LAKELAND INDUSTRIES INC Income Taxes Disclosure
10. INCOME TAXES
Income tax expense (benefit) is based on the following pretax income (loss):
|
|
Year Ended |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Domestic |
|
$ |
(18,465 |
) |
|
$ |
(14,701 |
) |
Foreign |
|
|
766 |
|
|
|
(3,655 |
) |
Total |
|
$ |
(17,699 |
) |
|
$ |
(18,356 |
) |
The domestic and foreign pretax income (loss) in the schedule above reflects intercompany dividends paid to the U.S. from international subsidiaries of $4.8 million for fiscal year ended January 31, 2025. No intercompany dividends were paid to the U.S. from international subsidiaries are reflected in the schedule above for the fiscal year ended January 31, 2026.
|
|
Year Ended |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Income Tax Expense (Benefit) |
|
|
|
|
|
|
||
Current: |
|
|
|
|
|
|
||
Federal |
|
$ |
4 |
|
|
$ |
8 |
|
State and other taxes |
|
|
24 |
|
|
|
29 |
|
Foreign |
|
|
2,943 |
|
|
|
3,832 |
|
Total Current Tax Expense |
|
$ |
2,971 |
|
|
$ |
3,869 |
|
Deferred: |
|
|
|
|
|
|
||
Domestic |
|
$ |
4,841 |
|
|
$ |
(3,312 |
) |
Foreign |
|
|
(200 |
) |
|
|
(838 |
) |
Total Deferred Tax Expense |
|
|
4,641 |
|
|
|
(4,150 |
) |
Total Income Taxes |
|
$ |
7,612 |
|
|
$ |
(281 |
) |
The following table presents the income taxes paid disaggregated by domestic, state and international taxes, with further disaggregation by jurisdiction in accordance with the guidance under ASU 2023-09.
|
|
Year Ended |
|
|
|
|
2026 |
|
|
Federal |
|
$ |
— |
|
State |
|
|
41 |
|
Foreign |
|
|
|
|
Argentina |
|
|
328 |
|
Australia |
|
|
739 |
|
China |
|
|
522 |
|
India |
|
|
240 |
|
Russia |
|
|
253 |
|
United Kingdom |
|
|
283 |
|
Vietnam |
|
|
392 |
|
Other |
|
|
247 |
|
Total Income Taxes Paid |
|
$ |
3,045 |
|
The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company's effective rate for the year ended
January 31, 2026 in accordance with the guidance in ASU 2023-09.
|
|
Year Ended |
|
|||||
|
|
Amount |
|
|
Percentage |
|
||
Statutory rate |
|
$ |
(3,717 |
) |
|
|
21.00 |
% |
State Income Taxes, Net of Federal Tax Benefit |
|
|
509 |
|
|
|
(2.87 |
)% |
Foreign Tax Effects |
|
|
|
|
|
|
||
China |
|
|
|
|
|
|
||
Withholding Taxes |
|
|
384 |
|
|
|
(2.17 |
)% |
Other |
|
|
73 |
|
|
|
(0.41 |
)% |
Germany |
|
|
|
|
|
|
||
Foreign Rate Differential |
|
|
(538 |
) |
|
|
3.03 |
% |
Goodwill Impairment |
|
|
781 |
|
|
|
(4.41 |
)% |
Change in Valuation Allowance |
|
|
1,259 |
|
|
|
(7.12 |
)% |
Other Foreign |
|
|
622 |
|
|
|
(3.51 |
)% |
Cross Border Tax Laws & Credits |
|
|
|
|
|
|
||
Tax Credits - True Up & Other |
|
|
499 |
|
|
|
(2.82 |
)% |
Non-Taxable & Nondeductible Items |
|
|
177 |
|
|
|
(1.00 |
)% |
Change in Valuation Allowance |
|
|
7,542 |
|
|
|
(42.60 |
)% |
Other |
|
|
21 |
|
|
|
(0.13 |
)% |
Effective Rate |
|
$ |
7,612 |
|
|
|
(43.01 |
)% |
The following table is a reconciliation of the U.S. federal statutory tax rate of 21% to the Company's effective rate for the years ended January 31, 2025 in accordance with the guidance prior to the adoption of ASU 2023-09.
|
|
Year Ended |
|
|
|
|
2025 |
|
|
Statutory rate |
|
|
21.00 |
% |
State Income Taxes, Net of Federal Tax Benefit |
|
|
1.66 |
% |
Adjustment to Deferred |
|
|
(5.38 |
)% |
GILTI |
|
|
0.00 |
% |
Foreign Tax Credit – GILTI |
|
|
0.00 |
% |
Goodwill Impairment |
|
|
(12.06 |
)% |
Section 250 Deduction |
|
|
0.00 |
% |
Permanent Differences |
|
|
(1.48 |
)% |
Valuation Allowance-Deferred Tax Asset |
|
|
0.17 |
% |
Foreign Tax Credit |
|
|
8.19 |
% |
Section 78 Gross-up |
|
|
0.00 |
% |
Argentina Flow Through Loss |
|
|
(6.14 |
)% |
Withholding Taxes |
|
|
(1.40 |
)% |
Foreign Rate Differential |
|
|
(2.11 |
)% |
Change in State Apportionment Rate |
|
|
(0.01 |
)% |
Foreign employee benefits |
|
|
0.00 |
% |
Foreign Dividends Paid to U.S. |
|
|
(5.48 |
)% |
Foreign Dividends Received Deduction |
|
|
5.48 |
% |
Earnout Adjustment |
|
|
0.81 |
% |
Other |
|
|
(1.72 |
)% |
Effective Rate |
|
|
1.53 |
% |
The tax effects of temporary cumulative differences which give rise to deferred tax assets and liabilities are summarized as follows:
|
|
January 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Deferred tax assets (liabilities): |
|
|
|
|
|
|
||
U.S. tax loss carryforwards, including work opportunity |
|
$ |
6,493 |
|
|
$ |
2,364 |
|
Foreign tax credit carryforwards |
|
|
4,694 |
|
|
|
5,184 |
|
State and local carryforwards |
|
|
1,795 |
|
|
|
1,528 |
|
Foreign carryforwards |
|
|
6,943 |
|
|
|
1,029 |
|
Inventories |
|
|
670 |
|
|
|
661 |
|
Accounts receivable and accrued rebates |
|
|
320 |
|
|
|
313 |
|
Accrued compensation and other |
|
|
165 |
|
|
|
326 |
|
Equity based compensation |
|
|
823 |
|
|
|
508 |
|
Depreciation and amortization |
|
|
(5,567 |
) |
|
|
(4,230 |
) |
Prepaid expenses |
|
|
(322 |
) |
|
|
(301 |
) |
Right-of-use asset |
|
|
(1,040 |
) |
|
|
(1,577 |
) |
Operating lease liability |
|
|
1,955 |
|
|
|
1,660 |
|
Investments |
|
|
— |
|
|
|
1,404 |
|
Section 163(j) Interest Expense |
|
|
612 |
|
|
|
293 |
|
Withholding taxes |
|
|
(422 |
) |
|
|
(139 |
) |
Other |
|
|
187 |
|
|
|
— |
|
Deferred tax assets (liabilities) |
|
|
17,306 |
|
|
|
9,023 |
|
Less valuation allowance |
|
|
(18,355 |
) |
|
|
(6,644 |
) |
Net deferred tax assets (liabilities) |
|
$ |
(1,049 |
) |
|
$ |
2,379 |
|
|
|
|
|
|
|
|
||
|
|
January 31, |
|
|||||
Balance sheet classification |
|
2026 |
|
|
2025 |
|
||
Long-term deferred tax assets |
|
$ |
1,149 |
|
|
$ |
6,270 |
|
Long-term deferred tax liability |
|
$ |
2,198 |
|
|
$ |
3,891 |
|
The benefit relating to operating loss, and credit carryforwards included in the above table at January 31, 2026, consisted of:
|
|
Gross |
|
|
Benefit |
|
|
Valuation |
|
|
Expiration |
|||
U.S. federal operating loss carryforwards |
|
$ |
24,866 |
|
|
|
5,222 |
|
|
|
(5,222 |
) |
|
Indefinite |
U.S. Federal capital loss carryforward |
|
$ |
4,573 |
|
|
|
1,104 |
|
|
|
(1,104 |
) |
|
2031 |
State operating loss carryforwards |
|
$ |
74,163 |
|
|
|
1,795 |
|
|
|
(1,795 |
) |
|
2028 |
Foreign tax credit carryforwards |
|
$ |
— |
|
|
|
4,694 |
|
|
|
(4,694 |
) |
|
2026 |
Federal credit carryforwards |
|
$ |
— |
|
|
|
167 |
|
|
|
(167 |
) |
|
2035 |
Chile operating loss carryforwards |
|
$ |
1,311 |
|
|
|
354 |
|
|
|
(354 |
) |
|
Indefinite |
LHD Germany operating loss carryforwards |
|
$ |
19,252 |
|
|
|
5,776 |
|
|
|
(3,752 |
) |
|
Indefinite |
Romania operating loss carryforward |
|
$ |
171 |
|
|
|
27 |
|
|
|
— |
|
|
2031 |
Kazakhstan operating loss carryforward |
|
$ |
4 |
|
|
|
1 |
|
|
|
— |
|
|
2036 |
New Zealand operating loss carryforward |
|
$ |
1,424 |
|
|
|
399 |
|
|
|
— |
|
|
Indefinite |
Argentina operating loss carryforward |
|
$ |
1,288 |
|
|
|
386 |
|
|
|
— |
|
|
2031 |
Total |
|
|
|
|
$ |
19,925 |
|
|
$ |
(17,088 |
) |
|
|
|
Indefinite Reinvestment Assertion
The Company generally considers all earnings generated outside of the U.S. to be permanently reinvested offshore, with the exception of countries where cash can be repatriated without withholding taxes, and in China in which the Company previously determined excess cash over what was required to fund operations and growth existed.
During FY26, the Company repatriated $0.5 million from two of its subsidiaries in China. The Company also identified an additional $3.0 million in excess cash in its Chinese operations which it plans to repatriate in the future. A withholding tax liability of $0.3 million has been established for the expected withholding taxes as of the year ended January 31, 2026.
Income Tax Audits
The Company is subject to US federal income tax, as well as income tax in multiple U.S. state and local jurisdictions and a number of foreign jurisdictions. Returns for the years since FY21 are still open based on statutes of limitation only.
Chinese tax authorities have performed limited reviews on all Chinese subsidiaries as of tax years 2008 through 2025 with no significant issues noted, and we believe our tax positions are reasonably stated as of January 31, 2026. The 2025 tax review will be performed before May 31, 2026 in China.
Change in Valuation Allowance
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. The valuation allowance as of January 31, 2026 and January 31, 2025 was $18.3 million and $6.6 million, respectively.
The Company continually reviews the adequacy of our valuation allowance and recognizes the benefits of deferred tax assets only as the reassessment indicates that it is more likely than not that the deferred tax assets will be realized in accordance with ASC 740, Income Taxes. Due to our recent decrease in revenue and profitability for the third and fourth quarter of FY26, management’s current expectations for revenue for the first half of FY27, and all other positive and negative objective evidence considered as part of our analysis, our ability to consider other subjective evidence such as projections for future growth is limited when evaluating whether our deferred tax assets will be realized. As such, the Company was no longer able to conclude that it is more likely than not that our domestic deferred tax assets will be realized as of the 3rd quarter ending October 31, 2026, and recorded a full valuation allowance against its domestic deferred tax assets. The amount of the deferred tax assets considered realizable, however, could be adjusted in future periods in the event sufficient evidence is present to support a conclusion that it is more likely than not that all or a portion of our domestic deferred tax assets will be realized.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Apr 16, 2026 | Showing above |
| 2025 | Apr 17, 2025 | |
| 2024 | Apr 11, 2024 | |
| 2023 | Apr 18, 2023 | |
| 2022 | Apr 21, 2022 | |
| 2021 | Apr 16, 2021 | |
| 2020 | Apr 15, 2020 | |
| 2019 | Apr 16, 2019 | |
| 2018 | Apr 16, 2018 | |
| 2017 | Apr 26, 2017 | |
| 2016 | Apr 21, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.