Lakeland Industries, Inc. (the “Company”) (NASDAQ: LAKE), a leading global manufacturer of industrial protective clothing for industry, municipalities, healthcare and to first responders on the federal, state and local levels, today announced it is reporting several material developments. (Logo: http://photos.prnewswire.com/prnh/20120611/NY21959LOGO ) o Lower than expected sales in Brazil for the quarter ended January 31, 2013 resulting in anticipated operating loss in Brazil o $11.5 million goodwill impairment charge in Brazil o Potential default on bank line of credit with TD Bank Lower than expected sales in the quarter ended January 31, 2013 in Brazil will likely result in an operating loss from Brazil in such quarter. In view of the recent operating losses incurred by Lakeland Brazil, management determined that the carrying amount of the goodwill related to our Brazil subsidiary exceeded its fair value, which was estimated based on the present value of expected future cash inflows. Accordingly, the Company has recorded an impairment charge at year end against the Goodwill and Intangible assets relating to its Lakeland Brazil subsidiary of $9.8 million.
Based on the available objective evidence, including the Company’s history of losses in Brazil, Management believes it is more likely than not that the net deferred tax assets related to Income taxes in Brazil only will not be fully realizable. Accordingly, the Company provided for a full valuation allowance of $1.5 million against its net deferred tax assets in Brazil at January 31, 2013. The combined charge will be $11.5 million and the net effect on stockholder equity will be $9.7 million, net of the $1.8 million reclassification from Other Comprehensive Income to reflect the cumulative adjustments previously made resulting from exchange rate differences. It is important to note that this is a write-down of intangible assets, as required by accounting rules, and has no effect on company operations or tangible assets.
Management is planning several steps to strengthen its sales effort in Brazil by reorganizing the current sales force to focus less on very large government contracts, and seeking new sales partners and distributors. Our Brazilian Organization is restructuring to decrease costs and better service private industry, for which individual bids tend to be smaller but more regular.
Such losses and impairment charge will potentially result in the company’s being in default with its TD Bank facility, however we are currently in discussions with TD Bank about resolution of these matters.
With the exception of Brazil, company-wide revenue continues to improve, with very strong revenue growth in most overseas markets, and a continued rebound in the United States from the loss of DuPont products in FY2012 that has seen strong growth achieved year over year in sales of Lakeland branded products.
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