Albertsons 2015 Annual Report Download - page 33

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1.0 percent, offset in part by a decrease in Independent Business segment sales of 0.6 percent when excluding the
additional week.
• Gross profit increased $48 primarily due to higher sales volume and lower logistics and employee-related costs, offset by
lower transitional TSA fees and higher incremental investments to lower prices, shrink, private brands pricing support,
advertising costs and a LIFO charge.
• Operating earnings increased $1 with higher net charges and costs associated with non-cash benefit plan charges, a benefit
plan charge, asset impairment charges and other charges and costs in the current year, offset in part by restructuring
charges and costs, a legal settlement charge and other items last year. When adjusted for these items (refer to the fiscal
2015 Operating Earnings section below for a reconciliation), Operating earnings increased $15 primarily due to lower net
periodic pension expense, depreciation, and employee-related costs, higher sales volume and lower logistics costs,
partially offset by lower transitional TSA fees, and higher investments to lower prices, shrink, a LIFO charge and
advertising costs.
• Interest expense, net decreased $164 due to $131 of lower refinancing charges and costs and $33 of lower interest
expense from lower average interest rates and outstanding debt balances.
• Net earnings from continuing operations increased $114 and Diluted earnings per share from continuing operations
increased $0.43 primarily due to the above items.
• Income from discontinued operations of $72 for fiscal 2015 reflects net discrete tax benefits related to tangible property
repair regulations and other deduction-related changes, and property tax refunds and interest income resulting from
settlement of income tax audits.
• Net cash provided by operating activities of continuing operations increased $204 primarily due to a reduction in cash
utilized for operating assets and liabilities including income taxes and working capital, offset by higher discretionary
pension plan contributions.
• Net cash used in investing activities of continuing operations increased $199 due to an increase of cash used for capital
expenditures of $128, comprised of investments in Retail Food store remodels, new Save-A-Lot stores and the Company's
supply chain and information technology, and $55 for business combinations reflecting the acquired Rainbow stores
within the Minneapolis/St. Paul market and Save-A-Lot licensee stores acquisitions.
• Net cash used in financing activities of continuing operations decreased $15 primarily due to lower proceeds from the sale
of common stock, offset by lower financing costs.
Transition Services Agreements
In connection with the sale of NAI, the Company entered into various agreements with AB Acquisition LLC and its affiliates,
including a Transition Services Agreement with each of New Albertson’s, Inc. (“NAI”) and Albertson’s LLC (collectively, the
“TSA”) under which the Company provides certain services to each of NAI and Albertson’s LLC, and NAI and Albertson’s
LLC provide certain services to the Company, in each case as described therein. On April 16, 2015, following discussions with
NAI and Albertson’s LLC regarding the impact of Albertson’s LLC’s acquisition of Safeway, Inc. (the “Safeway Acquisition”)
and their plans around winding down the TSA, the Company entered into a letter agreement regarding the TSA with NAI and
Albertson’s LLC pursuant to which the Company will provide services to NAI and Albertson’s LLC as needed to transition and
wind down the TSA. For additional discussion of the TSA and this letter agreement, see “Risk Factors- Changes in the
Company’s relationships with NAI, Albertson’s LLC or Haggen could adversely impact the Company’s results of operations”
in Part I, Item 1A of this Annual Report on Form 10-K.
On December 6, 2014, the Company entered into a Transition Services Agreement with Haggen (the “Haggen TSA”) to provide
certain services to all 164 Haggen stores owned and being acquired by Haggen in five states in connection with the Safeway
Acquisition as the stores are acquired by Haggen. The Haggen TSA is similar to the TSA supporting NAI and Albertson’s LLC
and has a term of two years with three one-year automatic renewal periods unless earlier notice of nonrenewal is given by
either party. Approximately 100 of these stores being acquired by Haggen received services from the Company under the TSA
with Albertson’s LLC.
Information Technology Intrusions
During fiscal 2015, the Company announced it had experienced separate criminal intrusions into the portion of its computer
network that processes payment card transactions for some of its owned and franchised retail stores, including some of its
associated stand-alone liquor stores. The intrusions are discussed in more detail in Note 14—Commitments, Contingencies and
Off-Balance Sheet Arrangements in Part II, Item 8 of this Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Consolidated results of operations for fiscal 2015, 2014 and 2013 are as follows: