Taxes on Income

9 Months Ended

Oct. 31, 2020

Income Tax Disclosure [Abstract]

Taxes on Income

10. Taxes on Income

Each reporting period, the Company evaluates the realizability of its deferred tax assets, and in recent years has maintained a full valuation allowance against its deferred tax assets in the United States and the foreign subsidiaries acquired in the Hi-Tec Acquisition.  However, the CARES Act allows the Company’s historical net operating loss in Fiscal 2018 to be carried back two years and the Company’s net operating losses for Fiscal 2019, Fiscal 2020 and Fiscal 2021 to be carried back five years.  The Company recognized an income tax benefit of $9.4 million in the nine months ended October 31, 2020, which includes the estimated tax refunds expected to result from these carryback claims.  The Company continues to maintain a full valuation allowance against its other deferred tax assets.  These valuation allowances will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that these other deferred tax assets will be realized.

The Company’s deferred tax liabilities related to its indefinite lived Hi-Tec and Magnum trademarks cannot be used as a source of taxable income to support the realization of the Company’s deferred tax assets.  Accordingly, the valuation allowance reserves for the deferred tax assets in these foreign jurisdictions and results in a “naked credit” for these indefinite-lived trademarks.  The impairment charges recorded during the nine months ended October 31, 2020 for these indefinite-lived trademarks reduced the naked credit, which resulted in an income tax benefit during the nine months ended October 31, 2020.