Income Taxes

6 Months Ended

Sep. 10, 2011

Income Taxes

Income Taxes

16.  Income Taxes                                         

During the 12 and 28 weeks ended September 10, 2011, our valuation allowance increased by $34.4 million and $95.6 million, respectively, to reflect generation of additional operating losses and increases to other deferred tax assets. In future periods, we will continue to record a valuation allowance against net deferred tax assets until such time as the certainty of the realization of future tax benefits can be reasonably assured.   

Our Company is subject to U.S. federal income tax, as well as income tax in multiple state and foreign jurisdictions. As of September 10, 2011, with a few exceptions, we remain subject to examination by federal, state and local tax authorities for tax years 2005 through 2009. With a few exceptions, we are no longer subject to federal, state or local examinations by tax authorities for tax years 2004 and prior. At September 10, 2011 and February 26, 2011, we had unrecognized tax benefits of $0.6 million, which were recorded within deferred tax liabilities in "Other accruals" in our Consolidated Balance Sheets. We do not expect that the amount of our gross unrecognized tax positions will change significantly in the next 12 months. Any future decrease in our Company's gross unrecognized tax positions is not expected to affect our effective tax rate. Our Company classifies interest and penalty expense related to unrecognized tax benefits within "(Provision for) benefit from income taxes" in our Consolidated Statements of Operations. For the 12 and 28 weeks ended September 10, 2011 and September 11, 2010, respectively, no amounts were recorded for interest and penalties within "(Provision for) benefit from income taxes" in our Consolidated Statements of Operations.

The effective tax rate on continuing operations of (3.1%) and 4.5% for the 12 and 28 weeks ended September 10, 2011, respectively, and (0.07%) and (0.10%) for the 12 and 28 weeks ended September 11, 2010 respectively, varied from the statutory rate of 35%, primarily due to state and local income taxes, and the increase in our valuation allowance. The rate for the 12 and 28 weeks ended September 11, 2010 was also impacted by the mark to market of the Series B warrants issued in the acquisition of Pathmark.

At September 10, 2011, we had federal Net Operating Loss ("NOL") carry forwards of approximately $1.0 billion, which will expire between fiscal 2024 and 2031, some of which are subject to an annual limitation. The federal NOL carry forwards include $7.4 million related to the excess tax deductions for stock option plans that have yet to reduce income taxes payable. Upon utilization of these carry forwards, the associated tax benefits of approximately $2.6 million will be recorded in "Additional paid-in capital" in our Consolidated Balance Sheets. In addition, we had state loss carry forwards of $1.0 billion that will expire between fiscal 2011 and fiscal 2031. Our Company's general business credits consist of federal and state work incentive credits, which will expire between fiscal 2011 and fiscal 2030, some of which are subject to an annual limitation.

At September 10, 2011 and February 26, 2011, we had net current deferred tax liabilities of $31.5 million and $28.3 million, respectively, which were included in "Other accruals" in our Consolidated Balance Sheets and non-current deferred tax assets of $19.9 million and $16.7 million, respectively, which were recorded in "Other assets" in our Consolidated Balance Sheets.

Revision of Prior Period Financial Statements

During the first quarter of fiscal 2011, our Company identified the amount of income tax benefit and income tax expense allocated to continuing operations and discontinued operations, respectively, for the fiscal year ended February 26, 2011 was improperly presented in our Consolidated Statements of Operations.  The impact of this improper presentation, which results from the improper intraperiod allocation of income taxes, was an understatement of the "Benefit from income taxes" related to "Loss from continuing operations" and an understatement of the "Provision for income taxes" related to "Income from discontinued operations" of $33.1 million in our Consolidated Statements of Operations during the fiscal year ended February 26, 2011.  The effect of this revision had no impact on our "Net loss" in our Consolidated Statements of Operations or "Net cash used in operating activities" in our Consolidated Statements of Cash Flows for the fiscal year ended February 26, 2011.

The following table presents the impact of this revision in our Company's Consolidated Statements of Operations for the fiscal year ended February 26, 2011 (in thousands):

	As Reported			Adjustment			As Revised
Benefit from (provision for) income taxes		$3,798			$33,146			$36,944
Loss from continuing operations		(673,400	)		33,146			(640,254)
Income (loss) from discontinued operations		74,825			(33,146	)		41,679
Net (loss) income per share - basic		(11.45	)		0.01			(11.44)

The revisions described above will be reflected in our Company's Consolidated Financial Statements for the fiscal year ended February 25, 2012, which will be included in our Company's Annual Report on Form 10-K for the fiscal year ended February 25, 2012.