Albertsons 2016 Annual Report Download - page 38

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Save-A-Lot operating earnings for fiscal 2016 were $129, or 2.8 percent of Save-A-Lot net sales, compared with $153, or 3.3
percent last year. Save-A-Lot operating earnings for fiscal 2016 include $11 of store closure and impairment charges and $2 of
severance costs. Save-A-Lot operating earnings for last year included store closure and impairment charges of $3. The additional
week in fiscal 2015 contributed approximately $4 to Save-A-Lot operating earnings. When adjusted for these items, the
remaining $10 decrease in Save-A-Lot operating earnings is primarily due to $16 of higher occupancy costs primarily driven by a
higher number of corporate stores, $16 of higher employee-related costs primarily driven by a higher number of corporate stores,
$6 of higher depreciation expense, $4 of higher inventory shrink costs and $4 of higher contracted services costs, offset in part by
$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, $8 of lower logistics costs and $4 of higher trucking back-haul
income.
Retail operating earnings for fiscal 2016 were $94, or 2.0 percent of Retail net sales, compared with $122, or 2.5 percent last year.
Retail operating earnings for fiscal 2016 include $1 of store closure and impairment charges. The additional week in fiscal 2015
contributed approximately $7 to Retail operating earnings. When adjusted for these items, the remaining $20 decrease in Retail
operating earnings is primarily due to $21 of higher employee-related costs primarily driven by new retail stores, $14 of higher
inventory shrink costs, $7 of lower gross profit from lower sales and $4 of higher occupancy costs, offset in part by $14 of lower
depreciation expense, $7 of higher base margins and $6 of lower logistics costs.
Corporate operating earnings for fiscal 2016 were $1, compared with an operating loss of $94 for last year. Corporate expenses
for fiscal 2016 include $15 of costs related to the potential separation of Save-A-Lot and $6 of severance costs. Corporate
expenses for fiscal 2015 included $64 of non-cash pension settlement charges, a $5 benefit plan charge and $2 of information
technology intrusion costs, net of insurance recoverable. The additional week in fiscal 2015 contributed expense of approximately
$1 to Corporate operating loss. When adjusted for these items, the remaining $44 net increase in Corporate operating earnings
was primarily due to $37 of lower employee-related costs, primarily due to lower benefits and entity-wide incentive
compensation, $12 of higher transition service agreement fees and $10 of lower occupancy costs, offset in part by $12 of higher
pension expense and $6 of higher administrative expenses.
Interest Expense, Net
Interest expense, net for fiscal 2016 was $196, compared with $243 last year. Interest expense, net for fiscal 2016 includes $6 of
debt refinancing costs related to the redemption of the remaining $278 of the Company's outstanding 8.00 percent Senior Notes
due May 2016 (the "2016 Notes") and $4 of non-cash unamortized financing cost charges related to the 2016 Notes redemption
and the amendment to the Revolving ABL Credit Facility. Interest expense for last year included $37 of debt refinancing costs
related to the redemption of $350 of the 2016 Notes and costs related to the incremental carry costs of the 7.75 percent Senior
Notes due November 2022 (the “2022 Notes”) outstanding during the 2016 Notes 30-day redemption period, and $6 of non-cash
unamortized financing cost charges related to the 2016 Notes redemption and the amendments to the Revolving ABL Credit
Facility. The additional week in fiscal 2015 contributed additional interest expense of approximately $3. When adjusted for these
items, the remaining $11 decrease in Interest expense, net is primarily due to lower average outstanding debt balances.
Income Tax Provision
Income tax expense on earnings from continuing operations for fiscal 2016 was $85, or 32.3 percent of earnings from continuing
operations before income taxes, compared with $58, or 31.2 percent last year. The increase in the effective tax rate is primarily
due to the pension settlement charge included in the prior year, partially offset by a favorable mix of income in state tax
jurisdictions in the current year.
Net Earnings from Continuing Operations
Net earnings from continuing operations for fiscal 2016 were $178, compared with $127 last year. Net earnings from continuing
operations for fiscal 2016 include $34 of after-tax charges and costs related to costs for the potential Save-A-Lot separation, store
closure and impairment charges, severance costs, intangible asset impairment charges, debt refinancing costs and unamortized
financing cost charges as discussed above. Net earnings from continuing operations for last year included $70 of after-tax charges
and costs related to the non-cash pension settlement charges, debt refinancing costs, unamortized financing cost charges, store
closure and impairment charges, a benefit plan charge, net information technology intrusion costs and severance costs as
discussed above. The additional week in fiscal 2015 contributed approximately $8 to Net earnings from continuing operations.
When adjusted for these items, the remaining $23 after-tax increase in Net earnings from continuing operations is primarily due to
the variances as discussed in the Operating Earnings, Interest Expense, Net, and Income Tax Provision sections above.