Rite Aid 2016 Annual Report Download - page 45

such earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect recognition
of a deferred tax asset, carryback and carryforward periods and tax planning strategies that could
potentially enhance the likelihood of realization of a deferred tax asset. The ultimate realization of
deferred tax assets is dependent upon the existence of sufficient taxable income generated in the
carryforward periods. Accordingly, changes in the valuation allowance from period to period are
included in the tax provision in the period of change.
Net income for fiscal 2015 included income tax benefit of $1,841.3 million attributable to the
reduction of the deferred tax valuation allowance. The reduction of the valuation allowance was the
result of an accumulation of objective and verifiable positive evidence out weighing the negative
evidence. Through fiscal 2014, we had a cumulative loss over a three year window. Our positive
evidence of sustained profitability includes the following: the achievement of cumulative profitability in
fiscal 2015, reported earnings for ten consecutive quarters, established a pattern of utilization of federal
and state net operating losses against taxable income over the last three years and demonstrated the
Company’s historical ability of predicting earnings such that management concluded that forecasts can
be used to estimate the future utilization of our loss carryforwards. Based upon the Company’s
projections of future taxable income over the periods in which the deferred tax assets are recoverable,
management believed that it was more likely than not that the Company would realize the benefits of
substantially all the net deferred tax assets existing at February 28, 2015.
We maintained a valuation allowance of $212.0 million and $231.7 million against remaining net
deferred tax assets at fiscal year-end 2016 and 2015, respectively.
Dilutive Equity Issuances
On February 27, 2016, 1,047.8 million shares of common stock, which includes unvested restricted
shares, were outstanding and an additional 38.1 million shares of common stock were issuable related
to outstanding stock options.
On February 27, 2016, our 38.1 million shares of potentially issuable common stock consisted of
the following (shares in thousands):
Outstanding
Stock
Strike price Options(a)
$0.99 and under ......................................... 654
$1.00 to $1.99 ........................................... 25,369
$2.00 to $2.99 ........................................... 4,006
$3.00 to $3.99 ........................................... 3
$4.00 to $4.99 ........................................... 434
$5.00 to $5.99 ........................................... 3
$6.00 to $6.99 ........................................... 1,550
$7.00 to $7.99 ........................................... 2,642
$8.00 and over ........................................... 3,464
Total issuable shares ...................................... 38,125
(a) The exercise of these options would provide cash of $103.9 million.
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