UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
one)
|
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
fiscal year ended January 31,
2007
OR
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
transition period from _____________ to ______________
Commission
File Number: 0 – 15535
LAKELAND
INDUSTRIES, INC.
(Exact
Name of Registrant as Specified in its Charter)
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Delaware
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13-3115216
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|
(State
or Other Jurisdiction of Incorporation or
Organization)
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(I.R.S.
Employer Identification No.)
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701
Koehler Ave., Suite 7, Ronkonkoma, NY
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11779
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|
(Address
of Principal Executive Offices)
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(Zip
Code)
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(Registrant's
telephone number, including area code) (631) 981-9700
Securities
registered pursuant to Section 12 (b) of the Act:
Common
Stock $0.01 Par Value
(Title
of Class)
Name
of Exchange on which listed - NASDAQ
Securities
registered pursuant to Section 12(g) of the Act:
Not
Applicable
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yeso No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes
o No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes
x No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this Chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. Yesx Noo
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated file, or a non- accelerated filer (as defined in Rule 12-b-2 of
the
Exchange Act).
Large
accelerated filer
Accelerated
Filer ý Non-Accelerated
Filer
Indicate
by check mark whether the
registrant is a shell company (as defined in Rule 12-b-2 of the Exchange
Act). Yeso No
x
As
of
July 31, 2006, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was $57,041,653 based on the closing price
of the common stock as reported on the National Association of Securities
Dealers Automated Quotation System National Market System.
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
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Class
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Outstanding
at April 12, 2007
|
|
|
Common
Stock, $0.01 par value per share
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5,521,824
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DOCUMENTS
INCORPORATED BY REFERENCE
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Document
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Parts
Into Which Incorporated
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Annual
Report to Stockholders for the Fiscal Year
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Parts [I,
II, and IV]
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Ended
January 31, 2007 (Annual Report)
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Portions
of the proxy statement for the annual meeting of stockholders to be held on
June
20, 2007, are incorporated by reference into Part III.
2
LAKELAND
INDUSTRIES, INC.
INDEX
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Signatures
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73
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Certification
under Exchange Act Rules 13a – 14(b) and 15d- 14(b)
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74
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This
Annual Report on Form 10-K
contains forward-looking statements that are made pursuant to the Safe Harbor
provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements involve risks, uncertainties and
assumptions as described from time to time in registration statements, annual
reports and other periodic reports and filings of the Company
filed with the Securities and Exchange Commission. All statements,
other than statements of historical facts, which address the Company’s
expectations of sources of capital or which express the Company’s expectation
for the future with respect to financial performance or operating strategies,
can be identified as forward-looking statements. As a result, there
can be no assurance that the Company’s future results will not be materially
different from those described herein as “believed,” “anticipated,” “estimated”
or “expected,” “may,” “will” or “should,” or other similar
words which reflect the current views of the Company with respect to
future events. We caution readers that these forward-looking
statements speak only as of the date hereof. The Company hereby
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any such statements to reflect any change in the
Company’s expectations or any change in events, conditions or circumstances on
which such statement is based.
PART
I
Lakeland
Industries, Inc. (the “Company” or “Lakeland,” “we,” “our,” or “us”) was
incorporated in the State of Delaware in 1986. Our executive offices
are located at 701 Koehler Avenue, Suite 7, Ronkonkoma, New York 11779, and
our
telephone number is (631) 981-9700. Our web site is located at
www.lakeland.com. Information contained on our web site is not part
of this report.
ITEM
1. BUSINESS
Overview
We
manufacture and sell a comprehensive line of safety garments and accessories
for
the industrial protective clothing market. Our products are sold by our in-house
customer service group our regional sales managers and independent sales
representatives to a network of over 800 safety and mill supply distributors.
These distributors in turn supply end user industrial customers such as
chemical/petrochemical, automobile, steel, glass, construction, smelting,
munition plants, janitorial, pharmaceutical and high technology electronics
manufacturers, as well as hospitals and laboratories. In addition, we supply
federal, state and local governmental agencies and departments such as fire
and
police departments, airport crash rescue units, the Department of Defense,
the
Department of Homeland Security, and the Centers for Disease Control. In fiscal
2007, we had net sales of $100.2 million which represent a growth rate of 1.4%
over our previous fiscal year. Our net sales attributable to customers outside
the United States were $9.0 million, $10.3 million and $12.4 million, in fiscal
2005, fiscal 2006 and fiscal 2007, respectively.
Our
major
product categories and their applications are described below:
Limited
Use/Disposable Protective Clothing. We manufacture a complete
line of limited use/disposable protective garments offered in coveralls, lab
coats, shirts, pants, hoods, aprons, sleeves and smocks. These garments are
made
from several non-woven fabrics, primarily Tyvek® and
Tychem® (both DuPont manufactured fabrics) and also our proprietary
fabrics Micromax and Micromax NS manufactured pursuant to customer order. These
garments provide protection from low-risk contaminants or irritants, such as
chemicals, pesticides, fertilizers, paint, grease and dust, and from limited
exposure to hazardous waste and toxic chemicals, including acids, asbestos,
lead
and hydro-carbons (or PCBs) that pose health risks after exposure for long
periods of time. Additional applications include protection from viruses and
bacteria, such as AIDS, streptococcus, SARS and hepatitis, at hospitals, clinics
and emergency rescue sites and use in clean room environments to prevent human
contamination in the manufacturing processes. This is our largest product
line.
High-End
Chemical Protective Suits. We manufacture heavy duty chemical
suits made from TyChem® SL, TK
and BR, and
F, which are DuPont patented fabrics and Pyrolon CRFR. These suits are worn
by
individuals on hazardous material teams to provide protection from powerful,
highly concentrated and hazardous or potentially lethal chemical and biological
toxins, such as toxic wastes at Super Fund sites, toxic chemical spills or
biological discharges, chemical or biological warfare weapons (such as saran
gas, anthrax or ricin), and chemicals and petro-chemicals present during the
cleaning of refineries and nuclear facilities. These suits can be used in
conjunction with a fire protective shell that we manufacture to protect the
user
from both chemical and flash fire hazards. Homeland Security measures and
government funding of personal protective equipment for first responders to
terrorist threats
or
attack
have since September 11, 2001 resulted in increased demand for our high-end
chemical suits and we believe demand for these suits will continue in the future
as state and local Bioterrorism grants are spent.
Fire
Fighting and Heat Protective Apparel. We manufacture an
extensive line of fire fighting and heat protective apparel for use by fire
fighters and other individuals that work in extreme heat environments. Our
branded fire fighting apparel Fyrepel™ is sold
to local
municipalities and industrial fire fighting teams. Our heat protective
aluminized fire suits are manufactured from Nomex®, a fire
and heat
resistant material, and Kevlar®, a cut
and heat
resistant, high-strength, lightweight, flexible and durable material both
produced by DuPont. This apparel is also used for maintenance of extreme high
temperature equipment, such as coke ovens, kilns, glass furnaces, refinery
installations and smelting plants, as well as for military and airport crash
and
rescue teams.
Gloves
and Arm Guards. We manufacture gloves and arm guards from
Kevlar®,
Spectra®, and
Dyneema cut resistant fibers made by DuPont , Honeywell and DSM Corp.
respectively as well as engineered composite yarns with Microgard antimicrobial
for food service markets. Our gloves are used primarily in the automotive,
glass, metal fabrication and food service industries to protect the wearer’s
hand and arms from lacerations and heat without sacrificing manual dexterity
or
comfort.
Reusable
Woven
Garments. We
manufacture a line of reusable and washable woven garments that complement
our
fire fighting and heat protective apparel offerings and provide alternatives
to
our limited use/disposable protective clothing lines. Product lines include
electrostatic dissipative apparel used in the automotive industry for control
of
static electricity in the manufacturing process, clean room apparel to prevent
human contamination in the manufacturing processes, and flame resistant
Nomex®
and FR cotton coveralls used in
chemical and petroleum plants and for wildland fire fighting and extrication
suits for police and ambulance workers.
High
Visibility Clothing. In August 2005, we acquired the assets of Mifflin
Valley, Inc. of Shillington, PA. Mifflin is a manufacturer of
protective clothing specializing in safety and visibility, largely for the
Emergency Services market, but also for the entire public safety and traffic
control market. Mifflin’s high visibility products include flame
retardant and reflective garments for the Fire Industry, Nomex clothing for
utilities, and high visibility reflective outerwear for industrial uniforms
and
Departments of Transportation. Mifflin products are our strategic fit
for our Woven and Fire Lines of garments and we expect higher than normal sales
growth out of this subsidiary as our existing sales force starts promoting
this
new line.
We
believe we are one of the largest independent customers of DuPont’s Tyvek® and TyChem®
apparel grade
fabrics. We purchase Tyvek® and TyChem® under
North American Trademark licensing agreements and other DuPont materials, such
as Kevlar®,
under international Trademark licensing agreements. While we have operated
under
these trademark agreements since 1995, we have been a significant customer
of
these DuPont materials since 1982. The trademark agreements require certain
quality standards as a prerequisite for the use of DuPont trademarks and
tradenames on the finished product manufactured by us. We believe this brand
identification with DuPont and Tyvek® significantly
benefits the marketing of our largest product line, as over the past 30 years
Tyvek® has
become known as the standard for limited use/disposable protective clothing.
We
believe our relationship with DuPont to be excellent.
We
maintain manufacturing facilities in Decatur, Alabama; Celaya, Mexico; AnQui
City, China; Jiaozhou, China; New Delhi, India, Shillington, PA, and St. Joseph,
Missouri, where our products are designed, manufactured and sold. We also have
a
relationship with a sewing subcontractor in Mexico, which we can utilize for
unexpected production surges. Our China, Mexico, and India facilities allow
us
to take advantage of favorable labor and component costs, thereby increasing
our
profit margins on products manufactured in these facilities. Our China and
Mexico facilities are designed for the manufacture of limited use/disposable
protective clothing as well as our high-end chemical protective suits. We have
significantly improved our profit margins in these product lines by shifting
production to our international facilities and we continue to expand our
international manufacturing capabilities to include our gloves and reusable
woven protective apparel product lines.
Industry
Overview
The
industrial work clothing market includes our limited use/disposable protective
or safety clothing, our high-end chemical protective suits, our fire fighting
and heat protective apparel and our reusable woven garments.
The
industrial protective safety clothing market in the United States has evolved
over the past 35 years as a result of governmental regulations and requirements
and commercial product development. In 1970, Congress enacted the Occupational
Safety and Health Act, or OSHA, which requires employers to supply protective
clothing in certain work environments. Almost two million workers are
subject to OSHA standards today. Certain states have also
enacted
worker safety laws that supplement OSHA standards and requirements.
The
advent of OSHA coincided with DuPont’s development of Tyvek® which,
for the
first time, allowed for the economical production of lightweight, disposable
protective clothing. The attraction of disposable garments grew in the late
1970s as a result of increases in labor and material costs of producing cloth
garments and the promulgation of federal, state and local safety
regulations.
In
1990,
additional standards proposed and developed by the National Fire Protection
Association and the American Society for Testing and Materials were adopted
by
OSHA. These standards identify four levels of protection, A through D, and
specify the equipment and clothing required to adequately protect the wearer
at
each level:
|
·
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Level
A requires total encapsulation in a vapor proof chemical
suit
with “self contained breathing apparatus”, or SCBA, and appropriate
accessories.
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|
·
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Level
B calls for SCBA or a positive pressure supplied respirator
with
escape SCBA, plus hooded chemical resistant clothing (coveralls),
one or
two piece chemical splash suit, or disposable chemical resistant
coveralls.
|
|
·
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Level
C requires hooded chemical resistant clothing, such as coveralls,
two piece chemical splash suit, or disposable chemical resistant
coveralls.
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|
·
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Level
D involves work and/or training situations that require minimal
coverall protection.
|
In
response to the terrorist attacks that took place on September 11, 2001, the
federal government has provided for additional protective equipment funding
through programs that are part of the Homeland Security initiative. The Fire
Act
of 2002 created the federal Assistance to Firefighters Grant Program, or AFGP,
to provide funds directly to local fire districts to help improve their
readiness and capability to respond to terrorist attacks. Funds are
allocated under AFGP to the following areas: fire operations/firefighter safety;
fire prevention; emergency medical services; and firefighting vehicle
acquisition. AFGP has provided more than $3.345 billion in funding through
2006,
with approximately $750 million appropriated for 2003, $750 million in 2004,
$650 million more in 2005 and $648 million in 2006 and $547 million for 2007.
The Bio Terrorism Preparedness and Response Act of 2002, which we refer to
as
the Bio Terrorism Act, appropriated $3.643 billion for Bioterrorism Preparedness
and $1.641 billion for grants to improve state, local and hospital preparedness
for and response to Bioterrorism and other public health emergencies between
2002 and 2006. Hospital Preparedness is where we expect to see future
garment sales. The 2006 appropriations bill provided $550 million for
Hospital Preparedness. The $514.6 million of bioterrorism hospital
preparedness monies appropriated in 2005 are expected to be disbursed in 2006
and 2007, and the funding for 2006 should be disbursed in 2007 and
2008.
Since
2001, federal and state purchasing of industrial protective clothing and federal
grants to fire departments have increased demand for industrial protective
clothing to protect first responders against actual or threatened terrorist
incidents. Specific events such as the anthrax letters incidents in 2001, the
2002 U.S. Winter Olympics, the SARS epidemic in 2003 and the ricin letter
incidents in 2004 have also resulted in increased peak demand for our
products.
Industry
Consolidation
The
industrial protective clothing industry is highly fragmented and consists of
a
large number of small, closely-held family businesses. DuPont, Lakeland and
Kimberly Clark are the dominant disposable industrial protective apparel
manufacturers. Since 1997, the markets for manufacturing and distribution have
consolidated. A number of large distributors with access to capital have
acquired smaller distributors. The acquisitions include Vallen Corporation’s
acquisitions of Safety Centers, Inc., All Supplies, Inc., Shepco Manufacturing
Co., and Century Safety (Canada) and Hagemeyer’s acquisition of Vallen
Corporation; W.W. Grainger’s acquisitions of Allied Safety, Inc., Lab Safety
Supply, Inc., Acklands Limited, Gempler’s safety supply division and Ben
Meadows, Inc.; Air Gas’ acquisitions of Rutland Tool & Supply Co., Inc.,
IPCO Safety Supply, Inc., Lyon Safety, Inc., Safety Supply, Inc., Safety West,
Inc. and Delta Safety Supply, Inc.; and Fisher Scientifics’ acquisitions of
Safety Services of America, Cole-Parner, Retsch and Emergo. Thermo Electron
recently merged with Fisher Scientific.
As
these
safety distributors consolidate and grow, we believe they are looking to reduce
the number of safety manufacturing vendors they deal with and support, while
at
the same time shifting the burden of end user selling to
the
manufacturer. This creates a significant capital availability issue for small
safety manufacturers as end user selling is more expensive, per sales dollar,
than selling to safety distributors. As a result, the manufacturing sector
in
this industry is seeing follow-on consolidation. DuPont has acquired Marmac
Manufacturing, Inc., Kappler, Inc., Cellucup, Melco, Mfg., and Regal
Manufacturing since 1998, while in the related safety product industries
Norcross Safety Products L.L.C. has acquired Morning Pride, Ranger-Servus,
Salisbury, North and Pro Warrington and Christian Dalloz has acquired
Bacou, USA which itself acquired Uvex Safety, Inc., Survivair, Howard Leight,
Perfect Fit, Biosystems, Fenzy, Titmus, Optrel, OxBridge and Delta
Protection.
We
believe a larger industrial protective clothing manufacturer has competitive
advantages over a smaller competitor including:
|
·
|
economies
of scale when selling to end users, either through the use of a direct
sales force or independent representation
groups;
|
|
·
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broader
product offerings that facilitate cross-selling
opportunities;
|
|
·
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the
ability to employ dedicated protective apparel training and selling
teams;
|
|
·
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the
ability to offer volume and growth incentives to safety distributors;
and
|
|
·
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access
to international sales.
|
We
believe we have a substantial opportunity to pursue acquisitions in the
industrial protective clothing industry, particularly because many smaller
manufacturers share customers with us.
Business
Strategy
Key
elements of our strategy include:
|
·
|
Dealing
with Price Increases in Raw Materials. One major supplier,
DuPont, increased the price of Tyvek® fabrics by 3.7% in
January, 2005, by 4 to 6% in June 2005 and by 4.9% in November
2005. However, in June of 2005 DuPont also published new
garment price increases of 4% to 6%, depending on style, and again
increased garment prices in November 2005 by approximately
6%. These increases were mostly predicated upon increases in
oil and natural gas which are prime components in the manufacturing
of
Tyvek®. We reacted to such increases by increasing
our inventories of Tyvek® roll goods prior to such announced
increases. Additionally, we have negotiated discounts or
rebates with many suppliers of roll goods based upon volume
purchases. Nonetheless, Tyvek® garment pricing to
prime volume accounts was very competitive in all of fiscal
2007. In order to offset any negative effect of these prices
increases we are continuing the operating cost reduction program
already
in effect and have initiated new measures. We will continue to meet
competitive pricing conditions to maintain or increase market shares
and
such actions may reduce our margins in the
future
|
For
example:
|
|
1.
|
We
continue to press our raw material and component suppliers for price
reductions and better payment
terms.
|
|
|
2.
|
We
are sourcing more raw materials and components from our China based
operations as opposed to sourcing in Europe and North
America.
|
|
|
3.
|
We
are re-engineering many products so as to reduce the amount of raw
materials used and reduce the direct labor in such
products.
|
Subsequent
to January 31, 2007, we have seen a strong competitive push in the marketplace
for disposable protective clothing, with a large competitor offering an
aggressive rebate program. We are meeting competitive offers by increasing
our supply and logistic efficiencies. We expect to lose a modest amount of
our volume in this area with only a moderate net effect on our ultimate
margins.
|
·
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Increase
International Sales Opportunities. We also intend to
increase our penetration of the International markets for our product
lines. We have recently opened new sales offices in Beijing,
China; Tokyo, Japan; and
|
Santiago,
Chile: Our sales in our older United Kingdom operations grew by 46.6% in fiscal
2007 and 55.9% in 2006. We expect our newer operations in Chile, China, India
and Japan to ramp up sales on a similar basis to our UK operations.
|
·
|
Introduction
of New Products. We continue our history of product development and
innovation by introducing new proprietary products across all our
product
lines. Our innovations have included Micromax®
disposable
protective clothing line, our Despro™
patented
glove design, Microgard antimicrobial products for food service and
our
engineered composite glove products for high cut and abrasion, our
Thermbar glove and sleeve products for heat protection, Grapolator™
sleeve lines
for hand and arm cut protection and our Thermbar™
Mock Twist
glove for hand and arm heat protection. We own 20 patents on fabrics
and
production machinery and have 11 additional patents in application.
We
will continue to dedicate resources to research and
development.
|
|
·
|
Improve
Marketing in Existing Markets. We believe significant
growth opportunities are available to us through the better positioning,
marketing and enhanced cross-selling of our reusable woven protective
clothing, glove and arm guards and high-end chemical suit product
lines,
along with our limited use/disposable lines as a bundled
offering. This allows our customers one stop shopping using
combined freight shipments.
|
|
·
|
Decrease
Manufacturing Expenses by Moving Production to International
Facilities. We have additional opportunities to take advantage of our
low cost production capabilities in Mexico and China. Beginning in
1995,
we successfully moved the labor intensive sewing operation for our
limited
use/disposable protective clothing lines to these facilities. Beginning
January 1, 2005, pursuant to the United States World Trade Organization
Treaty with China, the reduction in quota requirements and tariffs
imposed
by the U.S. and Canada on textiles goods, such as our reusable woven
garments, have made it more cost effective to move production for
some of
these product lines to our assembly facilities in China. We are two
thirds
through this process and expect to complete this process by the third
quarter of fiscal 2008. As a result, we expect to see profit margin
improvements for these product lines, which will allow us to compete
more
effectively as quota restrictions are removed and tariffs
lowered.
|
|
·
|
Acquisitions.
We believe that the protective clothing market is fragmented and
presents
the opportunity to acquire businesses that offer comparable products
or
specialty products that we do not offer. We intend to consider
acquisitions that afford us economies of scale, enhanced opportunity
for
cross-selling, expanded product offerings and an increased market
presence. We acquired a facility in New Delhi, India in November
2006
where we are producing Nitrile, Latex and Neoprene Gloves. We
also acquired Mifflin Valley, Inc., a manufacturer of high visibility
protective clothing in August 2005.
|
|
·
|
Increase
Sales to the First Responder Market. Our high-end chemical protective
suits meet all of the regulatory standards and requirements and are
particularly well qualified to provide protection to first responders
to
chemical or biological attacks. For example, our products have been
used
for response to recent threats such as the 2001 anthrax letters,
the 2003
SARS epidemic and the 2004 ricin letters. A portion of appropriations
for
the Fire Act of 2002 and the Bio Terrorism Act of 2002 are available
for
purchase of products for first responders that we manufacture, and
we are
aggressively targeting this Homeland Security
market.
|
|
·
|
Emphasize
Customer Service. We continue to offer a high level of customer
service to distinguish our products and to create customer loyalty.
We
offer well-trained and experienced sales and support personnel, on-time
delivery and accommodation of custom and rush orders. We also seek
to
advertise our brand names.
|
Our
Competitive Strengths
Our
competitive strengths include:
|
·
|
Industry
Reputation. We devote significant resources to creating customer
loyalty by accommodating custom and rush orders and focusing on on-time
delivery. Additionally, our ISO 9001 certified facilities manufacture
high-quality products. As a result of these factors, we believe that
we
have an excellent reputation in the
industry.
|
|
·
|
Long-standing
Relationship with DuPont. We believe we are the largest independent
customer for DuPont’s Tyvek®
and
TyChem®
material for use in the industrial protective clothing market. Our
trademark agreements with DuPont for Tyvek®,
TyChem®
and
Kevlar®
require strict quality standards as a prerequisite for using the
DuPont
trademarks and tradenames on the finished product. We believe this
brand
identification with DuPont significantly benefits the marketing of
our
product lines, as over the past 30 years Tyvek®
has become
known as the standard for limited use/disposable protective clothing.
We
believe our relationship with DuPont to be
excellent.
|
|
·
|
International
Manufacturing Capabilities. We have operated our own manufacturing
facilities in Mexico since 1995 and in China since 1996. Our three
facilities in China total over 160,000 sq. ft. of manufacturing,
warehousing and administrative space while our facility in Mexico
totals
over 25,000 sq. ft. of manufacturing, warehousing and administrative
space. Our facilities and capabilities in China and Mexico allow
access to
a less expensive labor pool than is available in the United States
and
permits us to purchase certain raw materials at a lower cost than
they are
available domestically.
|
|
·
|
India. In
November 2006 we purchased three facilities comprising 58,945 square
feet in New Delhi, India where we are producing nitrile, latex
and neoprene gloves which are being sold in Europe and South America
presently. We intend to enter the North American market in
summer 2007 with a newly designed line of
gloves.
|
|
·
|
International
Sales Offices. We have sales offices around the world to
service various major markets, Toronto, Canada for Canada, Newport,
United
Kingdom for the European Common Market, Beijing, China for China
and
Southeast Asia, Tokyo, Japan for Japan and Santiago, Chile and Jerez,
Mexico for the South American
market.
|
|
·
|
Comprehensive
Inventory. We have a large product offering with numerous
specifications, such as size, styles and pockets, and maintain a
large
inventory of each in order to satisfy customer orders in a timely
manner.
Many of our customers traditionally make purchases of industrial
protective gear with expectations of immediate delivery. We believe
our
ability to provide timely service for these customers enhances our
reputation in the industry and positions us strongly for repeat business,
particularly in our limited use/disposable protective clothing
lines.
|
|
·
|
Manufacturing
Flexibility. By locating labor-intensive manufacturing processes such
as sewing in Mexico and China, and by utilizing sewing sub-contractors,
we
have the ability to increase production without substantial additional
capital expenditures. Our manufacturing systems allow us flexibility
for
unexpected production surges and alternative capacity in the event
any of
our independent contractors become
unavailable.
|
|
·
|
Experienced
Management Team. We have an experienced management team. Our
executive officers other than the CFO average greater than 21 years
of
experience in the industrial protective clothing market. The knowledge,
relationships and reputation of our management team helps us maintain
and
build our customer base.
|
|
|
Products
|
The
following table summarizes our principal product lines, the raw materials used
to manufacture them, their applications and end markets:
|
Product
Line
|
Raw
Material
|
Protection
Against
|
End
Market
|
|
Limited
use/disposable protective clothing
|
·
Tyvek®
and laminates
of Polyethylene, Spunlaced Polyester, SMS, Polypropylene, and Company
Micromax, Micromax NS, Pyrolon®,
and other
non-woven fabrics
|
·
Contaminants, irritants, metals, chemicals, fertilizers,
pesticides, acids, asbestos, PCBs, lead, dioxin and many other hazardous
chemicals
·
Viruses and bacteria (AIDS, streptococcus, SARS and
hepatitis)
|
·
Chemical/petrochemical industries
·
Automotive and pharmaceutical industries
·
Public utilities
·
Government (terrorist response)
·
Janitorial
·
Medical Facilities
|
|
High-end
chemical protective suits
|
·
TyChemâQC
·
TyChem®
SL
·
TyChem®
TK
·
TyChem®
F
·
TyChem®
BR
·
Pyrolon CRFR
·
Other Lakeland patented co-polymer laminates
|
·
Chemical spills
·
Toxic chemicals used in manufacturing processes
·
Terrorist attacks, biological and chemical warfare (anthrax,
ricin
and sarin)
|
·
Hazardous material teams
·
Chemical and nuclear industries
·
Fire departments
·
Government (first responders)
|
|
Fire
fighting and heat protective apparel
|
·
Nomex®
·
Aluminized Nomex®
·
Aluminized Kevlar®
·
PBI Matrix
·
Millenia®
·
Basofil®
·
Advance
· Indura®
Ultrasoft
|
·
Fire, burns and excessive heat
|
·
Municipal, corporate and volunteer fire departments
·
Wildland fire fighting
·
Hot equipment maintenance personnel and industrial fire
departments
·
Oil well fires
·
Airport crash rescue
|
|
Gloves
and arm guards (1)
|
·
Kevlar®
yarns
·
Kevlar®
wrapped steel
core yarns
·
Dyneema yarns
·
Spectra®
yarns
|
·
Cuts, lacerations, heat and chemical irritants
|
·
Automotive, glass and metal fabrication industries
·
Chemical plants
·
Food Processing
|
|
Reusable
woven garments
|
·
Staticsorb carbon thread with polyester
·
Cotton polyester blends
·
Cotton
·
Polyester
·
Nomex®/FR
Cottons
|
·
Protects manufactured products from human contamination or
static
electrical charge
·
Bacteria, viruses and blood borne pathogens
·
Protection from flash fires
|
·
Hospital and industrial facilities
·
Clean room environments
·
Emergency medical ambulance services
·
Chemical and refining
|
(2)
Industrial grade Nitrile, Latex, Neoprene, Buytl and other combinations thereof
will be added to our product line in the Summer of 2007 resulting from the
acquisition of an Indian glove facility. These industrial gloves are
used to protect workers from hazardous chemicals and will complement our line
of
cut resistant Kevlar, Dyneema and Spectra string knit gloves.
_______________________
Limited
Use/Disposable Protective Clothing
We
manufacture a complete line of limited use/disposable protective garments,
including coveralls, laboratory coats, shirts, pants, hoods, aprons, sleeves,
arm guards, caps, and smocks. Limited use garments can also be coated or
laminated to increase splash protection against harmful inorganic acids, bases
and other liquid chemicals. Limited use garments are made from several non-woven
fabrics, including Tyvek® and
TyChem® QC (both DuPont fabrics) and our own trademarked fabrics such
as Pyrolon®
Plus 2, XT, CRFR, Micromax®, Micromax
NS,
Safegard “76”®,
Zonegard®, RyTex® and TomTex®,
which are made of
spunlaced polyester, polypropylene and polyethylene materials, laminates, films
and derivatives. We incorporate many seaming and taping techniques depending
on
the level of protection needed in the end use application.
Typical
users of these garments include chemical plants, petrochemical refineries and
related installations, automotive manufacturers, pharmaceutical companies,
construction companies, coal and oil power generation utilities and telephone
utility companies. Numerous smaller industries use these garments for specific
safety applications unique to their businesses. Additional
applications include protection from viruses and bacteria, such as AIDS,
streptococcus, SARS and hepatitis, at hospitals, clinics and emergency rescue
sites and use in clean room environments to prevent human contamination in
the
manufacturing processes.
Our
limited use/disposable protective clothing products range in unit price from
$.04 for shoe covers to approximately $14.00 for a TyChem® QC laminated
hood
and booted coverall. Our largest selling item, a standard white Tyvek® coverall,
sells for
approximately $2.50 to $3.75 per garment. By comparison, similar reusable cloth
coveralls range in price from $30.00 to $60.00, exclusive of laundering,
maintenance and shrinkage expenses.
We
cut,
warehouse and sell our limited use/disposable garments primarily at our Decatur,
Alabama and China facilities and warehouses in Las Vegas, NV and Shillington,
PA. The fabric is cut into required patterns at our Decatur plant and shipped
to
our Mexico facility for assembly. Our assembly facilities in China or Mexico
and
independent contractors sew and package the finished garments and return them
primarily to our Decatur, Alabama plant, normally within one to eight weeks,
for
immediate shipment to the customer.
We
presently utilize one independent domestic sewing contractor and one
international contractor under agreements that are terminable at will by either
party. In fiscal 2007, no independent sewing contractor accounted for more
than
5% of our production of limited use/disposable garments. We believe that we
can
obtain adequate alternative production capacity should any of our independent
contractors become unavailable.
The
capacity of our facilities, complemented by the availability of existing and
other available independent sewing contractors, allow us to reduce by 5%, or
alternately increase by 10%, our production capacity without incurring large
on
going costs typical of many manufacturing operations. This allows us to react
quickly to changing unit demand for our products.
High-End
Chemical Protective Suits
We
manufacture heavy-duty chemical suits made from DuPont TyChem® QC, SL,
TK, TyChem
F and TyChem®
BR fabrics. These suits are worn by individuals on hazardous material teams
to
provide protection from powerful, highly concentrated and hazardous or
potentially lethal chemical and biological toxins, such as toxic wastes at
Super
Fund sites, toxic chemical spills or biological discharges, chemical or
biological warfare weapons (such as anthrax, ricin, or saran and mustard gas),
and chemicals and petro-chemicals present during the cleaning of refineries
and
nuclear facilities. Our line of chemical suits range in cost from $14 per
coverall to $1192. The chemical suits can be used in conjunction with a fire
protective shell that we manufacture to protect the user from both chemical
and
flash fire hazards. We have also introduced two garments approved by the
National Fire Protection Agency (NFPA) for varying levels of protection that
are
manufactured from DuPont materials:
|
·
|
TyChem®
TK – a
co-polymer film laminated to a durable spun bonded substrate. This
garment
offers the broadest temperature range for limited use garments
of -94°F to
194°F. TyChem®
TK meets all
OSHA Level A requirements. It is available in National Fire Protection
Agency 1991-2000 certified versions when worn with an aluminized
over
cover.
|
|
·
|
TyChem®
BR – meets
all OSHA Level B and all National Fire Protection Agency 1994 fabric
requirements and offers splash protection against a wide array
of
chemicals.
|
We
manufacture chemical protective clothing at our facilities in Decatur, Alabama,
Mexico and China. Using fabrics such as TyChem® SL, TyChem®
TK, TyChem F, and
TyChem® BR, we
design, cut, glue and/or sew the materials to meet customer purchase
orders.
The
federal government, through the Fire Act of 2002, appropriated approximately
$750 million in 2003 to fire departments in the United States and its
territories to fund the purchase of, among other things, personal protective
equipment, including our fire fighting and heat protective apparel and high-end
chemical protective suits. An additional $750 million was appropriated for
2004,
$650 million for 2005, $648 million for 2006 and $547 million for 2007. The
Bio
Terrorism Preparedness and Response Act of 2002 included appropriations of
$3.643 billion for Bioterrorism Preparedness and $1.641 billion for Bioterrorism
Hospital Preparedness between 2002 and 2006. Hospital Preparedness is
where we expect to see future garment sales.
Fire
Fighting and Heat Protective Apparel
We
manufacture an extensive line of products to protect individuals who work in
high heat environments. Our heat protective aluminized fire suit product lines
include the following:
|
·
|
Kiln
entry suit – to protect kiln maintenance workers
from extreme heat.
|
|
·
|
Proximity
suits – to give protection in high heat areas where
exposure to hot liquids, steam or hot vapors is
possible.
|
|
·
|
Approach
suits – to protect personnel engaged in maintenance,
repair and operational tasks where temperatures do not exceed 200°F
ambient, with a radiant heat exposure up to
2,000°F.
|
We
manufacture fire fighter protective apparel for domestic and foreign fire
departments. We developed the popular 32 inch coat high back bib style
(Batallion) bunker gear. Crash rescue continues to be a major market for us,
as
we were one of the first manufacturers to supply military and civilian markets
with airport fire fighting protection.
Our
fire
suits range in price from $750 for standard fire department turn out gear to
$2,000 for a fire entry suit. Approximately 70% of our heat protective clothing
is currently manufactured at our facility in St. Joseph, Missouri with the
remainder being made in our China facilities. Our Fyrepel™ brand of
fire
fighting apparel continues to benefit from ongoing research and development
investment, as we seek to address the ergonomic needs of stressful
occupations. Additionally, we have introduced a new line of our OSX
turnout gear manufactured in China in order to compliment our US
line.
Gloves
and Arm Guards
We
manufacture and sell specially designed gloves and arm guards made from
Kevlar®, a cut
and heat resistant material produced by DuPont, Spectra®, a cut
resistant
fiber made by Honeywell, and Dyneema®, a fiber
made by
DSM Dyneema B.V. and our proprietary patented yarns. We are one of only seven
companies licensed in North America to sell 100% Kevlar® gloves,
which are
high strength, lightweight, flexible and durable. Kevlar® gloves
offer a
better overall level of protection and lower worker injury rates, and are more
cost effective, than traditional leather, canvas or coated work gloves.
Kevlar® gloves,
which can withstand temperatures of up to 400°F and are cut resistant enough to
allow workers to safely handle sharp or jagged unfinished sheet metal, are
used
primarily in the automotive, glass and metal fabrication industries. Our higher
end string knit gloves range in price from $37 to $240 for a dozen
pair.
We
manufacture these string knit gloves primarily at our Alabama and Mexican
facilities, and we are shifting lower cost yarn production to our China
facilities. We completed our shift of glove production to Mexico last year
and
will continue shifting more to our Chinese facilities and our Indian glove
facility in this fiscal year and next fiscal year. Foreign production
will allow lower fabric and labor costs.
We
have
received patents on manufacturing processes that provide hand protection to
the
areas of a glove where it wears out prematurely in various applications. For
example, the areas of the thumb crotch, and index fingers are made heavier
than
the balance of the glove providing increased wear protection and longer glove
life reducing overall glove costs. This proprietary manufacturing
process allows us to produce our gloves more economically and provide a greater
value to our end user.
Reusable
Woven Garments
We
manufacture and market a line of reusable and washable woven garments that
complement our fire fighting and heat protective apparel offerings and provide
alternatives to our limited use/disposable protective clothing lines and give
us
access to the much larger woven industrial and health care-related markets.
Cloth reusable garments are favored by customers for certain uses or
applications because of familiarity with and acceptance of these fabrics and
woven cloth’s heavier weight, durability and longevity. These products allow us
to supply and satisfy a wider range of safety and customer needs. Our product
lines include the following:
|
·
|
Electrostatic
dissipative apparel – used primarily in the pharmaceutical and automotive
industries.
|
|
·
|
Clean
room apparel – used in semiconductor manufacturing and pharmaceutical
manufacturing to protect against human
contamination.
|
|
·
|
Flame
resistant Nomex®/FR
Cotton
coveralls/pants/jackets – used in chemical and petroleum plants and for
wild land firefighting.
|
|
·
|
Cotton
and Polycotton coveralls, lab coats, pants, and
shirts.
|
|
·
|
High
Visibility vests, jackets, coats and pants used at highway construction
sites, airports, and areas where moving vehicles are a danger to
industrial workers.
|
Our
reusable woven garments range in price from $20 to $150 per
garment. We manufacture and sell woven cloth garments at our
facilities in China and St. Joseph, Missouri. We are continuing to relocate
highly repetitive sewing processes for our high volume, standard product lines
such as woven protective coveralls and high visibility vests and shirts to
our
facilities in China where lower fabric and labor costs allow increased profit
margins. We expect the relocation process to be substantially complete by the
fourth quarter of fiscal 2008.
Quality
Control
Our
Alabama, Missouri, Mexico and China manufacturing facilities are ISO 9001
certified. ISO standards are internationally recognized quality manufacturing
standards established by the International Organization for Standardization
based in Geneva, Switzerland. To obtain our ISO registration, our factories
were
independently audited to test our compliance with the applicable standards.
In
order to maintain registration, our factories receive regular announced
inspections by an independent certification organization. We believe that the
ISO 9001 certification makes us more competitive in the marketplace, as
customers increasingly recognize the standard as an indication of product
quality.
Marketing
and Sales
We
employ
an in-house sales force of 17 people, 3 regional sales managers and utilize
42
independent sales representatives. These employees and representatives call
on
over 800 safety and mill supply distributors nationwide in order to promote
and
provide product information for and sell our products. Distributors buy our
products for resale and typically maintain inventory at the local level in
order
to assure quick response times and the ability to service their customers
properly. Our sales employees and independent representatives have consistent
communication with end users and decision makers at the distribution level,
thereby allowing us valuable feedback on market perception of our products,
as
well as information about new developments in our industry. During fiscal 2007,
one single distributor accounted for 5% of our net sales. No other single
distributor accounted for more than 5% of our net sales.
We
seek
to maximize the efficiency of our established distribution network through
direct promotion of our products at the end user level. We advertise primarily
through trade publications and our promotional activities include sales
catalogs, mailings to end users, a nationwide publicity program and our Internet
web site. We exhibit at both regional and national trade shows such as the
National Safety Congress and the American Industrial Hygienists
Convention.
Research
and Development
We
continue to evaluate and engineer new or innovative products. In the past three
years we have introduced the Micromax® line of
disposable
protective clothing; a newly configured line of fire retardant work coveralls
and fire turn-out gear; a SARS protective medical gown for Chinese hospital
personnel; the Despro®, Grapolator™
and Microgard® anti microbial
cut
protective glove and sleeve lines for food service; our patented Thermbar™ Mock
Twist
that provides heat protection for temperatures up to 600°F; and our new Chemax
1, 2, and 3 lines for protection against intermediate chemical threats. We
own
20 patents on various fabrics, patterns and production machinery. We plan to
continue investing in research and development to improve protective apparel
fabrics and the manufacturing equipment used to make apparel. Specifically,
we
plan to continue to develop new specially knit and coated gloves, woven gowns
for industrial and medical uses, fire retardant cotton fabrics and protective
non-woven fabrics. During fiscal 2005, 2006 and 2007, we spent approximately
$89,000, $90,000, and $100,000 respectively, on research and
development.
Suppliers
and Materials
Our
largest supplier is DuPont, from whom we purchase Tyvek® and Tychem®
under North
American trademark licensing agreements and Kevlar® under international
trademark licensing agreements. Commencing in 1995, anticipating the expiration
of certain patents on its proprietary materials, DuPont offered certain
customers of these materials the opportunity to enter into two year trademark
licensing agreements. Starting in 1995, we entered into such agreements and
have
renewed them continually since. In fiscal 2007, we purchased approximately
62.58% of the dollar value of our materials from DuPont, and Tyvek® constituted
approximately 43.46% of our cost of goods sold and 61.93% of the dollar value
of
our raw material purchases. We believe our relationship with DuPont
to be excellent and our Tyvek/Tychem® trade mark licenses with DuPont
have been extended since 1995 until January 31, 2008. Prior to 1995 we bought
Tyvek® from DuPont under informal branding agreements for 13
years.
We
do not
have long-term, formal trademark use agreements with any other suppliers of
non-woven fabric raw materials used by us in the production of our limited
use/disposable protective clothing product lines. Materials such as
polypropylene, polyethylene, polyvinyl chloride, spun laced polyester and their
derivatives are available from thirty or more major mills. Flame retardant
fabrics are also available from a number of both domestic and international
mills. The accessories used in the production of our disposable garments, such
as thread, boxes, snaps and elastics are obtained from unaffiliated suppliers.
We have not experienced difficulty in obtaining our requirements for these
commodity component items.
We
have
not experienced difficulty in obtaining materials, including cotton, polyester
and nylon, used in the production of reusable non-wovens and commodity
gloves. We obtain Spectra® yarn used
in our
super cut-resistant Dextra Guard gloves from Honeywell, and since we believe
Honeywell will not be able to meet our supply needs for this material in the
future we reacted to these shortages by developing a new relationship with
DSM
Dyneema B.V. for similar Dyneema yarns.. We obtain Kevlar®, used in
the
production of our specialty safety gloves, from independent mills that purchase
the fiber from DuPont.
Materials
used in our fire and heat protective suits include glass fabric, aluminized
glass, Nomex®,
aluminized Nomex®, Kevlar®,
aluminized
Kevlar®,
polybenzimidazole, as well as combinations utilizing neoprene coatings.
Traditional chemical protective suits are made of Viton, butyl rubber and
polyvinyl chloride, all of which are available from multiple
sources. Advanced chemical protective suits are made from TyChem® SL, TK
and BR
fabrics, which we obtain from DuPont, and our own patented fabrics. We have
not
experienced difficulty obtaining any of these materials.
Material
such as Nitrile Butadiene Rubber, Neoprene, and Latex used at our new India
facilities are available from multiple sources.
Internal
Audit
We
have
an internal audit group consisting of a team of 2 people who have direct access
to the audit committee of our board of directors. The team’s primary
function is to insure our internal control system is functioning
properly. Additionally, the team is used from time to time to perform
operational audits to determine areas of business
improvements. Working in close cooperation with the audit committee,
senior management and the external auditors, the internal audit function
supports management to ensure that we are in compliance with all aspects of
the
Sarbanes-Oxley Act.
Competition
Our
business is highly competitive due to large competitors who have monopolistic
positions in the fabrics that are standards in the industry in disposable and
high end chemical suits. Thus, barriers to entry in disposable Tyvek®
and Tychem® garments are high. We believe that the barriers to entry
in the reusable garments and gloves outside of Kevlar are relatively low. We
face competition in some of our other product markets from large established
companies that have greater financial, research and development, sales and
technical resources. Where larger competitors, such as DuPont and Kimberly
Clark, offer products that are directly competitive with our products,
particularly as part of an established line of products, there can be no
assurance that we can successfully compete for
sales
and
customers. Larger competitors outside of our Disposable and Chemical Suit Lines
also may be able to benefit from economies of scale and technological innovation
and may introduce new products that compete with our products.
Seasonality
Our
operations have historically been seasonal, with higher sales generally
occurring in February, March, April and May when scheduled maintenance on
nuclear, coal, oil and gas fired utilities, chemical, petrochemical and smelting
facilities, and other heavy industrial manufacturing plants occurs, primarily
due to moderate spring temperatures and low energy demands. Sales decline during
the warmer summer and vacation months and generally increase from Labor Day
through February with slight declines during holidays. As a result of this
seasonality in our sales, we have historically experienced a corresponding
seasonality in our working capital, specifically inventories, with peak
inventories occurring between September and March coinciding with lead times
required to accommodate the spring maintenance schedules. We believe that by
sustaining higher levels of inventory, we gain a competitive advantage in the
marketplace. Certain of our large customers seek sole sourcing to avoid sourcing
their requirements from multiple vendors whose prices, delivery times and
quality standards differ.
In
recent
years, due to increased demand by first responders for our chemical suits and
fire gear, our historical seasonal pattern has shifted. Governmental
disbursements are dependent upon budgetary processes and grant administration
processes that do not follow our traditional seasonal sales patterns. Due to
the
size and timing of these governmental orders, our net sales, results of
operations, working capital requirements and cash flows can vary between
different reporting periods. As a result, we expect to experience increased
variability in net sales, net income, working capital requirements and cash
flows on a quarterly basis.
Patents
and Trademarks
We
own 20
patents and have 11 patents in the application and approval process with the
U.S. Patent and Trademark Office. We own 14 Trademarks and have
13 Trademarks in the application and approval process. Additionally,
a Patent Corporation Treaty application was filed for our Unilayer Glove Fabrics
which involves technology using a robotic knitter that allows us to knit a
glove
using stronger or weaker yarns in different parts of the glove, as necessary,
depending on the expected wear. Intellectual property rights that apply to
our
various products include patents, trade secrets, trademarks and to a lesser
extent copyrights. We maintain an active program to protect our technology
by
ensuring respect for our intellectual property rights.
Employees
As
of
March 31, 2007, we had approximately 1,667 full time employees, 1,412, or 84.7%,
of whom were employed in our international facilities and 255, or 15.3%, of
whom
were employed in our domestic facilities. An aggregate of 593 of our employees,
are members of unions. We are not currently a party to any collective bargaining
agreements. We believe our employee relations to be excellent. We
presently have no contracts with these unions.
We
are
subject to various foreign, federal, state and local environmental protection,
chemical control, and health and safety laws and regulations, and we incur
costs
to comply with those laws. We own and lease real property, and certain
environmental laws hold current or previous owners or operators of businesses
and real property responsible for contamination on or originating from property,
even if they did not know of or were not responsible for the contamination.
The
presence of hazardous substances on any of our properties or the failure to
meet
environmental regulatory requirements could affect our ability to use or to
sell
the property or to use the property as collateral for borrowing, and could
result in substantial remediation or compliance costs. If hazardous substances
are released from or located on any of our properties, we could incur
substantial costs and damages.
Although
we have not in the past had any material costs or damages associated with
environmental claims or compliance and we do not currently anticipate any such
costs or damages, we cannot assure you that we will not incur material costs
or
damages in the future, as a result of the discovery of new facts or conditions,
acquisition of new properties, the release of hazardous substances, a change
in
interpretation of existing environmental laws or the adoption of new
environmental laws.
Available
Information
We
make available free of charge
through our Internet website, www.lakeland.com, our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K
and amendments to those reports filed in accordance with Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended, as soon as reasonably
practicable after such material is electronically filed with or furnished to
the
Securities and Exchange Commission. Our filings are also available to the public
over the internet at the SEC’s website at
http://www.sec.gov. In addition, we provide
paper
copies
of
our SEC filings free of charge upon request. Please contact the
Corporate Secretary of the company at 631-981-9700 or by mail at our corporate
address Lakeland Industries, Inc. 701-7 Koehler Avenue, Ronkonkoma, NY
11779.
Item
1A. Risk Factors
RISK
FACTORS
You
should carefully consider the
following risks before investing in our common stock. These are not
the only risks that we may face. If any of the events referred to
below actually occurs, our business, financial condition, liquidity and results
of operations could suffer. In that case, the trading price of our
common stock could decline and you may lose all or part of your
investment. You should also refer to the other information in this
Form 10-K and Annual Report and in the documents we incorporate by reference
into this Form 10-K and Annual Report, including our consolidated financial
statements and the related notes.
Risk
Related to Our Business
We
rely on a limited number of suppliers and manufacturers for specific fabrics,
including Tyvek® and Tychem®, and we may not be able to obtain substitute
suppliers and manufacturers on terms that are as favorable, or at all, if our
supplies are interrupted.
Our
business is dependent to a
significant degree upon close relationships with vendors and our ability to
purchase raw materials at competitive prices. The loss of key vendor
support, particularly support by DuPont for its Tyvek® products, could have a
material adverse effect on our business, financial condition, results of
operations and cash flows. We do not have long-term supply contracts
with DuPont or any of our other fabric suppliers. In addition, DuPont
also uses Tyvek® and Tychem ® in some of its own products which compete directly
with our products. As a result, there can be no assurance that we
will be able to acquire Tyvek®, Tychem® and other raw materials and components
at competitive prices or on competitive terms in the future. For
example, certain materials that are high profile and in high demand may be
allocated by vendors to their customers based upon the vendors’ internal
criteria, which are beyond our control.
In
fiscal 2007, we purchased
approximately 62.6% of the dollar value of our raw materials from DuPont, and
Tyvek® constituted approximately 43.5% of our cost of goods sold. For
periods in 1985 and 1987, DuPont placed all purchasers of Tyvek® on
“allocation.” “Allocation” is a circumstance in which demand
outstrips supply and fabrics are sold based upon the amount a buyer purchased
the prior year. This allocation limited our ability to meet demand
for our products during those years. There can be no assurance that
an adequate supply of Tyvek® or Tychem® will be available in the
future. Any shortage could adversely affect our ability to
manufacture our products, and thus reduce our net sales.
Other
than DuPont’s Tyvek® and TyChem®
fabrics, we generally use standard fabrics and components in our
products. We rely on non-affiliated suppliers and manufacturers for
the supply of these fabrics and components that are incorporated in our
products. If such suppliers or manufacturers experience financial,
operational, manufacturing capacity or quality assurance difficulties, or if
there is a disruption in our relationships, we will be required to locate
alternative sources of supply. We cannot assure you that we will be
able to locate such alternative sources. In addition, we do not have
any long-term contracts with any of our suppliers for any of these
components. Our inability to obtain sufficient quantities of these
components, if and as required in the future, may result in:
|
|
·
|
Interruptions
and delays in manufacturing and resulting cancellations of orders
for our
products;
|
|
|
·
|
Increases
in fabrics or component prices that we may not be able to pass on
to our
customers; and
|
|
|
·
|
Our
holding more inventory that normal because we cannot finish assembling
our
products until we have all of the
components
|
We
are subject to risk as a result of our international manufacturing
operations.
Because
most of our products are
manufactured at our facilities located in China and Mexico, our operations
are
subject to risk inherent in doing business internationally. Such
risks include the adverse effects on operations from war, international
terrorism, civil disturbances, political instability, governmental activities
and deprivation of contract and property rights. In particular, since
1978, the Chinese government has been reforming its economic and political
systems, and we expect this to continue. Although we believe that
these reforms have had a positive effect on the economic development of China
and have improved our ability to successfully operate our facilities in
China,
we
cannot
assure you that these reforms will continue or that the Chinese government
will
not take actions that impair our operations or assets in China. In
addition, periods of international unrest may impede our ability to manufacture
goods in other countries and could have a material adverse effect on our
business and results of operations.
Our
results of operations could be negatively affected by potential fluctuations
in
foreign currency exchange rates.
Most
of our assembly arrangements with
our foreign-based subsidiaries or third party suppliers require payment to
be
made in U.S. dollars. These payments aggregated $13.4 million in
fiscal 2007. Any decrease in the value of the U.S. dollar in relation
to foreign currencies could increase the cost of the services provided to us
upon contract expirations or supply renegotiations. There can be no
assurance that we will be able to increase product prices to offset any such
cost increases and any failure to do so could have a material adverse effect
on
our business, financial condition and results of operations.
We
are also exposed to foreign currency
exchange rate risks as a result of our sales in foreign
countries. Our net sales to customers in Canada and EEC were $12.4
million, in fiscal 2007. Our sales in Canada are denominated in
Canadian dollars. If the value of the U.S. dollar increases relative
to the Canadian dollar and we are unable to raise our prices proportionally,
then our profit margins could decrease because of the exchange rate
change. Although our labor, some fabric and component costs in China
are denominated in the Chinese Yuan, this currency has historically been largely
pegged to the U.S. dollar, which has minimized our foreign currency exchange
rate risk in China. Recently, however the Chinese Yuan has been
allowed to float against to the U.S. dollar, and therefore, we will be exposed
to additional foreign currency exchange rate risk. This risk will
also increase as we continue to increase our sales in other foreign
countries. See “Management’s Discussion and Analysis of Financial
condition and Results of Operations – Quantitative and Qualitative Disclosures
About Market Risk – Foreign Currency Risk.”
Rapid
technological change could negatively affect sales of our products and our
performance.
The
rapid development of fabric
technology continually affects our apparel applications and may directly impact
the performance of our products. For example, microporous film-based
products have eroded the market share of Tyvek® in certain low end
applications. We cannot assure you that we will successfully maintain
or improve the effectiveness of our existing products, nor can we assure you
that we will successfully identify new opportunities or continue to have the
needed financial resources to develop new fabric or apparel manufacturing
techniques in a timely or cost-effective manner. In addition,
products manufactured by others may render our products obsolete or
non-competitive. If any of these events occur, our business,
prospects, financial condition and operating results will be materially and
adversely affected.
Acquisitions
or future expansion could be unsuccessful.
Mifflin
Valley, Inc., a Pennsylvania
company, acquired on August 1, 2005, and a portion of the assets of RFB Latex,
an Indian company, which we acquired in November 2006 currently market high
visibility clothing and chemically resistant gloves
respectively. These two new lines may accelerate our growth in the
personal protective equipment market. These acquisitions involve
various risks, including: difficulties in integrating these companies’
operations, technologies, and products, the risk of diverting management’s
attention from normal daily operations of the business; potential difficulties
in completing projects associated with in-process research and development;
risks of entering markets in which we have limited experience and where
competitors in such markets have stronger market positions; initial dependence
on unfamiliar supply chains; and insufficient revenues to offset increased
expenses associated with these acquisitions.
In
the future, we may seek to acquire
additional selected safety products lines or safety-related businesses which
will complement our existing products. Our ability to acquire these
businesses is dependent upon many factors, including our management’s
relationship with the owners of these businesses, many of which are small and
closely held by individual stockholders. In addition, we will be
competing for acquisition and expansion opportunities with other companies,
many
of which have greater name recognition, marketing support and financial
resources than us, which may result in fewer acquisition opportunities for
us as
well as higher acquisition prices. There can be no
assurance
that we will be able to identify, pursue or acquire any targeted business and,
if acquired, there can be no assurance that we will be able to profitably manage
additional businesses or successfully integrate acquired business into our
company without substantial costs, delays and other operational or financial
problems.
If
we proceed with any significant
acquisition for cash, we may use a substantial portion of our available cash
in
order to consummate any such acquisition. We may also seek to finance
any such acquisition through debt or equity financings, and there can be no
assurance that such financings will be available on acceptable terms or at
all. If consideration for an acquisition consists of equity
securities, our stockholders could be diluted. If we borrow funds in
order to finance an acquisition, we may not be able to obtain such funds on
terms that are favorable to us. In addition, such indebtedness may
limit our ability to operate our business as we currently intend because of
restrictions placed on us under the terms of the indebtedness and because we
may
be required to dedicate a substantial portion of our cash flow to payments
on
the debt instead of to our operations, which may place us at a competitive
disadvantage.
Acquisitions
involve a number of
special risks in addition to those mentioned above, including the diversion
of
management’s attention to the assimilation of the operations and personnel of
the acquired companies, the potential loss of key employees of acquired
companies, potential exposure to unknown liabilities, adverse effects on our
reported operating results, and the amortization or write down of acquired
intangible assets. We cannot assure you that any acquisition by us
will or will not occur, that if an acquisition does occur that it will not
materially and adversely affect our results of operations or that any such
acquisition will be successful in enhancing our business.
If
we are unable to manage our growth, our business could be adversely
affected.
Our
operations and business have
expanded substantially in recent years, with a large increase in employees
and
business areas in a short period of time. To manage our growth
properly, we have been and will be required to expend significant management
and
financial resources. There can be no assurance that our systems,
procedures and controls will be adequate to support our operations as they
expand. There can also be no assurance that our management will be
able to manage our growth and operate a larger organization efficiently or
profitably. To the extent that we are unable to mange growth
efficiently and effectively or are unable to attract and retain additional
qualified management personnel, our business, financial condition and results
of
operations could be materially and adversely affected.
We
must recruit and retain skilled employees, including our senior management,
to
succeed in our business.
Our
performance is substantially
dependent on the continued services and performance of our senior management
and
certain other key personnel, including Christopher J. Ryan, our chief executive
officer, president, general counsel and secretary, and Gary Pokrassa, our chief
financial officer, who has 37 years of financial and accounting experience,
and
James McCormick our Controller and treasurer, Greg Willis, our Executive Vice
President, and Harvey Pride, Jr., our Senior vice president in charge of
manufacturing, due to their long experience in our industry. Our
executive officers, other than CFO, have an average tenure with us of 19 years
and an average of 22 years of experience in our industry. The loss of
services of any of our executive officers or other key employees could have
a
material adverse effect on our business, financial condition and results of
operations. In addition, any future expansion of our business will
depend on our ability to identify, attract, hire, train, retain and motivate
other highly skilled managerial, marketing, customer service and manufacturing
personnel and our inability to do so could have a material adverse effect on
our
business, financial condition and results of operations.
Because
we do not have long-term commitments from many of our customers, we must
estimate customer demand and errors in our estimates could negatively impact
our
inventory levels and net sales.
Our
sales are generally made on the
basis of individual purchase orders, which may later be modified or canceled
by
the customer, rather than long-term commitments. We have historically
been required to place firm orders for fabrics and components with our
suppliers, prior to receiving an order for our products, based on our forecasts
of customer demands. Our sales process requires us to make multiple
demand forecast assumptions, each of which may introduce error into our
estimates, causing excess inventory to accrue or a lack of manufacturing
capacity when needed. If we overestimate customer demand, we may
allocate resources to manufacturing products
that
we
may not be able to sell when we expect or at all. As a result, we
would have excess inventory, which would negatively impact our financial
results. Conversely, if we underestimate customer demand or if
insufficient manufacturing capacity is available, we would lose sales
opportunities, lose market share and damage our customer
relationships. On occasion, we have been unable to adequately respond
to delivery dates required by our customers because of the lead time needed
for
us to obtain required materials or to send fabrics to our assembly facilities
in
China and Mexico.
We
face competition from other companies, two of which have substantially greater
resources than we do.
Two
of our competitors, DuPont and
Kimberly Clark, have substantially greater financial, marketing and sales
resources than we do. In addition, we believe that the barriers to
entry in the reusable garments and gloves markets are relatively
low. We cannot assure you that our present competitors or competitors
that choose to enter the marketplace in the future will not exert significant
competitive pressures. Such competition could have a material adverse
effect on our net sales and results of operations. For further
discussion of the competition we face in our business, see “Business –
Competition.”
Some
of our sales are to foreign buyers, which exposes us to additional
risks.
We
derived approximately 12.3% of our
net sales from customers located in foreign countries in fiscal
2007. We intend to increase the amount of foreign sales we make in
the future. The additional risks of foreign sales
include:
|
|
·
|
Potential
adverse fluctuations in foreign currency exchange
rates;
|
|
|
·
|
Higher
credit risks;
|
|
|
·
|
Restrictive
trade policies of foreign
governments;
|
|
|
·
|
Currency
nullification and weak banking
institutions;
|
|
|
·
|
Changing
economic conditions in local
markets;
|
|
|
·
|
Political
and economic instability in foreign markets;
and
|
|
|
·
|
Changes
in leadership of foreign
governments.
|
Some
or
all of these risks may negatively impact our results of operations and financial
condition.
Covenants
in our credit facilities may restrict our financial and operating
flexibility.
We
currently have one credit facility;
|
|
·
|
A
five year, $25 million revolving credit facility which commenced
July
2005, of which we had $3.8 million of borrowings outstanding as of
January
31, 2007 and
|
Our
current credit facility requires,
and any future credit facilities may also require, that we comply with specified
financial covenants relating to interest coverage, debt coverage, minimum
consolidated net worth, and earnings before interest, taxes, depreciation and
amortization. Our ability to satisfy these financial covenants can be
affected by events beyond our control, and we cannot assure you that we will
meet the requirements of these covenants. These restrictive covenants
could affect our financial and operational flexibility or impede our ability
to
operate or expand our business. Default under our credit facilities
would allow the lenders to declare all amounts outstanding to be immediately
due
and payable. Our lenders have a security interest in substantially
all of our assets to secure the debt under our current credit facilities, and
it
is likely that our future lenders will have security interests in our
assets. If our lenders declare amounts outstanding under any credit
facility to be due, the lenders could proceed against our assets. Any
event of default, therefore, could have a material adverse effect on our
business.
We
may need additional funds, and if we are unable to obtain these funds, we may
not be able to expand or operate our business as
planned.
Our
operations require significant
amounts of cash, and we may be required to seek additional capital, whether
from
sales of equity or by borrowing money, to fund acquisitions, for the future
growth and development of our business or to fund our operations and inventory,
particularly in the event of a market downturn. Although we have the
ability until July 31, 2010 to borrow additional sums under our $25 million
revolving credit facility, this facility contains a borrowing base provision
and
financial covenants that may limit the amount we can borrow thereunder
or
from
other sources. We may not be able to replace or renew this credit
facility upon its expiration on terms that are as favorable to us or at
all. In addition, a number of factors could affect our ability to
access debt or equity financing, including;
|
|
·
|
Our
financial condition, strength and credit
rating;
|
|
|
·
|
The
financial markets’ confidence in our management team and financial
reporting;
|
|
|
·
|
General
economic conditions and the conditions in the homeland security sector;
and
|
|
|
·
|
Capital
markets conditions.
|
Even
if available, additional financing
could be costly or have adverse consequences. If additional funds are
raised through the incurrence of debt, we will incur increased debt servicing
costs and may become subject to additional restrictive financial and other
covenants. We can give no assurance as to the terms or availability
of additional capital. If we are not successful in obtaining
sufficient capital, it could reduce our net sales and net income and adversely
impact our financial position, and we may not be able to expand or operate
our
business as planned.
A
reduction in government funding for preparations for terrorist incidents that
could adversely affect our net sales.
As
a general matter, a significant
portion of our sales growth to our distributors is dependent upon resale by
those distributors to customers that are funded in large part by federal, state
and local government funding. Specifically, approximately 60% of our
high-end chemical suit sales is dependent on government
funding. Congress passed the 2001 Assistance to Firefighters Grant
Program and the Bioterrorism Preparedness and Response Act of
2002. Both of these Acts provide for funding to fire and police
departments and medical and emergency personnel to respond to terrorist
incidents. Appropriations for these Acts by the federal government
could be reduced or eliminated altogether. Any such reduction or
elimination of federal funding, or any reductions in state or local funding,
could cause sales of our products purchased by fire and police departments
and
medical and emergency personnel to decline.
We
may be subject to product liability claims, and insurance coverage could be
inadequate or unavailable to cover these claims.
We
manufacture products used for
protection from hazardous or potentially lethal substances, such as chemical
and
biological toxins, fire, viruses and bacteria. The products that we
manufacture are typically used in applications and situations that involve
high
levels of risk of personal injury. Failure to use our products for
their intended purposes, failure to use our products properly or the malfunction
of our products could result in serious bodily injury to or death of the
user. In such cases, we may be subject to product liability claims
arising from the design, manufacture or sale of our products. If
these claims are decided against us and we are found to be liable, we may be
required to pay substantial damages and our insurance costs may increase
significantly as a result. We cannot assure you that our insurance
coverage would be sufficient to cover the payment of any potential claim. In
addition, we cannot assure you that this or any other insurance coverage will
continue to be available or, if available, that we will be able to obtain it
at
a reasonable cost. Any material uninsured loss could have a material
adverse effect on our financial condition, results of operations and cash
flows.
Environmental
laws and regulations may subject us to significant
liabilities.
Our
U.S. operations, including our
manufacturing facilities, are subject to federal, state and local environmental
laws and regulations relating to the discharge, storage, treatment, handling,
disposal and remediation of certain materials, substances and wastes. Any
violation of any of those laws and regulations could cause us to incur
substantial liability to the Environmental Protection Agency, the state
environmental agencies in any affected state or to any individuals affect by
any
such violation. Any such liability could have a material adverse
effect on our financial condition and results of operations.
The
market price of our common stock may fluctuate
widely.
The
market price of our common stock
could be subject to significant fluctuations in response to quarter-to-quarter
variation in our operating results, announcements of new products or services
by
us or our competitors, and other events or factors. For example, a
shortfall in net sales or net income, or an increase in losses, from levels
expected by securities analysts, could have an immediate and significant adverse
effect on the market price and volume fluctuations that have particularly
affected the market prices of many micro and small capitalization companies
and
that have often been unrelated or disproportionate to the operating performance
of these companies. These fluctuations, as well as general economic
and market conditions, may adversely affect the market price for our common
stock.
Our
results of operations may vary widely from quarter to
quarter.
Our
quarterly results of operations
have varied and are expected to continue to vary in the future. These
fluctuations may be caused by many factors, including:
|
|
·
|
Our
expansion of international
operations;
|
|
|
·
|
Competitive
pricing pressures;
|
|
|
·
|
Seasonal
buying patterns resulting from the cyclical nature of the business
of some
of our customers;
|
|
|
·
|
The
size and timing of individual
sales;
|
|
|
·
|
Changes
in the mix of products and services
sold;
|
|
|
·
|
The
timing of introductions and enhancements of products by us or our
competitors;
|
|
|
·
|
Market
acceptance of new products;
|
|
|
·
|
Technological
changes in fabrics or production equipment used to make our
products;
|
|
|
·
|
Changes
in the mix of domestic and international
sales;
|
|
|
·
|
Personnel
changes; and
|
|
|
·
|
General
industry and economic conditions.
|
These
variations could negatively impact our stock price.
Compliance
with the Sarbanes-Oxley Act of 2002 and rules and regulations relating to
corporate governance and public disclosure may result in additional expenses
and
negatively impact our results of operations.
The
Sarbanes-Oxley Act of 2002 and
rules and regulations promulgated by the Securities and Exchange Commission
and
the Nasdaq Stock Market have greatly increased the scope, complexity and cost
of
corporate governance, reporting and disclosure practices for public companies,
including our company. Keeping abreast of, and in compliance with,
these laws, rules and regulations have required an increased amount of resources
and management attention. In the future, this may result in increased
general and administrative expenses and a diversion of management time and
attention from sales-generating and other operating activities to compliance
activities, which would negatively impact our results of
operations.
In
addition, the corporate governance,
reporting and disclosure laws, rules and regulations could also make it more
difficult for us to attract and retain qualified executive officers and members
of our board of directors. In particular, the Nasdaq Stock Market
rules require a majority of our directors to be “independent” as determined by
our board of directors in compliance with the Nasdaq rules. It
therefore has become more difficult and significantly more expensive to attract
such independent directors to our Board.
Our
directors and executive officers have the ability to exert significant influence
on our company and on matters subject to a vote of our
stockholders.
As
of April 12, 2007, our directors and
executive officers beneficially owned approximately 19.40% of the outstanding
shares of our common stock. As a result of their ownership of common
stock and their positions in our Company, our directors and executive officers
are able to exert significant influence on our Company and on matters submitted
to a vote by our stockholders. In particular, as of April 12, 2007,
Raymond J. Smith, our chairman of the board, and Christopher J. Ryan, our chief
executive officer, president, general counsel and secretary and a
director,
beneficially
owned approximately 9.55% and 6.63% of our common stock,
respectively. The ownership interests of our directors and executive
officers, including Messrs. Smith and Ryan, could have the effect of delaying
or
preventing a change of control of our Company that may be favored by our
stockholders generally.
Provisions
in our restated certificate of incorporation and by-laws and Delaware law could
make a merger, tender offer or proxy contest
difficult.
Our
restated certificate of
incorporation contains “super majority” voting and classified board provisions,
authorized preferred stock that could be utilized to implement various “poison
pill” defenses and a stockholder authorized, but as yet unused, Employee Stock
Ownership Plan, all of which may have the effect of discouraging a takeover
of
Lakeland which is not approved by our board of directors. Further, we
are subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law, which prohibit us from engaging in a “business
combination” with an “interested stockholder” for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in the prescribed
manner. For a description of these provisions, see “Description of
Capital Stock – Anti-Takeover Provisions.”
ITEM
1B: UNRESOLVED STAFF COMMENTS
None.
ITEM
2. PROPERTIES
We
believe that our owned and leased facilities are suitable for the operations
we
conduct in each of them. Each manufacturing facility is well maintained and
capable of supporting higher levels of production. The table below sets forth
certain information about our principal facilities.
|
Address
|
Estimated
Square
Feet
|
Annual
Rent
|
Lease
Expiration
|
Principal
Activity
|
||||
|
Weifang
Lakeland Safety Products
Co.,
Ltd.
Xiao
Shi Village
AnQui
City, Shandong Province
PRC
262100
|
65,000
|
Owned(1)
|
N/A
|
Manufacturing
Administration
Engineering
|
||||
|
Qing
Dao Lakeland Protective
Products
Co., Ltd
Yinghai
Industrial Park
Jiaozhou,
Shandong Province
PRC
266318
|
90,415
|
Owned(1)
|
N/A
|
Manufacturing
Administration
Warehousing
|
||||
|
Meiyang
Protective Products Co.,
Ltd.
Xiao
Shi Village
AnQui
City, Shandong Province
PRC
262100
|
9,360
|
$3,727
|
12/31/11
|
Manufacturing
|
||||
|
Lakeland
Industries, Inc.
Woven
Products Division
2401
SW Parkway
St.
Joseph, MO 64503
|
44,000
|
$96,000
|
7/31/12
|
Manufacturing
Administration
Warehousing
|
|
Address
|
Estimated
Square
Feet
|
Annual
Rent
|
Lease
Expiration
|
Principal
Activity
|
||||
|
Lakeland
de Mexico S.A. de C.V.
(Luis
Gómez Guzmán – former
employee)
Poniente,
Mza 8, Lote 11
Ciudad
Industrial, S/No.
Celaya,
Guanajuato 38010
Mexico
|
23,885
|
$112,800
|
7/31/07
|
Manufacturing
Administration
Warehousing
|
||||
|
Lakeland
Mexico
Carretera
a Santa Rita
Calle
Tomas Urbina #1
Jerez
de Garcia, Salinas, Zacatecas
Mexico
|
40,000
|
$120,000
|
3/31/10
|
Manufacturing
Administration
Warehousing
|
||||
|
Lakeland
Protective Wear , Inc.
5109-B7
Harvestor Road
Burlington,
ON L7L5Y9
Canada
|
12,000
|
Approximately
$86,000
(varies with
exchange
rates)
|
11/30/07
|
Sales
Administration
Warehousing
|
||||
|
Lakeland
Protective Real Estate
Building
under construction to
replace
rental facility of Lakeland
Protective
Wear, Inc.
|
Owned
|
N/A
|
||||||
|
Lakeland
Industries, Inc.
Headquarters
701-7
Koehler Avenue
Ronkonkoma,
NY 11779
|
6,250
|
Owned
|
N/A
|
Administration
Studio
Sales
|
||||
|
Lakeland
Industries, Inc.
202
Pride Lane
Decatur,
AL 35603
|
91,788
|
Owned
|
N/A
|
Manufacturing
Administration
Engineering
Warehousing
|
||||
|
Lakeland
Industries, Inc.
3428
Valley Ave. (201½ Pride Lane)
Decatur,
AL 35603
|
49,500
|
Owned
|
N/A
|
Warehousing
Administration
|
||||
|
Lakeland
Industries, Inc.
(Harvey
Pride, Jr. – officer- related
party)
201
Pride Lane, SW
Decatur,
AL 35603
|
2,400
|
$18,000
|
3/31/09
|
Sales
Administration
|
||||
|
Lakeland
Industries Europe Ltd.
Wallingfen
Park
236
Main Road
Newport,
East Yorkshire
HU15
2RH U United Kingdom
|
4,940
|
Approximately
$48,600
(varies with
exchange
rates)
|
1/31/08
|
Warehouse
Sales
|
||||
|
Lakeland
Industries, Inc.
Route
227 & 73
Blandon,
PA 19510
|
12,000
|
$36,000 (Leased
from
D. Gallen an
employee)
|
Month
to Month
|
Warehouse
|
|
Address
|
Estimated
Square
Feet
|
Annual
Rent
|
Lease
Expiration
|
Principal
Activity
|
||||
|
Lakeland
Industries, Inc.
31
South Sterley Street
Shillington,
PA 19607
|
18,520
|
$57,504
(Leased from
M.
Gallen an
employee)
|
7/31/10
|
Manufacturing
Warehouse,
Sales
Administration
|
||||
|
Lakeland
India Private Ltd
Plots
81, 50 and 24
Noida
Special Economic Zone
New
Delhi, India
|
58,945
|
Owned
(2)
|
N/A
|
Manufacturing
Warehouse
|
||||
|
Lakeland
Industries Inc., Agencia En
Chile
Los
Algarrobos nº 2228
Comuna
de Santiago
Código
Postal 8361401
Santiago,
Chile
|
904
|
$12,000
|
03/01/2008
|
Warehouse
Sales
|
___________________________________________________________________________________________
|
(1)
|
We
own the buildings in which we conduct our manufacturing operations
and
lease the land underlying the buildings from the Chinese
government. We have 41 years and 46 years remaining under the
leases with respect to the AnQui City and Jiaozhou facilities,
respectively.
|
|
(2)
|
The annual total
lease for plots 24, 81 and 50 amounts to approximately
$10,000 on a lease expiring October 9,
2011.
|
Our
facilities in Decatur, Alabama; Celaya, Mexico; AnQui, China; Jiaozhou, China;
St. Joseph, Missouri, Shillington, Pennsylvania and New Delhi, India
contain equipment used for the design, development and manufacture and sale
of
our products. Our operations in Burlington, Canada; Newport, United
Kingdom; and Santiago, Chile are primarily sales and warehousing operations
receiving goods for resale from our manufacturing facilities around the world.
We had $3.15 million, $3.68 million and $3.85 million of gross long-lived fixed
assets, located in China and $0.80 million, $0.85 million and $0.86 million
of
long-lived assets located in Mexico as of January 31, 2005, 2006 and
2007.
ITEM
3. LEGAL PROCEEDINGS
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
PART
II
ITEM
5. MARKET FOR
THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDERS
MATTERS
Our
common stock is currently traded on the NASDAQ Global Market under the symbol
“LAKE”. The following table sets forth for the periods indicated the high and
low sales prices for our common stock as reported by the Nasdaq National Market.
The stock prices in the table below have been adjusted for periods prior to
July
31, 2003 to reflect our 10% stock dividends to stockholders of record on July
31, 2002, July 31, 2003, April 30, 2005 and August 1, 2006.
|
Price
Range of
Common
Stock
|
||||||||
|
High
|
Low
|
|||||||
|
Fiscal
2008
|
||||||||
|
First
Quarter (through April 09, 2007)
|
$ |
14.99
|
$ |
13.25
|
||||
|
Fiscal
2007
|
||||||||
|
First
Quarter
|
$ |
18.64
|
$ |
16.79
|
||||
|
Second
Quarter
|
17.22
|
12.54
|
||||||
|
Third
Quarter
|
13.78
|
11.93
|
||||||
|
Fourth
Quarter
|
15.25
|
13.11
|
||||||
|
Fiscal
2006
|
||||||||
|
First
Quarter
|
$ |
17.49
|
$ |
11.18
|
||||
|
Second
Quarter
|
14.82
|
11.79
|
||||||
|
Third
Quarter
|
16.99
|
13.96
|
||||||
|
Fourth
Quarter
|
18.70
|
16.65
|
||||||
Holders
Holders
of our Common Stock are
entitled to one (1) vote for each share held on all matters submitted to a
vote
of the stockholders. No cumulative voting with respect to the
election of directors is permitted by our Articles of
Incorporation. The Common Stock is not entitled to preemptive rights
and is not subject to conversion or redemption. Upon our liquidation,
dissolution or winding –up, the assets legally available for distribution to
stockholders are distributable ratably among the holders of the Common Stock
after payment of liquidation preferences, if any, on any outstanding stock
that
may be issued in the future having prior rights on such distributions and
payment of other claims of creditors. Each share of Common Stock
outstanding as of the date of this Annual Report is validly issued, fully paid
and non-assessable.
On
April 10, 2007 the last reported sale price of our common stock on
the Nasdaq National Market was $14.94 per share. As of April 10, 2007, there
were approximately 73 record holders of shares of our common stock.
Dividend
Policy
In
the
past, we have declared dividends in stock to our stockholders. We paid a 10%
dividend in additional shares of our common stock to holders of record on July
31, 2002, on July 31, 2003, on April 30, 2005 and on August 1,
2006. We may pay stock dividends in future years at the discretion of
our board of directors.
We
have never paid any cash dividends on our common stock and we currently intend
to retain any future earnings for use in our business. The payment and rate
of
future cash or stock dividends, if any, or stock repurchase programs are subject
to the discretion of our board of directors and will depend upon our earnings,
financial condition, capital or contractual restrictions under our credit
facilities and other factors.
Equity
Compensation Plans
The
following table sets forth certain information regarding Lakeland’s equity
compensation plans as of January 31, 2007.
|
Plan
Category
|
Number
of securities to be
issued
upon exercise of
outstanding
options,
warrants
and rights (1)
|
Weighted-average
exercise
price
per share of
outstanding
options,
warrants
and rights (1)
|
Number
of securities
remaining
available for
future
issuance under
equity
compensation plans
(excluding
securities
reflected
in column (a)(1))
|
|
Equity
Compensation plans approved by security holders
|
(a)
$
|
(b)
|
(c)
(2)
|
|
Restricted
stock grants-employees
|
31,680
|
$0
|
100,320
|
|
Restricted
stock grants-directors
|
12,320
|
$0
|
31,680
|
|
Matching
award program
|
4,983
|
$0
|
28,017
|
|
Bonus
in stock program-employees
|
0
|
$0
|
33,000
|
|
Retainer
in stock program-directors
|
0
|
$0
|
11,000
|
|
Total
Restricted Stock Plans
|
48,983
|
$0
|
204,017
|
(1)
At
minimum levels
(2)
Includes 28,017 shares of common stock available for future issuance under
our
employee stock purchase plan. Also includes up to 132,000 shares
available for future issuance under the 2006 Restricted Stock Plan in the form
of awards of restricted stock or restricted stock units.
ITEM
6. SELECTED
CONSOLIDATED FINANCIAL DATA
The
following selected consolidated financial data as of and for our fiscal
years 2003, 2004, 2005, 2006 and 2007 have been derived from our
audited consolidated financial statements, which have been audited by
PricewaterhouseCoopers LLP as of and for the fiscal years ended January 31,
2003 and 2004 and by Holtz Rubenstein Reminick LLP for 2005, 2006 and 2007.
You
should read the information set forth below in conjunction with our
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements and related notes included
in this Form 10-K.
|
Year
Ended January 31,
|
||||||||||||||||||||
|
2003
|
2004
|
2005
|
2006
|
2007
|
||||||||||||||||
|
(in
thousands, except share and per share data)
|
||||||||||||||||||||
|
Income
Statement Data:
|
||||||||||||||||||||
|
Net
sales
|
$ |
77,826
|
$ |
89,717
|
$ |
95,320
|
$ |
98,740
|
$ |
100,171
|
||||||||||
|
Costs
of goods sold
|
62,867
|
71,741
|
74,924
|
74,818
|
75,895
|
|||||||||||||||
|
Gross
profit
|
14,959
|
17,976
|
20,396
|
23,922 | (1) |
24,276
|
||||||||||||||
|
Operating
expenses:
|
||||||||||||||||||||
|
Selling
and shipping
|
6,338
|
7,342
|
7,871
|
8,301
|
9,473
|
|||||||||||||||
|
General
and administrative
|
4,262
|
4,596
|
4,871
|
6,119
|
8,081
|
|||||||||||||||
|
Impairment
of goodwill
|
—
|
249
|
—
|
---
|
---
|
|||||||||||||||
|
Total
operating expenses
|
10,600
|
12,187
|
12,742
|
14,420 | (2) | 17,554 | (2) | |||||||||||||
|
Operating
profit
|
4,359
|
5,789
|
7,654
|
9,502
|
6,722
|
|||||||||||||||
|
Other
income (expense):
|
||||||||||||||||||||
|
Interest
expense
|
(643 | ) | (535 | ) | (207 | ) | (167 | ) | (356 | ) | ||||||||||
|
Interest
income
|
20
|
19
|
18
|
49
|
20
|
|||||||||||||||
|
Gain
on Pension Plan Liquidation
|
353
|
|||||||||||||||||||
|
Other
income
|
40
|
24
|
98
|
384
|
191
|
|||||||||||||||
|
Total
other expense
|
(583 | ) | (492 | ) | (91 | ) |
266
|
208
|
||||||||||||
|
Income
before minority interest
|
3,776
|
5,297
|
7,563
|
9,768
|
6,930
|
|||||||||||||||
|
Minority
interest in net income of variable interest
entities
|
—
|
—
|
494
|
—
|
---
|
|||||||||||||||
|
Income
before income taxes
|
3,776
|
5,297
|
7,069
|
9,768
|
6,930
|
|||||||||||||||
|
Income
tax expenses
|
1,172
|
1,659
|
2,053
|
3,439
|
1,826
|
|||||||||||||||
|
Net
Income
|
$ |
2,604
|
$ |
3,638
|
$ |
5,016
|
$ |
6,329
|
$ |
5,104
|
||||||||||
|
Net
income per common share (Basic)(1)
|
$ |
0.66
|
$ |
.92
|
$ |
1.02
|
$ |
1.15
|
$ |
. 0.92
|
||||||||||
|
Net
income per common share (Diluted)(1)
|
$ |
0.65
|
$ |
.92
|
$ |
1.02
|
$ |
1.15
|
$ |
. 0.92
|
||||||||||
|
Weighted
average common shares outstanding(1)
|
||||||||||||||||||||
|
Basic
|
3,945,951
|
3,954,947
|
4,918,856
|
5,518,751
|
5,520,881
|
|||||||||||||||
|
Diluted
|
3,955,537
|
3,963,356
|
4,924,638
|
5,524,076
|
5,527,618
|
|||||||||||||||
|
Balance
Sheet Data (at period end):
|
||||||||||||||||||||
|
Current
assets
|
$ |
38,859
|
$ |
43,285
|
$ |
55,128
|
$ |
63,719
|
$ |
62,114
|
||||||||||
|
Total
assets
|
42,823
|
47,304
|
60,313
|
72,464
|
74,198
|
|||||||||||||||
|
Current
liabilities
|
20,934
|
21,509
|
4,152
|
3,839
|
4,326
|
|||||||||||||||
|
Long-term
liabilities
|
529
|
768
|
1,695
|
7,829
|
3,813
|
|||||||||||||||
|
Stockholders’
equity
|
21,359
|
25,027
|
54,467
|
60,796
|
66,059
|
|||||||||||||||
|
(1)
|
Adjusted
for periods prior to August 1, 2006 to reflect our 10% stock
dividends to
stockholders of record as of July 31, 2002, July 31, 2003, April
30, 2005
and August 1, 2006. Earnings per share have been restated in
accordance
with Statement of Financial Accounting Standards No. 128, “Earnings Per
Share.”
|
(2)
Operating expenses increased in FY07 mainly due
to:
|
|
o
|
$0.34
million of Mifflin Valley operating expenses included for the full
twelve
months ended January 2007in excess of the seven months through January
included in the year ended January
2006.
|
|
|
o
|
$0.36
million of labor costs resulting from personnel reassigned to SGA
departments and vacation accruals which had been assigned to COGS
departments in the prior fiscal
year.
|
|
|
o
|
$0.83
million of SGA costs from new entities in India, Chile and
Japan.
|
|
|
o
|
$0.70
million net increases in sales salaries and commissions, mainly in
Disposables, Wovens and Canada and related payroll taxes. Several
senior level sales personnel were added to support lagging sales
in
Disposables, support new woven product introductions and coordinate
international sales efforts.
|
|
|
o
|
$0.26
million of net increases in insurance and employee benefits mainly
resulting from a more negative experience in our self insured medical
plan.
|
|
|
o
|
$0.36
million increase in administrative payroll reflecting additional
staff in
the UK and Canada, an international accountant in NY, a new employment
contract for the CEO, and related payroll
taxes.
|
Repurchase
of Securities
We
did not repurchase any of our Common
Stock or other securities during our fiscal year ending January 31,
2007.
ITEM
7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management’s
Discussion and Analysis of
Financial
Condition and Results of Operations
You
should read the following summary together with the more detailed business
information and consolidated financial statements and related notes that appear
elsewhere in this Form 10-K and Annual Report and in the documents that we
incorporate by reference into this Form 10-K. This document may contain certain
“forward-looking” information within the meaning of the Private Securities
Litigation Reform Act of 1995. This information involves risks and
uncertainties. Our actual results may differ materially from the results
discussed in the forward-looking statements.
Overview
We
manufacture and sell a comprehensive line of safety garments and accessories
for
the industrial protective clothing market. Our products are sold by our in-house
sales force and independent sales representatives to a network of over 800
safety and mill supply distributors. These distributors in turn supply end
user
industrial customers such as chemical/petrochemical, automobile, steel, glass,
construction, smelting, janitorial, pharmaceutical and high technology
electronics manufacturers, as well as hospitals and laboratories. In addition,
we supply federal, state and local governmental agencies and departments such
as
fire and police departments, airport crash rescue units, the Department of
Defense, the Department of Homeland Security and the Centers for Disease
Control. Our net sales attributable to customers outside the United States
were
$9.0 million, $10.3 million and $12.4 million, in fiscal 2005, fiscal 2006
and
fiscal 2007, respectively.
Our
sales
of limited use/disposable protective clothing grew approximately 2.4% in the
year ended January 31, 2007 compared to the year ended January 31, 2006.
Subsequent to January 31, 2007, we have seen a strong competitive push in the
marketplace for disposable protective clothing, with a large competitor offering
an aggressive rebate program. We are meeting competitive offers with the
help of support from a large supplier. We expect to lose a modest amount
of our volume in this area with only a moderate net effect on our ultimate
margins. Our cost of goods sold will be further impacted by an
approximately two month’s supply of material purchased earlier in FY 07 with no
rebates. We estimate this material will be charged to our cost of goods
sold under strict FIFO accounting at the end of Q1 and the beginning of Q2,
after which we expect to have a smooth flow of material costs. We expect that
distributors will continue to stock inventory at historical levels as economic
conditions in the United States continue to remain slightly positive. In
addition, our net sales are driven in part by government funding and
health-related events. Our net sales attributable to chemical suits decreased
10.9% in the year ended January 31, 2007 compared to the year ended January
31,
2006. These sales decreases were due primarily to a lull in
government
spending
utilizing Fire Act monies and delays by state and local governmental purchasers
in spending their Bio-Terrorism monies. These governmental sales are
driven primarily by grants from the federal government under the Fire Act of
2002 and the Bio Terrorism Preparedness and Response Act of 2002 as part of
the
Homeland Security initiatives. During fiscal 2004, as a result of the SARS
virus
outbreak in various cities in 2003, we sold approximately $1.1 million of
SARS-related garments in China, Toronto, Hong Kong and Taiwan. The Centers
for
Disease Control has recommended protective garments be used to protect
healthcare workers in the fight against the spread of the SARS virus and the
Avian Flu. In the event of future outbreaks of SARS or other similar contagious
viruses, such as Avian Flu in 2005, we have positioned ourselves with increased
production capacity.
We
have
operated manufacturing facilities in Mexico since 1995 and in China since 1996.
Beginning in 1995, we moved the labor intensive sewing operation for our limited
use/disposable protective clothing lines to these facilities. Our facilities
and
capabilities in China and Mexico allow access to a less expensive labor pool
than is available in the United States and permit us to purchase certain raw
materials at a lower cost than they are available domestically. As we have
increasingly moved production of our products to our facilities in Mexico and
China, we have seen improvements in the profit margins for these products.
We
are close to completion of moving the production of our reusable woven garments
and gloves to these facilities and expect to complete this process by the fourth
quarter of fiscal 2008. As a result, we expect to see profit margin improvements
for these product lines as well. The Company has decided to restructure its
manufacturing operations in Mexico, by closing its current facilities in Celaya
and opening new facilities in Jerez. The Company estimates the costs to
close, move and start up will aggregate approximately $500,000 pretax.
This restructuring will allow for lower occupancy and labor costs and a more
efficient production configuration. The Company anticipates this cost will
be charged to its first quarter FY2008 results
Critical
Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of operations
are
based upon our audited consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, net sales and expenses, and disclosure of contingent assets and
liabilities. We base estimates on our past experience and on various other
assumptions that we believe to be reasonable under the circumstances and we
periodically evaluate these estimates.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements.
Revenue
Recognition. We derive our sales primarily from our limited use/disposable
protective clothing and secondarily from our sales of high-end chemical
protective suits, fire fighting and heat protective apparel, gloves and arm
guards, and reusable woven garments. Sales are recognized when goods are shipped
to our distributors at which time title and the risk of loss passes. Sales
are
reduced for sales returns and allowances. Payment terms are generally net 30
days for United States sales and net 90 days for international
sales.
Inventories.
Inventories include freight-in, materials, labor and overhead costs and
are
stated at the lower of cost (on a first-in, first-out basis) or market.
Provision is made for slow-moving, obsolete or unusable inventory.
Allowance
for Doubtful Accounts. We establish an allowance for doubtful accounts to
provide for accounts receivable that may not be collectible. In establishing
the
allowance for doubtful accounts, we analyze the collectibility of individual
large or past due accounts customer-by-customer. We establish reserves for
accounts that we determine to be doubtful of collection.
Income
Taxes and Valuation Reserves. We are required to estimate our income taxes
in each of the jurisdictions in which we operate as part of preparing our
consolidated financial statements. This involves estimating the actual current
tax in addition to assessing temporary differences resulting from differing
treatments for tax and financial accounting purposes. These differences,
together with net operating loss carry forwards and tax credits, are recorded
as
deferred tax assets or liabilities on our balance sheet. A judgment must then
be
made of the likelihood that any deferred tax assets will be realized from future
taxable income. A valuation allowance may be required to reduce deferred tax
assets to the amount that is more likely than not to be realized. In the event
we determine that we may not be able to realize all or part of our deferred
tax
asset in the future, or that new estimates indicate that a previously recorded
valuation allowance is no longer required, an adjustment to the deferred tax
asset is charged or credited to net income in the period of such
determination.
Valuation
of Goodwill and Other Intangible Assets. On February 1, 2002, we adopted
Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other
Intangible Assets,” which provides that goodwill and other intangible assets are
no longer amortized, but are assessed for impairment annually and upon
occurrence of an event that indicates impairment may have occurred. Goodwill
impairment is evaluated utilizing a two-step process as required by SFAS No.
142. Factors that we consider important that could identify a potential
impairment include: significant underperformance relative to expected
historical or projected future operating results; significant changes in the
overall business strategy; and significant negative industry or economic trends.
When we determine that the carrying value of intangibles and goodwill may not
be
recoverable based upon one or more of these indicators of impairment, we measure
any potential impairment based on a projected discounted cash flow
method. Estimating future cash flows requires our management to make
projections that can differ materially from actual results.
In
August
2005 we purchased Mifflin Valley, a manufacturing facility in
Pennsylvania. This purchase resulted in the recording of $871,297 in
goodwill as of January 31, 2006.
Self-Insured
Liabilities. We have a self-insurance program for certain employee health
benefits. The cost of such benefits is recognized as expense based on claims
filed in each reporting period and an estimate of claims incurred but not
reported during such period. Our estimate of claims incurred but not reported
is
based upon historical trends. If more claims are made than were estimated or
if
the costs of actual claims increases beyond what was anticipated, reserves
recorded may not be sufficient and additional accruals may be required in future
periods. We maintain separate insurance to cover the excess liability over
set
single claim amounts and aggregate annual claim amounts.
Results
of Operations
The
following table set forth our historical results of operations for the years
ended January 31, 2005, 2006 and 2007 as a percentage of our net
sales.
|
Year
Ended January 31,
|
|||||||||||||
|
2005
|
2006
|
2007
|
|||||||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | |||||||
|
Cost
of goods
sold
|
78.6 | % | 75.8 | % | 75.8 | % | |||||||
|
Gross
profit
|
21.4 | % | 24.2 | % | 24.2 | % | |||||||
|
Operating
expenses
|
13.4 | % | 14.6 | % | 17.5 | % | |||||||
|
Operating
profit
|
8.0 | % | 9.6 | % | 6.7 | % | |||||||
|
Interest
expense,
net
|
0.2 | % | 0.2 | % | .4 | % | |||||||
|
Minority
interest in net income of variable interest entities
|
(0.5 | )% |
-0-
|
-0-
|
|||||||||
|
Income
tax
expense
|
2.2 | % | 3.5 | % | 1.8 | % | |||||||
|
Net
income
|
5.3 | % | 6.4 | % | 5.1 | % | |||||||
Significant
Balance Sheet fluctuation January 31, 2007 as compared to January 31,
2006
Balance
Sheet Accounts. The increase in cash and cash equivalents of
$0.37 million and the decrease in borrowings of $3.49 million under the
revolving credit agreement is principally due to the decrease in inventories
of
$4.29 million as we restructured purchasing of raw materials from our major
supplier. We had built raw material reserves due to an anticipated increase
in
the cost of these raw materials. Accounts receivable increased $0.28
million due to increased January sales. Plant property and equipment
increased as a result of purchasing $3.6 million of facilities in India in
November 2006.
Year
ended January 31, 2007 compared to the year ended January 31,
2006
Net
Sales. Net sales increased $1.4 million, or 1.4%, to $100.2
million for the year ended January 31, 2007 compared to $98.7 million for the
year ended January 31, 2006. The increase was due primarily to an
increase in the sales by our new foreign subsidiaries and the acquisition of
Mifflin Valley in July 2005. Increased sales were offset by a slowing
U.S. economy which decreased demand for our products, particularly in the
industrial non-woven disposable markets we serve, and decreased demand for
our
chemical protective suits and fire turnout gear for Homeland Security
purposes.
Gross
Profit. Gross Profit increased $.35 million, or 1.4%, to $24.3
million for the year ended January 31, 2007 from $23.9 million for the year
ended January 31, 2006. Gross profit as a percent of net sales held
steady at 24.2%
for
the
year ended January 31, 2007 and for the year ended January 31, 2006, primarily
because of cost reductions achieved by shifting production of additional
Tyvek®-based
products and chemical suits to China and Mexico and changes in the mix resulting
from sales of the higher margin chemical suits while incurring costs related
to
the new facilities in India, Chile and Japan. We have increasingly shifted
and
will continue to shift production to these lower-cost facilities.
Operating
Expenses. Operating expenses increased $3.2 million, or 21.7% to
$17.6 million for the year ended January 31, 2007 from $14.4 million for the
year ended January 31, 2006. As a percent of net sales, operating
expenses increased to 17.5% for the year ended January, 2007 from 14.6% for
the
year ended January 31, 2006. The $3.2 million increase in operating
expenses in the year ended January 31, 2007 compared to the year ended January
31, 2006 was principally due to increases in:
|
|
o
|
$0.34
million of Mifflin Valley operating expenses included for the full
twelve
months ended January 2007 in excess of the seven months through January
included in the year ended January
2006.
|
|
|
o
|
$0.36
million of labor costs resulting from personnel reassigned to SGA
departments and vacation accruals which had been assigned to COGS
departments in the prior fiscal
year.
|
|
|
o
|
$0.83
million of SGA costs from new entities in India, Chile and
Japan.
|
|
|
o
|
$0.70
million net increases in sales salaries and commissions, mainly in
disposables, wovens and Canada and related payroll taxes. Several
senior level sales personnel were added to support lagging sales
in
disposables, support new woven product introductions and coordinate
international sales efforts.
|
|
|
o
|
$0.26
million of net increases in insurance and employee benefits mainly
resulting from a more negative experience in our self insured medical
plan.
|
|
|
o
|
$0.36
million increase in administrative payroll reflecting additional
staff in
the UK and Canada, an international accountant in NY, a new employment
contract for the CEO, and related payroll
taxes.
|
|
|
o
|
($0.08)
million reduction in foreign currency fluctuation, mainly resulting
form
our hedging program commenced in June
2006.
|
|
|
o
|
$0.15
million in share-based
compensation.
|
|
|
o
|
$0.05
million in increased directors fees resulting from the new compensation
schedule in fiscal 2007.
|
|
|
o
|
$0.05
million in higher professional and consulting fees, largely resulting
from
audit fees.
|
|
|
o
|
$0.10
million in additional depreciation mainly resulting from the purchases
of
facilities in fiscal 2006.
|
|
|
o
|
$0.14
million in increased bad debt expense resulting from two large accounts
reserved against.
|
|
|
o
|
($0.13)
million miscellaneous net expense
decreases.
|
Operating
Profit. Operating profit decreased by $2.8 million, or 29.3% to
$6.7 million, from $9.5 million for the prior year. Operating income as a
percent of net sales decreased to 6.7% for the year ended
January 31, 2007 from 9.6% for the year ending January 31, 2006
primarily due to increased operating expenses as discussed above.
Interest
Expense. Interest expense increased by $.2 million for the year
ended January 31, 2007 compared to the year ended January 31, 2006 because
of
increased borrowings and interest rate increases.
Other
Income - Net. Other income net increased $.13 million
principally as a result of a gain on a pension plan liquidation of $.35 million
in the current year and the non-recurrence of a litigation settlement in the
prior year amounting to $.26 million.
Income
Tax Expense. Income tax expenses consist of federal, state and
foreign income taxes. Income tax expense decreased $1.6 million, or 46.9%,
to
$1.8 million for the year ended January 31, 2007 from $3.4 million for the
year
ended January 31, 2006. Our effective tax rate was 26.3% and 35.2%
for the year ended January 31, 2007 and 2006, respectively. Our
effective tax rate varied from the federal statutory rate of 34% due primarily
to lower foreign tax rates and that the prior year included $3.2 million
repatriation in China subsidiary profits and a reserve of $65,000 covering
a
portion of IRS audit claims, the resolution of which cannot be determined at
this time.
Net
Income. Net income decreased $1.2 million or 19.4%, to $5.1
million for the year ended January 31, 2007 from $6.3 million for the year
ended
January 31, 2006. The decrease in net income was the result of an increase
in
expenses related to the new foreign facilities in India, Chile, Japan and a
decrease in profit by the domestic operations.
Year
ended January 31, 2006 compared to the year ended January 31,
2005
Net
Sales. Net sales increased $3.4 million, or 3.6%, to $98.7
million for the year ended January 31, 2006 compared to $95.3 million for the
year ended January 31, 2005. The increase was due primarily to an
increase in the sales in our core non-woven disposable products line and
secondarily by our fire and glove lines respectively. Increased sales were
also
driven by an improving U.S. and Canadian economy which increased demand for
our
products, particularly in the industrial non-woven disposable markets we serve,
the acquisition of Mifflin Valley, Inc. in July 2005, offset by decreased demand
for our chemical protective suits for Homeland Security purposes which decreased
month over month from February 2005 to October 2006 but then started increasing
from November 2005 to our fiscal year ended January 31, 2006.
Gross
Profit. Gross Profit increased $3.5 million, or 17.3%, to $23.9
million for the year ended January 31, 2006 from $20.4 million for the year
ended January 31, 2005. Gross profit as a percent of net sales
increased to 24.3% for the year ended January 31, 2006 from 21.4% for the year
ended January 31, 2005, primarily because of cost reductions achieved by
shifting production of additional Tyvek®-based products
and
chemical suits to China and Mexico and changes in product mix. We have
increasingly shifted and will continue to shift production to these lower-cost
facilities in order to increase our margins.
Operating
Expenses. Operating expenses increased $1.7 million, or 13.2% to
$14.4 million for the year ended January 31, 2006 from $12.7 million for the
year ended January 31, 2005. As a percent of net sales, operating
expenses increased to 14.6% for the year ended January 31, 2006 from 13.4%
for
the year ended January 31, 2005. The $1.7 million increase in
operating expenses in the year ended January 31, 2006 compared to the year
ended
January 31, 2005 was principally due to increases in:
|
|
·
|
Salaries
of $0.64 million.
|
|
|
·
|
Freight
of $0.06 million.
|
|
|
·
|
Sales
Commissions of $(.42) million.
|
|
|
·
|
Pension
Expense $(.12) million.
|
|
|
·
|
Sales
related expenses of $.28 million.
|
|
|
·
|
Payroll
Taxes of $0.09 million.
|
|
|
·
|
Currency
Fluctuations of $0.12 million.
|
|
|
·
|
Professional
Fees of $0.20 million.
|
|
|
·
|
Consulting
fees of $0.12 million (pertaining to Sarbanes-Oxley
compliance).
|
|
|
·
|
Other
$0.23 million.
|
|
·
|
The
absence in the current year of a minority interest reclassification
in the
prior year of $0.5 million.
|
Operating
Profit. Operating profit increased by $1.9 million, or 24.1%, to
$9.5 million for the year ended 1/31/06, from $7.7 million for the prior
year. Operating income as a percent of net sales increased to 9.6%
for the year ended January 31, 2006 from 8.0% for the year ending January 31,
2005 primarily due to the higher margins as discussed above.
Interest
Expense. Interest expense decreased by $.04 million for the year
ended January 31, 2006 compared to the year ended January 31, 2005 because
of
decreased borrowings and interest rates.
Other
Income – Net. Other income- net increased $0.29 million
principally as a result of the settlement by the Company as plaintiff for $0.26
million of an outstanding litigation involving two former employees of the
company.
Minority
Interest. Minority interest in net income of variable interest
entities decreased by $.5 million for the year ended January 31, 2006 as a
result of our adoption on Financial Interpretation No. 46R (FIN 46R),
“Consolidation of Variable Interest Entities,” effective February 1, 2004 and
then our purchasing such properties in fiscal year 2006. Subsequent to our
adoption of FIN 46R, we determined that certain entities from which we lease
real property and which are partially owned by related parties are variable
interest entities governed by FIN 46R. As a result,
these
entities
were consolidated in our statement of income for the year ended January 31,
2005. These facilities were purchased in April and May 2005 thereby
negating the recording of variable interest entities in fiscal
2006.
Income
Tax Expense. Income tax expenses consist of federal, state and
foreign income taxes. Income tax expense increased $1.4 million, or 67.5%,
to
$3.4 million for the year ended January 31, 2006 from $2.1 million for the
year
ended January 31, 2005. Our effective tax rate was 35.20% and 29.0%
for the years ended January 31, 2006 and 2005, respectively. Our
effective tax rate increased from the federal statutory rate of 34% due
primarily to the repatriation of $3.2 million in profits from our Chinese
subsidiaries and a reserve of $65,000 covering the portion of the claims of
the
IRS which can be determined due to a recent audit. The resolution of
their claims cannot be determined at this time.
Net
Income. Net income increased $1.31 million or 26.2%, to $6.33
million for the year ended January 31, 2006 from $5.02 million for the year
ended January 31, 2005. The increase in net income was the result of an increase
in net sales and productivity as a result of shifts in production to our China
facilities, partially offset by an increase in costs and expenses due to higher
sales and increases in our tax rates as mentioned above.
Liquidity
and Capital Resources
Management
measures our liquidity on
the basis of our ability to meet short-term and long-term operational funding
needs and fund additional investments, including
acquisitions. Significant factors affecting the management of
liquidity are cash flows from operating activities, capital expenditures, access
to bank lines of credit and our ability to attract long-term capital under
satisfactory terms.
Internal
cash generation, together with
currently available cash and investment and an ability to access credit lines
if
needed are expected to be sufficient to fund operations, capital expenditures,
and any increase in working capital that we would need to accommodate a higher
level of business activity. We are actively seeking to expand by
acquisitions as well as through organic growth of our business. While
a significant acquisition may require additional borrowings, equity financing
or
both, we believe that we would be able to obtain financing on acceptable terms
based, among other things, on our earnings performance and current financial
position.
CashFlows
As
of
January 31, 2007 we had cash and cash equivalents of $1.9 million and working
capital of $57.8 million, an increase and decrease of $.37 million and ($2.1)
million, respectively, from January 31, 2006. Our primary sources of funds
for
conducting our business activities have been from cash flow provided by
operations and borrowings under our credit facilities described below. We
require liquidity and working capital primarily to fund increases in inventories
and accounts receivable associated with our net sales and, to a lesser extent,
for capital expenditures.
Net
cash
provided by operating activities of $8.2 million for the year ended January
31,
2007 was due primarily to net income from operations of $5.1 million, and a
decrease in inventories of $4.3 million, offset by an increase in accounts
receivable of $.3 million. Net cash used in operating activities of $8.4 million
for the year ended January 31, 2006 was due primarily to net income from
operations of $6.3 million offset in part by a decrease in accounts payable
of
$0.4 million, an increase in inventories of $13.7 million and an increase in
accounts receivable of $0.7 million.
Net
cash
used in investing activities of $4.3 million and $6.5 million in the years
ended
January 31, 2007 and 2006, respectively, was due to purchases of real estate,
property and equipment and the acquisitions of the India facility (current
year)
and Mifflin Valley (prior year). Net cash used in and provided by financing
activities in the years ended January 31, 2007 and 2006 was primarily
attributable to a decreased and increased borrowing under our credit facilities,
respectively.
CreditFacilities
We
currently have one credit facility:
|
·
|
A
five year, $25 million revolving credit facility, of which we had
borrowings outstanding as of January 31, 2007 amounting to $3.8
million
|
Our
$25 million revolving credit facility permits us to borrow up to the lower
of
$25 million and a borrowing base determined by reference to a percentage of
our
eligible accounts receivable and inventory. Our $25 million revolving credit
facility expires on July 31, 2010. Borrowings under this revolving
credit facility bear interest at the London Interbank Offering Rate (LIBOR)
plus
60 basis points and were 5.92% at January 31, 2007. As of January 31, 2007,
we
had $21.2 million of borrowing availability under this revolving credit
facility.
Our
credit facility requires that we comply with specified financial covenants
relating to interest coverage, debt coverage, minimum consolidated net worth,
and earnings before interest, taxes, depreciation and amortization. These
restrictive covenants could affect our financial and operational flexibility
or
impede our ability to operate or expand our business. Default under our credit
facilities would allow the lenders to declare all amounts outstanding to be
immediately due and payable. Our lenders have a security interest in
substantially all of our assets to secure the debt under our credit facilities.
As of January 31, 2007, we were in compliance with all covenants contained
in
our credit facilities.
We
believe that our current cash position of $1.9 million, our cash flow from
operations along with borrowing availability under our $25 million revolving
credit facility will be sufficient to meet our currently anticipated operating,
capital expenditures and debt service requirements for at least the next 12
months.
CapitalExpenditures
Our
capital expenditures principally relate to purchases of manufacturing equipment,
computer equipment, leasehold improvement and automobiles, as well as payments
related to the construction of our facilities in China. Our facilities in China
are not encumbered by commercial bank mortgages and thus Chinese commercial
mortgage loans may be available with respect to these real estate assets if
we
need additional liquidity. We expect our capital expenditures to be
approximately $1.4 million to purchase our capital equipment primarily computer
equipment and apparel manufacturing equipment and approximately $2.0 million
for
a new facility in Canada in fiscal 2008.
Contractual
Obligations
We
had no off-balance sheet arrangements at January 31, 2007. As shown below,
at
January 31, 2007, our contractual cash obligations totaled approximately $7.108
million, including lease renewals entered into subsequent to January 31,
2007.
|
Payments
Due by Period
|
||||||||||||||||||||
|
Total
|
Less
than
1
Year
|
1-3
Years
|
4-5
Years
|
After
5 Years
|
||||||||||||||||
|
Canada
Facility Construction
|
$ |
1,566,000
|
$ |
1,566,000
|
||||||||||||||||
|
Operating
leases
|
$ |
1,766,000
|
$ |
522,000
|
$ |
1,096,000
|
$ |
148,000
|
----
|
|||||||||||
|
Revolving
credit
facility
|
3,786,000
|
----
|
3,786,000
|
----
|
----
|
|||||||||||||||
|
Total
|
$ |
7,108,000
|
$ |
2,078,000
|
$ |
4,882,000
|
$ |
148,000
|
----
|
|||||||||||
Seasonality
Our
operations have historically been seasonal, with higher sales generally
occurring in February, March, April and May when scheduled maintenance occurs
on
nuclear, coal, oil and gas fired utilities, chemical, petrochemical and smelting
facilities, and other heavy industrial manufacturing plants, primarily due
to
cooler temperatures. Sales decline during the warmer summer and vacation months,
and generally increase from Labor Day through February with slight declines
during holidays. As a result of this seasonality in our sales, we have
historically experienced a corresponding seasonality in our working capital,
specifically inventories, with peak inventories occurring between September
and
March coinciding with lead times required to accommodate the spring maintenance
schedules. We believe that by sustaining higher levels of inventory, we gain
a
competitive advantage in the marketplace. Certain of our large customers seek
sole sourcing to avoid sourcing their requirements from multiple vendors whose
prices, delivery times and quality standards differ.
In
recent
years, due to increased demand by first responders for our chemical suits and
fire gear, our historical seasonal pattern has shifted. Governmental
disbursements are dependent upon budgetary processes and grant administration
processes that do not follow our traditional seasonal sales patterns. Due to
the
size and timing of these
governmental
orders, our net sales, results of operations, working capital requirements
and
cash flows can vary between different reporting periods. As a result, we expect
to experience increased variability in net sales, net income, working capital
requirements and cash flows on a quarterly basis.
Effects
of Recent Accounting Pronouncements
In
June 2006, the FASB issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FAS No. 109, “Accounting for Income
Taxes.” FIN No. 48 prescribes a two-step process to determine the amount of tax
benefit to be recognized. First, the tax position must be evaluated to determine
the likelihood that it will be sustained upon external examination. If the
tax
position is deemed “more-likely-than-not” to be sustained, the tax position is
then assessed to determine the amount of benefit to recognize in the financial
statements. The amount of the benefit that may be recognized is the
largest amount that has a greater than 50 percent likelihood of being realized
upon ultimate settlement. We are required to adopt FIN No. 48
effective as of February 1, 2007. We are currently evaluating the effect FIN
No.
48 will have on our financial statement. We do not expect the impact will be
material.
In
September 2006, the FASB issued FAS No. 157, “Fair Value Measurements” (FAS No.
157”), which addresses how companies should measure fair value when they are
required to use a fair value measure for recognition or disclosure purposes
under generally accepted accounting principles. FAS No. 157 defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles and expands disclosures about fair value
measurements. FAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and should be applied
prospectively, except in the case of a limited number of financial instruments
that require retrospective application. We are currently evaluating
the potential impact of FAS No. 157 on our financial position and results of
operations.
In
February 2007, the FASB issued FAS
No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities-including an amendment of FAS 115” (FAS No. 159”). The new statement
allows entities to choose, at specified election dates, to measure eligible
financial assets and liabilities at fair value that are not otherwise required
to be measured at fair value. If a company elects the fair value option for
an
eligible item,
changes
in that item’s fair value in subsequent reporting periods must be recognized in
current earnings. FAS No. 159 is effective for fiscal years beginning
after November 15, 2007. We are currently evaluating the potential impact of
FAS
No. 159 on our financial position and results of operations.
In
September 2006, the Securities and
Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements ("SAB 108"). SAB 108 provides
interpretive guidance on how the effects of the carryover or reversal of prior
year misstatements should be considered in quantifying a current year
misstatement. The SEC staff believes that registrants should quantify errors
using both a balance sheet and an income statement approach and evaluate whether
either approach results in quantifying a misstatement that, when all relevant
quantitative and qualitative factors are considered, is material. SAB 108 is
effective for the Company's fiscal year ending January 31, 2007. The application
of SAB 108 did not have a material effect on our financial position or results
of operations as of January 31, 2007 or for the year then ended.
ITEM
7A.QUANTITATIVE AND QUALITATIVE
DISCLOSURES
ABOUT MARKET RISK
We
are
exposed to market risk, including changes in interest rates and currency
exchange rates. To manage the volatility relating to these exposures, we seek
to
limit, to the extent possible, our non-U.S. dollar denominated
purchases.
Foreign
Currency Risk
We
are
exposed to changes in foreign currency exchange rates as a result of our
purchases and sales in other countries. To manage the volatility relating to
foreign currency exchange rates, we seek to limit, to the extent possible,
our
non-U.S. dollar denominated purchases and sales.
In
connection with our operations in China, we purchase a significant amount of
products from outside of the United States. However, our purchases in China
are
primarily made in Chinese Yuan, the value of which has been
largely
pegged to the U.S. dollar for the last decade. However, the Chinese
Yuan has recently been decoupled from the US Dollar and allowed to float by
the
Chinese government, and therefore, we will be exposed to additional foreign
exchange rate risk on our Chinese purchases.
Our
primary risk from foreign currency exchange rate changes is presently related
to
non-U.S. dollar denominated sales in Canada and, to a smaller extent, in Europe.
Our sales to customers in Canada are denominated in Canadian
dollars. If the value of the U.S. dollar increases relative to the
Canadian dollar, then our net sales could decrease as our products would be
more
expensive to our Canadian customers because of the exchange rate
change. Our sales in China are denominated in the Chinese Yuan,
however, our sales there are presently not material. At this time, we do not
manage the foreign currency risk through the use of derivative instruments.
A
10% decrease in the value of the U.S. dollar relative to foreign currencies
would increase the landed costs into the U.S. but would make our selling price
for international sales more attractive with respect to foreign
currencies. As non-U.S. dollar denominated international purchases
and sales grow, exposure to volatility in exchange rates could have a material
adverse impact on our financial results.
Interest
Rate Risk
We
are
exposed to interest rate risk with respect to our credit facilities, which
have
variable interest rates based upon the London Interbank Offered Rate. At January
31, 2007, we had $3.8 million in borrowings outstanding under this credit
facility. If the interest rate applicable to this variable rate debt rose 1%
in
the year ended January 31, 2007, our interest expense would have increased
and
our income before income taxes would have decreased by less than
$62,000.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Index
to Consolidated Financial Statements
|
Consolidated
Financial Statements:
|
|
|
Page
No.
|
|
|
Report
of Independent Registered Public Accounting Firm
|
A-
38
|
|
Consolidated
Balance Sheets - January 31, 2007 and 2006
|
A-
40
|
|
Consolidated
Statements of Income for the years ended
|
A-
41
|
|
January
31, 2007, 2006 and 2005
|
|
|
Consolidated
Statement of Stockholders' Equity for the years ended
|
A-
42
|
|
January
31, 2007, 2006 and 2005
|
|
|
Consolidated
Statements of Cash Flows for the years ended
|
A-
43
|
|
January
31, 2007, 2006 and 2005
|
|
|
Notes
to Consolidated Financial Statements
|
A-
44 to 62
|
|
Schedule
II – Valuation and Qualifying Accounts
|
A-
63
|
All
other schedules are omitted because
they are not applicable, not required, or because the required information
is
included in the consolidated financial statements or notes thereto.
Report
of Independent Registered Public Accounting Firm
Board
of
Directors and Stockholders
Lakeland
Industries, Inc. and Subsidiaries
Ronkonkoma,
New York
We
have
audited the accompanying consolidated balance sheets of Lakeland Industries,
Inc. and Subsidiaries ("Lakeland") as of January 31, 2007 and 2006 and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended January 31, 2007.
We
have also audited the schedule listed in Item 15(a)(2) of this Form 10-K for
the
years ended January 31, 2007, 2006 and 2005. We have also audited
management’s assessment, included in the accompanying "Management's Report on
Internal Control Over Financial Reporting", that Lakeland Industries, Inc.
and
Subsidiaries maintained effective internal control over financial reporting
as
of January 31, 2007, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Lakeland’s management is responsible for
these consolidated financial statements and schedule, for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on these consolidated financial statements and the
schedule, an opinion on management's assessment, and an opinion on the
effectiveness of the company's internal control over financial reporting based
on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as
we
considered necessary in the circumstances. We believe that our audits provide
a
reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3)
provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Lakeland
Industries, Inc. and Subsidiaries as of January 31, 2007 and 2006 and
the results of its operations and its cash flows for each of the years in the
three-year period ended January 31, 2007 in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein. Also in our opinion,
management’s assessment that Lakeland maintained effective internal control over
financial reporting as of January 31, 2007, is fairly stated, in all
material respects, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Furthermore, in our opinion, Lakeland maintained, in all
material respects, effective internal control over financial reporting as of
January 31, 2007, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).
As
discussed in Note 1 to the financial statements, effective
February 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment.
Melville,
New York
April
5,
2007
Lakeland
Industries, Inc.
and
Subsidiaries
CONSOLIDATED
BALANCE SHEETS
|
January
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Assets
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ |
1,906,557
|
$ |
1,532,453
|
||||
|
Accounts
receivable, net of allowance for doubtful accounts of
$103,000
and $323,000 at January 31, 2007 and 2006, respectively
|
14,780,266
|
14,221,281
|
||||||
|
Inventories,
net of reserves of $306,000 and $365,000 at
January
31, 2007 and 2006, respectively
|
40,955,739
|
45,243,490
|
||||||
|
Deferred
income taxes
|
1,355,364
|
917,684
|
||||||
|
Prepaid
income tax
|
1,565,384
|
-----
|
||||||
|
Other
current assets
|
1,550,338
|
1,804,552
|
||||||
|
Total
current assets
|
62,113,648
|
63,719,460
|
||||||
|
Property
and equipment, net
|
11,084,030
|
7,754,765
|
||||||
|
Other
assets, net
|
129,385
|
118,330
|
||||||
|
Goodwill
|
871,297
|
871,297
|
||||||
|
Total
assets
|
$ |
74,198,360
|
$ |
72,463,852
|
||||
|
Liabilities
and Stockholders' Equity
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable
|
$ |
3,055,339
|
$ |
2,536,756
|
||||
|
Accrued
compensation and benefits
|
766,451
|
866,765
|
||||||
|
Other
accrued expenses
|
504,172
|
435,779
|
||||||
|
Total
current liabilities
|
4,325,962
|
3,839,300
|
||||||
|
Borrowings
under revolving credit facility
|
3,786,000
|
7,272,000
|
||||||
|
Pension
liability
|
-----
|
469,534
|
||||||
|
Deferred
income taxes
|
27,227
|
86,982
|
||||||
|
Total
liabilities
|
8,139,189
|
11,667,816
|
||||||
|
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; 5,521,824 and
5,017,046
shares issued and outstanding at January 31, 2007 and 2006,
respectively
|
55,218
|
50,170
|
||||||
|
Additional
paid-in capital
|
48,972,025
|
42,431,221
|
||||||
|
Retained
earnings
|
17,031,928
|
18,314,645
|
||||||
|
Total
stockholders' equity
|
66,059,171
|
60,796,036
|
||||||
|
Total
liabilities and stockholders' equity
|
$ |
74,198,360
|
$ |
72,463,852
|
||||
The
accompanying notes are an integral part of these consolidated financial
statements.
Lakeland
Industries, Inc.
and
Subsidiaries
CONSOLIDATED
STATEMENTS OF INCOME
|
Fiscal
years ended January 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Net
sales
|
$ |
100,170,942
|
$ |
98,740,066
|
$ |
95,320,163
|
||||||
|
Cost
of goods sold
|
75,895,066
|
74,817,715
|
74,924,375
|
|||||||||
|
Gross
profit
|
24,275,876
|
23,922,351
|
20,395,788
|
|||||||||
|
Operating
expenses
|
||||||||||||
|
Selling
and shipping
|
9,473,404
|
8,301,216
|
7,871,423
|
|||||||||
|
General
and administrative
|
8,080,567
|
6,118,722
|
4,870,302
|
|||||||||
|
Total
operating expenses
|
17,553,971
|
14,419,938
|
12,741,725
|
|||||||||
|
Operating
profit
|
6,721,905
|
9,502,413
|
7,654,063
|
|||||||||
|
Other
income (expense)
|
||||||||||||
|
Interest
expense
|
(356,331 | ) | (166,805 | ) | (207,912 | ) | ||||||
|
Interest
income
|
20,466
|
48,545
|
18,378
|
|||||||||
|
Gain
on pension plan liquidation
|
352,843
|
---
|
---
|
|||||||||
|
Other
income – net
|
191,163
|
383,909
|
98,370
|
|||||||||
|
Total
other income (expense)
|
208,141
|
265,649
|
(91,164 | ) | ||||||||
|
Income
before minority interest
|
6,930,046
|
9,768,062
|
7,562,899
|
|||||||||
|
Minority
interest in net income of variable interest
entities
|
---
|
---
|
493,558
|
|||||||||
|
Income
before income taxes
|
6,930,046
|
9,768,062
|
7,069,341
|
|||||||||
|
Income
tax expense
|
1,825,847
|
3,438,698
|
2,053,095
|
|||||||||
|
Net
income
|
$ |
5,104,199
|
$ |
6,329,364
|
$ |
5,016,246
|
||||||
|
Net
income per common share
|
||||||||||||
|
Basic
|
$ |
0.92
|
$ |
1.15
|
$ |
1.02
|
||||||
|
Diluted
|
$ |
0.92
|
$ |
1.15
|
$ |
1.02
|
||||||
|
Weighted
average common shares outstanding
|
||||||||||||
|
Basic
|
5,520,881
|
5,518,751
|
4,918,856
|
|||||||||
|
Diluted
|
5,527,618
|
5,524,076
|
4,924,638
|
|||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
Lakeland
Industries, Inc.
and
Subsidiaries
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
Fiscal
years ended January 31, 2007, 2006 and 2005
|
Common
stock
|
Additional
|
|||||||||||||||||||
|
Shares
|
Amount
|
paid-in
Capital
|
Retained
Earnings
|
Total
|
||||||||||||||||
|
Balance,
February 1, 2004
|
3,273,925
|
$ |
32,739
|
$ |
11,862,461
|
$ |
13,131,770
|
$ |
25,026,970
|
|||||||||||
|
Exercise
of stock options
|
6,210
|
62
|
54,370
|
-----
|
54,432
|
|||||||||||||||
|
Net
income
|
5,016,246
|
5,016,246
|
||||||||||||||||||
|
Proceeds
from secondary
stock
offering, net of expenses
|
1,280,750
|
12,808
|
24,356,215
|
-----
|
24,369,023
|
|||||||||||||||
|
Balance,
January 31, 2005
|
4,560,885
|
45,609
|
36,273,046
|
18,148,016
|
54,466,671
|
|||||||||||||||
|
Net
income
|
6,329,364
|
6,329,364
|
||||||||||||||||||
|
10%
stock dividend
|
456,161
|
4,561
|
6,158,175
|
(6,162,735 | ) |
-----
|
||||||||||||||
|
Balance,
January 31, 2006
|
5,017,046
|
50,170
|
42,431,221
|
18,314,645
|
60,796,036
|
|||||||||||||||
|
Exercise
of stock options
|
2,662
|
27
|
11,849
|
-----
|
11,876
|
|||||||||||||||
|
Net
income
|
5,104,199
|
5,104,199
|
||||||||||||||||||
|
10%
stock dividend
|
502,116
|
5,021
|
6,381,894
|
(6,386,916 | ) |
--
|
||||||||||||||
|
Stock
based compensation
|
-----
|
-----
|
147,061
|
-----
|
147,061
|
|||||||||||||||
|
Balance-
January 31, 2007
|
5,521,824
|
$ |
55,218
|
$ |
48,972,025
|
$ |
17,031,928
|
$ |
66,059,171
|
|||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
Lakeland
Industries, Inc.
and
Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Fiscal
year ended January 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Cash
flows from operating activities
|
||||||||||||
|
Net
income
|
$ |
5,104,199
|
$ |
6,329,364
|
$ |
5,016,246
|
||||||
|
Adjustments
to reconcile net income to net cash
provided
by (used in) operating activities
|
||||||||||||
|
Reserve
for inventory obsolescence
|
(58,626 | ) | (31,000 | ) | (20,831 | ) | ||||||
|
Provision
for bad debts
|
55,036
|
-----
|
-----
|
|||||||||
|
Deferred
income taxes
|
(497,435 | ) |
43,803
|
(334,795 | ) | |||||||
|
Depreciation
and amortization
|
1,048,380
|
993,686
|
884,140
|
|||||||||
|
Minority
interest in variable interest entity
Stock
based and restricted stock compensation
|
147,061
|
-----
|
493,558
-----
|
|||||||||
|
Gain
on pension plan liquidation
|
(352,843 | ) | ||||||||||
|
(Increase)
decrease in operating assets:
|
||||||||||||
|
Accounts
receivable
|
(338,985 | ) | (726,169 | ) | (547,054 | ) | ||||||
|
Inventories
|
4,346,377
|
(13,693,881 | ) | (4,619,385 | ) | |||||||
|
Prepaid
income taxes and other current assets
|
(1,586,206 | ) | (1,046,265 | ) |
254,613
|
|||||||
|
Other
assets
|
(11,056 | ) |
323,427
|
(73,267 | ) | |||||||
|
Increase
(decrease) in operating liabilities
|
||||||||||||
|
Accounts
payable
|
518,583
|
(391,737 | ) | (751,102 | ) | |||||||
|
Accrued
expenses and other liabilities
|
(31,921 | ) | (225,580 | ) |
157,083
|
|||||||
|
Pension
liability
|
(116,691 | ) |
-----
|
-----
|
||||||||
|
Net
cash provided by (used in) operating
activities
|
8,225,873
|
(8,424,352 | ) |
459,206
|
||||||||
|
Cash
flows from investing activities
Purchase
of assets in India from RFB Latex
|
(3,464,994 | ) |
---
|
---
|
||||||||
|
Purchase
of Mifflin Valley
|
---
|
(1,907,680 | ) |
-----
|
||||||||
|
Purchases
of property and equipment
|
(912,651 | ) | (4,592,897 | ) | (836,194 | ) | ||||||
|
Net
cash used in investing activities
|
(4,377,645 | ) | (6,500,577 | ) | (836,194 | ) | ||||||
|
Cash
flows from financing activities
|
||||||||||||
|
Net
borrowings (payments) under credit agreements
|
(3,486,000 | ) |
7,272,000
|
(16,784,781 | ) | |||||||
|
Distributions
to minority interest in variable interest entity
|
----
|
----
|
(521,575 | ) | ||||||||
|
Proceeds
from exercise of stock options
|
11,876
|
----
|
54,432
|
|||||||||
|
Proceeds
from secondary stock offering
|
----
|
----
|
24,369,023
|
|||||||||
|
Net
cash (used in) provided by financing activities
|
(3,474,124 | ) |
7,272,000
|
7,117,099
|
||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
374,104
|
(7,652,929 | ) |
6,740,111
|
||||||||
|
Cash
and cash equivalents at beginning of year
|
1,532,453
|
9,185,382
|
2,445,271
|
|||||||||
|
Cash
and cash equivalents at end of year
|
$ |
1,906,557
|
$ |
1,532,453
|
$ |
9,185,382
|
||||||
See
note
for Supplemental Cash Flow information.
The
accompanying notes are an integral part of these consolidated financial
statements
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
1.
– BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business
Lakeland
Industries, Inc. and Subsidiaries (the “Company”), a Delaware corporation,
organized in April 1982, manufactures and sells a comprehensive line of safety
garments and accessories for the industrial protective clothing
market. 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, 2007, 2006 and 2005.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Laidlaw, Adams & Peck, Inc. and
Subsidiary MeiYang Protective Products Co. Ltd., (a Chinese corporation),
Lakeland Protective Wear, Inc. and Lakeland Protective Real Estate (Canadian
corporations), Weifang Lakeland Safety Products Co., Ltd. (a Chinese
corporation), Qingdao Lakeland Protective Products Co., Ltd. (a Chinese
corporation), Lakeland Industries Europe Ltd. (a British corporation), Lakeland
Industries Inc. Agencia en Chile, (a Chilean corporation), Lakeland Japan,
Inc.
(a Japanese corporation), Lakeland India Private, Ltd and Lakeland Gloves and
Safety Apparel Private Limited (Indian corporations) and Lakeland de Mexico
S.A.
de C.V. (a Mexican corporation). All significant intercompany
accounts and transactions have been eliminated.
In
January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable
Interest Entities.” This interpretation provides guidance with
respect to the consolidation of certain entities, referred to as variable
interest entities (“VIE”), in which an investor is subject to a majority of the
risk of loss from the VIE’s activities, or is entitled to receive a majority of
the VIE’s residual returns. This interpretation also provides guidance with
respect to the disclosure of VIE’s in which
an
investor maintains an interest but is not required to
consolidate. The provisions of the interpretation were effective
immediately for all VIE’s created after January 31, 2003, or in which we obtain
an interest after that date. In October 2003, the FASB issued a revision to
this
pronouncement, FIN 46R, which clarified certain provisions and modified the
effective date from October 1, 2003 to March 15, 2004 for variable interest
entities created before February 1, 2003. The Company adopted this
pronouncement as of February 1, 2004. The two entities which leased property
to
the Company and are owned by related parties, which were consolidated in our
financial statements, are River Group Holding Co., L.L.P. and POMS Holding
Co.
Ownership of these entities is held by directors and officers of
Lakeland. Under FIN 46, it is likely that leases between an entity
and its related parties would be considered a variable interest even if there
is
no residual value guarantee or purchase option. The FASB staff’s view
is that these elements are implied in a related-party lease even though they
may
not be explicitly stated in the lease agreement. In Fiscal 2006
the Company purchased the property owned by River Group Holding Co., L.L.P.
and
POMS Holding Co.
There
are
no variable interest entities in which we hold a variable interest but where
we
are not primary beneficiary. There are no collateralized assets
related to the variable interest entity recorded at January 31, 2005 and the
creditors of the VIE had no recourse to the general credit of the
Company.
Revenue
Recognition
The
Company derives its sales primarily from its limited use/disposable protective
clothing and secondarily from its sales of high-end chemical
protective suits, fire fighting and heat protective apparel, gloves and arm
guards, and reusable woven garments. Sales are recognized when goods are shipped
at which time title and the risk of loss passes to the
customer. Sales are reduced for sales returns and allowances. Payment
terms are generally net 30 days for United States sales and net 90 days for
international sales. Domestic and international sales are as
follows:
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
1.
(continued)
|
Fiscal
Years Ended January 31,
|
||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||||||||||||
|
Domestic
|
$ |
87,813,000
|
87.7 | % | $ |
89,107,000
|
90.2 | % | $ |
86,320,000
|
90.6 | % | ||||||||||||
|
International
|
12,358,000
|
12.3 | % |
9,633,000
|
9.8 | % |
9,000,000
|
9.4 | % | |||||||||||||||
|
Total
|
$ |
100,171,000
|
100.0 | % | $ |
98,740,000
|
100.0 | % | $ |
95,320,000
|
100.0 | % | ||||||||||||
Inventories
Inventories
include freight-in, materials, labor and overhead costs and are stated at the
lower of cost (on a first-in first-out basis) or market. Provision is
made for slow-moving, obsolete or unusable inventory.
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. When assets are sold or otherwise disposed
of, the cost and related accumulated depreciation are removed from the account
and the gain or loss on disposition is reflected in operating
income.
Goodwill
On
February 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” which provides
that goodwill and other intangible assets will no longer be amortized, but
are
assessed for impairment annually and upon occurrence of an event that indicates
impairment may have occurred. Goodwill impairment is evaluated,
utilizing a two-step process as required by SFAS No. 142. Factors
that the Company considers important that could identify a potential impairment
include: significant under performance relative to expected historical or
projected future operating results; significant changes in the overall business
strategy; and significant negative industry or economic trends. When the Company
determines that the carrying value of intangibles and goodwill may not be
recoverable based upon one or more of these indicators of impairment, the
Company measures any potential impairment based on a projected discounted cash
flow method. Estimating future cash flows requires the Company’s management to
make projections that can differ materially from actual results.
On
August
1, 2005 the Company purchased Mifflin Valley, Inc, a Pennsylvania
manufacturer. This acquisition resulted in the recording of $871,297
in goodwill as of January 31, 2006. There is no impairment of this
goodwill at January 31, 2007.
Self-Insured
Liabilities.
The
Company has a self-insurance program for certain employee health benefits.
The
cost of such benefits is recognized as expense based on claims filed in each
reporting period and an estimate of claims incurred but not reported during
such
period. This estimate is based upon historical trends and amounted to $120,000
for each of the years ended January 31, 2007 and 2006. The Company maintains
separate insurance to cover the excess liability over set single claim amounts
and aggregate annual claim amounts.
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
1.
(continued)
Stock-Based
Compensation
The
Company’s Director’s Plan permits the grant of share options and shares to its
Directors for up to 60,000 shares of common stock as stock
compensation. All stock options under this Plan are granted at the
fair market value of the common stock at the grant date. This date is
fixed only once a year upon a Board Member’s re-election to the Board at the
Annual Shareholders’ meeting which is the third Wednesday in June pursuant to
the Director’s Plan and our Company By-Laws. Directors’ stock options
vest ratably over a 6 month period and generally expire 6 years from the grant
date.
Effective
February 1, 2006, the Company’s Plan is accounted for in accordance with the
recognition and measurement provisions of Statement of Financial Accounting
Standards “Share-based Payment” (“FAS” No. 123 (R)”), which replaces FAS No.
123, Accounting for Stock-Based Compensation, and supersedes Accounting
Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to
Employees, and related interpretations. FAS No. 123 (R) requires
compensation costs related to share-based payment transactions including
employee stock options, to be recognized in the financial
statements. In addition, the Company adheres to the guidance set
forth within Securities and Exchange Commission (“SEC”) Staff Accounting
Bulletin (“SAB”) No. 107, which provides the Staff’s views regarding the
interaction between SFAS No. 123(R) and certain SEC rules and regulations and
provides interpretations with respect to the valuation of share-based payments
for public companies.
Prior
to
February 1, 2006, the Company accounted for similar transactions in accordance
with APB No. 25 which employed the intrinsic value method of measuring
compensation cost. Accordingly compensation expense was not
recognized for fixed stock options if the exercise price of the option equaled
or exceeded the fair value of the underlying stock at the grant
date.
While
FAS
No. 123 encouraged recognition of the fair value of all stock-based awards
on
the date of grant as expense over the vesting period, companies were permitted
to continue to apply the intrinsic value-based method of accounting prescribed
by APB No. 25 and disclose certain pro-forma amounts as if the fair value
approach of SFAS No. 123 had been applied. In December 2002, FAS No.
148, Accounting for Stock-Based Compensation-Transition and Disclosure, an
amendment of SFAS No. 123, was issued, which, in addition to providing
alternative methods of transition for a voluntary charge to the fair value
method of accounting for stock-based employee compensation, required more
prominent pro-forma disclosures in both the annual and interim financial
statements. The Company complied with these disclosure requirements
for all applicable periods prior to February 1, 2006.
In
adopting FAS No. 123(R), the Company applied the modified prospective approach
to transition. Under the modified prospective approach, the
provisions of FAS No. 123(R) are to be applied to new awards and to awards
modified, repurchased, or cancelled after the required effective
date. Additionally, compensation cost for the portion of awards for
which the requisite service has not been rendered that are outstanding as of
the
required effective date shall be recognized as the requisite service is rendered
on or after the required effective date. The compensation cost for
that portion of awards shall be based on the grant-date fair value of those
awards as calculated for either recognition or pro-forma disclosures under
FAS
No. 123.
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
The
following table illustrates the effect on net income and earnings per share
as
if the fair value recognition provisions of FAS No. 123 had been applied to
all
outstanding and unvested awards in the prior years.
|
2006
|
2005
|
|||||||
|
Net
income
As
reported
|
$ |
6,329,364
|
$ |
5,016,246
|
||||
|
Less:
|
||||||||
|
Stock
–based employee compensation expense determined
under
fair value based method, net of related tax benefit
|
9,627
|
91,331
|
||||||
|
Net
income, Pro forma
|
$ |
6,319,737
|
$ |
4,924,915
|
||||
|
Basic
earnings per common share
|
||||||||
|
As
reported
|
$ |
1.15
|
$ |
1.02
|
||||
|
Pro
forma
|
$ |
1.15
|
$ |
1.00
|
||||
|
Diluted
earnings per common share
|
||||||||
|
As
reported
|
$ |
1.15
|
$ |
1.02
|
||||
|
Pro
forma
|
$ |
1.15
|
$ |
1.00
|
||||
Restricted
Stock Plan and Performance Equity Plan
On
June 21, 2006, the shareholders of
the Company approved a restricted stock plan. A total of 253,000
shares of restricted stock were authorized under this plan. Under the
restricted stock plan, eligible employees and directors are awarded
performance-based restricted shares of the Corporation’s common
stock. The amount recorded as expense for the performance-based
grants of restricted stock are based upon an estimate made at the end of each
reporting period as to the most probable outcome of this plan at the end of
the
three year performance period. (e.g., baseline, minimum, maximum or
zero). In addition to the grants with vesting based solely on
performance, certain awards pursuant to the plan have a time-based vesting
requirement, under which awards vest from three to four years after issuance,
subject to continuous employment and certain other
conditions. Restricted stock have the same voting rights as other
common stock. Restricted stock awards do not have voting rights, and
the underlying shares are not considered to be issued and outstanding until
vested.
The
Company has granted up to a maximum
of 136,213 restricted stock awards as of January 31, 2007. All of
these restricted stock awards are non-vested at January 31, 2007 (92,103shares
at “baseline” and 48,983 shares at “minimum”) and have a weighted average grant
date fair value of $12.98. The Company recognizes expenses related to
performance-based awards over the requisite service period using the
straight-line attribution method based on the outcome that is
probable.
As
of January 31, 2007, unrecognized
stock-based compensation expense related to restricted stock awards
totaled $960,512 and $1,421,319 and $510,043 at the baseline,
maximum, and minimum performance levels, respectively. The cost of
these non-vested awards is expected to be recognized over a weighted-average
period of three years. The board has estimated its current
performance level to be at the minimum level and expenses have been recorded
accordingly. The performance based awards are not considered stock
equivalents for EPS purposes.
The
fair
value of the 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, 2006 and 2005: expected volatility of 87% and 58%, respectively; risk-free
interest rate of 3.6% and 3.6%, respectively; expected dividend yield of 0.0%;
and expected life of six years. All stock-based awards were fully vested at
January 31, 2006 and 2005. During fiscal 2007, 2,200 option shares
were granted to two Directors (1,100 each) upon re-election in June
2006. No options were granted in fiscal 2006. During
fiscal 2005, 1,000 option shares granted to a director upon re-election in
June
2004 were cancelled upon his resignation in November 2004. In
November 2004, two new directors were appointed and granted 5,000 option shares
each. Earnings per share have been adjusted to reflect the 10% stock dividends
to stockholders of record as of August 1, 2006 and April 30, 2005.
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
1.
(continued)
Allowance
for Doubtful Accounts
The
Company establishes an allowance for doubtful accounts to provide for accounts
receivable that may not be collectible. In establishing the allowance
for doubtful accounts, the Company analyzes the collectibility of individual
large or past due accounts customer-by-customer. The Company
establishes reserves for accounts that it determines to be doubtful of
collection.
Shipping
and Handling Costs
For
larger orders, except in its Fyrepel product line, the Company absorbs the
cost
of shipping and handling. For those customers who are billed the cost
of shipping and handling fees, such amounts are included in net
sales. Shipping and handling costs associated with outbound freight
are included in selling and shipping expenses and aggregated approximately
$2,461,000, $2,411,000, and $2,355,000 in the fiscal years ended January 31,
2007, 2006 and 2005, respectively.
Research
and Development Costs
Research
and development costs are expensed as incurred and included in general and
administrative expenses. Research and development expenses aggregated
approximately $100,000, $90,000 and $89,000 in the fiscal years ended
January 31, 2007, 2006 and 2005, respectively, and were paid to contractors
for
development of new raw materials.
Income
Taxes
The
Company is required to estimate its income taxes in each of the jurisdictions
in
which it operates as part of preparing the consolidated financial
statements. This involves estimating the actual current tax in
addition to assessing temporary differences resulting from differing treatments
for tax and financial accounting purposes. These differences, together with
net
operating loss carry forwards and tax credits, are recorded as deferred tax
assets or liabilities on the Company’s balance sheet. A judgment must then be
made of the likelihood that any deferred tax assets will be recovered from
future taxable income. A valuation allowance may be required to reduce deferred
tax assets to the amount that is more likely than not to be realized. In the
event the Company determines that it may not be able to realize all or part
of
our deferred tax asset in the future, or that new estimates indicate that a
previously recorded valuation allowance is no longer required, an adjustment
to
the deferred tax asset is charged or credited to income in the period of such
determination.
Earnings
Per Share
Basic
earnings per share are based on the weighted average number of common shares
outstanding without consideration of common stock equivalents. Diluted earnings
per share are based on the weighted average number of common and common stock
equivalents. The average common stock equivalents for the years ended January
31, 2007, 2006 and 2005 were 7,459, 5,325, and 5,782 respectively, representing
the dilutive effect of stock options. The diluted earnings per share calculation
takes into account the shares that may be issued upon exercise of stock options,
reduced by shares that may be repurchased with the funds received from the
exercise, based on the average price during the fiscal year (as adjusted for
the
10% stock dividend to holders of record on April 30, 2005 and August 1,
2006).
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising costs (income) amounted
to $30,433, $(43,104), and $(15,326) in the fiscal years ended January 31,
2007,
2006 and 2005, respectively, net of co-op advertising allowance received from
a
supplier. These reimbursements include some costs which are
classified in categories other than advertising, such as payroll.
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
1.
(continued)
Statement
of Cash Flows
The
Company considers highly liquid temporary cash investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist of money market funds. The market value of the cash equivalents
approximates cost. Foreign denominated cash and cash equivalents were
approximately $1,752,000 and $1,194,000 at January 31, 2007 and 2006,
respectively.
Supplemental
cash flow information for the years ended January 31 is as follows:
|
2007
|
2006
|
2005
|
||||||||||
|
Interest
paid
|
$ |
356,331
|
$ |
166,805
|
$ |
207,912
|
||||||
|
Income
taxes paid
|
$ |
3,744,519
|
$ |
3,402,723
|
$ |
2,103,682
|
||||||
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. The Company does not require customers to post
collateral.
The
largest foreign cash balances are deposited in HSBC in China and the UK and
in
the TD Canada Trust Bank in Canada. The utilization of these larger
banking institutions minimizes risk of deposits held in foreign
countries.
Foreign
Operations and Foreign Currency Translation
The
Company maintains manufacturing operations and uses independent contractors
in
Mexico, India and the People’s Republic of China. It also maintains sales and
distribution entities located in Canada, the U.K., Chile and Japan. The Company
is vulnerable to currency risks in these countries. The functional currency
of
foreign subsidiaries is the U.S. dollar.
The
monetary assets and liabilities of the Company’s foreign operations are
translated into U.S. dollars at current exchange rates, while non-monetary
items
are translated at historical rates. Revenues and expenses are generally
translated at average exchange rates for the year. Transaction gains and losses
that arise from exchange rate fluctuations on transactions denominated in a
currency other than the functional currency are included in the results of
operations as incurred and aggregated approximately $29,000, $66,000 and $58,000
for the fiscal years ended January 31, 2007, 2006 and 2005,
respectively.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at year-end
and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates. The most significant estimates include the allowance for
doubtful accounts and inventory reserves. It is reasonably possible
that events could occur during the upcoming year that could change such
estimates.
Fair
value of Financial Instruments
The
Company's principal financial instrument consists of its outstanding revolving
credit facility and term loan. The Company believes that the carrying amount
of
such debt approximates the fair value as the variable interest rates approximate
the current prevailing interest rate.
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
1.
(continued)
Effects
of Recent Accounting Pronouncements
In
June 2006, the FASB issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FAS No. 109, “Accounting for Income
Taxes.” FIN No. 48 prescribes a two-step process to determine the amount of tax
benefit to be recognized. First, the tax position must be evaluated to determine
the likelihood that it will be sustained upon external examination. If the
tax
position is deemed “more-likely-than-not” to be sustained, the tax position is
then assessed to determine the amount of benefit to recognize in the financial
statements. The amount of the benefit that may be recognized is the
largest amount that has a greater than 50 percent likelihood of being realized
upon ultimate settlement. We are required to adopt FIN No. 48
effective as of February 1, 2007. We are currently evaluating the effect FIN
No.
48 will have on our financial statement. We do not expect the impact will be
material.
In
September 2006, the FASB issued FAS No. 157, “Fair Value Measurements” (FAS No.
157”), which addresses how companies should measure fair value when they are
required to use a fair value measure for recognition or disclosure purposes
under generally accepted accounting principles. FAS No. 157 defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles and expands disclosures about fair value
measurements. FAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and should be applied
prospectively, except in the case of a limited number of financial instruments
that require retrospective application. We are currently evaluating
the potential impact of FAS No. 157 on our financial position and results of
operations.
In
February 2007, the FASB issued FAS
No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities-including an amendment of FAS 115” (“FAS No. 159”). The new
statement allows entities to choose, at specified election dates, to measure
eligible financial assets and liabilities at fair value that are not otherwise
required to be measured at fair value. If a company elects the fair value option
for an eligible item,
changes
in that item’s fair value in subsequent reporting periods must be recognized in
current earnings. FAS No. 159 is effective for fiscal years beginning
after November 15, 2007. We are currently evaluating the potential impact of
FAS
No. 159 on our financial position and results of operations.
In
September 2006, the Securities and
Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements ("SAB 108"). SAB 108 provides
interpretive guidance on how the effects of the carryover or reversal of prior
year misstatements should be considered in quantifying a current year
misstatement. The SEC staff believes that registrants should quantify errors
using both a balance sheet and an income statement approach and evaluate whether
either approach results in quantifying a misstatement that, when all relevant
quantitative and qualitative factors are considered, is material. SAB 108 is
effective for the Company's fiscal year ending January 31, 2007. The application
of SAB 108 did not have a material effect on our financial position or results
of operations as of January 31, 2007 or for the year then ended.
Comprehensive
income (loss)
Comprehensive income (loss) refers to revenue, expenses, gains and losses that
under generally accepted accounting principles are included in comprehensive
income but are excluded from net income as these amounts are recorded directly
as an adjustment to stockholders' equity. At January 31, 2007, 2006 and 2005,
there were no such adjustments required or such amounts were de
minimus.
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
2
–INVENTORIES
Inventories
consist of the following at January 31:
|
2007
|
2006
|
|||||||
|
Raw
materials
|
$ |
19,051,284
|
$ |
18,656,894
|
||||
|
Work-in-process
|
2,760,196
|
1,996,027
|
||||||
|
Finished
goods
|
19,144,259
|
24,590,569
|
||||||
| $ |
40,955,739
|
$ |
45,243,490
|
|||||
3
-PROPERTY, PLANT AND EQUIPMENT
Property
and equipment consist of the following at January 31:
|
Useful
life
in
years
|
2007
|
2006
|
||||||||||
|
Machinery
and equipment
|
3
–
10
|
$ |
6,965,360
|
$ |
6,919,530
|
|||||||
|
Furniture
and fixtures
|
3
–
10
|
255,949
|
294,087
|
|||||||||
|
Leasehold
improvements
|
Lease
term
|
941,002
|
964,587
|
|||||||||
|
Land
and Building (China)
|
20
|
2,073,665
|
2,153,592
|
|||||||||
|
Land,
Building and equipment (India)
|
7
-
39
|
3,464,994
|
---
|
|||||||||
|
Land
and Building (Canada)
|
Under
construction
|
122,395
|
---
|
|||||||||
|
Land
and Buildings (USA)
|
39
|
3,967,973
|
3,623,471
|
|||||||||
|
17,791,338
|
13,955,267
|
|||||||||||
|
Less
accumulated depreciation and amortization
|
(6,707,308 | ) | (6,200,502 | ) | ||||||||
| $ |
11,084,030
|
$ |
7,754,765
|
|||||||||
Depreciation
expense for fiscal 2007, 2006 and 2005 amounted to $1,048,380, $993,686,
$884,140 respectively. Net fixed assets in China were approximately
$2.1 million, $2.2 million and $2.2 million as of January 31, 2007, 2006 and
2005, respectively. Net fixed assets in India were approximately $3.5
million at January 31, 2007.
In
November 2006, the Company purchased the Industrial Glove assets of RFB Latex,
Ltd. (RFB) of New Delhi, India for a purchase price of approximately $3.4
million, subject to reconciliation of operations over the prior year and an
audit. Such assets consist of long term land leases, buildings and
equipment. This purchase price is in addition to the cumulative
outlay of approximately $1.5 million through November 15, 2006 which consists
of
the cost of the purchase option, inventory, receivables, operating losses to
date and working capital. Such additional amount has been charged to expense
in
Fiscal 2007. The Company may, subject to Indian law, liquidate its existing
subsidiary and set up a new subsidiary which will consummate the purchase
transaction. The Company has purchased the assets in question directly and
has
hired a new Chief Operating Officer to manage and control the Indian operations.
Management expects to begin shipping gloves to the USA in the summer of
2007.
4-BUSINESS
COMBINATIONS
On
August 1, 2005, the Company acquired
the assets and operations and assumed certain liabilities of Mifflin Valley,
Inc., (“Mifflin”) of Shillington, PA for an initial purchase price of $1.6
million, subject to certain adjustments. Final payment was made in
November 2005 following the audit of the closing date balance
sheet. The final price amounted to $1.9 million and included
adjustments for the payoff of a revolving loan of $0.2 million and adjustments
for inventory, fixed asset values and allowances for doubtful
accounts. Mifflin did approximately $2.6 million of sales in 2004,
and $1.5 million for the six months ended June 30, 2005. Mifflin is a
manufacturer of protective clothing specializing in safety and visibility,
largely for the Emergency Services market, and also for the
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
entire
public safety and traffic control market. Mifflin specializes in
customized garments to suit customers’ needs, coupled with quality, service,
price and delivery. Mifflin’s products include flame retardant
garments for the Fire Industry, Nomex clothing for utilities, and high
visibility reflective outerwear for Departments of Transportation.
The
purchase was effective as of July 1, 2005 and the results of Mifflin’s
operations have been included since July 1, 2005 in the Company’s reported
results , adding approximately $1.8 million in sales for the seven months ended
January 31, 2006 and $0.02 to earnings per share to the actual reported
results. Had the transaction taken place on February 1, 2005, on a
proforma basis, there would have been an increase in the reported amounts as
follows:
|
Twelve
months ended January 31, 2006
|
||
|
Pro
Forma Results Combined with Mifflin Valley
|
Additional
amount resulting from Mifflin Valley
|
|
|
Sales
|
$100,043,000
|
$1,303,000
|
|
Net
Income
|
$6,411,000
|
$82,000
|
|
Earnings
per share
|
$1.16
|
$0.01
|
Had
the
transactions taken place on February 1, 2004, on a Pro Forma basis, the effect
on the reported amounts for the twelve months ended January 31, 2005 is
considered by management to be insignificant.
Condensed
balance sheet information at Acquisition
|
Accounts
receivable
|
$ |
363,000
|
||
|
Inventory
|
667,000
|
|||
|
Equipment
|
216,000
|
|||
|
Other
assets
|
35,000
|
|||
|
Total
assets
|
1,281,000
|
|||
|
Accounts
payable
|
261,000
|
|||
|
Other
liabilities
|
185,000
|
|||
|
Total
liabilities
|
446,000
|
|||
|
Net
assets acquired
|
835,000
|
|||
|
Purchase
price
|
1,767,000
|
|||
|
Excess
purchase price
|
$ |
932,000
|
|
Allocated
to:
|
||||
|
Goodwill
|
$ |
871,000
|
||
|
Other
intangibles
|
61,000
|
|||
| $ |
932,000
|
|||
The
above
goodwill is deductible for tax purposes to be amortized over a 15 year
life.
5
-LONG-TERM DEBT
Revolving
Credit Facility
In
July 2005 the Company entered into a
$25 million five year revolving credit facility with Wachovia Bank,
N.A. At January 31, 2007, the balance outstanding under this
revolving credit facility amounted to $3.8 million. The credit
facility is collateralized by substantially all of the assets of the
Company. The credit facility contains financial covenants, including,
but not limited to, fixed charge ratio, funded debt to EBIDTA ratio, inventory
and accounts receivable collateral coverage ratio, with respect to which the
Company was in compliance at January 31, 2007 and for the year then
ended.
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
5.
(continued)
The
Company’s previous agreement with its lending institution, as amended, provided
the Company with a revolving credit facility of $18 million. The
balance was paid in full on June 18, 2004 using the proceeds from the Company’s
June 18, 2004 Secondary Stock Offering. This credit facility, which was subject
to a borrowing base calculated on a percentage of eligible accounts receivable
and inventory as defined, bore interest at LIBOR plus
2%.
The
maximum amounts borrowed under the credit facilities during the fiscal years
ended January 31, 2007 and 2006 and 2005 were $10,000,000, $17,000,000, and
$18,000,000 respectively, and the weighted average interest rates during the
periods were 5.82%, 3.67% and 3.20%, respectively.
The
fees
incurred by the Company to obtain the credit facility amounted to $0, $25,000
and $15,000 during fiscal 2007, 2006 and 2005, respectively.
6.
– STOCKHOLDERS’ EQUITY AND STOCK OPTIONS
On
June
18, 2004, the company completed its secondary public offering by issuing an
additional 1,100,000 shares of its common stock. On July 1, 2004, an
additional 180,750 shares of its common stock were issued pursuant to the
over-allotment section of the prospectus dated June 14, 2004. The
Company received $24.4 million, net of related expenses of $0.4
million. The Company used $16.8 million to pay off the balance of its
revolving credit facility.
The
Non-employee 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 non-employee 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 non-employee 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.
The
Corporation recognized total
stock-based compensation costs of $147,061, of which $125,711 results from
the
2006 Equity Incentive Plan, and $21,350 results from the Non-Employee Directors
Option Plan for the year ended January 31, 2007. Stock compensation expense
and
tax benefit recorded under APB 25 in the Consolidated Statements of Income
for
the years ended January 31, 2006 and 2005, were $0. These amounts are reflected
in selling, general and administrative expenses. The total income tax
benefit recognized for stock-based compensation arrangements was $52,942 for
the
year ended January 31, 2007.
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
6.
(continued)
Additional
information with respect to the Company’s plans for the fiscal year ended
January 31, 2007 is summarized as follows:
|
2007
Directors’
Plan
|
||||||||||||||||
|
Number
of
shares
*
|
Weighted
average
exercise
price
|
Weighted
average
remaining
term
(years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
|
Shares
under option
|
||||||||||||||||
|
Outstanding
at beginning of year
|
17,963
|
$ |
12.61
|
|||||||||||||
|
10%
stock dividend
|
1,530
|
|||||||||||||||
|
Granted
|
2,200
|
13.10
|
||||||||||||||
|
Exercised
|
(2,662 | ) |
4.46
|
|||||||||||||
|
Outstanding
and exercisable at end of year
|
19,031
|
$ |
12.79
|
3.5
|
$ |
35,778
|
||||||||||
|
Weighted-average
fair value per share of options granted during
2007
|
$ |
11.8
|
||||||||||||||
|
Weighted-average
fair value per share of options exercised during 2007
|
$ |
4.46
|
||||||||||||||
*Adjusted
for the 10% stock dividend to stockholders of record as of August 1,
2006
|
Reserved
Shares:
|
||||
|
Directors
Option Plan
|
32,936
|
|||
7.
– INCOME TAXES
The
provision for income taxes is based on the following pre-tax
income:
|
Year
Ended January 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Domestic
|
$ |
5,132,063
|
$ |
7,896,736
|
$ |
5,398,768
|
||||||
|
Foreign
|
1,797,983
|
1,871,326
|
1,670,573
|
|||||||||
|
Total
|
$ |
6,930,046
|
$ |
9,768,062
|
$ |
7,069,341
|
||||||
The
provision for income taxes is summarized as follows:
|
Year
ended January 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Current
|
||||||||||||
|
Federal
|
$ |
1,669,922
|
$ |
2,563,836
|
$ |
1,661,606
|
||||||
|
State
|
180,999
|
448,656
|
330,337
|
|||||||||
|
Foreign
|
429,343
|
382,403
|
395,917
|
|||||||||
|
2,280,264
|
3,394,895
|
2,387,860
|
||||||||||
|
Domestic
Deferred
|
(454,417 | ) |
43,803
|
(334,765 | ) | |||||||
| $ |
1,825,847
|
$ |
3,438,698
|
$ |
2,053,095
|
|||||||
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
The
following is a reconciliation of the effective income tax rate to the Federal
statutory rate:
|
Year
ended January 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Statutory
rate
|
34.0 | % | 34.0 | % | 34.0 | % | ||||||
|
State
income taxes, net of Federal tax benefit
|
1.7 | % | 2.0 | % | 2.5 | % | ||||||
|
Permanent
differences
|
(.7 | )% | (.2 | )% | (.2 | )% | ||||||
|
Repatriation
of foreign earnings
|
-----
|
1.7 | % |
-----
|
||||||||
|
Foreign
tax rate differential
|
(7.6 | )% | (2.7 | )% | (2.0 | )% | ||||||
|
Contribution
carry forward realized
|
-----
|
-----
|
(4.0 | )% | ||||||||
|
Other
|
(1.0 | )% | .4 | % | (1.3 | )% | ||||||
|
Effective
rate
|
26.4 | % | 35.2 | % | 29.0 | % | ||||||
The
tax
effects of temporary differences which give rise to deferred tax assets at
January 31, 2007, 2006 and 2005 are summarized as follows:
|
January
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Deferred
tax assets
|
||||||||||||
|
Inventories
|
$ |
766,662
|
$ |
688,800
|
$ |
606,652
|
||||||
|
Accounts
receivable
|
39,140
|
120,703
|
122,740
|
|||||||||
|
Accrued
compensation and other
|
150,895
|
108,181
|
231,342
|
|||||||||
|
Losses
in India prior to restructuring effective
February
1, 2007
|
398,667
|
-----
|
-----
|
|||||||||
|
Gross
deferred tax assets
|
1,355,364
|
917,684
|
960,734
|
|||||||||
|
Deferred
tax liabilities
|
||||||||||||
|
Depreciation
and other
|
27,227
|
86,982
|
86,229
|
|||||||||
|
Gross
deferred tax liabilities
|
27,227
|
86,982
|
86,229
|
|||||||||
|
Net
deferred tax asset
|
$ |
1,328,137
|
$ |
830,702
|
$ |
874,505
|
In
January 2006, the company
repatriated through dividends to the parent, approximately $3.2 million of
cumulative earnings from its Chinese subsidiaries, thereby incurring
approximately $164,000 of additional US taxes.
8.
– BENEFIT PLANS
Defined
Benefit Plan
On
January 30, 2007, Lakeland purchased a Single Premium Group Annuity Contract
from the John Hancock Life Insurance Company (“John Hancock”) to cover all
participants in the Fireland Pension Fund in connection with Lakeland’s
termination of the plan. The cost of such annuity contract was
approximately $1,421,000 for which the John Hancock set up a Single Premium
Non-participation Group Annuity plan to cover all participants in the
plan. The termination of the plan was approved by the Pension Benefit
Guarantee Corporation (“PBGC”). Such cost of $1,421,000 was funded by plan
assets of approximately $1,303,000 and net cash contributed by Lakeland
Industries,
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
8.
(continued)
Inc.
of
approximately $118,000. After the completion of this transaction, the
company had a remaining accrued benefit cost liability of approximately
$353,000, recognized as a pre-tax gain of approximately $353,000. This
transaction meets the definition of “settlement” pursuant to FAS
88. The Fireland Pension Fund was a frozen defined benefit pension
plan that covered former employees of an entity acquired in fiscal
1987.
The
Company’s funding policy was to contribute annually the recommended amount based
on computations made by its consulting actuary as of January 31, 2006 and
2005.
The
following table sets forth the plan's funded status for the fiscal year ended
January 31,
|
2006
|
||||
|
Change
in benefit obligation
|
||||
|
Projected
benefit obligation at beginning of year
|
$ |
1,227,215
|
||
|
Interest
cost
|
81,214
|
|||
|
Actuarial loss
|
7,361
|
|||
|
Benefits
paid
|
(48,104 | ) | ||
|
Benefit
obligation at end of year
|
$ |
1,267,686
|
||
|
Change
in plan assets
|
||||
|
Fair
value at beginning of year
|
$ |
1,190,964
|
||
|
Actual
investment return
|
270,287
|
|||
|
Employer
contribution
|
----
|
|||
|
Benefits
paid
|
(48,104 | ) | ||
|
Fair
value at end of year
|
$ |
1,413,147
|
||
|
Funded
status
|
||||
|
Funded
status
|
$ | (145,461 | ) | |
|
Unrecognized
gain
|
614,998
|
|||
|
Unrecognized
benefit transition liability
|
-----
|
|||
|
Accrued
benefit cost
|
$ |
469,534
|
||
The
components of net periodic pension cost for the fiscal years ended January
31,
2006 and 2005 are summarized as follows (no information is presented for 2007
as
the Company purchased a singe premium group annuity contract on January 30,
2007
and terminated this plan):
An
assumed discount rate of 6.75% 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,
2006 and 2005, approximately 25.1% of the plan’s assets were held in mutual
funds invested primarily in equity securities, 92.4% and 66.7% were invested
in
equity securities and debt instruments and 7.6% and 8.2% were invested in money
market and other instruments, respectively.
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
8.
(continued)
Defined
Contribution Plan
Pursuant
to the terms of the Company’s
401(k) plan, substantially all U.S. employees over 21 years of age with a
minimum period of service are eligible to participate. The 401(k)
plan is administered by the Company and provides for voluntary employee
contributions ranging from 1% to 15% of the employee’s compensation. The Company
made discretionary contributions of $197,075, $126,547 and $118,696 in the
fiscal years ended January 31, 2007, 2006, and 2005, respectively.
9.
– MAJOR SUPPLIER
The
Company purchased approximately 62.6%, 74.0% and 74.7% of its raw materials
from
one supplier under licensing agreements for the fiscal years ended January
31,
2007, 2006 and 2005, respectively. The Company expects this
relationship to continue for the foreseeable future. Required similar raw
materials could be purchased from other sources; although, the Company’s
competitive position in the marketplace could be affected.
10.
– COMMITMENTS AND CONTINGENCIES
Employment
Contracts
The
Company has employment contracts with six principal officers and the Chairman
of
the Board of Directors, expiring through April 30, 2008. Such
contracts are automatically renewable for two, one-year terms unless 30 to
120
days notice is given by either party. Pursuant to such contracts, the Company
is
committed to aggregate annual base remuneration of $1.4 million and $220,000
for
the fiscal years ended January 31, 2008 and 2009.
Leases
POMS
Holding Co. (“POMS”), a partnership consisting of three directors and one
officer of Lakeland, who own 55% of the entity, and six non-affiliates, was
formed to lease both land and building to the Company because bank financing
was
unavailable. POMS leased to the Company a 91,788 square foot
disposable garment manufacturing facility in Decatur, Alabama. 20% of
this space is highly improved office space. Under a lease effective
April 1, 2004 and expiring on March 31, 2009, the Company paid an annual rent
of
$364,900 and was the sole occupant of the facility. The Company
purchased this facility from POMS on April 25, 2005.
On
April
1, 2004, the Company entered into a five-year lease agreement (expiring March
31, 2009) with River Group Holding Co., L.L.C. for a 49,500 sq. ft. warehouse
facility located next to the existing facility in Decatur,
Alabama. River Group Holding Co., L.L.C. is a limited liability
company consisting of five directors and one officer of the
Company. The annual rent for this facility is $199,100 and the
Company was the sole occupant of the facility. The Company purchased
this facility from River Group on May 25, 2005.
On
March
1, 1999, the Company entered into a one-year (renewable for four additional
one
year terms) lease agreement with Harvey Pride, Jr., an officer of the Company,
for a 2,400 sq. ft. customer service office for $18,000 annually located next
to
the existing Decatur, Alabama facility mentioned above. This lease
was renewed on March 1, 2004 through March 31, 2009 at the same rental rate
and
terms.
The
Company believes that all rents paid to POMS, River Group Holding Co., L.L.C.
and Harvey Pride, Jr. by the Company are comparable to what would be charged
by
an unrelated party, as three different rent fairness appraisals were performed
in 1999, 2002 and 2004. The net rent paid to POMS and River Group
Holding Co., L.L.C. by the Company for the years ended January 31, 2006 and
2005
amounted to $116,000 and $564,000 respectively, and the
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
10.
(continued)
total
rent paid to Harvey Pride, Jr. by the Company for use of the customer service
office for each of the years ended January 31, 2007, 2006 and 2005 amounted
to
$18,000. The Company paid $74,808 to Luis Gomez Guzman, (an employee
in Mexico until December 2005), for rent on a building pursuant to a lease
expiring July 7, 2007 and in fiscal 2006 an 12,853 square foot addition was
built for additional annual rent of $46, 416.
Total
rental costs under all operating leases is summarized as follows:
|
Gross
rental
|
Rentals
paid to
related
parties
|
|||||||
|
Year
ended January 31,
|
||||||||
|
2007
|
$ |
769,101
|
$ |
226,560
|
||||
|
2006
|
540,162
|
328,420
|
||||||
|
2005
|
893,862
|
641,400
|
||||||
Minimum
annual rental commitments for the remaining term of the Company’s non-cancelable
operating leases relating to manufacturing facilities, office space and
equipment rentals at January 31, 2007 including lease renewals subsequent to
year-end are summarized as follows:
|
Year
ending January 31,
|
||||
|
2008
|
$ |
522,154
|
||
|
2009
|
295,287
|
|||
|
2010
|
278,287
|
|||
|
2011
|
147,507
|
|||
| $ |
1,243,235
|
|||
Real
Estate Purchases
In
April
2005, the Company entered into two separate real estate purchase contracts,
one
with POMS and one with River Group, both related parties. The Company has
purchased the land and buildings in Decatur, Alabama that it had leased from
these related parties since their inception, POMS (1984) and River Group (1999).
The purchase price was $2,056,000 for the POMS property and $925,000 for the
River Group property determined by averaging three separate and independent
real
estate appraisals. The partnerships were accounted for in accordance
with FIN46R and were reflected in the financial statements for the fiscal year
ended January 31, 2005.
In
contemplation of the real estate purchases, the Company entered into an
agreement, dated March 4, 2005, with an officer of Lakeland (who is a partner
in
POMS & River Group) to acquire his interest for $565,367 ($411,200 for POMS
and $154,167 for River Group), at the same proportional valuation as the overall
property.
On
April
25, 2005, the Company closed on the real estate purchase contract with POMS
for
a purchased price of $2,067,584. The Company paid rent from February 1, 2005
until April 25, 2005 of $86,157, which was charged to rent expense.
On
May 25, 2005, the Company closed on the real estate purchase contract with
River
Group for a purchase price of $928,686. The Company paid River Group rent from
February 1, 2005 until May 25, 2005 amounting to $63,157, which was charged
to
rent expense.
At
April 30, 2005, the Company recorded the asset land value of $230,000, the
asset
building value of $2,751,000, closing costs of $11,584 and a payable to River
Group in the amount of $770,833. The Company recorded the purchase of
the land and building from River Group as of April 30, 2005, since the contract
of sale was finalized and the closing was deferred only until the release of
an
easement on the property. Total rent expense for
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
10.
(continued)
the
two
properties from February 1, 2005 until the dates of sale amounted to $146,577.
The Company recorded depreciation on each of the two properties from the closing
date forward.
Upon
conclusion of these two real estate purchase contracts, the Company no longer
has related party transactions requiring the recording of variable interest
entities under FIN46R. Other than the above entries, the Company has
not
recorded
the effects of FIN46R in the current fiscal year. The Company deems any such
impact to be immaterial.
Building
purchase in New York:
On
May
10, 2005, the Company purchased a 6,250 square foot office condominium to serve
as its Corporate Headquarters. The purchase price was $640,000 plus $9,161
in
closing costs. The lease on its previous location amounted to $51,202 annually
and expired on June 30, 2005.
Building
purchase in India:
On
November 22, 2006 the Company announced the closing on its contract to buy
the
Industrial glove assets of RFB Latex, Ltd. of New Delhi, India. Included in
this
contract is a building of 58,945 square feet and three land plots which has
an
appraised value of $3.5 million.
Canadian
building under construction:
The
Company is currently building a warehouse/officer facility in Canada to replace
the facility currently being rented for $86,000 per year. The expected cost
is
$2 million and at January 31, 2007 the Company has incurred the cost of land
of
$138,000 and construction costs at $122,000.
Litigation
The
Company is involved in various litigation arising during the normal course
of
business which, in the opinion
of
the
management of the Company, will not have a material effect on the Company’s
financial position, results of operations, or cash flows.
Tax
Audit
The
Company’s Federal Income Tax returns for the fiscal years ended January 31,
2003, 2004 and 2005 have been audited by the Internal Revenue
Service. Such audits are complete with one issue in dispute relating to
deductions taken by the Company for charitable contributions of its stock in
trade, and one other issue in dispute which would
result
in
a timing difference. Such issues are in the Appellate Division of the
Internal Revenue Service with a meeting scheduled for April 2007.
The final result of these issues cannot be estimated by management at this
time,
but management does not believe that the results of the audit will have a
material effect on the financial condition of the Company.
11.
OTHER RELATED PARTY TRANSACTIONS
In
1997,
An Qui Holding Co., L.L.C., or An Qui, a limited liability company whose members
include the Company, five directors and one officer of the Company, provided
financing for the construction of a 46,000 square foot building in An Qui City,
China and the lease of the real property underlying the building for 50 years
from the Chinese government to Weifang Lakeland Safety Product Co., Ltd., or
Weifang, one of the Company’s subsidiaries.
In
connection with the financing, Weifang agreed to make annual payments to An
Qui
and to allocate a portion of the proceeds from any sale of the property to
An
Qui. In 2002, An Qui relinquished its rights to the annual payments
and to its rights to proceeds from the sale of the property in exchange for
the
amount of $406,000 (net of expenses).
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
11.
(continued)
Weifang
paid $223,000, $89,000 and $94,000 of this amount to An Qui in December 2002,
January 2003 and June 2003, respectively. The Company now owns the
building.
In
2001,
An Qui also helped to finance the construction of the Company’s facility in
Jiaozhou, China through a loan to one of the Company’s Chinese
subsidiaries. The loan’s interest rate was 9% per annum until May
30,
2003,
when the rate increased to 10% per annum. On June 19, 2003, the
Company repaid this construction loan by paying $168,100 (plus accrued interest)
to An Qui and a foreign investor who contributed to the loan.
In
July
2005 as part of the acquisition of Mifflin Valley Inc., (merged into Lakeland
Industries, Inc. on September 1, 2006) the Company entered into a five year
lease with Michael Gallen (an employee) to lease an 18,520 sq. ft. manufacturing
facility in Shillington, PA for $55,560 annually or a per square foot rental
of
$3.00. This amount was obtained prior to the acquisition from an
independent appraisal of the fair market rental value per square
foot. In addition, in January 2006, the Company entered into a month
to month lease with Donna Gallen (an employee and wife of Michael Gallen) for
a
12,000 sq. ft. warehouse space in Blandon, PA for $36,000
annually. Mifflin Valley utilizes the services of Gallen Insurance
(an affiliate of Michael & Donna Gallen) to provide certain insurance in
Pennsylvania. Such payments for insurance aggregated of 27,066
and $23,173 in fiscal 2007 and 2006, respectively.
Related
Party-outside contractor
The
Company leases its facility in Mexico from Louis Gomez Guzman, an employee
in
Mexico until December
2005, pursuant to a lease expiring July 31, 2007 at an annual rental of
$121,224. Mr. Guzman is also acting as a contractor for our Mexican
facility. His company, Intermack, enables our Mexican facility to
increase or decrease production as required without the Company needing to
expand its facility. During fiscal 2007 and 2006, Lakeland de Mexico
paid Intermack $721,748, and $938,755, respectively for services relating to
contract production.
12.
MANUFACTURING SEGMENT DATA
The
Company manages its operations by evaluating its geographic locations. The
Company’s North American operations include its facilities in Decatur, Alabama
(primarily disposables, chemical suit and glove production), Celaya, Mexico
(primarily disposables, chemical suit and glove production) and St. Joseph,
Missouri (primarily woven products). The Company also maintains
contract manufacturing facilities in China (primarily disposable and chemical
suit production). The Company’s China facilities and Celaya, Mexico
facility produce the majority of the Company’s products. The
accounting policies of these operating entities are the same as those described
in Note 1. The Company evaluates the performance of these entities
based on operating profit, which is defined as income before income taxes and
other income and expenses. The Company has a small sales force in
Canada and Europe who distribute products shipped from the United States and
China, the table below represents information about reported manufacturing
segments for the years noted therein:
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
12.
(continued)
|
2007
|
2006
|
2005
|
||||||||||
|
Net
Sales:
North
America and other foreign
|
$ |
104,804,921
|
$ |
104,041,223
|
$ |
100,361,909
|
||||||
|
China
|
12,007,656
|
9,205,660
|
7,411,651
|
|||||||||
|
India
|
449,022
|
60,446
|
---
|
|||||||||
|
Less
inter-segment sales
|
(17,090,657 | ) | (14,567,263 | ) | (12,453,397 | ) | ||||||
|
Consolidated
sales
|
$ |
100,170,942
|
$ |
98,740,066
|
$ |
95,320,163
|
||||||
|
Operating
Profit:
North
America & other foreign
|
$ |
5,879,388
|
$ |
8,355,869
|
$ |
7,067,855
|
||||||
|
China
|
1,858,226
|
1,151,340
|
921,208
|
|||||||||
|
India
|
(974,678 | ) | (16,428 | ) |
---
|
|||||||
|
Less
intersegment profit
|
(41,031 | ) |
11,632
|
(335,000 | ) | |||||||
|
Consolidated
operating profit
|
$ |
6,721,905
|
$ |
9,502,413
|
$ |
7,654,063
|
||||||
|
Identifiable
Assets:
North
America and other foreign
|
$ |
63,479,434
|
$ |
65,734,096
|
$ |
51,654,104
|
||||||
|
China
|
4,353,599
|
5,717,192
|
8,659,150
|
|||||||||
|
India
|
6,365,327
|
1,012,564
|
---
|
|||||||||
|
Consolidated
assets
|
$ |
74,198,360
|
$ |
72,463,852
|
$ |
60,313,254
|
||||||
|
Depreciation:
North
America and other foreign
|
$ |
633,754
|
$ |
548,868
|
$ |
542,463
|
||||||
|
China
|
402,233
|
444,818
|
341,677
|
|||||||||
|
India
|
12,393
|
---
|
---
|
|||||||||
|
Consolidated
depreciation
|
$ |
1,048,380
|
$ |
993,686
|
$ |
884,140
|
13. UNAUDITED
QUARTERLY RESULTS of OPERATIONS (In thousands, except for per share
amounts):
|
Fiscal
Year Ended January 31, 2007:
|
1/31/07
|
10/31/06
|
7/31/06
|
4/30/06
|
||||||||||||
|
Net
Sales
|
$ |
25,599
|
$ |
23,263
|
$ |
24,087
|
$ |
27,222
|
||||||||
|
Cost
of Sales
|
19,958
|
17,627
|
17,621
|
20,689
|
||||||||||||
|
Gross
Profit
|
$ |
5,641
|
$ |
5,636
|
$ |
6,466
|
$ |
6,533
|
||||||||
|
Net
Income
|
$ |
1,307
|
$ |
980
|
$ |
1,355
|
$ |
1,462
|
||||||||
|
Basic
and Diluted income per common share*:
|
||||||||||||||||
|
Basic
(a)
|
$ |
.23
|
$ |
.18
|
$ |
.25
|
$ |
.26
|
||||||||
|
Diluted
(a)
|
$ |
.23
|
$ |
.18
|
$ |
.25
|
$ |
.26
|
||||||||
Lakeland
Industries, Inc.
and
Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
January
31, 2007, 2006 and 2005
13.
(Continued)
Certain
reclassifications between cost of goods sold and operating expenses were
made to
the first quarter of fiscal year 2006, in order to be consistent with the
second
quarter and year to date of fiscal 2006 classifications for the Mexico and
China
subsidiaries.
|
Fiscal
Year Ended January 31, 2006:
|
1/31/06
|
10/31/05
|
7/31/05
|
4/30/05
|
||||||||||||
|
Net
Sales
|
$ |
25,226
|
$ |
22,717
|
$ |
25,089
|
$ |
25,709
|
||||||||
|
Cost
of Sales
|
18,949
|
17,034
|
19,293
|
19,542
|
||||||||||||
|
Gross
Profit
|
$ |
6,277
|
$ |
5,683
|
$ |
5,796
|
$ |
6,167
|
||||||||
|
Net
Income
|
$ |
1,655
|
$ |
1,313
|
$ |
1,648
|
$ |
1,713
|
||||||||
|
Basic
and Diluted income per common share*:
|
||||||||||||||||
|
Basic
(a)
|
$ |
0.30
|
$ |
0.24
|
$ |
0.30
|
$ |
0.31
|
||||||||
|
Diluted
(a)
|
$ |
0.30
|
$ |
0.24
|
$ |
0.30
|
$ |
0.31
|
||||||||
|
(a)
The sum of earnings per share for the four quarters may not equal
earnings
per share for the full year due to changes in the average number
of common
shares outstanding.
*Adjusted,
retroactively, for the 10% stock dividends to shareholders of records
on
August 1, 2006, and April 30, 2005.
|
14.
SUBSEQUENT EVENT
The
Company has decided to restructure its manufacturing operations in Mexico,
by
closing its current facilities in Celaya and opening new facilities in
Jerez. The Company estimates the costs to close, move and start up will
aggregate approximately $500,000 pretax. This restructuring will allow for
lower occupancy and labor costs and a more efficient production
configuration. The Company anticipates this cost will be charged to its
first quarter fiscal year 2008 results.
SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS
|
Column
A
|
Column
B
|
Column
C
|
Column
D
|
Column
E
|
|||||||||||
|
Additions
|
|||||||||||||||
|
Balance
at
Beginning
of
period
|
Charge
to
costs
and
expenses
|
Charged
to
other
accounts
|
Deductions
|
Balance
at
end
of
period
|
|||||||||||
|
Year
ended January 31, 2007
Allowance
for doubtful accounts (a)
|
$ |
323,000
|
$ |
220,000
|
$ |
103,000
|
|||||||||
|
Allowance
for slow moving inventory
|
$ |
365,000
|
$ |
59,000
|
$ |
306,000
|
|||||||||
|
Year
ended January 31, 2006
Allowance
for doubtful accounts (a)
|
$ |
323,000
|
$ |
323,000
|
|||||||||||
|
Allowance
for slow moving inventory
|
$ |
396,000
|
$ |
31,000
|
$ |
365,000
|
|||||||||
|
Year
ended January 31, 2005
Allowance
for doubtful accounts (a)
|
$ |
323,000
|
$ |
323,000
|
|||||||||||
|
Allowance
for slow moving inventory
|
$ |
417,000
|
$ |
21,000
|
$ |
396,000
|
|||||||||
(a)
Deducted from accounts receivable.
(b)
Uncollectible accounts receivable charged against allowance.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL DISCLOSURE
None
ITEM
9A. CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
We
conducted an evaluation, under the
supervision and with the participation of the our management, including the
Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the
design and operation of our disclosure controls and procedures (as such term
is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of
1934, as amended (the “Exchange Act”)) as of January 31, 2007. There are
inherent limitations to the effectiveness of any system of disclosure controls
and procedures, including the possibility of human error and the circumvention
or overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Based on the our evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of January 31, 2007 to ensure them
that information relating to the Company (including our consolidated
subsidiaries) required to be included in our reports filed or submitted under
the Exchange Act are recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms.
In
addition, our Chief Executive Officer and Chief Financial Officer concluded
as
of January 31, 2007 that our disclosure controls and procedures are also
effective to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act are accumulated and communicated
to
our management, including the Chief Executive Officer and Chief Financial
Officer, to allow timely decisions regarding required disclosure.
Management’s
Report on Internal Control over Financial Reporting
Management
is responsible for
establishing and maintaining adequate internal control over financial reporting
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal
control system is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.
Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
has assessed the effectiveness of the Company’s internal control over financial
reporting as of January 31, 2007. In making this assessment, management used
the
criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management believes that, as of January 31, 2007, the Company maintained
effective internal control over financial reporting based on the criteria
established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
Holtz
Rubenstein Reminick LLP, the Company's independent registered public accounting
firm has issued a report on management’s assessment of the Company’s internal
control over financial reporting. That report dated April 5, 2007 is included
herein.
Changes
in Internal Control over Financial Reporting
During
our fourth fiscal quarter, there
was no change in our internal control over financial reporting that materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Through
the year ended January 31, 2007
additional expense has been incurred relating to documenting and testing the
systems of internal controls. The company hired an internal auditor
in July 2004 and 2005 and has contracted with an independent consultant for
services related to Sarbanes-Oxley Act compliance with Section 404, in February
2004. The total cumulative amount expensed so far is approximately
$1,187,000 including $162,000 in additional directors’ fees.
ITEM
9B. OTHER INFORMATION
None
PART
III
Performance
Graph
The
following Corporate Performance Graph, obtained from Core Data Group of
Virginia, compares the five year cumulative total return of our common stock
with that of the S&P composite market index, including dividend
reinvestment, and with that of a peer group for the five fiscal years commencing
January 31, 2001 and ending January 31, 2006 assuming an investment of $100
and
the re-investment of any dividends:
|
COMPARISON
OF CUMULATIVE TOTAL RETURN OF OE OR MORE
COMPANIES,
PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKETS
|
||||||||||||||||||||||||
|
-------------------------
FISCAL YEAR ENDING -------------------
|
||||||||||||||||||||||||
|
COMPANY/INDEX/MARKET
|
1/31/2002
|
1/31/2003
|
1/31/2004
|
1/31/2005
|
1/31/2006
|
1/31/2007
|
||||||||||||||||||
|
Lakeland
Industries, Inc.
|
193.90
|
162.72
|
376.48
|
506.51
|
522.51
|
234.83
|
||||||||||||||||||
|
Customer
Selected Stock List
|
129.01
|
197.85
|
238.49
|
288.06
|
193.22
|
219.21
|
||||||||||||||||||
|
S&P
Composite
|
83.85
|
64.55
|
86.87
|
92.28
|
101.86
|
139.10
|
||||||||||||||||||
The
Customer Selected Stock List is made up of the following
securities:
ANGELICA
CORP
SUPERIOR
UNIFORM GROUP
The
comparisons in the graph and tables above are based upon historical data and
are
not indicative of, nor intended to forecast, future performance of the Company’s
Common Stock.
The
information contained in the Stock
Performance Graph and the Reports of the Audit and Compensation Committee
sections shall not be deemed to be “soliciting material” or “filed” or
incorporated by reference in future filings with the SEC, or subject to the
liabilities of Section 18 of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), except to the extent that the Company specifically
incorporates it by reference into a document filed under the Securities Act
of
1933, as amended, or the Exchange Act.
ITEM
10.DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
The
following is a list of the names and ages of all of our directors and executive
officers, indicating all positions and offices they hold with us as of April
12,
2007. Our directors hold office for a three-year term and until their successors
have been elected and qualified. Our executive officers hold offices for one
year or until their successors are elected by our board of
directors.
|
Name
|
Age
|
Position
|
|
Raymond
J.
Smith
|
68
|
Chairman
of the Board of Directors
|
|
Christopher
J.
Ryan
|
55
|
Chief
Executive Officer, President, Secretary, General Counsel and
Director
|
|
Gary
Pokrassa
|
59
|
Chief
Financial Officer
|
|
Gregory
D. Willis
|
50
|
Executive
Vice President
|
| Harvey Pride, Jr. |
60
|
Senior
Vice President - Manufacturing
|
|
James
M.
McCormick
|
59
|
Controller
and Treasurer
|
|
Paul
C.
Smith
|
40
|
Vice
President
|
|
Gregory
Pontes
|
46
|
Vice
President - Manufacturing
|
|
John
J.
Collins
|
64
|
Director
|
|
Eric
O.
Hallman
|
63
|
Director
|
|
Michael
E.
Cirenza
|
51
|
Director
|
|
John
Kreft
|
56
|
Director
|
|
Stephen
M.
Bachelder
|
56
|
Director
|
Raymond
J. Smith, one of our co-founders, has been Chairman of our board of
directors since our incorporation in 1982 and was President from 1982 to January
31, 2004. Mr. Smith’s term as a director will expire at our annual meeting of
stockholders in June 2007.
Christopher
J. Ryan has served as our Chief Executive Officer since April 2004 and
President since February 1, 2004, Secretary since April 1991, General Counsel
since February 2000 and a director since May 1986. Mr. Ryan was our Executive
Vice President - Finance from May 1986 until becoming our President on February
1, 2004. From October 1989 until February 1991, Mr. Ryan was employed by Rodman
& Renshaw, Inc., an investment banking firm. Prior to that, he was an
independent consultant with Laidlaw Holding Co., Inc., an investment banking
firm, from January 1989 until September 1989. From February 1987 to January
1989, Mr. Ryan was employed as the Managing Director of Corporate Finance for
Brean Murray, Foster Securities, Inc. He was employed from June 1985 to January
1987 as a Senior Vice President with the investment banking firm of Laidlaw
Adams Peck, Inc., a predecessor firm to Laidlaw Holdings, Inc. Mr. Ryan has
served as one of our directors since 1986 and his term as a director will expire
at our annual meeting of stockholders in June 2008.
Gary
Pokrassa is a CPA with 37 years experience in both public and private
accounting. Mr. Pokrassa was the CFO for Gristedes Foods, Inc. (AMEX-GRI) from
2000-2003 and Syndata Technologies from 1997-2000. Mr. Pokrassa received a
BS in
Accounting from New York University and is a member of the American Institute
of
Certified Public Accountants and the New York State Society of Certified Public
Accountants.
Gregory
D. Willis has served as our Executive Vice President since May 1, 2005 and
has held the position of National Sales Manager for us since
November 1991. Prior to joining Lakeland he held the positions of National
Sales
Manager and Global Marketing Manager for Kappler Inc. from 1983 to 1991.
Mr. Willis received his BBA degree in Business from Faulkner University
and is currently a member of ISEA and NFPA.
Harvey
Pride, Jr. has been our Vice President of manufacturing since May 1986 and
was promoted to Senior Vice President of manufacturing in 2006. He was Vice
President of Ryland (our former subsidiary) from May 1982 to June 1986 and
President of Ryland until its merger into Lakeland on January 31,
1990.
Gregory
D. Pontes has served as Vice President of Manufacturing since September of
2006. He served as the Operations Manager from 2003-2006; and worked
as Lakeland’s Senior Engineer from 1994-2003. Prior to joining
Lakeland Mr. Pontes worked at Kappler Inc. as their Project/Cost Engineer from
1989-1994.
James
M. McCormick was our Vice President and Treasurer from May 1986 to August
2003 and is presently Controller and Treasurer. Mr. McCormick acted as Chief
Financial Officer between April 2004 and November 2004.
Between
January 1986 and May 1986 Mr. McCormick was our Controller.
Paul
C. Smith, son of Raymond J. Smith, has served as Vice President since
February 1, 2004. Prior to that, Mr. Smith was our Northeast Regional Sales
Manager since September 1998. From April 1994 until September 1998, Mr. Smith
was a sales representative for the Metropolitan Merchandising and Sales
Co.
John
J. Collins, Jr. was Executive Vice President of Chapdelaine GSI, a
government securities firm, from 1977 to January 1987. He was Senior Vice
President of Liberty Brokerage, a government securities firm, between January
1987 and November 1998. Presently, Mr. Collins is self employed, managing a
direct investment portfolio of small business enterprises for his own accounts.
Mr. Collins has served as one of our directors since 1986 and his term as a
director will expire at our annual meeting of stockholders in June
2009.
Eric
O. Hallman was President of Naess Hallman Inc., a ship brokering firm, from
1974 to 1991. Mr. Hallman was also affiliated between 1991 and 1992 with
Finanshuset (U.S.A.), Inc., a ship brokering and international financial
services and consulting concern, and was an officer of Sylvan Lawrence, a real
estate development company, between 1992 and 1998. Between 1998 and 2000, Mr.
Hallman was President of PREMCO, a real estate management company, and currently
is Comptroller of the law firm Murphy, Bartol & O’Brien, LLP. Mr. Hallman
has served as one of our directors since our incorporation in 1982 and his
term
as a director will expire at our annual meeting of stockholders in June
2009.
Michael
E. Cirenza has been a Partner in Anchin, Block and Anchin since March 2007,
and was the Executive Vice President and Chief Financial Officer of Country-Life
LLC, a manufacturer and distributor of vitamins and nutritional supplements,
from September 2002 until March 2007. Mr. Cirenza was the Chief Financial
Officer and Chief Operating Officer of Resilien, Inc., an independent
distributor of computers, components and peripherals from January 2000 to
September 2002. He was an Audit Partner with the international accounting firm
of Grant Thornton LLP from August 1993 to January 2000 and an Audit Manager
with
Grant Thornton LLP from May 1989 to August 1993. Mr. Cirenza was employed by
the
international accounting firm of Price Waterhouse from July 1980 to May 1989.
Mr. Cirenza is a Certified Public Accountant in the State of New York and a
member of the American Institute of Certified Public Accountants and the New
York State Society of Certified Public Accountants. Mr. Cirenza has served
as
one of our directors since June 18, 2003 and his term as a director will expire
at our annual meeting of stockholders in 2008.
John
Kreft has been President of Kreft Interests, a Houston based private
investment firm, since 2001. Between 1998 and 2001, he was CEO of Baker Kreft
Securities, LLC, a NASD broker-dealer. From 1996 to 1998, he was a co-founder
and manager of TriCap Partners, a Houston based venture capital firm. From
1994
to 1996 he was employed as a director at Alex Brown and Sons. He also held
senior positions at CS First Boston including employment as a managing director
from 1989 to 1994. Mr. Kreft graduated from the Wharton School of Business
in
1975.
Stephen
M. Bachelder has been with Swiftview, Inc. a Portland based software
company since 1999 and President since 2002. From 1991-1999 Mr. Bachelder ran
a
consulting firm advising software and hardware based companies in the Pacific
Northwest. Mr. Bachelder was the president and owner of an Apparel Company,
Bachelder Imports from 1982-1991 and worked in executive positions for Giant
Foods, Inc. and Pepsico, Inc. between 1976-1982. Mr. Bachelder is a 1976
Graduate of the Harvard Business School.
Committees
of the Board
Our
board
of directors has a designated Audit Committee that reviews the scope and results
of the audit and other services performed by our independent accountants. The
Audit Committee is comprised solely of independent directors and consists of
Messrs. Cirenza, Kreft, Bachelder, Hallman and Collins. The board of directors
has also designated a Compensation Committee that establishes objectives for
our
senior executive officers, sets the compensation of directors, executive
officers and our other employees and is charged with the administration of
our
employee benefit plans. The Compensation Committee is comprised solely of
independent directors and consists of Messrs. Cirenza, Kreft, Bachelder, Collins
and Hallman. There is also a Nominating Committee comprised of the independent
directors.
Compensation
of Directors
Each
non-employee director receives a fee of $6,250 (committee chairman receive
an
additional $500) per quarter plus per-meeting fees of $1,500 for in-person
attendance or $500 for telephone attendance. Non-employee directors are
reimbursed for their reasonable expenses incurred in connection with attendance
at or participation in such meetings. In addition, under our 1995 Director
Plan,
each non-employee director who becomes a director is granted an option to
purchase 5,000 shares of our common stock. Messrs. Hallman and Collins were
each
granted an option to purchase 5,000 shares of our common stock under our
previous 1986 Plan at the time of their respective
appointments
or reelections to the board of directors. Such grants and the terms thereof
were
renewed on April 18, 1997, May 5, 1996 and May 5, 1996, respectively, in
accordance with stockholder approval of the 1995 Director Plan at our 1995
annual meeting of stockholders. Mr. Cirenza received an option to purchase
5,000
shares of our common stock upon his election to our board of directors in June
2003. Messrs. Kreft and Bachelder each received an option to purchase
5,000 shares of our Common Stock upon appointment to our Board of Directors
in
November 2004.
Directors
who are employees of Lakeland receive no additional compensation for their
service as directors. However, such directors are reimbursed for their
reasonable expenses incurred in connection with travel to or attendance at
or
participation in meetings of our board of directors or committees of the board
of directors.
ITEM
11. EXECUTIVE COMPENSATION
See
information under the caption "Compensation of Executive Officers" in the
Company's Proxy Statement, which information is incorporated herein by
reference.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
See
the
information under the caption "Voting Securities and Stock Ownership of
Officers, Directors and Principal Stockholders" in the Company's Proxy
Statement, which information is incorporated herein by reference.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Related
Party Leases
In
the
past, because our access to third party financing was insufficient, we entered
into arrangements with our directors and executive officers in order to fund
the
construction or acquisition of our assembly facilities. In such cases, we
commissioned independent appraisals in 1999, 2002 and 2004 to ensure that these
arrangements approximated arrangements made on an arms length basis. We believe
that we currently have sufficient access to financing to fund our current and
anticipated facility needs, we do not anticipate entering into additional
arrangements with our directors or executive officers in the
future. A description of our current arrangements with our directors
and executive officers follows.
POMS
Holding Co., or POMS, was formed in 1984 to lease both land and a building
to us
because bank financing was unavailable. POMS is a partnership whose partners
include three of our directors, one of our officers and six other individuals
who were stockholders of Lakeland at the time of the formation of POMS. Raymond
J. Smith, the chairman of our board of directors, Harvey Pride, Jr., our Vice
President – Manufacturing, and John J. Collins and Eric O. Hallman, both of whom
are directors, have a 20%, 20%, 8.75% and 5% interest in POMS, respectively.
POMS leased to us a 91,788 square foot disposable garment manufacturing facility
in Decatur, Alabama. Under a lease effective September 1, 1999, we paid an
annual rent of $364,900. This lease was renewed on April 1, 2004 through March
31, 2009 at the same rental rate. We purchased this facility
from POMS on April 25, 2005.
On
March
1, 1999, we entered into a one year (renewable for four additional one year
terms) lease agreement with Harvey Pride, Jr., our Vice President –
Manufacturing, for a 2,400 sq. ft. customer service office located next to
our
existing Decatur, Alabama facility. We paid an annual rent of $18,000 for this
facility under the lease agreement in fiscal 2004 and 2005. This lease was
renewed on March 1, 2004 through March 31, 2009 at the same rental
rate.
On
June
1, 1999, we entered into a five year lease agreement (expiring May 31, 2004)
with River Group Holding Co., L.L.C. for a 49,500 sq. ft. warehouse facility
located next to our existing facility in Decatur, Alabama. River Group Holding
Co., L.L.C. is a limited liability company, the members of which are Raymond
Smith, John Collins, Eric Hallman, Walter Raleigh (a former Director),
Christopher Ryan and Harvey Pride, who all have an equal ownership interest.
Mr.
Ryan is our Chief Executive Officer, President, Secretary, General Counsel
and a
director of our company, Messrs. Smith, Collins and Hallman are all directors
of
our company, and Mr. Pride is our Vice President – Manufacturing. We paid an
annual rent of $199,100 for this facility. We were the sole occupant
of the facility. This lease was renewed on April 1, 2004 through March 31,
2009
at the same rental rate. We purchased this facility from River Group
on May 25, 2005.
Related
Party-outside contractor
The
Company leases its facility in Mexico from Louis Gomez Guzman, an employee
in
Mexico until December 2005, pursuant to a lease expiring July 31, 2007 at an
annual rental of $121,224. Mr. Guzman is also acting as a contractor
for our Mexican facility. His company, Intermack, enables our Mexican
facility to increase or decrease production as required without the Company
needing to expand its facility. During fiscal 2007 and 2006, Lakeland
de Mexico paid Intermack $721,748 and $938,755 for services relating to contract
production.
Past
Related Party Transactions
In
1997,
An Qui Holding Co., L.L.C., or An Qui, a limited liability company whose members
include Lakeland, and Messrs. Smith, Collins, Hallman, Raleigh, Ryan and Pride,
provided financing for the construction of a 65,000 square foot building in
An
Qui City, China and the lease of the real property underlying the building
for
50 years from the Chinese government to Weifang Lakeland Safety Product Co.,
Ltd., or Weifang, one of our subsidiaries. In connection with the financing,
Weifang agreed to make annual payments to An Qui and to allocate a portion
of
the proceeds from any sale of the property to An Qui. In 2002, An Qui
relinquished its rights to the annual payments and to its rights to proceeds
from the sale of the property in exchange for the amount of $406,185 (net of
expenses). Weifang paid $222,645, $89,000 and $94,400 of this amount to An
Qui
in December 2002, January 2003 and June 2003, respectively. Of the $406,185
paid
to An Qui, Messrs Smith, Collins, Hallman, Ryan and Pride each received $44,421
and Mr. Raleigh received $39,792.
In
2001,
An Qui also helped to finance the construction of our facility in Jiaozhou,
China through a loan to one of our Chinese subsidiaries. The loan bore interest
at the rate of 9% per annum until May 30, 2003, when the rate increased to
10%
per annum. On June 19, 2003, we repaid this construction loan by paying $168,100
(plus accrued interest) to An Qui and a foreign investor who contributed to
the
loan. Messrs. Smith, Collins, Hallman, Ryan and Pride, the members of An Qui
who
participated in this transaction, were each repaid their $26,000 investments
plus interest of approximately $3,038.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND
SERVICES
See
the information under the caption
“Report of the Audit Committee” in the Company’s Proxy Statement, which
information is incorporated herein by reference.
PART
IV
ITEM
15. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES AND REPORTS ON FORM 8 – K
(a) The
following documents are filed as part of this report:
|
|
1 Consolidated
Financial Statements (See Page 37 of this report which includes an
index
to the consolidated financial
statements)
|
|
|
2 Financial
Statement Schedules:
|
Schedule II- Valuation and Qualifying Accounts
All
other
schedules are omitted because they are not applicable, not required, or because
the requiredinformation is included in the Consolidated Financial Statements
or
Notes thereto.
3. Exhibits:
|
Exhibit
|
Description
|
|
3.1
|
Restated
Certificate of Incorporation of Lakeland Industries, Inc. (Incorporated
by
reference to Exhibit 3(a) of Lakeland Industries, Inc.’s Registration
Statement on Form S-18 (File No. 33-7512 NY))
|
|
Exhibit
|
Description
|
|
3.2
|
Bylaws
of Lakeland Industries Inc., as amended (Incorporated by reference
to
Exhibit 3(b) of Lakeland Industries, Inc.’s Registration Statement on Form
S-18 (File No. 33-7512 NY))
|
|
10.2
|
Lease
Agreement, dated August 1, 2001, between Southwest Parkway, Inc.,
as
lessor, and Lakeland Industries, Inc., as lessee (Incorporated by
reference to Exhibit 10(b) of Lakeland Industries, Inc.’s Annual Report on
Form 10-K for the year ended January 31, 2002)
|
|
10.3
|
Lakeland
Industries, Inc. Stock Option Plan (Incorporated by reference to
Exhibit
10(n) of Lakeland’s Registration Statement on Form S-18 (File No. 33-7512
NY))
|
|
10.4
|
Employment
Agreement, dated September 22, 2003, between Lakeland Industries,
Inc. and
Raymond J. Smith (Incorporated by reference to Exhibit 10(g) of Lakeland
Industries, Inc.’s Quarterly Report on Form 10-Q filed December 12,
2003)
|
|
10.5
|
Employment,
dated February 1, 2006, agreement between Lakeland Industries, Inc.
and
Harvey Pride, Jr.
|
|
10.7
|
Employment
Agreement, dated February 1, 2006, between Lakeland Industries, Inc.
and
Christopher J. Ryan
|
|
10.10
|
Lease
Agreement, dated March 1, 2004, between Harvey Pride, Jr., as lessor,
and
Lakeland Industries, Inc., as lessee
|
|
10.11
|
Term
Loan and Security Agreement, dated July 7, 2005, between Lakeland
Industries, Inc. and Wachovia Bank, N.A. (Incorporated by reference
to
Exhibit 10.11 of Lakeland Industries, Inc.’s Quarterly Report on Form 10-Q
filed September 7, 2005)
|
|
10.12
|
Employment
Agreement, dated May 23, 2005, between Lakeland Industries, Inc.
and James
M. McCormick (Incorporated by reference to Exhibit 10(r) of Lakeland
Industries, Inc.’s Quarterly Report on Form 10-Q filed June 9,
2005)
|
|
10.13
|
Employment
Agreement, dated September 22, 2003, between Lakeland Industries,
Inc. and
Paul C. Smith (Incorporated by reference to Exhibit 10(s) of Lakeland
Industries, Inc.’s Quarterly Report on Form 10-Q filed December 12,
2003)
|
|
10.14
|
Employment
Agreement, dated November 29, 2005, between Lakeland Industries,
Inc. and
Gary Pokrassa, CPA. (Incorporated by reference to exhibit 10.14
of Lakeland Industries, Inc. Quarterly Report on Form 10-Q filed
December
12, 2005)
|
|
10.15
|
Employment
Agreement, dated May 23, 2005, between Lakeland Industries Inc.,
and
Gregory D. Willis (Incorporated by reference to exhibit 10.15 of
Lakeland
Industries, Inc. Quarterly Report on Form 10-Q filed June 9,
2005)
|
|
Exhibit
|
Description
|
|
10.16
|
Asset
Purchase Agreement, dated July, 2005 between Lakeland Industries,
Inc. and
Mifflin Valley, Inc. and Lease Agreement and Employment Contract
between
Lakeland Industries, Inc., and Michael Gallen (Incorporated by reference
to exhibit 10.15, 10.16, and 10.17 of Lakeland Industries, Inc.’s
Quarterly Report on form 10-Q filed September 7, 2005)
|
|
10.17
|
Supply
Agreement and Option to Purchase, between Lakeland Industries, Inc.’s
subsidiary RFB Lakeland Industries Private Ltd. and RFB Latex Private,
Ltd. (Incorporated by reference to exhibits 10.18 and 10.19 of Lakeland
Industries Inc.’s Quarterly Report on form 10-Q filed December
12, 2005)
|
|
10.18
|
Asset
Purchase Agreement upon exercising of option, between Lakeland Industries,
Inc. and RFB Lakeland Industries Private Ltd. (Incorporated by reference
to exhibits 10.20 of Lakeland Industries Inc.’s Quarterly Report on form
10-Q filed December 12, 2005)
|
|
10.19
|
Employment
Agreements, between RFB Lakeland Industries Private Ltd. and P.S.
Ratra
and Kamal Ratra (Incorporated by reference to exhibits 10.21 and
10.22 of
Lakeland Industries, Inc.’s Quarterly Report on Form 10-Q filed December
12, 2005)
|
|
10.20
|
Shareholder
Agreement, between Lakeland Industries, Inc. and P.S. Ratra (Incorporated
by reference to exhibit 10.23 of Lakeland Industries, Inc.’s Quarterly
Report on form 10-Q filed December 12, 2005)
|
|
10.21
|
Lease
Agreement, dated March 1, 2006, between Carlos Tornquist Bertrand,
as
lessor, and Lakeland Industries, Inc., as lessee
|
|
10.22
|
Lease
Agreement, dated 2006, between Michael Robert Kendall, June Jarvis,
and
Barnett Waddingham Trustees Limited, as lessor, and Lakeland Industries,
Inc., as lessee
|
|
14.1
|
Lakeland
Industries, Inc. Code of Ethics
|
|
21.1
|
Subsidiaries
of Lakeland Industries, Inc. (wholly-owned):
Lakeland
Protective Wear, Inc.
Lakeland
Protective Real Estate
Lakeland
de Mexico S.A. de C.V.
Laidlaw,
Adams & Peck, Inc. and Subsidiary (Meiyang Protective Products Co.,
Ltd.)
Weifang
Lakeland Safety Products Co., Ltd.
Qing
Dao Lakeland Protective Products Co., Ltd.
Lakeland
Industries Europe Ltd.
RFB
Lakeland Industries Private, Ltd.
Lakeland
Industries, Inc. Agencia en Chile
Lakeland
Japan, Inc.
|
|
|
(b)
|
Reports
on Form 8 - K.
|
The
documents which we incorporate by reference consist of the documents listed
below that we have previously filed with the SEC:
A
–
On
November 22, 2006 the Company filed a Form 8-K announcing the closing on its
contract to buy the Industrial Glove assets of RFB Latex, Ltd. in
India.
B
–
On
November 30, 2006 the Company filed a Form 8-K reporting notice of a
teleconference call on December 7, 2006 to discuss the results of the Company’s
third quarter ended October 31, 2006.
C
–
On
December 7, 2006 the Company filed a Form 8-K regarding the results for
operations of the Company’s third quarter ended October 31, 2006.
D
–
On
January 30, 2007 the Company filed a Form 8-K regarding the settlement and
termination of the Fireland Pension Fund.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act
of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
Dated: April
12, 2007
|
LAKELAND
INDUSTRIES, INC.
|
||
|
By:
|
/
s / Christopher J. Ryan
|
|
|
Christopher
J. Ryan,
|
||
|
Chief
Executive Officer
|
||
|
and
President
|
||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
|
Name
|
Title
|
Date
|
|
/s/
Raymond J. Smith
|
Chairman
of the Board
|
April
12, 2007
|
|
Raymond
J. Smith
|
||
|
/s/
Christopher J. Ryan
|
Chief
Executive Officer, President,
|
April
12, 2007
|
|
Christopher
J. Ryan
|
General
Counsel, Secretary and Director
|
|
|
/s/
Gary Pokrassa
|
Chief
Financial Officer
|
April
12, 2007
|
|
Gary
Pokrassa
|
||
|
/s/ James
M. McCormick
|
Controller
and Treasurer
|
April
12, 2007
|
|
James
M. McCormick
|
||
|
/s/
Eric O. Hallman
|
Director
|
April
12, 2007
|
|
Eric
O. Hallman
|
||
|
/s/
John J. Collins, Jr.
|
Director
|
April
12, 2007
|
|
John
J. Collins, Jr.
|
||
|
/s/
Michael E. Cirenza
|
Director
|
April
12, 2007
|
|
Michael
E. Cirenza
|
||
|
/s/
John Kreft
|
Director
|
April
12, 2007
|
|
John
Kreft
|
||
|
/s/
Stephen M. Bachelder
|
Director
|
April
12, 2007
|
|
Stephen
M. Bachelder
|
73