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RITE AID CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended February 28, 2015, March 1, 2014 and March 2, 2013
(In thousands, except per share amounts)
7. Income Taxes (Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
2015 2014 2013
Unrecognized tax benefits ................... $10,143 $ 30,020 $ 247,722
Increases to prior year tax positions .......... 1,003 — 6,305
Decreases to tax positions in prior periods ...... (984) (3,215) (196,214)
Increases to current year tax positions ......... 123 — —
Settlements ............................ (681) — (3,655)
Lapse of statute of limitations ............... (90) (16,662) (24,138)
Unrecognized tax benefits balance ............. $ 9,514 $ 10,143 $ 30,020
The amount of the above unrecognized tax benefits at February 28, 2015, March 1, 2014 and
March 2, 2013 which would impact the Company’s effective tax rate, if recognized, was $440, $876 and
$14,651, respectively. Additionally, any impact on the effective rate may be mitigated by the valuation
allowance that is remaining against the Company’s net deferred tax assets.
The Company is indemnified by Jean Coutu Group for certain tax liabilities incurred for all years
ended up to and including the acquisition date of June 4, 2007, related to the Brooks Eckerd
acquisition. Although the Company is indemnified by Jean Coutu Group, the Company remains the
primary obligor to the tax authorities with respect to any tax liability arising for the years prior to the
acquisition. Accordingly, as of February 28, 2015, March 1, 2014 and March 2, 2013, the Company had
a corresponding recoverable indemnification asset of $0, $195 and $30,710 from Jean Coutu Group,
included in the ‘‘Other Assets’’ line of the Consolidated Balance Sheets, to reflect the indemnification
for such liabilities.
While it is expected that the amount of unrecognized tax benefits will change in the next twelve
months, management does not expect the change to have a significant impact on the results of
operations or the financial position of the company.
The Company recognizes interest and penalties related to tax contingencies as income tax expense.
Prior to the adoption of ASC 740, ‘‘Income Taxes,’’ the Company included interest as income tax
expense and penalties as an operating expense. The Company recognized a benefit for interest and
penalties in connection with tax matters of ($5,250), ($16,833) and ($43,069) for fiscal years 2015, 2014
and 2013, respectively. As of February 28, 2015 and March 1, 2014 the total amount of accrued income
tax-related interest and penalties was $115 and $5,364, respectively.
The Company files U.S. federal income tax returns as well as income tax returns in those states
where it does business. The consolidated federal income tax returns are closed for examination thru
fiscal year 2011. However, any net operating losses that were generated in these prior closed years may
be subject to examination by the IRS upon utilization. Tax examinations by various state taxing
authorities could generally be conducted for a period of three to five years after filing of the respective
return. However, as a result of filing amended returns, the Company has statutes open in some states
from fiscal year 2005.
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