7 million to $1.1 last year, a reduction of 36
percent.
Most of this decline in earnings came in the second half of the year and was
attributable to several factors. First was the continued increase in Federal
Reserve interest rates, the full impact of which arrived in the third and fourth
quarters. A second factor was an irrational - some in the industry have used the
term vicious - round of price cutting in the market during the third and,
particularly, in the fourth quarter. In order to stay in the game and stave off
the loss of business, we met this pressure cooker situation wherever possible.
This strategy enabled us to keep our distributor system intact, while watching a
major competitor go out of business in January, the final month of our fiscal
year. We raised prices beginning February1, and expect them to take hold during
the early part of fiscal 2002.
The third factor that negatively influenced earnings was the conversion of our
Fyrepel manufacturing from a contractor operation to an integral part of our St.
Joseph, Missouri facility. This was necessary because the contractor we were
using did not want to become registered for ISO 9000, which is demanded for NFPA
(National Fire Protection Association) certification. At midyear, we moved all
of the production equipment and inventory to St. Joseph and began the critical
task of interviewing, hiring and training personnel to operate in what amounted
to virtually a new factory. Those startup costs are now behind us, and we
anticipate a very aggressive sales program on the fire garment line during this
upcoming year.
Finally, due to the change in factory location, an inordinate amount of testing
by outside certification laboratories, such as UL Laboratories, was done to
ensure that the garments produced met all of the specifications required by
various government agencies as well as our own stringent quality levels.
In spite of these additional hits upon earnings, we weathered the storm and
enjoyed a successful year. The additional costs have been written off rather
than capitalized. Pricing in our main markets appear to have stabilized and
Federal Reserve rates have receded, which suggests that fiscal 2002 will be yet
another successful year for Lakeland.
Once again, I want to thank all of our employees, shareholders and, of course,
our hardworking Board of Directors for the confidence and guidance that they
have given to us during the past year.
Sincerely,
Raymond J. Smith
President
Lakeland Industries, Inc.
SELECTED FINANCIAL DATA
(In thousands, except per share and share amounts)
For the Years Ended January 31,
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
INCOME STATEMENT DATA:
Net sales $76,108 $58,644 $54,655 $47,263 $41,792
Gross profit 11,310 10,488 10,374 9,195 7,237
Operating expenses 8,619 7,191 6,451 6,157 5,212
Operating profit 2,691 3,297 3,923 3,038 2,024
Income before income taxes 1,485 2,509 3,222 2,590 1,576
Net income 1,123 1,748 2,080 1,600 1,063
Earnings per share - Basic (1) $.42 $.66 $.79 $.63 $.42
==== ==== ==== ==== ====
Earnings per share - Diluted (1) $.42 $.65 $.77 $.61 $.41
==== ==== ==== ==== ====
Weighted average common
shares outstanding:
Basic 2,645,446 2,653,950 2,642,170 2,558,541 2,550,000
Diluted 2,667,161 2,673,449 2,690,920 2,627,425 2,609,700
BALANCE SHEET DATA (at end of year):
Working capital $16,047 $15,909 $12,403 $18,903 $14,018
Total assets 38,628 34,770 27,160 25,812 18,573
Current liabilities 20,052 16,551 12,915 5,007 2,920
Long-term liabilities 1,981 2,759 465 9,217 5,746
Stockholders' equity $16,537 $15,405 $13,725 $11,518 $9,825
- ----------
(1) Earnings per share has been restated in accordance with SFAS No. 128,
"Earnings Per Share".
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," "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 and liquidity, the
Company's strategic alternatives, future capital needs, development and capital
expenditures (including the amount and nature thereof), future net revenues,
business strategies, and other plans and objectives of management of the Company
for future operations and activities.
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.
The Company generally recognizes revenues when it ships its product to its
customers. Cost of goods sold includes all direct costs to manufacture the
finished product, plus related costs associated with inland or ocean freight on
incoming raw materials, customs duty and warehousing, and manufacturing overhead
expenses. Selling expenses include all salaries for sales and marketing staffs
together with other related expenses such as sales commissions, travel costs,
trade shows, advertising and delivery expenses. General and administrative
expenses include salaries for executives and administrative and MIS staff,
together with related expenses such as travel costs, non-manufacturing
facilities costs and consulting and professional fees.
Result of Operations
- --------------------
The following table sets forth items in the Company's consolidated
statement of operations as a percentage of revenues for the periods indicated.
2
Years Ended January 31,
2001 2000 1999
--------- --------- ---------
Revenues 100.0% 100.0 100.0%
Cost of Goods Sold 85.1 82.1 81.0
Selling, general and administrative expenses 11.3 12.3 11.8
Depreciation and amortization expense .9 1.0 1.0
Operating profit 3.5 5.6 7.2
Interest expense, net 1.6 1.4 1.3
Income tax expense .48 1.3 2.1
Net income 1.5 3.0 3.8
EBITDA margin (1) 4.5 6.7 8.2
- ----------
(1) EDITDA (earnings before interest, taxes, depreciation and amortization)
margin represents EBITDA expressed as a percentage of revenues.
Fiscal Year Ended January 31, 2001 compared to Fiscal Year Ended January 31,
2000
- --------------------------------------------------------------------------------
Net Sales. Net sales for the year ended January 31, 2001 increased
$17,464,000 or 29.8% to $76,108,000 from $58,644,000 for the year ended January
31, 2000. The increase in sales was principally attributable to the Company's
ability to increase its production capacity, maintain adequate inventory levels,
and to the withdrawal of a major competitor from the TyvekTM markets, in which
the Company secured certain business. The Company initiated a sales price
increase effective with the commencement of fiscal 2002, which stimulated sales
during the last month of fiscal 2001.
Gross Profit. Gross profit for the year ended January 31, 2001 increased by
$822,000, or 7.8% to $11,310,000, or 14.9% of net sales, from $10,488,000, or
17.9% of net sales, for the year ended January 31, 2000. The gross profit
percentage decreased as a result of an increase in the cost of raw materials
(from a major supplier [and now competitor] in February 2000) without a
corresponding increase in selling prices. This was partially offset by
manufacturing efficiencies (due to the use of automated equipment) and to higher
sales volume. Competition increased during the second half of the year ended
January 31, 2001, most severely in the fourth quarter as the industry's newest
competitor lowered prices to gain market share. In most cases, the Company was
forced to meet the competition. The second half of fiscal 2001 was also
negatively affected by the relocation of manufacturing from an independent
contractor to the company's facility in Missouri.
Operating Expenses. Operating expenses for the year ended January 31, 2001
increased by $1,428,000 or 19.9%, to $8,619,000, or 11.3% of net sales, from
$7,191,000, or 12.3% of net sales, for the year ended January 31, 2000. The
increase in operating expenses is pricipally as a result of higher cost of
freight, sales commissions, travel and show participation anduse of temporary
help due to higher sales volume, and also to increased medial expense, research
and development expense.
Interest Expense. Interest expense for the year ended January 31, 2001
increased by $426,000, or 52% to $1,248,000 from $821,000 for the year ended
January 31, 2000. Interest expense increase was principally due to higher
interest costs reflecting and increase in average borrowings under the Company's
credit facility and to increasing interest rates.
Income Tax Expense. The effective tax rate for the year ended January 31,
2001 and 2000 of 24.4% and 30.3% respectively, deviates from the Federal
statutory rate of 34%, mainly attributable to differing foreign tax rates and
exemptions as well as to state income taxes.
Net Income. As a result of the foregoing, net income for the year ended
January 31, 2001 decreased by $625,000 to $1,123,000 from $1,748,000 for the
year ended January 31, 2000.
3
Fiscal Year Ended January 31, 2000 compared to Fiscal Year Ended January 31,
1999
- --------------------------------------------------------------------------------
Net Sales. Net sales for the year ended January 31, 2000 increased
$3,989,000 or 7.3% to $58,644,000 from $54,655,000 for the year ended January
31, 1999. The increase in sales was principally attributable to the Company's
ability to increase its production capacity and maintain higher inventory
levels.
Gross Profit. Gross profit for the year ended January 31, 2000 increased by
$1,114,000, or 1.1% to $10,488,000, or 18% of net sales, from $10,374,000, or
19% of net sales, for the year ended January 31, 1999. Gross profit was
consistent between years as a result of global manufacturing efficiencies,
however, the current year was negatively affected by relocation and expansion
which temporarily decreased these efficiencies. The industry is highly
competitive and margins (historically and) in the current year were vulnerable
to erosion resulting from new competition reduced selling prices.
Operating Expenses. Operating expenses for the year ended January 31, 2000
increased by $740,000 or 11.5%, to $7,191,000, or 12.3% of net sales, from
$6,451,000, or 11.8% of net sales, for the year ended January 31, 1999.
Operating expenses as a percentage of net sales decreased to 12.3%, from 11.8%
as a result of increased sales volume. The increase in operating expenses was
mainly attributable to greater payroll expenses, increased sales commissions and
increased freight out, and the addition of in-house regional sales managers.
Interest Expense. Interest expense for the year ended January 31, 2000
increased by $47,619, or 6.2% to $821,333 from $773,714 for the year ended
January 31, 1999. The increase in interest expense was mainly due to higher
interest costs reflecting an increase in average borrowings under the Company's
credit facility and increasing interest rates.
Income Tax Expense. The effective tax rate of 30.8% deviates from the
Federal statutory rate of 34%, mainly attributable to foreign income generating
no current taxes or foreign jurisdiction with lower tax rates and the effect of
state income taxes.
Net Income. As a result of the foregoing, net income for the year ended
January 31, 2000 decreased by $332,000 or 16%, to net income of $1,748,000 from
net income of $2,080,000 for the year ended January 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
Liquidity and Capital Resources.The Company's working capital is equal to
$16,047,000 at January 31, 2001. 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 $412,000 for the year ended
January 31, 2001 and was due primarily to the increase in inventories of
$243,000, and accounts receivable of $2,509,000, and other current assets of
$800,000, offset by the increase in accounts payable of $2,248,000 and net
income from operations of $1,123,000.
Net cash provided by financing activities of $473,000 was primarily
attributable to net borrowings during the year in connection with the term loan
and revolving credit facility.
The revolving credit facility permits the Company to borrow up to a maximum
of $14 million. The revolving credit agreement expires on October 31, 2001, and
has therefore been classified as a short-term liability in the accompanying
balance sheet at January 31, 2001. Borrowings under the revolving credit
facility amounted to approximately $12,335,000 at January 31, 2001. The maturity
date on the five year $3 million term-loan agreement entered into in November
1999 has been accelerated to expire on March 31, 2003.
The Company believes that cash flow from operations and the revolving
credit facility will be sufficient to meet its currently anticipated operating,
capital expenditures and debt service requirements for at least the next 12
months.
Foreign Currency Activity
- -------------------------
The Company's foreign exchange exposure is principally limited to the
relationship of the U.S. Dollar to the Mexican Peso, Canadian Dollar and the
Chinese RMB.
4
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
Market Risk
- -----------
The Company is exposed to market risk, including changes in interest rates
and currency exchange rates. To manage the volatility relating to these
exposures, the Company seeks to limit, to the extent possible its non-U.S.
dollar denominated purchases and sales. Foreign exchange risk occurs principally
only 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, 2001,
$14,435,000 was outstanding under the term-loan and revolving credit facilities.
Changes in the above described interest rates during fiscal 2001 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 $145,000. Each 1% fluctuation in
interest rates earned would not increase or decrease interest income on these
deposits by a significant amount.
Unaudited Quarterly Results of Operations (in thousands, except for per share
amounts.
- --------------------------------------------------------------------------------
Fiscal Year Ended January 31, 2001:
1/31/01 10/31/00 7/31/00 4/30/00
------- -------- ------- -------
Net Sales $20,130 $15,762 $18,109 $22,107
Cost of Sales 17,802 13,353 14,890 18,753
------- -------- ------- -------
Gross Profit $ 2,328 $ 2,409 $ 3,219 $ 3,354
======= ======= ======= =======
Net Income (loss) $ (64) $ 150 $ 376 $ 661
======= ======= ======= =======
Basic and Diluted income
per common share:
Basic $ (.03) $ 0.06 $ 0.14 $ 0.25
======= ======= ======= =======
Diluted $ (.03) $ 0.06 $ 0.14 $ 0.25
======= ======= ======= =======
Fiscal Year Ended January 31, 2000: 1/31/00 10/31/99 7/31/99 4/30/99
------- -------- ------- -------
Net Sales $15,559 $13,688 $13,941 $15,456
Cost of Sales 12,617 10,917 11,758 12,864
------- -------- ------- -------
Gross Profit $ 2,942 $ 2,771 $ 2,183 $ 2,592
======= ======= ======= =======
Net Income (loss) $ 648 $ 510 $ 86 $ 504
======= ======= ======= =======
Basic and Diluted income
per common share:
Basic $ 0.25 $ 0.19 $ 0.03 $ 0.19
======= ======= ======= =======
Diluted $ 0.24 $ 0.19 $ 0.03 $ 0.19
======= ======= ======= =======
5
MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
The Common Stock is listed on the Nasdaq National Market under the symbol
"LAKE". The following table sets forth for the periods indicated the high and
low sales prices for the Common Stock as reported by the Nasdaq National Market.
The Company has a January 31, fiscal year end.
Price Range
of Common Stock
---------------------
High Low
---------------------
Fiscal 2000
First Quarter ended April 30, 1999..................... $6 3/4 $4
Second Quarter ended July 31, 1999..................... 6 3/4 4 3/4
Third Quarter ended October 31, 1999................... 7 3/8 2 7/8
Fourth Quarter ended January 31, 2000.................. 4 3/4 2 15/16
Fiscal 2001
First Quarter ended April 30, 2000..................... 4 3/4 $3 3/4
Second Quarter ended July 31, 2000..................... 7 1/2 5 3/8
Third Quarter ended Oct. 31, 2000...................... 6 1/2 4 3/4
Fourth Quarter ended January 31, 2001.................. 5 1/4 3 3/8
First Quarter Fiscal 2002 (through April 20, 2001)..... 5 4 1/32
As of April 17, 2001, there were approximately 94 record holders of shares
of Common Stock. There are believed to be in excess of 500 beneficial
shareholders in addition to those of record, since over 1.0 million shares are
held in "street" name by Cede & Co., a large financial clearing house.
The Company has never paid cash dividends on its common stock and does not
expect to pay such dividends in the foreseeable future. The Company currently
intends to retain any future earnings, for the operation and expansion of its
business. The payment and rate of future dividends, if any, are subject to the
discretion of the Board of Directors of the Company and will depend upon the
Company's earnings, financial condition, capital requirements, contractual
restrictions under its agreement with its institutional lender and other
factors.
6
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Lakeland Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Lakeland
Industries, Inc. and Subsidiaries (the "Company") as of January 31, 2001 and
2000, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended January 31, 2001.
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, 2001 and 2000, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended January 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited Schedule II - Valuation and Qualifying Accounts for
each of the three years in the period ended January 31, 2001. In our opinion,
this 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 6, 2001
7
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31,
2001 2000
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 784,578 $ 650,541
Accounts receivable, net of allowance for doubtful
accounts of $221,000 and $200,000 at January
31, 2001 and 2000, respectively 10,858,288 8,379,477
Inventories 22,710,083 22,467,395
Prepaid income taxes 461,113 52,434
Deferred income taxes 624,000 661,000
Other current assets 660,777 249,264
----------- -----------
Total current assets 36,098,839 32,460,111
PROPERTY AND EQUIPMENT, NET 1,978,070 1,851,964
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
ACQUIRED, net of accumulated amortization
of $276,000 and $256,000 at January 31, 2001
and 2000, respectively 268,822 288,810
OTHER ASSETS 282,235 169,365
----------- -----------
$38,627,966 $34,770,250
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,490,447 $ 4,242,874
Accrued compensation and benefits 418,320 502,785
Other accrued expenses 207,795 135,883
Current portion of long-term debt 12,935,416 11,669,681
----------- -----------
Total current liabilities 20,051,978 16,551,223
LONG-TERM DEBT 1,499,207 2,300,000
PENSION LIABILITY 482,269 458,643
DEFERRED INCOME TAXES 58,000 55,000
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; 2,646,000 and 2,644,000 shares
issued and outstanding at January 31, 2001
and 2000, respectively 26,460 26,440
Additional paid-in capital 6,140,221 6,132,491
Retained earnings 10,369,831 9,246,453
----------- -----------
16,536,512 15,405,384
----------- -----------
$38,627,966 $34,770,250
=========== ===========
The accompanying notes are an integral part of these statements.
8
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Fiscal year ended January 31,
2001 2000 1999
----------- ----------- -----------
Net sales $76,108,038 $58,644,181 $54,655,135
Cost of goods sold 64,797,943 48,155,753 44,281,126
----------- ----------- -----------
Gross profit 11,310,095 10,488,428 10,374,009
----------- ----------- -----------
Operating expenses
Selling and shipping 4,825,331 4,177,171 3,334,609
General and administrative 3,793,745 3,013,780 3,116,745
----------- ----------- -----------
Total operating expenses 8,619,076 7,190,951 6,451,354
----------- ----------- -----------
Operating profit 2,691,019 3,297,477 3,922,655
----------- ----------- -----------
Other income(expense)
Interest expense (1,247,708) (821,333) (773,714)
Interest income 26,595 25,716 46,176
Other income - net 15,472 7,346 26,968
----------- ----------- -----------
Total other expense (1,205,641) (788,271) (700,570)
----------- ----------- -----------
Income before income taxes 1,485,378 2,509,206 3,222,085
Income tax expense (362,000) (761,000) (1,142,000)
----------- ----------- -----------
NET INCOME $ 1,123,378 $ 1,748,206 $ 2,080,085
=========== =========== ===========
Net income per common share
Basic $.42 $.66 $. 79
==== ==== =====
Diluted $.42 $.65 $. 77
==== ==== =====
Weighted average common shares outstanding
Basic 2,645,446 2,653,950 2,642,170
========= ========= =========
Diluted 2,667,161 2,673,449 2,690,920
========= ========= =========
The accompanying notes are an integral part of these statements.
9
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Fiscal years ended January 31, 2001, 2000 and 1999
Common stock Additional
------------------- paid-in Retained
Shares Amount capital earnings Total
--------- ------- ---------- ----------- -----------
Balance, January 31, 1998 2,610,472 $26,105 $6,073,358 $ 5,418,162 $11,517,625
Net income 2,080,085 2,080,085
Exercise of stock options 50,028 500 126,298 126,798
--------- ------- ---------- ----------- -----------
Balance, January 31, 1999 2,660,500 26,605 6,199,656 7,498,247 13,724,508
Net income 1,748,206 1,748,206
Purchase and retirement
of common stock (16,500) (165) (67,165) (67,330)
--------- ------- ---------- ----------- -----------
Balance, January 31, 2000 2,644,000 26,440 6,132,491 9,246,453 15,405,384
Net income 1,123,378 1,123,378
Exercise of stock options 2,000 20 7,730 7,750
--------- ------- ---------- ----------- -----------
Balance, January 31, 2001 2,646,000 $26,460 $6,140,221 $10,369,831 $16,536,512
========= ======= ========== =========== ===========
The accompanying notes are an integral part of this statement.
10
Lakeland Industries, Inc.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal year ended January 31,
2001 2000 1999
------------ ----------- -----------
Cash flows from operating activities
Net income $ 1,123,378 $ 1,748,206 $ 2,080,085
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Deferred income taxes 40,000 (95,000) (71,000)
Depreciation and amortization 699,304 598,095 534,673
Provision for bad debts 30,176 20,700 60,263
(Increase) decrease in operating assets
Accounts receivable (2,508,987) (1,656,836) 149,934
Inventories (242,688) (6,356,485) (252,858)
Other current assets (799,556) 159,533 (236,785)
Other assets (187,882) (20,823) (18,808)
Increase (decrease) in operating liabilities
Accounts payable 2,247,573 2,787,684 (2,839,051)
Accrued expenses and other liabilities 11,073 (43,480) 84,143
------------ ----------- -----------
Net cash provided by (used in)
operating activities 412,391 (2,858,406) (509,404)
------------ ----------- -----------
Cash flows from investing activities
Purchases of property and equipment (751,046) (1,049,124) (388,393)
Principal payments on note receivable 140,251
------------ ----------- -----------
Net cash used in investing activities (751,046) (1,049,124) (248,142)
------------ ----------- -----------
Cash flows from financing activities
Net borrowings under credit agreements 464,942 3,241,818 1,911,631
Proceeds from exercise of stock options 7,750 126,798
Purchase and retirement of common stock (67,330)
Deferred financing costs (52,500) (67,500)
------------ ----------- -----------
Net cash provided by financing activities 472,692 3,121,988 1,970,929
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 134,037 (785,542) 1,213,383
Cash and cash equivalents at beginning of year 650,541 1,436,083 222,700
------------ ----------- -----------
Cash and cash equivalents at end of year $ 784,578 $ 650,541 $ 1,436,083
============ =========== ===========
The accompanying notes are an integral part of these statements.
11
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2001, 2000 and 1999
NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
1. Business
- -----------
Lakeland Industries, Inc. and Subsidiaries (the "Company"), a Delaware
corporation, organized in April 1982, is engaged primarily in the manufacture of
personal safety protective work clothing. The principal market for the Company's
products is in the United States. No customer accounted for more than 10% of net
sales during the fiscal years ended January 31, 2001, 2000 and 1999.
2. Principles of Consolidation
- ------------------------------
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Laidlaw, Adams & Peck, Inc. and
Subsidiary (formerly Fireland Industries, Inc.), Lakeland Protective Wear, Inc.
(a Canadian corporation), Weifang Lakeland Safety Products Co. Ltd. (a Chinese
Corporation) and Lakeland de Mexico S.A. de C.V. (a Mexican corporation). All
significant intercompany accounts and transactions have been eliminated.
3. Revenue Recognition
- ----------------------
Revenue is recognized upon shipment of goods to customers.
4. Inventories
- --------------
Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out method.
5. Property and Equipment
- -------------------------
Property and equipment are stated at cost. Depreciation and amortization
are provided for in amounts sufficient to relate the cost of depreciable assets
to operations over their estimated service lives, on a straight-line basis.
Leasehold improvements and leasehold costs are amortized over the term of the
lease or service lives of the improvements, whichever is shorter. The costs of
additions and improvements which substantially extend the useful life of a
particular asset are capitalized. Repair and maintenance costs are charged to
expense.
6. Excess of Cost Over the Fair Value of Net Assets Acquired
- ------------------------------------------------------------
The excess of cost over the fair value of net assets acquired (goodwill) is
amortized on a straight-line basis over a 30-year period. On an ongoing basis,
management reviews the valuation and amortization of goodwill to determine
possible impairment by considering current operating results and comparing the
carrying value to the anticipated undiscounted future cash flows of the related
assets.
7. 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.
12
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000 and 1999
NOTE A(continued)
- -----------------
8. 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, 2001, 2000 and 1999 were 21,715, 19,499 and 48,750,
respectively, representing the dilutive effect of stock options. The diluted
earnings per share calculation takes into account the shares that may be issued
upon exercise of stock options, reduced by the shares that may be repurchased
with the funds received from the exercise, based on the average price during the
fiscal year. Options to purchase 5,000, 3,000 and 1,000 shares of the Company's
common stock have been excluded from the computation of diluted earnings per
share in 2001, 2000 and 1999, respectively, as their inclusion would have been
antidilutive.
9. 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 $334,000 and $476,000 at January 31, 2001 and 2000, respectively.
Supplemental cash flow information for the fiscal years ended January 31,
is as follows:
2001 2000 1999
---------- ---------- ------------
Interest paid $1,238,448 $ 783,664 $ 771,294
Income taxes paid 688,412 693,456 1,387,778
10. 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 its receivable credit risk
exposure is limited.
11. Foreign Operations and Foreign Currency Translation
- -------------------------------------------------------
The Company maintains manufacturing operations and uses independent
contractors in Mexico and the People's Republic of China. It also maintains a
sales and distribution entity located in Canada. The Company is vulnerable to
currency risks in these countries.
The monetary assets and liabilities of the Company's foreign operations are
translated into U.S. dollars at current exchange rates, while nonmonetary items
are translated at historical rates. Revenues and expenses are generally
translated at average exchange rates for the year. Transaction gains and losses
that arise from exchange rate fluctuations on transactions denominated in a
currency other than the functional currency are included in the results of
operations as incurred.
13
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000 and 1999
NOTE A(continued)
- -----------------
12. 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.
13. Reclassifications
- ---------------------
Certain prior year amounts have been reclassified to conform with the 2001
presentation.
NOTE B - INVENTORIES
- --------------------
Inventories consist of the following at January 31:
2001 2000
----------- -----------
Raw materials $ 4,088,498 $ 3,180,556
Work-in-process 6,467,779 5,538,608
Finished goods 12,153,806 13,748,231
----------- -----------
$22,710,083 $22,467,395
=========== ===========
NOTE C - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consist of the following at January 31:
Useful life
in years 2001 2000
----------- ----------- -----------
Machinery and equipment 3 - 10 $ 4,701,148 $ 3,993,315
Furniture and fixtures 3 - 10 261,737 255,790
Leasehold improvements Lease term 703,958 666,692
----------- -----------
5,666,843 4,915,797
Less accumulated depreciation and (3,688,773) (3,063,833)
amortization ----------- -----------
$ 1,978,070 $ 1,851,964
=========== ===========
NOTE D - FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------
The Company's principal financial instrument consists of its outstanding
revolving credit facility and term loan. The Company believes that the carrying
amount of such debt approximates the fair value as the variable interest rates
approximate the current prevailing interest rate.
14
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
January 31, 2001, 2000 and 1999
NOTE E - LONG-TERM DEBT
- -----------------------
Long-term debt consist of the following at January 31:
2001 2000
----------- -----------
Revolving credit facility $12,335,416 $11,069,681
Term loan 2,099,207 2,900,000
----------- -----------
14,434,623 13,969,681
Less current portion 12,935,416 11,669,681
----------- -----------
Long-term debt $ 1,499,207 $ 2,300,000
=========== ===========
During 1997, the Company entered into a $10,000,000 secured revolving
credit facility (the "credit facility") with a financial institution with an
initial expiration date of November 30, 1999. On May 1, 1998, the credit
facility was increased to $13,000,000. Effective September 23, 1998, the credit
facility was amended to provide for a temporary increase to $16,000,000 through
August 31, 1999. Amounts outstanding under the $3,000,000 temporary credit
facility were repaid on August 31, 1999. In November 1999, the $13,000,000
credit facility was renewed for one year, and a $3,000,000, five-year term loan
(the "term loan") was entered into, which replaced the repaid temporary credit
facility. In August 2000, the credit facility was increased to $14,000,000.
Borrowings under the credit facility bore interest at a rate per annum equal to
the one-month LIBOR or the 30-day commercial paper rate, as defined, plus 1.75%,
with interest payable monthly. At January 31, 2001, interest on outstanding
credit facility borrowings was based on the commercial paper rate option (7.3%
at January 31, 2001). On March 9, 2001, the Company extended its agreement to
October 31, 2001 and accelerated the term loan to expire in 24 months. In
addition, the interest rate on the credit facility was changed to LIBOR or the
30-day commercial paper rate, as defined, plus 2.3%. The term loan is payable in
monthly installments of $50,000, plus interest payable at the 30-day commercial
paper rate plus 2.45% (8.0% at January 31, 2001) through March 2001; beginning
April 2001, the monthly principal installments increase to $89,550. The credit
facility and term loan are collateralized by substantially all 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 maximum amounts borrowed under the credit facility during the fiscal
years ended January 31, 2001 and 2000 were $14,000,000 and $12,900,000,
respectively, and the average interest rates during the periods were 8.1% and
7.3%, respectively.
NOTE F - STOCKHOLDERS' EQUITY AND STOCK OPTIONS
- -----------------------------------------------
The Nonemployee Directors' Option Plan (the "Directors' Plan") provides for
an automatic one-time grant of options to purchase 5,000 shares of common stock
to each nonemployee director elected or appointed to the Board of Directors.
Under the Directors' Plan, 60,000 shares of common stock have been authorized
for issuance. Options are granted at not less than fair market value, become
exercisable commencing six months from the date of grant and expire six years
from the date of grant. In addition, all nonemployee directors re-elected to the
Company's Board of Directors at any annual meeting of the stockholders will
automatically be granted additional options to purchase 1,000 shares of common
stock on each of such dates. In April 1997, the Company extended the term on
5,000 expiring options for an additional six years.
The Company's 1986 Incentive and Nonstatutory Stock Option Plan (the
"Plan") provides for the granting of incentive stock options and nonstatutory
options. The Plan provides for the grant of options to key employees and
independent sales representatives to purchase up to 400,000 shares of the
Company's common stock, upon terms and conditions determined by a committee of
the Board of Directors, which administers the plan. Options are granted at not
less than fair market value (110 percent of fair market value as to incentive
stock options granted to ten percent
15
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
January 31, 2001, 2000 and 1999
NOTE F(continued)
- -----------------
stockholders) and are exercisable over a period not to exceed ten years (five
years as to incentive stock options granted to ten percent stockholders).
The Company has adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). The Company applies APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its plans and does not recognize compensation
expense for its stock-based compensation plans. If the Company had elected to
recognize compensation expense based upon the fair value at the date of grant
for awards under these plans, consistent with the methodology prescribed by SFAS
123, the effect on the Company's net income and earnings per share as reported
would be reduced for the years ended January 31, 2001 and 1999 to the pro forma
amounts indicated below:
2001 1999
---------- ----------
Net income
As reported $1,123,378 $2,080,085
Pro forma 1,116,338 2,073,495
Basic earnings per common share
As reported $.42 $.79
Pro forma .42 .79
Diluted earnings per common share
As reported $.42 $.77
Pro forma .42 .77
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, 2001 and 1999: expected volatility of 55% and 60%,
respectively; risk-free interest rate of 6.3% and 5.6%, respectively; expected
dividend yield of 0.0% for all periods; and expected life of six years for all
periods. No options were granted for the year ended January 31, 2000.
Additional information with respect to the Company's plans for the fiscal
years ended January 31, 2001, 2000 and 1999 is summarized as follows:
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
16
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000 and 1999
NOTE F(continued)
- -----------------
2000
----------------------------------------
Directors' Plan Plan
-------------------- -----------------
Weighted- Weighted-
Number average Number average
of exercise of exercise
shares price shares price
------ --------- ------ ---------
Shares under option
Outstanding at beginning of year 8,000 $4.81 52,500 $3.06
Outstanding and exercisable at
end of year 8,000 4.81 52,500 $3.06
Weighted-average remaining contract-
ual life of options outstanding 2.6 years 5 years
1999
----------------------------------------
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 10,000 $ 3.85 99,528 $2.77
Granted 1,000 10.75 -- --
Exercised (3,000) 3.58 (47,028) 2.47
------ -------
Outstanding and exercisable at
end of year 8,000 4.81 52,500 3.06
====== =======
Weighted-average remaining contract-
ual life of options outstanding 3.6 years 6 years
Weighted-average fair value per share
of options granted during 1999 $ 6.59 --
17
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000 and 1999
NOTE F(continued)
- -----------------
Summarized information about stock options outstanding under the two plans
at January 31, 2001 is as follows:
Options outstanding and exercisable
------------------------------------------------
Weighted-
Number average
Outstanding remaining Weighted-
at contractual average
Range of January life in exercise
exercise prices 31, 2001 years price
- --------------- ------------- ----------- ---------
$2.25 - $3.38 21,500 2.90 $ 2.39
3.39 - 5.94 38,000 4.45 3.71
10.75 1,000 3.50 10.75
------
$2.25 - $10.75 60,500 3.88 3.36
======
NOTE G - INCOME TAXES
- ---------------------
The provision for income taxes is summarized as follows:
Year ended January 31,
------------------------------------------
2001 2000 1999
-------- -------- ----------
Current
Federal $189,000 $756,000 $1,116,000
State 27,000 100,000 97,000
Foreign 106,000
-------- -------- ----------
322,000 856,000 1,213,000
Deferred 40,000 (95,000) (71,000)
-------- -------- ----------
$362,000 $761,000 $1,142,000
======== ======== ==========
The following is a reconciliation of the effective income tax rate to the
Federal statutory rate:
Year ended January 31,
-------------------------------
2001 2000 1999
------ ------ ------
Statutory rate 34.0% 34.0% 34.0%
State income taxes, net of Federal
tax benefit 1.2 2.7 2.0
Nondeductible expenses 1.1 .8 .3
Foreign operating results generating
no current tax provision (12.5) (2.4) (.6)
Change in deferred assets (3.8)
Other .6 (1.0) (.3)
------ ------ ------
Effective rate 24.4% 30.3% 35.4%
====== ====== ======
18
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000 and 1999
NOTE G(continued)
- ----------------
The tax effects of temporary differences which give rise to deferred tax
assets at January 31, 2001 and 2000 are summarized as follows:
January 31,
---------------------------
2001 2000
-------- ---------
Deferred tax assets
Inventories $391,000 $385,000
Net operating loss carryforward - foreign 29,000 89,000
subsidiary
Accounts receivable 84,000 76,000
Accrued compensation and other 120,000 111,000
-------- --------
Gross deferred tax assets 624,000 661,000
-------- --------
Deferred tax liabilities
Depreciation 58,000 55,000
-------- --------
Gross deferred tax liabilities 58,000 55,000
-------- --------
Net deferred tax asset $566,000 $606,000
======== ========
Net operating loss carryforwards of $83,000 applicable to its foreign
subsidiary in Canada expire in fiscal 2003 through 2007.
NOTE H - BENEFIT PLANS
- ----------------------
Defined Benefit Plan
The Company has a frozen defined benefit pension plan that covers former
employees of an acquired entity. The Company's funding policy is to contribute
annually the recommended amount based on computations made by its consulting
actuary.
The following table sets forth the plan's funded status for the fiscal
years ended January 31:
2001 2000
--------- ---------
Change in benefit obligation
- ----------------------------
Projected benefit obligation at
beginning of year $ 961,492 $ 960,634
Service cost 1,613
Interest cost 70,546 70,579
Actuarial (gain)loss 874 (32,185)
Benefits paid (41,750) (39,149)
--------- ---------
Projected benefit obligation at end
of year $ 991,162 $ 961,492
========= =========
Change in plan assets
- ---------------------
Fair value of plan assets at beginning
of year $ 502,849 $ 445,872
Actual return on plan assets 46,194 87,626
Employer contributions 1,600 8,500
Benefits paid (41,750) (39,149)
--------- ---------
Fair value of plan assets at end of year $ 508,893 $ 502,849
========= =========
Funded status
- -------------
Pension liability $(482,269) $(458,643)
========= =========
19
Lakeland Industries, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000 and 1999
NOTE H(continued)
- -----------------
The components of net periodic pension cost for the fiscal years ended
January 31 are summarized as follows:
2001 2000 1999
-------- --------- ---------
Service cost $ 1,613 $ 1,613
Interest cost $ 70,546 70,579 67,649
Actual return on plan assets (46,194) (87,626) 1,779
Net amortization and deferral 17,451 62,896 (39,469)
-------- --------- ---------
Net periodic pension cost $ 41,803 $ 47,462 $ 31,572
======== ========= =========
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, 2001, approximately 59% of the plan's assets was held in mutual
funds invested primarily in equity securities, 29% was invested in equity
securities and debt instruments and 12% was invested in money market and other
instruments.
Defined Contribution Plan
Pursuant to the terms of the Company's 401(k) plan, substantially all U.S.
employees over 21 years of age with a minimum period of service are eligible to
participate. The 401(k) plan is administered by the Company and provides for
voluntary employee contributions ranging from 1% to 15% of the employee's
compensation. The Company made discretionary contributions of $83,947, $57,642
and $55,332 in the fiscal years ended January 31, 2001, 2000 and 1999,
respectively.
NOTE I - MAJOR SUPPLIER
- -----------------------
The Company purchased approximately 77% and 74% of its raw materials from
one supplier under licensing agreements for the year ended January 31, 2001 and
years ended January 31, 2000 and 1999, 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.
NOTE J - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
1. Employment Contracts
The Company has employment contracts with four principal officers expiring
through January 2003. Such contracts are automatically renewable for two-year
terms unless 30 to 120 days' notice is given by either party. Pursuant to such
contracts, the Company is committed to aggregate annual base remuneration of
$747,500 and $350,000 for the fiscal years ended January 31, 2002 and 2003,
respectively.
2. Leases
The Company leases the majority of its premises under various operating
leases expiring through fiscal 2005. The leases for the manufacturing facilities
(located in Decatur, Alabama) are with two partnerships whose partners are
principal officers and stockholders of the Company. One lease expires on August
31, 2004 and requires annual payments of approximately $365,000 plus certain
operating expenses and the second lease expires on May 31, 2004 and requires
annual payments of $199,104 plus certain operating expenses. The Company also
leases one customer service facility pursuant to a one-year lease (renewable at
the Company's option for four 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.
20
Lakeland Industries, Inc.
andSubsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000 and 1999
NOTE J (continued)
- -----------------
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 four employees
hold partnership interests. This related party leasing arrangement requires
monthly payments of approximately $4,081.
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,
2001 $817,366 $ 2,144 $582,004
2000 808,852 10,578 545,136
1999 643,174 4,611 402,096
Minimum annual rental commitments for the remaining term of the Company's
noncancellable operating leases relating to manufacturing facilities, office
space and equipment rentals at January 31, 2001 are summarized as follows:
Year ending January 31,
2002 $ 791,869
2003 650,464
2004 624,711
2005 300,311
----------
$2,367,355
==========
Certain leases require additional payments based upon increases in property
taxes and other expenses.
3. Services Agreement
Pursuant to the terms of a services agreement with an affiliated entity,
principally owned by a principal officer and stockholder of the Company, the
affiliate provided professional and/or skilled labor to the Company, as needed,
at contractual rates of compensation. Such agreement was cancelable by either
the Company or the affiliate upon thirty-days' written notice. Costs incurred by
the Company in connection with such agreement aggregated $509,000 for the fiscal
year ended January 31, 1999. This agreement was terminated as of February 1,
1999.
4. Litigation
The Company is involved in various litigation arising during the normal
course of business which, in the opinion of the management of the Company, will
not have a material adverse effect on the 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.
21
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
Directors:
- ---------
Raymond J. Smith, Chairman
Christopher J. Ryan
John J. Collins, Jr.
Eric O. Hallman
Walter J. Raleigh
Officers:
- --------
Raymond J. Smith, President
Christopher J. Ryan
Executive Vice President, Secretary and
General Counsel
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
Transfer Agent:
- --------------
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
NASDAQ symbol: LAKE
Executive Offices:
- -----------------
711-2 Koehler Ave.
Ronkonkoma, NY 11779
(631) 981-9700
Subsidiaries:
- ------------
Lakeland Protective Wear, Inc.
Lakeland de Mexico S.A. de C.V.
Laidlaw, Adams & Peck, Inc.
Weifang Lakeland Safety Products,
Co. Ltd.
Exhibits to Lakeland Industries, Inc.'s fiscal 2001 Form 10 - K are
available to shareholders for a fee equal to Lakeland's cost in furnishing such
exhibits, on written request to the Secretary, Lakeland Industries, Inc., 711-2
Koehler Avenue, Ronkonkoma, New York 11779.
ThermbarTM, Kut BusterTM, Grapolator Mock TwistTM, Safeguard "76"TM, Body
GuardTM,, Zone GuardTM, RyTexTM, TomTexTM, DextraGardTM, ForcefieldTM,
InterceptorTM, CheckmateTM, HeatexTM, PyrolonTM, Sterling HeightsTM, FyrepelTM,
HighlandTM, ChemlandTM and UnilandTM are trademarks of Lakeland Industries, Inc.
TyvekTM, VitonTM, BarricadeTM, NomexTM, Kevlar TM, DelrinTM, TyChemTM and
TeflonTM are registered trademarks of E.I.DuPont de Nemours and Company.
SaranexTM is a registered trademark of Dow Chemical. SpectraTM is a registered
trademark of Allied Signal, Inc.
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