Rite Aid 2013 Annual Report Download - page 84

RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended March 2, 2013, March 3, 2012 and February 26, 2011
(In thousands, except per share amounts)
5. Income Taxes (Continued)
A reconciliation of the expected statutory federal tax and the total income tax benefit was as
follows:
Year Ended
March 2, March 3, February 26,
2013 2012 2011
(52 Weeks) (53 Weeks) (52 Weeks)
Expected federal statutory expense at 35% .... $ 2,626 $(137,279) $(190,956)
Nondeductible expenses .................. 1,897 2,408 1,354
State income taxes, net .................. 39,470 11,492 (18,139)
Increase (decrease) of previously recorded
liabilities ........................... (91,881) (17,771) 647
Recoverable Federal tax due to special 5-year
NOL carryback ...................... (6,305) — —
Release of Indemnification Asset ........... 37,324 — —
Indemnification Receipt .................. 587 — —
Valuation allowance ..................... (94,318) 117,464 216,936
Total income tax expense (benefit) .......... $(110,600) $ (23,686) $ 9,842
Net Income for fiscal 2013 included income tax benefit of $110,600 primarily comprised of
adjustments to unrecognized tax benefits for the appellate settlements of the Brooks Eckerd IRS Audit
for the fiscal years 2004 - 2007 and the Commonwealth of Massachusetts Audit for fiscal years
2005 - 2007 as well as for the lapse of statute of limitations. The settlements resulted in the resolution
of tax contingencies associated with these tax years which impacted the fiscal 2013 effective rate.
Furthermore, the settlements with the IRS and the Commonwealth of Massachusetts do not impact the
net financial position, results of operations or cash flows because this amount was offset by the reversal
of the tax indemnification asset which was recorded in selling, general and administrative expenses. The
income tax benefit was recorded net of adjustments to maintain a full valuation allowance against our
net deferred tax assets. Additionally, the decrease to the valuation allowance recorded in fiscal 2013
included the impact of IRS adjustments made to tax attributes as well as reductions for the expiration
of tax credits. ASC 740, ‘‘Income Taxes’’ requires a company to evaluate its deferred tax assets on a
regular basis to determine if a valuation allowance against the net deferred tax assets is required. A
cumulative loss in recent years is significant negative evidence in considering whether deferred tax
assets are realizable. Based on the negative evidence, ASC 740 precludes relying on projections of
future taxable income to support the recognition of deferred tax assets.
Net loss for fiscal 2012 included income tax benefit of $23,686 and was primarily comprised of
adjustments to unrecognized tax benefits due to the lapse of statute of limitations. The fiscal 2011
income tax expense was primarily comprised of an accrual for state and local taxes, adjustments to
unrecognized tax benefits and the need for an accrual of additional state taxes resulting from the
receipt of a final audit determination.
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