Income Taxes

12 Months Ended

Mar. 04, 2023

Income Taxes

Income Taxes

8. Income Taxes

The provision for income tax benefit from continuing operations was as follows:

	Year Ended
	March 4,		February 26,		February 27,
	2023		2022		2021
	(53 Weeks)		(52 Weeks)		(52 Weeks)
Current tax:
Federal	$	(6)	$	(6)	$	(6,758)
State		9,082		7,454		4,145
		9,076		7,448		(2,613)
Deferred tax and other:
Federal		—		(1,301)		(12,649)
State		(15,543)		(9,927)		(4,895)
		(15,543)		(11,228)		(17,544)
Total income tax benefit	$	(6,467)	$	(3,780)	$	(20,157)

A reconciliation of the expected statutory federal tax and the total income tax benefit from continuing operations was as follows:

	Year Ended
	March 4,		February 26,		February 27,
	2023		2022		2021
	(53 Weeks)		(52 Weeks)		(52 Weeks)
Federal statutory rate	$	(152,388)	$	(110,492)	$	(25,103)
Nondeductible expenses		556		398		588
State income taxes, net		271,306		(45,388)		10,042
Bargain purchase gain		—		1,123		(10,018)
Decrease of previously recorded liabilities		(18,689)		(3,798)		(2,273)
Nondeductible compensation		2,045		1,551		3,764
Qualified fringe disallowance		342		224		313
Nondeductible excise tax		—		—		1,296
Stock based compensation		2,213		198		2,806
Valuation allowance		(112,037)		152,785		(2,222)
Other		185		(381)		650
Total income tax benefit	$	(6,467)	$	(3,780)	$	(20,157)

Net loss for fiscal 2023 from continuing operations included an income tax benefit of $6,467. The state income tax expense reflected in the table above primarily resulted from the re-measurement of state deferred tax assets due to a reduced statutory Pennsylvania corporate net income tax rate. This state tax expense was offset by a corresponding income tax benefit of $256,411 to reduce the valuation allowance as a result of the reduced tax rate. Overall, an income tax benefit of $112,037 was recorded to maintain a full valuation allowance for federal deferred tax assets as well as the majority of the Company’s state deferred tax assets. These assets may not be realized based on the Company's most recent assessment that it is more likely than not that sufficient taxable income may not be generated to realize the tax benefits of the Company’s net deferred tax assets.

Net loss for fiscal 2022 from continuing operations included an income tax benefit of $3,780, of which $152,785 of income tax expense was recorded to maintain a full valuation allowance for federal deferred tax assets as well as the majority of the Company’s state deferred tax assets. These assets may not be realized based on the Company's most recent assessment that it is more likely than not that sufficient taxable income may not be generated to realize the tax benefits of the Company’s net deferred tax assets.

Net loss for fiscal 2021 from continuing operations included income tax benefit of $20,157, of which $2,222 was recorded to maintain a full valuation allowance for federal deferred tax assets as well as the majority of the Company’s state deferred tax assets. These assets may not be realized based on the Company's most recent assessment that it is more likely than not that sufficient taxable income may not be generated to realize the tax benefits of the Company’s net deferred tax assets. Additionally, the overall tax rate includes a permanent tax benefit related to the Company’s bargain purchase gain on the Bartell acquisition resulting in an impact of 8.4%.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implemented a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Based on the Company’s current analysis of the provisions, it does not believe that this legislation will have a material impact on its financial statements.

The tax effect of temporary differences that gave rise to significant components of deferred tax assets and liabilities consisted of the following as of March 4, 2023 and February 26, 2022:

	2023		2022
Deferred tax assets:
Accounts receivable	$	26,769	$	22,958
Accrued expenses		143,207		95,421
Pension, retirement and other benefits		40,100		67,686
Long-lived assets		364,618		299,507
Operating lease liabilities		781,721		883,713
Credits		21,955		22,917
Net operating losses		1,200,516		1,487,639
Other		271		225
Total gross deferred tax assets		2,579,157		2,880,066
Valuation allowance		(1,636,461)		(1,818,069)
Total deferred tax assets		942,696		1,061,997
Deferred tax liabilities:
Outside basis difference		5,622		5,682
Inventory		244,554		251,221
Operating lease right-of-use assets		680,152		785,023
Total gross deferred tax liabilities		930,328		1,041,926
Net deferred tax assets	$	12,368	$	20,071

A reconciliation of the beginning and ending amount of unrecognized tax benefits from continuing operations was as follows:

	2023		2022		2021
Unrecognized tax benefits	$	103,629	$	184,414	$	198,325
Increases to prior year tax positions		1		24		42
Decreases to tax positions in prior periods		(29,432)		(294)		(807)
Increases to current year tax positions		—		—		—
Settlements		—		—		—
Divestitures		—		—		—
Lapse of statute of limitations		(27,113)		(80,515)		(13,146)
Unrecognized tax benefits balance	$	47,085	$	103,629	$	184,414

The amount of the above unrecognized tax benefits as of March 4, 2023, February 26, 2022 and February 27, 2021 which would impact the Company’s effective tax rate, if recognized, was $1,498, $18,737 and $20,923, 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 believes that it is reasonably possible that a decrease of up to $4,001 in unrecognized tax benefits related to state exposures may be necessary in the next twelve months, however, 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. The Company recognized an expense/(benefit) for interest and penalties in connection with tax matters of $(6,006), $(183) and $(123) for fiscal years 2023, 2022 and 2021, respectively. As of March 4, 2023 and February 26, 2022 the total amount of accrued income tax-related interest and penalties was $490 and $6,496, 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 through fiscal year 2019. 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.

Net Operating Losses and Tax Credits

As of March 4, 2023, the Company had federal net operating loss carryforwards of approximately $2,133,742. Of these, $884,668 will expire, if not utilized, between fiscal 2029 and 2031. An additional $193,961 will expire, if not utilized, between fiscal 2032 and 2038.

As of March 4, 2023, the Company had state net operating loss carryforwards of approximately $12,279,752, the majority of which will expire ratably through fiscal 2032; the net tax effect of these carryforwards is $754,483 and are reflected in the table above.

As of March 4, 2023, the Company had federal business tax credit carryforwards of $11,363, the majority of which will expire between 2024 and 2029.

Valuation Allowances

The valuation allowances as of March 4, 2023 and February 26, 2022 apply to the net deferred tax assets of the Company. The Company maintained a valuation allowance of $1,636,461 and $1,818,069 as of March 4, 2023 and February 26, 2022, respectively. A valuation allowance has been recorded for fiscal 2023 and fiscal 2022 to reduce certain federal and state net deferred tax assets that may not be realized based on all available evidence that currently does not support the realization of these assets.