Lakeland Industries Says May Default on Credit Line, Expecting $11.5M Goodwill Impairment in Brazil, In Talks with Lenders

Lakeland Industries, Inc.(the "Company") (NASDAQ: LAKE), a leading global manufacturer of industrialprotective clothing for industry, municipalities, healthcare and to firstresponders on the federal, state and local levels, today announced it isreporting 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 BankLower than expected sales in the quarter ended January 31, 2013 in Brazil willlikely result in an operating loss from Brazil in such quarter. In view of the recent operating losses incurred by Lakeland Brazil, managementdetermined that the carrying amount of the goodwill related to our Brazilsubsidiary exceeded its fair value, which was estimated based on the presentvalue of expected future cash inflows. Accordingly, the Company has recordedan impairment charge at year end against the Goodwill and Intangible assetsrelating to its Lakeland Brazil subsidiary of $9.8 million.Based on the available objective evidence, including the Company's history oflosses in Brazil, Management believes it is more likely than not that the netdeferred tax assets related to Income taxes in Brazil only will not be fullyrealizable. Accordingly, the Company provided for a full valuation allowanceof $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 onstockholder equity will be $9.7 million, net of the $1.8 millionreclassification from Other Comprehensive Income to reflect the cumulativeadjustments previously made resulting from exchange rate differences. It isimportant to note that this is a write-down of intangible assets, as requiredby accounting rules, and has no effect on company operations or tangibleassets.Management is planning several steps to strengthen its sales effort in Brazilby reorganizing the current sales force to focus less on very large governmentcontracts, and seeking new sales partners and distributors. Our BrazilianOrganization is restructuring to decrease costs and better service privateindustry, for which individual bids tend to be smaller but more regular.Such losses and impairment charge will potentially result in the company'sbeing in default with its TD Bank facility, however we are currently indiscussions with TD Bank about resolution of these matters.With the exception of Brazil, company-wide revenue continues to improve, withvery strong revenue growth in most overseas markets, and a continued reboundin the United States from the loss of DuPont products in FY2012 that has seenstrong growth achieved year over year in sales of Lakeland branded products.