Albertsons 2016 Annual Report Download - page 37

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employee-related costs and $10 of higher occupancy costs primarily associated with new distribution center capacity and repair
and maintenance expenses on existing facilities.
Save-A-Lot gross profit was $710 or 15.4 percent of Save-A-Lot net sales, compared with $689 or 14.9 percent last year. The
additional week in fiscal 2015 contributed approximately $12 to Save-A-Lot gross profit. Excluding the additional week, Save-A-
Lot gross profit increased $33 primarily due to $19 of higher base margins driven by a higher mix of corporate stores relative to
licensee stores and product costs declining faster than retail prices, $10 of higher gross profit from higher sales and $8 of lower
logistics costs, offset in part by $4 of higher inventory shrink costs.
Retail gross profit was $1,288 or 27.0 percent of Retail net sales, compared with $1,317 or 27.0 percent last year. The additional
week in fiscal 2015 contributed approximately $25 to Retail gross profit. Excluding the additional week, Retail gross profit
decreased $4 primarily due to $14 of higher inventory shrink costs and $7 of lower gross profit from lower sales, offset in part by
$7 of higher base margins, $6 of lower logistics costs and $5 of lower employee-related costs.
Selling and Administrative Expenses
Selling and administrative expenses for fiscal 2016 were $2,124 compared with $2,164 last year, a decrease of $40 or 1.8 percent.
Selling and administrative expenses for fiscal 2016 include costs and charges of $35, comprised of costs related to the potential
separation of Save-A-Lot of $15, store closure and impairment charges of $12 and severance costs of $8. Selling and
administrative expenses for last year included net charges and costs of $75, comprised of non-cash pension settlement charges of
$64, a benefit plan charge of $5, store closure and impairment charges of $3, information technology intrusion costs, net of
insurance recoverable, of $2 and severance costs of $1. The additional week in fiscal 2015 contributed approximately $32 to
Selling and administrative expenses. When adjusted for these items, Selling and administrative expenses increased $32 primarily
due to $15 from lower other administrative costs primarily due to death benefits and fees received from a supply agreement
termination in fiscal 2015, and higher expenses from independent retailer marketing costs and store opening costs in fiscal 2016,
$9 of higher occupancy costs driven by a higher number of retail stores, $8 of higher pension expense, $7 of higher payment
processing and bad debt expense, and $6 of higher contracted services costs, offset in part by $13 of lower depreciation and
amortization expense.
Intangible Asset Impairment Charge
During fiscal 2016, the Company received a notice pursuant to which the Company could exercise certain purchase options. As a
result, the Company performed a review of the associated indefinite-lived intangible assets for impairment, which indicated the
carrying value of the intangible asset exceeded its estimated value. The Company recorded a non-cash intangible asset
impairment charge of $6 within Wholesale.
Operating Earnings
Operating earnings for fiscal 2016 were $454, compared with $424 last year, an increase of $30 or 7.1 percent. Operating
earnings for fiscal 2016 include charges and costs of $41, comprised of costs related to the potential separation of Save-A-Lot,
store closure and impairment charges, severance costs and an intangible asset impairment charge. Operating earnings for fiscal
2015 included net charges and costs of $75, comprised of non-cash pension settlement charges, a benefit plan charge, store
closure and impairment charges, information technology intrusion costs, net of insurance recoverable and severance costs. The
additional week in fiscal 2015 contributed approximately $17 to Operating earnings. When adjusted for these items, the
remaining $13 increase in Operating earnings is primarily due to $40 of higher base margins from all three business segments,
$24 of lower logistics costs, $12 of higher transition service agreement fees, $9 of lower depreciation and amortization expense
and $8 of higher trucking back-haul income, offset in part by $19 of higher employee-related costs, $19 of higher occupancy
costs, $16 of higher inventory shrink costs, $15 of lower other administrative costs due to death benefits and fees received from a
supply agreement termination in fiscal 2015, and higher expenses from independent retailer marketing costs and store opening
costs in fiscal 2016, $7 of higher payment process and bad debt expense, $7 of higher contracted services costs and $5 of higher
pension expense.
Wholesale operating earnings for fiscal 2016 were $230, or 2.9 percent of Wholesale net sales, compared with $243, or 3.0
percent last year. Wholesale operating earnings for fiscal 2016 include $6 of intangible asset impairment charges. Wholesale
operating earnings for last year included $1 of severance costs. The additional week in fiscal 2015 contributed approximately $7
to Wholesale operating earnings. When adjusted for these items, the remaining $1 decrease in Wholesale operating earnings is
primarily due to $20 of higher employee-related costs, $9 of higher occupancy costs primarily associated with new distribution
center capacity and repair and maintenance expenses on existing facilities, $7 of higher administrative costs as a result of fees
received from a supply agreement termination last year and higher expenses from independent retailer marketing costs in fiscal
2016, offset in part by $14 of higher base margins primarily from vendor rebates and allowances, $11 of lower logistics costs
primarily from lower diesel costs, $4 of higher trucking back-haul income and $3 of lower pension expense.