lululemon athletica inc.

Note 20. Income Taxes

The Company's domestic and foreign income before income tax expense and current and deferred income taxes from federal, state, and foreign sources were as follows:

The Company's income tax expense for 2023 included a discrete income tax recovery of $26.1 million related to the impairment of assets and restructuring costs. Please refer to Note 10. Impairment of Assets and Restructuring Costs for further information.

As of February 1, 2026, the Company's net investment in its Canadian subsidiaries was $3.3 billion, of which $1.6 billion was determined to be indefinitely reinvested. A deferred income tax liability of $80.7 million has been recognized in relation to the portion of the Company's net investment in its Canadian and Hong Kong SAR subsidiaries that is not indefinitely reinvested, representing the Canadian withholding taxes and U.S. state income taxes which would be due upon repatriation. This deferred tax liability has been recorded on the basis that the Company would choose to make the repatriation transactions in the most tax-efficient manner. Specifically, to the extent that the Canadian subsidiaries have paid-up capital, any such distributions would be structured as a return of capital, and therefore not subject to Canadian withholding tax. The unrecognized deferred income tax liability on the indefinitely reinvested amount is approximately $89.1 million.

As of February 1, 2026, the Company had cash and cash equivalents of $935.1 million outside of the United States.

The reconciliation of the federal statutory income tax rate to the Company's effective tax rate was as follows:

(1)The other category within domestic federal reconciling items is comprised of individually insignificant items. For 2025, it primarily relates to tax benefits related to foreign exchange losses.

(2)California, New York, Florida, Illinois, New Jersey, Pennsylvania, Massachusetts, and Minnesota made up the majority (greater than 50%) of this category for each of 2025, 2024, and 2023.

(3)British Columbia makes up the majority (greater than 50%) of this category for each of 2025, 2024, and 2023.

Cash paid for income taxes, net of refunds, was as follows:

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are presented below:

As of February 1, 2026, the Company had net operating loss carryforwards of $35.0 million. The majority of the net operating loss carryforwards expire, if unused, between fiscal 2030 and fiscal 2045.

There was a $9.6 million net increase in the valuation allowance in 2025, compared to a $5.6 million net increase in 2024, and a $1.6 million net increase in 2023.

The Company files income tax returns in the U.S., Canada, China Mainland, and various foreign and state jurisdictions. The 2022 to 2024 tax years remain subject to examination by the U.S. federal and state tax authorities. The 2018 to 2024 tax years remain subject to examination by Canadian tax authorities. The 2016 to 2024 tax years remain subject to examination by the China Mainland tax authorities. The 2018 to 2024 tax years remain subject to examination by tax authorities in certain other foreign jurisdictions. The Company does not have any significant unrecognized tax benefits arising from uncertain tax positions taken, or expected to be taken, in the Company's tax returns.