Rite Aid 2015 Annual Report Download - page 30

engage in similar efforts in the future. During fiscal 2015 and fiscal 2014, we completed several
refinancing transactions which caused interest expense to decrease by $26.9 million in fiscal 2015. In
January 2015, we amended and restated our senior secured credit facility (‘‘Amended and Restated
Senior Secured Credit Facility’’ or ‘‘revolver’’), which, among other things, increased our borrowing
capacity to $3.0 billion (increasing to $3.7 billion upon the repayment of our 8.00% senior secured
notes (second lien) due August 2020) and extended the maturity to January 2020. We used borrowings
under the revolver to repay and retire all of the $1.144 billion outstanding under our Tranche 7 Senior
Secured Term Loan due 2020. We expect, at current rates, to save approximately $20.0 million in
annual interest expense, based on a $3.0 billion revolver, and approximately $50.0 million in annual
interest expense based on a $3.7 billion revolver and the redemption of our 8.00% senior secured notes
(second lien) due August 2020. In addition, in October 2014, we redeemed our outstanding
$270.0 million aggregate principal amount of 10.25% senior notes due October 2019. These transactions
are described in more detail in the ‘‘Liquidity and Capital Resources’’ section below.
Income Tax Valuation Allowance Adjustment: Net income for fiscal 2015 included income tax
benefit of $1,682.4 million, compared to income tax expense of $0.8 million for fiscal 2014. Income tax
benefit for fiscal 2015 was primarily the result of the reduction of the valuation allowance against
substantially all of the net deferred tax assets as described in detail below. We have assessed and
considered all of the available evidence and determined that we had returned to profitability for a
sustained period and our future projections indicate that substantially all of our federal deferred tax
assets and a portion of our state deferred tax assets are more likely than not realizable in the future.
Accordingly, we recorded a reduction in our valuation allowance and an income tax benefit of
$1,841.3 million. We evaluated the following evidence (1) achievement of three years of cumulative
profitability during the current fiscal year, (2) a consistent pattern of earnings in the past three years,
(3) utilization of federal and state net operating losses to significantly eliminate cash taxes for the last
3 years as well as (4) business plans showing continued profitability. The reduction of the valuation
allowance in the fourth quarter was based on a pattern of sustained earnings exhibited by us over the
most recent 10 quarters through February 28, 2015, projected future taxable income and our historical
ability of predicting earnings and presents sufficient objective and verifiable evidence that forecasts can
be used to estimate the future utilization of our loss carryforwards. Based on these factors we have
determined that it is more likely than not that a substantial portion of our deferred tax assets are
realizable and adjusted the valuation allowance accordingly.
Income tax expense for fiscal 2014 resulted in an increase in the deferred tax valuation allowance
to offset the windfall tax benefits recorded in additional paid-in capital (‘‘APIC’’) pursuant to the tax
law ordering approach, offset by adjustments to unrecognized tax benefits due to the lapse of statute of
limitations. Additionally, the income tax expense for 2014 was recorded net of adjustments to maintain
a full valuation allowance against our net deferred tax assets.
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