Lakeland Industries, Inc.

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Lakeland Industries, Inc.

711-2 Koehler Avenue
Ronkonkoma, New York 11779-7410
U.S.A.
Telephone: (631) 981-9700
Toll Free: (800) 645-9291
Fax: (631) 981-9751
Web site: http://www.lakeland.com

Public Company
Incorporated: 1982
Employees: 1,524
Sales: $76.2 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: LAKE
NAIC: 339113 Surgical Appliance and Other Apparel Manufacturing

Lakeland Industries, Inc. of Ronkonkoma, New York, is a leading manufacturer of a wide range of safety garments and accessories used in a variety of industries. The company operates through four divisions and four subsidiaries, with domestic production facilities and plants located in Mexico, Canada, and China. The company’s six product lines are mostly sold through major safety and mill supply distributors, with the company also represented by a small in-house sales force, plus a network of independent agents. Lakeland’s limited use, disposable protective clothing guards against common industrial contaminants and irritants, including fertilizers, pesticides, acids, asbestos, and lead. Lakeland’s gloves and arm guards, made from the same materials used in bulletproof vests, are worn by workers in chemical, automotive, glass, and metal fabrication industries. The company’s firefighting apparel protects against excessive heat and fire and is worn by municipal and volunteer firemen as well as airport crash rescue teams. Heat protective aluminized fire suits are used by industrial firefighters and workers maintaining hot equipment. Lakeland’s protective woven reusable garments are used in hospitals and clean room environments, and by EMS personnel to protect against bacteria, viruses, and blood-borne pathogens. Lakeland also produces high-end chemical protective suits used by hazardous material teams as well as chemical and nuclear industries personnel.

The 1966 Introduction of Tyvek

Originally incorporated in New York in 1982, Lakeland was cofounded by current Chairman and CEO Raymond J. Smith along with attorney Patrick Murphy. Born in Brooklyn, Smith attended Georgetown University on a track scholarship, graduating in 1960. He began law school but was forced to drop out to seek employment when his wife became pregnant. In 1961, Smith joined International Paper as a management trainee and stayed with the company until 1966. Through his job Smith had become familiar with the new specially treated papers that were being used in disposable diapers and other products. Realizing that the industrial market was as yet untapped he found a partner to form a Long Island company named Disposables Inc. It was the DuPont Company’s introduction of the synthetic material Tyvek that made it economically feasible to produce lightweight, disposable protective garments. Rather than being woven, Tyvek was the result of a special bonding process that used heat and pressure. At first DuPont was uncertain about how best to commercially exploit Tyvek, which like so many products had been the result of accident, and reached out in any number of directions. Smith was looking for a new material, because of a shortage in the standard disposable materials due to the Vietnam War. He became the first person to sell Tyvek garments in 1966, after DuPont granted marketing rights, thereby giving Disposables a six-month headstart on its competitors. Tyvek, with its resistance to chemicals and acids, proved to be the perfect material for industrial use. The need for protective garments would increase significantly after the 1970 passage of the Occupational Safety and Health Act, better known as OSHA, which required certain industries to provide employees with protective clothing. Other materials were created in the 1970s to improve comfort, essentially allowing the wearer’s body vapor to escape, albeit with less of a protective barrier than Tyvek. Throughout the 1970s, the demand for these disposable protective garments increased steadily, as state and local requirements supplemented federal regulations. For employers, disposable items were more attractive than longer lasting ones, which entailed ongoing laundering and decontamination costs, as well as handling and transportation fees and eventual replacement. Moreover, as the demand for disposable garments increased, manufacturers were able to increase production runs and further lower the unit cost, making the cost benefit even greater.

Establishment of Lakeland Industries: 1982

Smith became the president of Disposables, which ultimately changed its name to Abanda, but he was only a minority shareholder in the company. In 1982, he was surprised when his partner of 16 years dismissed him. The two men, according to Smith, had grown apart on how to run the business in a number of areas. As part of a severance agreement, Smith was asked to sign a non-compete clause, prompting him to seek an attorney. A friend recommended Patrick Murphy, who did a lot of legal work for small businessmen. It was Murphy who was instrumental in Smith rejecting the non-compete clause and starting his own disposable garment business. This decision was difficult for Smith, who had a wife and four children to support and was receiving job offers from companies once they heard he was available. Smith worked out of Murphy’s offices to organize the new business, while Murphy put together a group of investors, many of whom were his clients. Smith chose the name for the new business when taking his wife out for dinner and spotting a street sign for Lakeland Avenue. At first he considered Lakeland Manufacturing, then settled on Lakeland Industries.

Smith’s many years in the disposable garment business proved valuable on a number of fronts. Former salespeople that had previously worked for him left Abanda to rejoin him, as did his old vice-president of manufacturing, who ran a plant in Decatur, Alabama. (In the early 1970s Disposables had moved their production facilities from Long Island to Alabama, where Smith felt the company would find a more reliable workforce.) Smith’s personal ties to DuPont were also crucial. Although DuPont was no longer selling Tyvek to new customers, it made an exception in Smith’s case. In a very short time, 59 days from the day Smith was fired, Lakeland shipped its first product.

Between 1982 and 1986, Lakeland focused on two product lines: disposable, limited use protective industrial garments and specialty safety and industrial work gloves. Manufacturing was done by two subsidiaries owned by Lakeland’s stockholders—Ryland, an Alabama corporation formed in 1982, and Triland, a New Jersey corporation formed in 1984—as well as a wholly owned Arkansas subsidiary, Uniland, formed in 1984. Lakeland generated more than $10 million in revenues in fiscal 1985 (which ended January 31, 1985), posting a profit of just $5,000. For fiscal 1986, revenues increased to more than $13 million and net income to nearly $158,000. Management then reorganized and initiated a concerted effort to grow the business. The stockholders of Triland and Ryland contributed their stock to Lakeland in February 1986, making the two companies wholly owned subsidiaries. Two months later Lakeland reincorporated in Delaware, then in September 1986 it went public to fund expansion, selling 950,000 shares of common stock at $6.75 per share. In December, Lakeland formed two more subsidiaries, Chemland and Fireland, in order to acquire two Ohio businesses, Siena Industries and Fyrepel Products. Through Fyrepel, which had been in business for 36 years, Lakeland expanded into the fire protective garment business. Chemland allowed Lakeland to manufacture protective garments for use with hazardous chemicals. Its products were sold to Fireland, which in turn distributed them to end users. For fiscal 1987, Lakeland sales increased to almost $17 million, and net profits exceeded $900,000.

In March 1987, Lakeland formed yet another subsidiary, Highland, based in Edison, New Jersey, to import and sell gloves. In September 1987, it formed a subsidiary in order to purchase the Chicago firm of Walter H. Mayer & Co., paying nearly $2 million and assuming certain liabilities. Through Mayer, Lakeland was now able to offer garments used in hospitals, nursing homes, as well as the hospitality industries. A month later, in October 1987, the Uniland subsidiary opened a manufacturing plant in St. Joseph, Missouri, to produce woven cloth garments, rather than disposables. All of this activity in fiscal 1988 resulted in a dramatic boost in revenues, which increased by more than 50 percent to $26.5 million, most of which was attributed to the new businesses. Expansion, however, caused net income to fall to $227,000.

During fiscal 1989, Lakeland continued to show strong gains, increasing revenues to nearly $37.5 million and net earnings to $1.2 million. During fiscal 1989, Lakeland restructured its business somewhat. Highland’s warehousing and manufacturing capabilities were subsequently moved from New Jersey to Alabama, and administrative operations were relocated to Lakeland’s New York offices. Uniland’s Arkansas operations were moved to its Missouri facilities. On January 31, 1989, the final day for the company’s fiscal 1989, Triland was then merged into Highland. Consolidation and centralization efforts would only accelerate as Lakeland moved into the 1990s. Its revenues increased by little more than 1 percent in fiscal 1990, to just over $37.8 million, and the company posted a loss of $38,000 for Lakeland.

Company Perspectives:

Among leading companies designing and manufacturing protective garments for industry, municipalities, and the burgeoning healthcare field, Lakeland Industries ’ products have established and maintained their global reputation for overall quality. Indeed, our products have long been recognized as the field’s gold standard for quality —that essential, expected and deserved constituent of any protective wear.

The Early 1990s: A Difficult Period for Lakeland

The company felt the adverse effects of the decision by asbestos removal contractors to use polypropylene disposable garments rather than Tyvek materials. Falling prices also hurt the company, so that Lakeland was already experiencing financial difficulty when a downturn in the U.S. economy hurt business even further. The early 1990s would be a difficult period for the company, requiring a number of changes, despite the introduction of tougher OSHA standards for chemical suits that should have provided a boost to Lakeland’s business. During fiscal 1991, Chemland closed its Ohio plant, and the Mayer subsidiary was sold for almost $2 million. While 1991 revenues were flat compared to the previous year, totaling just under $30 million, Lakeland’s net loss grew to $340,000. The poor economy hurt sales of disposable garments during much of fiscal 1992. A new management team was brought in to run Fireland, and although losses with the subsidiary were reduced, it was forced to eliminate its manufacturing operation, relying instead on outside contractors. Moreover, sales in gloves fell off, with only woven garments showing an increase for the year. Overall, Lakeland saw its revenues fall by more than $4 million in fiscal 1992 to $25.8 million, while the net loss exceeded $400,000.

Despite the economy showing signs of improvement, Lakeland continued to struggle. Although revenues began to rebound in fiscal 1993, improving to $26.5 million, the company lost more than $680,000, despite retrenching efforts that included the phasing out of Fireland’s Ohio manufacturing capability and Highland vacating its plant to share Chemland’s larger facility. Lakeland began to show signs of returning to financial health during fiscal 1994, as sales neared the 1989 level, and losses for the year were reduced to just $37,000. Lakeland was now able to renew expansion plans, in particular outside of the United States. In December 1994, the company formed Lakeland Protective Wear, Inc. in Burlington, Ontario, in order to tap the Canadian market and find a further outlet for the company’s complete line of products. An even more advantageous move was made in November 1995 (fiscal 1996) when Lakeland established a Mexican subsidiary to assemble disposable jumpsuits worn by poultry workers on a contract basis, moving the operation from its Decatur, Alabama, plant where seamstresses were making up to $15 an hour. By contrast, Mexican workers were paid around $50 a week. Because Lakeland could not add capacity at Decatur, moving assembly to Mexico was the only way to make the company’s products more competitively priced. Moreover, the company was able to take advantage of the peso devaluation. The millions of dollars that Lakeland saved on wages was then used to fund a major expansion to the Decatur, Alabama, facility, permitting Lakeland now to store more raw materials and finished goods in order to fill customers’ order in a more timely manner. More importantly, the plant was able to accommodate new computerized cutting machines that were capable of producing more expensive garments while also improving quality and eliminating waste. Ironically, by cutting low-skill jobs, the company was able to add higher paying jobs for engineers and technicians to operate the new machinery. As a result of these steps, Lakeland returned to profitability and was ready to take advantage of an economy that was about to enter a boom period.

Further Growth from the Mid-1990s into the New Century

Lakeland sales grew to $35.2 million in fiscal 1995, with a record $1.4 million in net profits. The next year, revenues topped $40 million for the first time in the company’s history. Profits fell to $587,000, the result of opening the Mexico facility as well as downtime due to the changes in the Decatur plant. In fiscal 1997, revenues improved just slightly over the previous year to $41.8 million, but net profits almost doubled to just over $1 million. During fiscal 1998, the Mexican plant was now operating at peak efficiency, and a new manufacturing facility was opened in China that would reduce the cost of a number of Lakeland’s high selling products, thereby making them more competitive in the United States as well as the Pacific Rim markets. The company also continued to improve its technology, investing in a new computer system that offered better controls in both finance and inventory. In addition to a strong economy, Lakeland benefited from a less desirable aspect of the modern world: the rise of global terrorism. In 1998, U.S. embassies in east Africa were bombed, presumably the work of the al-Qaida terrorist network led by Osama bin Laden. Congress appropriated $50 million a year to fight terrorism, some of which went to Lakeland to purchase protective clothing for U.S. embassies around the world.

For fiscal 1998, the company generated $47.3 million in revenues and posted a profit of $1.6 million. Sales grew to $54.6 million in fiscal 1999, and net profits topped $2 million. In fiscal 2000, Lakeland was so confident of its position that it was able to turn down a sales alliance offer from DuPont with little fear that it would not be able to negotiate a new licensing agreement on certain DuPont fabrics. Lakeland had a 5 percent stake in the $1.3 billion market for protective clothing, making it a large player in a highly fragmented industry populated by a number of family firms, many of which were closing their doors. Prospects for Lakeland’s continued growth were also bolstered by improving safety standards in the workplace. Prospects for foreign sales also appeared promising, as other countries began to emulate the United States in industrial safety efforts. Lakeland also took advantage of the Internet, promoting itself online as well as signing agreements with Web search portals, such as Alta Vista, that would steer users who searched on certain key words (such as “lab coats”) to Lakeland’s web page.

Key Dates:

1982:: The company is incorporated in New York.
1986:: The company is reincorporated in Delaware and goes public.
1994:: A Canadian subsidiary is established.
1995:: A Mexican subsidiary is established.
1999:: A Chinese manufacturing plant opens.

Revenues improved to $58.6 million in fiscal 2000, with net profits falling slightly to $1.7 million. Revenues continued to grow in 2000, exceeding $76 million, although net profits again dropped, to $1.1 million. Despite its reputation in its field, Lakeland was little known to investors. At the beginning of 2001, the price of its stock fell to just $3. The terrorist acts of September 11, 2001, however, would suddenly provide Lakeland with considerable media attention. The company’s highest quality chemical protection suit was featured in a Time magazine article and a segment on CNN. Not only were Lakeland suits worn at the World Trade Center site, they gained additional usage by investigators and cleanup workers during the Anthrax mail contamination a few weeks later. Investors soon realized that Lakeland would likely receive a large increase in orders, and with the war on terrorism expected to last for a number of years, there was every reason to expect that the prospects for the company would only improve. As a result, the price of Lakeland stock soared. Moreover, the FBI purchased all of Lakeland’s Saranex-coated suits used to protect against biological hazards. The Federal Emergency Management Agency (FEMA) and the Pentagon also placed large orders for Lakeland suits. What had been low-volume, high margin, high-profit products, now promised to become high-volume, high-margin, high-profit products. The cost to produce the suits, in turn, would fall and increase profits even further. Given the unpredictable state of the world, about all that remained certain was that manufacturers of protective clothing like Lakeland would find a ready market for their products for many years to come.

Principal Subsidiaries

Laidlaw, Adams & Peck, Inc.; Lakeland Protective Wear, Inc. (Canada); Lakeland de Mexico S.A. de C.V.; Weifang Lakeland Safety Products, Co. Ltd. (China).