LAKELAND INDUSTRIES INC Income Taxes Disclosure

10.  INCOME TAXES

Income tax expense (benefit) is based on the following pretax income (loss):

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 and $11.4 million for fiscal years ended January 31, 2025 and 2024, respectively.

The following is a reconciliation of the Federal statutory rate to the Company’s effective income tax rate::

The tax effects of temporary cumulative differences which give rise to deferred tax assets and liabilities are summarized as follows:

The benefit relating to operating loss, and credit carryforwards included in the above table at January 31, 2025, consisted of:

A significant portion of our net operating loss carryforwards were generated in the state of Alabama prior to the change in apportionment factor rules for that state in 2021 which moved the state to a single sales factor apportionment method. The impact of the state law change significantly reduced our apportionment factor in that state, making it unlikely that we will generate sufficient income allocated to that state in order to utilize the full amount of our net loss carryforwards prior to their expiration.

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 FY25, the Company repatriated $4.8 million from two of its subsidiaries in China. The Company also identified an additional $0.4 million in excess cash in its Chinese operations, which it plans to repatriate in the future. A withholding tax liability of $0.1 million has been established for the expected withholding taxes as of the year ended January 31, 2025.

Income Tax Audits

The Company is subject to US federal income tax, as well as income tax in multiple US 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 2024 with no significant issues noted, and we believe our tax positions are reasonably stated as of January 31, 2025. The 2024 tax review will be performed before May 31, 2025 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, 2025 and January 31, 2024 was $6.6 million and $6.7 million, respectively.