UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 2019
Commission File Number: 000-00981
publixlogoa04a09.jpg
PUBLIX SUPER MARKETS, INC.
(Exact name of Registrant as specified in its charter)
Florida
 
59-0324412
(State of incorporation)
 
(I.R.S. Employer Identification No.)
3300 Publix Corporate Parkway, Lakeland, Florida
 
33811
(Address of principal executive offices)
 
(Zip Code)
(863) 688-1188
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock $1.00 Par Value
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      
Yes                No    X  
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.      
Yes                No    X  
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.
Yes    X         No        
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.
Yes    X         No        
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer           Accelerated filer          Non-accelerated filer    X    
Smaller reporting company            Emerging growth company          
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.        
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes               No    X  
The aggregate market value of the common stock held by non-affiliates of the Registrant was approximately $17,909,696,000 as of June 28, 2019, the last business day of the Registrant’s most recently completed second fiscal quarter.
The number of shares of the Registrant’s common stock outstanding as of February 4, 2020 was 705,063,000.
Documents Incorporated By Reference
The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the Proxy Statement solicited for the 2020 Annual Meeting of Stockholders to be held on April 14, 2020.

 


TABLE OF CONTENTS

 
 
 
 
 
 
 
Page
 
 
 
Item 1.
 
Item 1A.
 
Item 1B.
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
 
 
 
 
 
 
 
 
Item 5.
 
Item 6.
 
Item 7.
 
Item 7A.
 
Item 8.
 
Item 9.
 
Item 9A.
 
Item 9B.
 
 
 
 
 
 
 
 
 
 
 
 
Item 10.
 
Item 11.
 
Item 12.
Item 13.
 
Item 14.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 15.
 
Item 16.
 



PART I
Item 1. Business
Publix Super Markets, Inc. and its wholly owned subsidiaries (Company) are in the business of operating retail food supermarkets in Florida, Georgia, Alabama, South Carolina, Tennessee, North Carolina and Virginia. The Company was founded in 1930 and later merged into another corporation that was originally incorporated in 1921. The Company has no other significant lines of business or industry segments.
Merchandising and manufacturing
The Company sells grocery (including dairy, produce, floral, deli, bakery, meat and seafood), health and beauty care, general merchandise, pharmacy and other products and services. The Company’s lines of merchandise include a variety of nationally advertised and private label brands as well as unbranded products such as produce, meat and seafood. The Company receives the food and nonfood products it distributes from many sources. These products are delivered to the supermarkets through Company distribution centers or directly from the suppliers and are generally available in sufficient quantities to enable the Company to satisfy its customers. The Company believes that its sources of supply of these products and raw materials used in manufacturing are adequate for its needs and that it is not dependent upon a single supplier or relatively few suppliers. Approximately 76% of the total cost of products purchased is delivered to the supermarkets through the Company’s distribution centers. Private label items are produced in the Company’s dairy, bakery and deli manufacturing facilities or are manufactured for the Company by suppliers. The Company has experienced no significant changes in the kinds of products sold or in its methods of distribution since the beginning of the fiscal year.
Store operations
The Company operated 1,239 supermarkets at the end of 2019, compared with 1,211 at the beginning of the year. In 2019, 35 supermarkets were opened (including five replacement supermarkets) and 177 supermarkets were remodeled. Seven supermarkets were closed during the period. The replacement supermarkets that opened in 2019 replaced one supermarket closed in 2019 and four supermarkets closed in a previous period. Five of the supermarkets closed in 2019 will be replaced on site in subsequent periods and one supermarket will not be replaced. New supermarkets added 1.4 million square feet in 2019, an increase of 2.3%. At the end of 2019, the Company had 805 supermarkets located in Florida, 187 in Georgia, 77 in Alabama, 64 in South Carolina, 46 in Tennessee, 45 in North Carolina and 15 in Virginia. Also, at the end of 2019, the Company had 15 supermarkets under construction in Florida, four in Georgia, two in Alabama, two in North Carolina and two in Virginia.
Competition
The Company is engaged in the highly competitive retail food industry. The Company’s competitors include traditional supermarkets, such as national and regional supermarket chains and independent supermarkets, as well as nontraditional competitors, such as supercenters, membership warehouse clubs, mass merchandisers, dollar stores, drug stores, specialty food stores, restaurants, convenience stores and online retailers. The Company’s ability to attract and retain customers is based primarily on quality of goods and service, price, convenience, product mix and store location. 
Working capital
The Company’s working capital at the end of 2019 consisted of $3,927.6 million in current assets and $3,700.7 million in current liabilities. Normal operating fluctuations in these balances can result in changes to cash flows from operating activities presented in the consolidated statements of cash flows that are not necessarily indicative of long-term operating trends. There are no unusual industry practices or requirements relating to working capital items.
Seasonality
The historical influx of winter residents to Florida and increased purchases of products during the traditional Thanksgiving, Christmas and Easter holidays typically result in seasonal sales increases from November to April of each year.
Employees
The Company had 207,000 employees at the end of 2019. The Company considers its employee relations to be good.
Intellectual property
The Company’s trademarks, trade names, copyrights and similar intellectual property are important to the success of the Company’s business. Numerous trademarks, including “Publix” and “Where Shopping is a Pleasure,” have been registered with the U.S. Patent and Trademark Office. Due to the importance of its intellectual property to its business, the Company actively defends and enforces its rights to such property.


1


Environmental matters
The Company’s operations are subject to regulation under federal, state and local environmental protection laws and regulations. The Company may be subject to liability under applicable environmental laws for cleanup of contamination at its facilities. Compliance with these laws had no material effect on capital expenditures, results of operations or the competitive position of the Company.
Company information
The Company’s Annual Reports on Form 10-K, Proxy Statements, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports may be obtained electronically, free of charge, through the Company’s website at corporate.publix.com/stock.
Item 1A. Risk Factors
In addition to the other information contained in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating the Company’s business. The Company’s financial condition and results of operations could be materially and adversely affected by any of these risks.
Increased competition could adversely affect the Company.
The Company is engaged in the highly competitive retail food industry. The Company’s competitors include traditional supermarkets, such as national and regional supermarket chains and independent supermarkets, as well as nontraditional competitors, such as supercenters, membership warehouse clubs, mass merchandisers, dollar stores, drug stores, specialty food stores, restaurants, convenience stores and online retailers. There has been a trend for traditional supermarkets to lose market share to nontraditional competitors. The Company’s ability to attract and retain customers is based primarily on quality of goods and service, price, convenience, product mix and store location. The Company believes it will face increased competition in the future from existing and potentially new competitors. The impact of pricing, purchasing, advertising or promotional decisions made by its competitors as well as competitor format innovation and location additions could adversely affect the Company’s financial condition and results of operations.
General economic and other conditions that impact consumer spending could adversely affect the Company.
The Company’s results of operations are sensitive to changes in general economic conditions that impact consumer spending. Adverse economic conditions, including high unemployment, home foreclosures and weakness in the housing market, declines in the stock market and the instability of the credit markets, could cause a reduction in consumer spending. While there has been a trend toward lower unemployment and fuel prices in recent periods which has contributed to a better economic climate, there is uncertainty about the continued strength of the economy. If the economy weakens, or if fuel prices increase, consumers may reduce their spending. Other conditions that could reduce consumer spending include increases in tax, interest and inflation rates, increases in energy costs, increases in health care costs, the impact of natural disasters or acts of terrorism, and other factors. Reductions in the level of consumer spending could cause customers to purchase lower margin items or shift spending to lower priced competitors, which could adversely affect the Company’s financial condition and results of operations.
Increased operating costs could adversely affect the Company.
The Company’s operations tend to be more labor intensive than some of its competitors primarily due to the additional customer service offered in its supermarkets. Consequently, uncertain labor markets, government mandated increases in the minimum wage or other benefits, increased wage rates by retailers and other labor market competitors, an increased proportion of full-time employees, increased costs of health care due to health insurance reform or other factors could result in increased labor costs. The inability to improve or manage operating costs, including labor, facilities or other non-product related costs, could adversely affect the Company’s financial condition and results of operations.
Failure to execute the Company’s core strategies could adversely affect the Company.
The Company’s core strategies focus on customer service, product quality, shopping environment, competitive pricing and convenient locations. The Company has implemented several strategic business and technology initiatives as part of the execution of these core strategies. The Company believes these core strategies and related strategic initiatives differentiate it from its competition and present opportunities for sustained market share and financial growth. Failure to execute these core strategies, or failure to execute the core strategies in a cost effective manner, could adversely affect the Company’s financial condition and results of operations.


2


Failure to identify and obtain or retain suitable supermarket sites could adversely affect the Company.
The Company’s ability to obtain sites for new supermarkets is dependent on identifying and entering into lease or purchase agreements on commercially reasonable terms for properties that are suitable for its needs. If the Company fails to identify suitable sites and enter into lease or purchase agreements on a timely basis for any reason, including competition from other companies seeking similar sites, the Company’s growth could be adversely affected because it may be unable to open new supermarkets as anticipated. Similarly, the Company could be adversely affected if it is unable to retain sites for its existing leased supermarkets on commercially reasonable terms.
Failure to maintain the privacy and security of confidential customer and business information and the resulting unfavorable publicity could adversely affect the Company.
The Company receives, retains and transmits confidential information about its customers, employees and suppliers and entrusts certain of that information to third party service providers. The Company depends upon the secure transmission of confidential information, including customer payments, over external networks. Additionally, the use of individually identifiable data by the Company and its third party service providers is subject to federal, state and local laws and regulations. Although the Company has continuously invested in its information technology systems and implemented policies and procedures to protect its confidential information, there is no assurance that the Company will successfully defend against an intrusion into or compromise of the Company’s information technology systems or those of its third party service providers. An intrusion into or compromise of the Company’s information technology systems, or those of its third party service providers, that results in customer, employee or supplier information being obtained by unauthorized persons could adversely affect the Company’s reputation with existing and potential customers, employees and others. Such an intrusion or compromise could require expending significant resources related to remediation, lead to legal proceedings and regulatory actions, result in a disruption of operations and adversely affect the Company’s financial condition and results of operations.
Disruptions in information technology systems could adversely affect the Company.
The Company is dependent on complex information technology systems to operate its business, enhance customer service, improve the efficiency of its supply chain and increase employee efficiency. Certain of these information technology systems are hosted by third party service providers. The Company’s information technology systems, as well as those of the Company’s third party service providers, are subject to damage or interruption from power outages, computer and telecommunication failures, computer viruses, malicious service disruptions, catastrophic events and user errors. Significant disruptions in the information technology systems of the Company or its third party service providers could adversely affect the Company’s financial condition and results of operations.
Changes in the insurance market or factors affecting insured and self-insured claims could adversely affect the Company.
The Company uses self-insurance and third party insurance to mitigate the risk of potential liability related to employee benefits, workers’ compensation, general liability, property losses, fleet liability and directors and officers liability. The Company is self-insured for health care claims and certain property, plant and equipment losses. The Company’s insured claims experience or changes in the insurance market could impact the Company’s ability to maintain its third party insurance or obtain comparable insurance on commercially reasonable terms. The Company’s inability to maintain or obtain insurance, the frequency or severity of claims, litigation trends, benefit level changes or catastrophic events involving property, plant and equipment losses could adversely affect the Company’s financial condition and results of operations.
Product liability claims, product recalls and the resulting unfavorable publicity could adversely affect the Company.
The distribution and sale of grocery, drug and other products purchased from suppliers or manufactured by the Company entails an inherent risk of product liability claims, product recalls and the resulting adverse publicity. Such products may contain contaminants and may be inadvertently sold by the Company. These contaminants may, in certain cases, result in illness, injury or death if processing at the consumer level, if applicable, does not eliminate the contaminants. Sale of contaminated products, even if inadvertent, may be a violation of law and may lead to a product recall and/or an increased risk of exposure to product liability claims asserted against the Company. If a product liability claim is successful, the Company’s third party insurance may not be adequate to pay all product liability claims, and the Company may not be able to maintain such insurance or obtain comparable insurance on commercially reasonable terms. If the Company does not have adequate insurance or contractual indemnification available, product liability claims could have an adverse effect on the Company’s financial condition and results of operations. In addition, even if a product liability claim is not successful or is not fully pursued, the adverse publicity surrounding any assertion that the Company’s products caused illness or injury could have an adverse effect on the Company’s reputation with existing and potential customers and on the Company’s financial condition and results of operations.


3


Unfavorable changes in, failure to comply with or increased costs of complying with environmental laws and regulations could adversely affect the Company.
The Company is subject to federal, state and local laws and regulations that govern activities that may have adverse environmental effects and impose liabilities for the costs of contamination cleanup and damages arising from sites of past spills, disposals or other releases of hazardous materials. Under current environmental laws, the Company may be held responsible for the remediation of environmental conditions regardless of whether the Company leases, subleases or owns the supermarkets or other facilities and regardless of whether such environmental conditions were created by the Company or a prior owner or tenant. Environmental conditions relating to prior, existing or future sites may result in substantial remediation costs, business interruption or adverse publicity which could adversely affect the Company’s financial condition and results of operations. In addition, the increased focus on climate change, waste management and other environmental issues may result in new environmental laws or regulations that could result in increased compliance costs to the Company, directly or indirectly through its suppliers, which could adversely affect the Company’s financial condition and results of operations.
Unfavorable changes in, failure to comply with or increased costs of complying with laws and regulations could adversely affect the Company.
In addition to environmental laws and regulations, the Company is subject to federal, state and local laws and regulations relating to, among other things, product labeling and safety, zoning, land use, workplace safety, public health, accessibility and restrictions on the sale of various products, including alcoholic beverages, tobacco and drugs. The Company is also subject to laws governing its relationship with employees, including minimum wage requirements, overtime, working conditions, disabled access and work permit requirements. Increased costs of complying with existing, new or changes in laws and regulations could adversely affect the Company’s financial condition and results of operations.
Unfavorable results of legal proceedings could adversely affect the Company.
The Company is subject from time to time to various lawsuits, claims and charges arising in the normal course of business, including employment, personal injury, commercial and other matters. Some lawsuits also contain class action allegations. The Company estimates its exposure to these legal proceedings and establishes reserves for the estimated liabilities. Assessing and predicting the outcome of these matters involves substantial uncertainties. Differences in actual outcomes, or changes in the Company’s assessment and predictions of the outcomes, could adversely affect the Company’s financial condition and results of operations.
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
At year end, the Company operated 58.4 million square feet of supermarket space. The Company’s supermarkets vary in size. Current supermarket prototypes range from 20,000 to 61,000 square feet. Supermarkets are often located in shopping centers where the Company is the anchor tenant. The majority of the Company’s supermarkets are leased. Initial lease terms are typically 20 years followed by five year renewal options. Both the building and land are owned at 351 locations. The building is owned while the land is leased at 74 other locations.
The Company supplies its supermarkets from nine primary distribution centers located in Lakeland, Miami, Jacksonville, Sarasota, Orlando, Deerfield Beach and Boynton Beach, Florida, Lawrenceville, Georgia and McCalla, Alabama. The Company operates six manufacturing facilities, including three dairy plants located in Lakeland and Deerfield Beach, Florida and Lawrenceville, Georgia, two bakery plants located in Lakeland, Florida and Atlanta, Georgia and a deli plant located in Lakeland, Florida.
The Company’s corporate offices, primary distribution centers and manufacturing facilities are owned with no outstanding debt. The Company’s properties are well maintained, in good operating condition and suitable for operating its business.
Item 3. Legal Proceedings
The Company is subject from time to time to various lawsuits, claims and charges arising in the normal course of business. The Company believes its recorded reserves are adequate in light of the probable and estimable liabilities. The estimated amount of reasonably possible losses for lawsuits, claims and charges, individually and in the aggregate, is considered to be immaterial. In the opinion of management, the ultimate resolution of these legal proceedings will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
Item 4. Mine Safety Disclosures
Not applicable


4


PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a)
Market Information
The Company’s common stock is not traded on an established securities market. Substantially all transactions of the Company’s common stock have been among the Company, its employees, former employees, their families and the retirement plans established for the Company’s employees. Common stock is made available for sale by the Company only to its current employees and members of its Board of Directors through the Employee Stock Purchase Plan (ESPP) and Non-Employee Directors Stock Purchase Plan (Directors Plan) and to participants of the 401(k) Plan. In addition, common stock is provided to employees through the Employee Stock Ownership Plan (ESOP). The Company currently repurchases common stock subject to certain terms and conditions. The ESPP, Directors Plan, 401(k) Plan and ESOP each contain provisions prohibiting any transfer for value without the owner first offering the common stock to the Company. The Company serves as the registrar and stock transfer agent for its common stock.
Because there is no trading of the Company’s common stock on an established securities market, the market price of the Company’s common stock is determined by its Board of Directors. As part of the process to determine the market price, an independent valuation is obtained. The process includes comparing the Company’s financial results to those of comparable companies that are publicly traded (comparable publicly traded companies). The purpose of the process is to determine a value for the Company’s common stock that is comparable to the stock value of comparable publicly traded companies by considering both the results of the stock market and the relative financial results of comparable publicly traded companies. The market prices for the Company’s common stock for 2019 and 2018 were as follows:
 
 
2019
 
2018
January - February
 
$
42.70

 
36.85

March - April
 
42.85

 
41.40

May - July
 
44.75

 
41.75

August - October
 
44.10

 
42.55

November - December
 
47.10

 
42.70

(b)
Approximate Number of Equity Security Holders
As of February 4, 2020, the approximate number of holders of record of the Company’s common stock was 194,000.
(c)
Dividends
The Company paid quarterly dividends per share on its common stock in 2019 and 2018 as follows:
Quarter
 
2019
 
2018
First
 
$
0.26

 
0.23

Second
 
0.30

 
0.26

Third
 
0.30

 
0.26

Fourth
 
0.30

 
0.26

 
 
$
1.16

 
1.01

Payment of dividends is within the discretion of the Board of Directors and depends on, among other factors, net earnings, capital requirements and the financial condition of the Company. However, the Company intends to continue to pay comparable dividends to stockholders in the future.


5


(d)
Purchases of Equity Securities by the Issuer
Issuer Purchases of Equity Securities
Shares of common stock repurchased by the Company during the three months ended December 28, 2019 were as follows (amounts are in thousands, except per share amounts): 
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
 
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1)
September 29, 2019
through
November 2, 2019
 
 
486

 
 
 
$
44.22

 
 
N/A
 
N/A
November 3, 2019
through
November 30, 2019
 
 
4,166

 
 
 
47.10

 
 
N/A
 
N/A
December 1, 2019
through
December 28, 2019
 
 
1,201

 
 
 
47.10

 
 
N/A
 
N/A
 
 
Total
 
 
5,853

 
 
 
$
46.86

 
 
N/A
 
N/A
























____________________________
(1)
Common stock is made available for sale by the Company only to its current employees and members of its Board of Directors through the ESPP and Directors Plan and to participants of the 401(k) Plan. In addition, common stock is provided to employees through the ESOP. The Company currently repurchases common stock subject to certain terms and conditions. The ESPP, Directors Plan, 401(k) Plan and ESOP each contain provisions prohibiting any transfer for value without the owner first offering the common stock to the Company.
The Company’s common stock is not traded on an established securities market. The amount of common stock offered to the Company for repurchase is not within the control of the Company, but is at the discretion of the stockholders. The Company does not believe that these repurchases of its common stock are within the scope of a publicly announced plan or program (although the terms of the plans discussed above have been communicated to the participants). Thus, the Company does not believe that it has made any repurchases during the three months ended December 28, 2019 required to be disclosed in the last two columns of the table.


6


(e)
Performance Graph
The following performance graph sets forth the Company’s cumulative total stockholder return during the five years ended December 28, 2019, compared to the cumulative total return on the S&P 500 Index and a custom Peer Group Index including retail food supermarket companies.(1) The Peer Group Index is weighted based on the various companies’ market capitalization. The comparison assumes $100 was invested at the end of 2014 in the Company’s common stock and in each of the related indices and assumes reinvestment of dividends.
The Company’s common stock is valued as of the end of each fiscal quarter. After the end of a quarter, however, shares continue to be traded at the prior valuation until the new valuation is received. The cumulative total return for the companies represented in the S&P 500 Index and the custom Peer Group Index is based on those companies’ trading price as of the Company’s fiscal year end. The following performance graph is based on the Company’s trading price at fiscal year end based on its market price as of the prior fiscal quarter. For comparative purposes, a performance graph based on the Company’s fiscal year end valuation (market price as of March 1, 2020) is provided in the 2020 Proxy Statement. Past stock performance shown below is no guarantee of future performance.
Comparison of Five-Year Cumulative Return Based Upon Fiscal Year End Trading Price
chart-09dcbcd5aadf5dd7ac5.jpg
 
 
2014
 
2015
 
2016
 
2017
 
2018
 
2019
 
symbol1a01a10.jpg
Publix
$100.00
 
125.99
 
123.53
 
116.10
 
137.85
 
156.00
 
symbol2a01a10.jpg
S&P 500
100.00
 
100.77
 
111.92
 
136.35
 
129.26
 
171.88
 
symbol3a01a10.jpg
Peer Group (1)
100.00
 
130.63
 
121.47
 
111.84
 
124.17
 
132.76
 


___________________________
(1)
Companies included in the Peer Group are Ahold Delhaize, Kroger and Weis Markets. Ahold and Delhaize Group merged into Ahold Delhaize in 2016. The Peer Group includes Ahold Delhaize for 2016 - 2019 and Ahold and Delhaize Group in 2015.


7


Item 6. Selected Financial Data

2019
 
2018

2017

2016 (1)

2015
 

(Amounts are in thousands, except per share amounts, ratios and number of supermarkets)


 
Sales:




 
















 
Sales
$
38,116,402
 
 
36,093,907
 

34,558,286
 

33,999,921
 

32,362,579
 
 
Percent change
5.6
%
 
 
 
4.4
%




1.6
%




5.1
%




5.9
%
 
 
 
Comparable store sales percent change
3.6
%
 
 
 
2.1
%




1.7
%




1.9
%




4.2
%


 
Earnings:




 















 
Gross profit (2)
$
10,375,933
 
 
9,782,516
 

9,428,569
 

9,265,616
 

8,902,969
 
 
Earnings before income tax expense
$
3,785,986
 
 
2,920,968
 

3,027,506
 

2,940,376
 

2,869,261
 
 
Net earnings
$
3,005,395
 
 
2,381,167
 
 
2,291,894 (3)
2,025,688
 

1,965,048
 
 
Net earnings as a percent of sales
7.9
%
 
 
 
6.6
%
 
 
 
          6.6% (3)
6.0
%




6.1
%


 
Common stock:




 















 
Weighted average shares outstanding
713,535
 
 
726,407
 

753,483
 

769,267
 

774,428
 
 
Earnings per share
$
4.21
 
 
3.28
 
 
3.04 (3)
2.63
 

2.54
 
 
Dividends per share
$
1.16
 
 
1.01
 

0.9125
 

0.8675
 
 
0.79
 
 
Financial data:




 















 
Capital expenditures
$
1,141,118
 
 
1,350,089
 

1,429,059
 

1,443,827
 

1,235,648
 
 
Working capital
$ 226,886 (4)
804,641
 

942,607
 

1,574,464
 

1,411,744
 
 
Current ratio
1.06 (4)
1.27
 

1.30
 

1.53
 

1.49
 
 
Total assets
$24,507,120 (4)
18,982,516
 

18,183,506
 

17,386,458
 

16,359,278
 
 
Long-term obligations (including current portion)
$ 3,244,572 (4)
167,665
 

193,074
 

250,584
 

236,446
 
 
Common stock related to ESOP
$
3,259,230
 
 
3,134,999
 

3,053,138
 

3,068,097
 

2,953,878
 
 
Total equity
$
16,901,344
 
 
14,994,664
 

14,108,619
 

13,497,437
 

12,431,262
 
 
Supermarkets
1,239
 
 
1,211
 

1,167
 

1,136
 

1,114
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP Financial Measures: (5)
 
 
 
 
 
 
 
 
 
 
Net earnings excluding impact of fair value adjustment
$
2,615,572
 
 
2,517,493
 
 
N/A
 
 
N/A
 
 
N/A
 
 
Net earnings as a percent of sales excluding impact of fair value adjustment
6.9
%
 
 
 
7.0
%
 
 
 
N/A
 
 
N/A
 
 
N/A
 
 
Earnings per share excluding impact of fair value adjustment
$
3.67
 
 
3.47
 
 
N/A
 
 
N/A
 
 
N/A
 
 





___________________________
(1)
Fiscal year 2016 includes 53 weeks. All other years include 52 weeks.
(2)
Gross profit represents sales less cost of merchandise sold as reported in the consolidated statements of earnings.
(3)
During 2017, the Company recorded the remeasurement of deferred income taxes due to the Tax Cuts and Jobs Act of 2017 (Tax Act). Excluding the impact of the Tax Act, net earnings would have been $2,067,699,000 or $2.74 per share and 6.0% as a percent of sales.
(4)
In 2019, the Company adopted the Accounting Standards Update requiring the lease rights and obligations arising from existing and new lease agreements be recognized as assets and liabilities on the balance sheet.
(5)
In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (GAAP), the Company presents net earnings and earnings per share excluding the impact of equity securities being measured at fair value with net unrealized gains and losses from changes in the fair value recognized in earnings (fair value adjustment). For a more detailed description of these measures, refer to Non-GAAP Financial Measures in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.


8


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company is engaged in the retail food industry, operating supermarkets in Florida, Georgia, Alabama, South Carolina, Tennessee, North Carolina and Virginia. The Company has no other significant lines of business or industry segments. As of December 28, 2019, the Company operated 1,239 supermarkets including 805 located in Florida, 187 in Georgia, 77 in Alabama, 64 in South Carolina, 46 in Tennessee, 45 in North Carolina and 15 in Virginia. In 2019, 35 supermarkets were opened (including five replacement supermarkets) and 177 supermarkets were remodeled. During 2019, the Company opened 14 supermarkets in Florida, six in Alabama, five in South Carolina, four in North Carolina, three in Virginia, two in Tennessee and one in Georgia. Seven supermarkets were closed during the period. The replacement supermarkets that opened in 2019 replaced one supermarket closed in 2019 and four supermarkets closed in a previous period. Five of the supermarkets closed in 2019 will be replaced on site in subsequent periods and one supermarket will not be replaced. In the normal course of operations, the Company replaces supermarkets and closes supermarkets that are not meeting performance expectations. The impact of future supermarket closings is not expected to be material.
The Company’s revenues are earned as merchandise is sold to customers. Income is earned by selling merchandise at price levels that produce sales in excess of the cost of merchandise sold and operating and administrative expenses. The Company has generally been able to increase revenues and net earnings from year to year. Further, the Company has been able to meet its cash requirements from internally generated funds without the need for debt financing. The Company’s year end cash balances are impacted by its operating results as well as by capital expenditures, investment transactions, common stock repurchases and dividend payments.
The Company sells a variety of merchandise to generate revenues. This merchandise includes grocery (including dairy, produce, floral, deli, bakery, meat and seafood), health and beauty care, general merchandise, pharmacy and other products and services. Merchandise includes a variety of nationally advertised and private label brands as well as unbranded products such as produce, meat and seafood. The Company’s private label brands play an important role in its merchandising strategy.
Operating Environment
The Company is engaged in the highly competitive retail food industry. The Company’s competitors include traditional supermarkets, such as national and regional supermarket chains and independent supermarkets, as well as nontraditional competitors, such as supercenters, membership warehouse clubs, mass merchandisers, dollar stores, drug stores, specialty food stores, restaurants, convenience stores and online retailers. There has been a trend for traditional supermarkets to lose market share to nontraditional competitors. The Company’s ability to attract and retain customers is based primarily on quality of goods and service, price, convenience, product mix and store location. In addition, the Company competes with other companies for new retail sites. To meet the challenges of this highly competitive environment, the Company continues to focus on its core strategies, including customer service, product quality, shopping environment, competitive pricing and convenient locations. The Company has implemented several strategic business and technology initiatives as part of the execution of these core strategies. The Company believes these core strategies and related strategic initiatives differentiate it from its competition and present opportunities for sustained market share and financial growth.
Results of Operations
The Company’s fiscal year ends on the last Saturday in December. Fiscal years 2019, 2018 and 2017 include 52 weeks.
Sales
Sales for 2019 were $38.1 billion as compared with $36.1 billion in 2018, an increase of $2,022.5 million or 5.6%. The increase in sales for 2019 as compared with 2018 was primarily due to new supermarket sales and a 3.6% increase in comparable store sales (supermarkets open for the same weeks in both periods, including replacement supermarkets). Sales for supermarkets that are replaced on site are classified as new supermarket sales since the replacement period for the supermarket is generally 9 to 12 months. Comparable store sales for 2019 increased primarily due to increased product costs.
Sales for 2018 were $36.1 billion as compared with $34.6 billion in 2017, an increase of $1,535.6 million or 4.4%. The increase in sales for 2018 as compared with 2017 was primarily due to new supermarket sales and a 2.1% increase in comparable store sales. The Company estimates the increase in sales for 2018 as compared with 2017 was $250 million or 0.8% lower due to the impact of Hurricane Irma in 2017. Excluding the impact of the hurricane, sales for 2018 would have increased 5.2% and comparable store sales would have increased 2.9%. Comparable store sales for 2018 increased primarily due to increased product costs, partially offset by the impact of the hurricane.


9


Gross profit
Gross profit (sales less cost of merchandise sold) as a percentage of sales was 27.2%, 27.1% and 27.3% in 2019, 2018 and 2017, respectively. Excluding the last-in, first-out (LIFO) reserve effect of $39.9 million, $24.2 million and $23.0 million in 2019, 2018 and 2017, respectively, gross profit as a percentage of sales would have been 27.3%, 27.2% and 27.3% in 2019, 2018 and 2017, respectively. After excluding the LIFO reserve effect, gross profit as a percentage of sales for 2019, 2018 and 2017 remained relatively unchanged.
Operating and administrative expenses
Operating and administrative expenses as a percentage of sales were 20.6%, 20.3% and 20.2% in 2019, 2018 and 2017, respectively. The increase in operating and administrative expenses as a percentage of sales for 2019 as compared with 2018 was primarily due to an increase in payroll costs as a percentage of sales. The increase in operating and administrative expenses as a percentage of sales for 2018 as compared with 2017 was primarily due to an increase in payroll costs as a percentage of sales, partially offset by a decrease in facility costs as a percentage of sales.
Operating profit
Operating profit as a percentage of sales was 7.6% in 2019 and 2018 and 7.9% in 2017. The decrease in operating profit as a percentage of sales for 2018 as compared with 2017 was primarily due to the decrease in gross profit as a percentage of sales and the increase in operating and administrative expenses as a percentage of sales.
Investment income
Investment income was $814.4 million, $56.7 million and $226.6 million in 2019, 2018 and 2017, respectively. Investment income for 2019 and 2018 was impacted by equity securities being measured at fair value with net unrealized gains and losses from changes in the fair value recognized in earnings. The increase in investment income for 2019 as compared with 2018 was primarily due to net unrealized gains on equity securities in 2019 compared with net unrealized losses on equity securities in 2018 and an increase in interest and dividend income. The decrease in investment income for 2018 as compared with 2017 was primarily due to net unrealized losses on equity securities. Excluding the impact of net unrealized gains on equity securities in 2019 and net unrealized losses on equity securities in 2018, investment income would have been $291.7 million and $239.5 million for 2019 and 2018, respectively.
Income tax expense
The effective income tax rate was 20.6%, 18.5% and 24.3% in 2019, 2018 and 2017, respectively. The increase in the effective income tax rate for 2019 as compared with 2018 was primarily due to the impact of net unrealized gains on equity securities in 2019 compared with net unrealized losses on equity securities in 2018 and a decrease in investment related tax credits.
The Tax Cuts and Jobs Act of 2017 (Tax Act), signed into law on December 22, 2017, made significant changes to the Internal Revenue Code. These changes included, among others, a decrease in the federal statutory income tax rate from 35% to 21% beginning in 2018. The decrease in the effective income tax rate for 2018 as compared with 2017 was primarily due to a $330.9 million decrease in income tax expense in 2018 due to the reduction of the federal statutory income tax rate, partially offset by a $224.2 million decrease in income tax expense in 2017 due to the remeasurement of deferred income taxes related to the Tax Act.
Net earnings
Net earnings were $3,005.4 million or $4.21 per share, $2,381.2 million or $3.28 per share and $2,291.9 million or $3.04 per share in 2019, 2018 and 2017, respectively. Net earnings as a percentage of sales were 7.9% in 2019 and 6.6% in 2018 and 2017.
The increase in net earnings as a percentage of sales for 2019 as compared with 2018 was primarily due to an increase in investment income. Net earnings and earnings per share for 2019 and 2018 were impacted by net unrealized gains and losses on equity securities. Excluding the impact of net unrealized gains on equity securities in 2019 and net unrealized losses on equity securities in 2018, net earnings would have been $2,615.6 million or $3.67 per share and 6.9% as a percentage of sales for 2019 and $2,517.5 million or $3.47 per share and 7.0% as a percentage of sales for 2018.


10


Non-GAAP Financial Measures
In addition to reporting financial results for 2019 and 2018 in accordance with U.S. generally accepted accounting principles (GAAP), the Company presents net earnings and earnings per share excluding the impact of equity securities being measured at fair value with net unrealized gains and losses from changes in the fair value recognized in earnings (fair value adjustment). These measures are not in accordance with, or an alternative to, GAAP. The Company excludes the impact of the fair value adjustment since it is primarily due to temporary equity market fluctuations that do not reflect the Company’s operations. The Company believes this information is useful in providing period-to-period comparisons of the results of operations. Following is a reconciliation of net earnings to net earnings excluding the impact of the fair value adjustment for 2019 and 2018:
 
2019
2018
 
(amounts are in millions, except per share amounts)
Net earnings
 
$
3,005.4

 
 
2,381.2

 
Fair value adjustment, due to net unrealized (gain) loss, on equity securities held at end of year
 
(472.5
)
 
 
107.5

 
Net (loss) gain on sale of equity securities previously recognized through fair value adjustment
 
(50.2
)
 
 
75.3

 
Income tax expense (benefit) (1)
 
132.9

 
 
(46.5
)
 
Net earnings excluding impact of fair value adjustment
 
$
2,615.6

 
 
2,517.5

 
Weighted average shares outstanding
 
713.5

 
 
726.4

 
Earnings per share excluding impact of fair value adjustment
 
$
3.67

 
 
3.47

 
(1) 
Income tax expense (benefit) is based on the Company’s combined federal and state statutory income tax rates.



11


Liquidity and Capital Resources
Cash and cash equivalents, short-term investments and long-term investments totaled $9,189.8 million as of December 28, 2019, as compared with $7,176.7 million as of December 29, 2018. The increase was primarily due to net unrealized gains on investment securities and decreases in income taxes paid, capital expenditures and common stock repurchases.
Net cash provided by operating activities
Net cash provided by operating activities was $4,024.4 million, $3,631.9 million and $3,580.3 million in 2019, 2018 and 2017, respectively. The increase in net cash provided by operating activities for 2019 as compared with 2018 was primarily due to 2017 federal income tax payments extended to 2018 due to Hurricane Irma in 2017. The increase in net cash provided by operating activities for 2018 as compared with 2017 was primarily due to the increase in net earnings and the timing of payments for merchandise, partially offset by 2017 federal income tax payments extended to 2018 due to the hurricane.
Net cash used in investing activities
Net cash used in investing activities was $2,257.0 million, $1,742.8 million and $1,236.1 million in 2019, 2018 and 2017, respectively. The primary use of net cash in investing activities for 2019 was funding capital expenditures and net increases in investment securities. Capital expenditures for 2019 totaled $1,141.1 million. These expenditures were incurred in connection with the opening of 35 supermarkets (including five replacement supermarkets) and the remodeling of 177 supermarkets. Expenditures were also incurred for new supermarkets and remodels in progress, new or enhanced information technology hardware and software and the acquisition of shopping centers with the Company as the anchor tenant. In 2019, the payment for investments, net of the proceeds from the sale and maturity of investments, was $1,124.5 million. The primary use of net cash in investing activities for 2018 was funding capital expenditures and net increases in investment securities. Capital expenditures for 2018 totaled $1,350.1 million. These expenditures were incurred in connection with the opening of 51 supermarkets (including eight replacement supermarkets) and the remodeling of 146 supermarkets. Expenditures were also incurred for new supermarkets and remodels in progress, new or enhanced information technology hardware and software and the acquisition of shopping centers with the Company as the anchor tenant. In 2018, the payment for investments, net of the proceeds from the sale and maturity of investments, was $436.5 million.
Net cash used in financing activities
Net cash used in financing activities was $1,603.3 million, $1,869.8 million and $2,202.6 million in 2019, 2018 and 2017, respectively. The primary use of net cash in financing activities was funding net common stock repurchases and dividend payments. Net common stock repurchases totaled $776.6 million, $1,097.9 million and $1,468.6 million in 2019, 2018 and 2017, respectively. The Company currently repurchases common stock at the stockholders’ request in accordance with the terms of the ESPP, Directors Plan, 401(k) Plan and ESOP. The amount of common stock offered to the Company for repurchase is not within the control of the Company, but is at the discretion of the stockholders. The Company expects to continue to repurchase its common stock, as offered by its stockholders from time to time, at its then current value. However, with the exception of certain shares distributed from the ESOP, such purchases are not required and the Company retains the right to discontinue them at any time.
Dividends
The Company paid quarterly dividends on its common stock totaling $828.7 million or $1.16 per share, $734.5 million or $1.01 per share and $689.7 million or $0.9125 per share in 2019, 2018 and 2017, respectively.
Capital expenditures projection
Capital expenditures for 2020 are expected to be approximately $1,600 million, primarily related to new supermarkets, remodeling existing supermarkets, new or enhanced information technology hardware and software and the acquisition of shopping centers with the Company as the anchor tenant. The shopping center acquisitions are financed with internally generated funds and assumed debt, if prepayment penalties for the debt are determined to be significant. This capital program is subject to continuing change and review.
Cash requirements
In 2020, the cash requirements for operations, capital expenditures, common stock repurchases and dividend payments are expected to be financed by internally generated funds or liquid assets. Based on the Company’s financial position, it is expected that short-term and long-term borrowings would be available to support the Company’s liquidity requirements, if needed.


12


Contractual Obligations
Following is a summary of contractual obligations as of December 28, 2019:


Payments Due by Period


Total

2020

 2021-
2022

 2023-
2024

There-
after


(Amounts are in thousands)
Contractual obligations:










Operating leases (1)

$
3,665,752


430,983

 
774,530

 
607,408

 
1,852,831

Finance leases (1)
 
170,359

 
33,068

 
16,202

 
29,949

 
91,140

Purchase obligations (2)(3)(4)

2,535,511


1,305,571


360,831


197,664


671,445

Other long-term liabilities:



 

 

 

 
Self-insurance reserves (5)

375,809


149,082


107,600


42,340


76,787

Accrued postretirement benefit cost

126,117


6,102

 
12,750

 
13,406

 
93,859

Long-term debt (6)

171,689


39,692


60,511


40,986


30,500

Other

113,851


97,299


831


621


15,100

Total

$
7,159,088


2,061,797


1,333,255


932,374


2,831,662

Off-Balance Sheet Arrangements
The Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, results of operations or cash flows.














____________________________
(1)
For a more detailed description of the operating and finance lease obligations, refer to Note 4 Leases in the Notes to Consolidated Financial Statements.
(2)
Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on the Company and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable within 30 days without penalty.
(3)
As of December 28, 2019, the Company had outstanding $4.1 million in trade letters of credit and $5.4 million in standby letters of credit to support certain of these purchase obligations.
(4)
Purchase obligations include $964.6 million in real estate taxes, insurance and maintenance commitments related to operating and finance leases. The actual amounts to be paid may be variable and have been estimated based on current costs. Purchase obligations also include $282.3 million in lease agreements that have not yet commenced.
(5)
As of December 28, 2019, the Company maintained restricted investments in the amount of $180.1 million primarily for the benefit of the Company’s insurance carrier related to self-insurance reserves.
(6)
For a more detailed description of the long-term debt obligations, refer to Note 5 Consolidation of Joint Ventures and Long-Term Debt in the Notes to Consolidated Financial Statements.


13


Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) requiring companies to change the methodology used to measure credit losses on financial instruments. The ASU is effective for reporting periods beginning after December 15, 2019.  The Company does not expect the adoption of the ASU to have a material effect on the Company’s financial condition or results of operations. The adoption of the ASU will have no effect on the Company’s cash flows.
In February 2016, the FASB issued an ASU requiring the lease rights and obligations arising from existing and new lease agreements be recognized as assets and liabilities on the balance sheet. The ASU is effective for reporting periods beginning after December 15, 2018. In 2019, the Company adopted the ASU on a modified retrospective basis and elected the transitional provisions eliminating the requirement to restate reporting periods prior to the date of adoption. The Company also elected to not reassess the original conclusions reached regarding lease identification, lease classification and initial direct costs for leases entered into prior to the adoption of the ASU. As of December 30, 2018, the Company recognized its operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheet. The adoption of the ASU did not have a material effect on the Company’s results of operations and had no effect on the Company’s cash flows.
Critical Accounting Estimates
The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant accounting policies are described in Note 1 in the Notes to Consolidated Financial Statements. The Company believes the following involves significant estimates and judgments in the preparation of its consolidated financial statements.
Self-Insurance Reserves
Self-insurance reserves are established for health care, workers’ compensation, general liability and fleet liability claims. These reserves are determined based on actual claims experience and an estimate of claims incurred but not reported including, where necessary, actuarial studies. The Company believes that the use of actuarial studies to determine self-insurance reserves represents a consistent method of measuring these subjective estimates. Actuarial projections of losses for general liability and workers’ compensation claims are discounted and subject to variability. The causes of variability include, but are not limited to, such factors as future interest and inflation rates, future economic conditions, claims experience, litigation trends and benefit level changes. Historically, there have not been significant changes in the factors and assumptions used in the valuation of the self-insurance reserves. However, significant changes in such factors and assumptions could materially impact the valuation of the self-insurance reserves.


14


Forward-Looking Statements
From time to time, certain information provided by the Company, including written or oral statements made by its representatives, may contain forward-looking information as defined in Section 21E of the Securities Exchange Act of 1934 (Exchange Act). Forward-looking information includes statements about the future performance of the Company, which is based on management’s assumptions and beliefs in light of the information currently available to them. When used, the words “plan,” “estimate,” “project,” “intend,” “expect,” “believe,” “will” and other similar expressions, as they relate to the Company, are intended to identify such forward-looking statements. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from those statements including, but not limited to, the following: competitive practices and pricing in the food and drug industries generally and particularly in the Company’s principal markets; results of programs to increase sales, including private label sales; results of programs to control or reduce costs; changes in buying, pricing and promotional practices; changes in shrink management; changes in the general economy; changes in consumer spending; changes in population, employment and job growth in the Company’s principal markets; and other factors affecting the Company’s business within or beyond the Company’s control. These factors include changes in the rate of inflation, changes in federal, state and local laws and regulations, adverse determinations with respect to litigation or other claims, ability to recruit and retain employees, increases in operating costs including, but not limited to, labor costs, credit card fees and utility costs, particularly electric rates, ability to construct new supermarkets or complete remodels as rapidly as planned and stability of product costs. Other factors and assumptions not identified above could also cause the actual results to differ materially from those set forth in the forward-looking statements. Except as may be required by applicable law, the Company assumes no obligation to publicly update these forward-looking statements.
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
The Company does not utilize financial instruments for trading or other speculative purposes, nor does it utilize leveraged financial instruments.
Cash equivalents and short-term investments are subject to interest rate risk and credit risk. Most of the cash equivalents and short-term investments are held in money market investments and debt securities that mature in less than one year. Due to the quality of the short-term investments held, the Company does not expect the valuation of these investments to be significantly impacted by future market conditions.
Debt securities are subject to interest rate risk and credit risk. Debt securities held by the Company at year end primarily consisted of corporate, state and municipal bonds with high credit ratings; therefore, the Company believes the credit risk is low. The Company believes a 100 basis point increase in interest rates would result in an immaterial unrealized loss on its debt securities. Since the Company does not intend to sell its debt securities or will likely not be required to sell its debt securities prior to any anticipated recovery, such a hypothetical temporary unrealized loss would impact comprehensive earnings, but not earnings or cash flows.
Equity securities are subject to equity price risk that results from fluctuations in quoted market prices as of the balance sheet date. Market price fluctuations may result from perceived changes in the underlying economic characteristics of the issuer, the relative price of alternative investments and general market conditions. Due to equity securities being measured at fair value with net unrealized gains and losses from changes in the fair value recognized in earnings, fluctuations in quoted market prices for equity securities will impact earnings. A decrease of 10% in the value of the Company’s equity securities would result in an unrealized loss of approximately $240 million recognized in earnings, but would not impact cash flows.



15


Item 8.  Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Schedule
 
 
 
Page
 
 
 
Consolidated Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
The following consolidated financial statement schedule of the Company for the years ended
December 28, 2019, December 29, 2018 and December 30, 2017 is submitted herewith:
 
 
 
 
 
 
 
All other schedules are omitted as the required information is inapplicable or the information is
presented in the consolidated financial statements or related notes.
 
 








16


Report of Independent Registered Public Accounting Firm
The Stockholders and Board of Directors
Publix Super Markets, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Publix Super Markets, Inc. and subsidiaries (Company) as of December 28, 2019 and December 29, 2018, the related consolidated statements of earnings, comprehensive earnings, cash flows and stockholders’ equity for each of the years in the three-year period ended December 28, 2019, and the related notes and the financial statement schedule listed in the accompanying index (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 28, 2019 and December 29, 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 28, 2019, in conformity with U.S. generally accepted accounting principles.
Change in Accounting Principle
As discussed in Note 1(h) to the consolidated financial statements, the Company has changed its method of accounting for leases as of December 30, 2018 due to the adoption of Accounting Standards Codification Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 1961.
Tampa, Florida
March 2, 2020






17


PUBLIX SUPER MARKETS, INC.
Consolidated Balance Sheets
December 28, 2019 and
December 29, 2018
 
 
 
2019
 
2018
 
ASSETS
 
(Amounts are in thousands)
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
 
$
763,382

 
599,264

 
Short-term investments
 
438,105

 
560,992

 
Trade receivables
 
737,093

 
682,981

 
Inventories
 
1,913,310

 
1,848,735

 
Prepaid expenses
 
75,710

 
122,224

 
Total current assets
 
3,927,600

 
3,814,196

 
Long-term investments
 
7,988,280

 
6,016,438

 
Other noncurrent assets
 
441,938

 
515,265

 
Operating lease right-of-use assets
 
2,964,780

 

 
Property, plant and equipment:
 
 
 
 
 
Land
 
1,984,400

 
1,850,718

 
Buildings and improvements
 
5,948,039

 
5,535,538

 
Furniture, fixtures and equipment
 
5,477,534

 
5,114,698

 
Leasehold improvements
 
1,660,164

 
1,564,243

 
Construction in progress
 
152,272

 
109,367

 
 
 
15,222,409

 
14,174,564

 
Accumulated depreciation
 
(6,037,887
)
 
(5,537,947
)
 
Net property, plant and equipment
 
9,184,522

 
8,636,617

 
 
 
$
24,507,120

 
18,982,516

 



See accompanying notes to consolidated financial statements.
18


 
 
 
 
 
 
 
 
2019
 
2018
 
LIABILITIES AND EQUITY
 
(Amounts are in thousands,
except par value)
 
Current liabilities:
 
 
 
 
 
Accounts payable
 
$
1,984,761

 
1,864,604

 
Accrued expenses:
 
 
 
 
 
Contributions to retirement plans
 
581,699

 
540,760

 
Self-insurance reserves
 
149,082

 
145,241

 
Salaries and wages
 
148,662

 
132,916

 
Other
 
461,427

 
321,080

 
Current portion of long-term debt
 
39,692

 
4,954

 
Current portion of operating lease liabilities
 
335,391

 

 
Total current liabilities
 
3,700,714

 
3,009,555

 
Deferred income taxes
 
682,484


420,757

 
Self-insurance reserves
 
226,727

 
222,419

 
Accrued postretirement benefit cost
 
120,015

 
105,308

 
Long-term debt
 
131,997

 
162,711

 
Operating lease liabilities
 
2,603,206

 

 
Other noncurrent liabilities
 
140,633

 
67,102

 
Total liabilities
 
7,605,776

 
3,987,852

 
Common stock related to Employee Stock Ownership Plan (ESOP)
 
3,259,230


3,134,999

 
Stockholders’ equity:
 
 
 
 
 
Common stock of $1 par value. Authorized 1,000,000 shares; issued
and outstanding 706,552 shares in 2019 and 715,445 shares in 2018
 
706,552

 
715,445

 
Additional paid-in capital
 
3,758,066

 
3,458,004

 
Retained earnings
 
12,317,478

 
10,840,654

 
Accumulated other comprehensive earnings (losses)
 
81,289

 
(55,762
)
 
Common stock related to ESOP
 
(3,259,230
)
 
(3,134,999
)
 
Total stockholders’ equity
 
13,604,155

 
11,823,342

 
Noncontrolling interests
 
37,959

 
36,323

 
Total equity
 
16,901,344

 
14,994,664

 
Commitments and contingencies
 

 

 
 
 
$
24,507,120

 
18,982,516

 



19


PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Earnings
Years ended December 28, 2019December 29, 2018
and December 30, 2017

 
 
2019
 
2018
 
2017
 
 
 
(Amounts are in thousands, except per share amounts)
 
Revenues:
 
 
 
 
 
 
 
Sales
 
$
38,116,402

 
36,093,907

 
34,558,286

 
Other operating income
 
346,351

 
301,811

 
278,552

 
Total revenues
 
38,462,753

 
36,395,718

 
34,836,838

 
Costs and expenses:
 
 
 
 
 
 
 
Cost of merchandise sold
 
27,740,469

 
26,311,391

 
25,129,717

 
Operating and administrative expenses
 
7,833,035

 
7,339,924

 
6,974,297

 
Total costs and expenses
 
35,573,504

 
33,651,315

 
32,104,014

 
Operating profit
 
2,889,249

 
2,744,403

 
2,732,824

 
Investment income
 
814,372

 
56,699

 
226,626

 
Other nonoperating income, net
 
82,365

 
119,866

 
68,056

 
Earnings before income tax expense
 
3,785,986

 
2,920,968

 
3,027,506

 
Income tax expense
 
780,591

 
539,801

 
735,612

 
Net earnings
 
$
3,005,395

 
2,381,167

 
2,291,894

 
Weighted average shares outstanding
 
713,535

 
726,407

 
753,483

 
Earnings per share
 
$
4.21

 
3.28

 
3.04

 

See accompanying notes to consolidated financial statements.
20


PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Comprehensive Earnings
Years ended December 28, 2019December 29, 2018
and December 30, 2017

 
 
2019
 
2018
 
2017
 
 
 
(Amounts are in thousands)
 
Net earnings
 
$
3,005,395

 
2,381,167

 
2,291,894

 
Other comprehensive earnings:
 
 
 
 
 
 
 
Unrealized gain (loss) on debt securities net of income taxes of $50,504 and $(6,521) in 2019 and 2018, respectively. Unrealized gain on debt and equity securities net of income taxes of $110,818 in 2017.
 
148,141


(19,126
)

175,978

 
Reclassification adjustment for net realized (gain) loss on debt securities net of income taxes of $(205) and $118 in 2019 and 2018, respectively. Reclassification adjustment for net realized (gain) on debt and equity securities net of income taxes of $(42,088) in 2017.
 
(602
)

346


(66,836
)
 
Adjustment to postretirement benefit obligation net of income taxes of $(3,576), $2,963 and $(4,406) in 2019, 2018 and 2017, respectively.
 
(10,488
)

8,692


(6,997
)
 
Comprehensive earnings
 
$
3,142,446

 
2,371,079

 
2,394,039

 


See accompanying notes to consolidated financial statements.
21


PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Cash Flows
Years ended December 28, 2019December 29, 2018
and December 30, 2017

 
 
2019
 
2018
 
2017
 
 
 
(Amounts are in thousands)
 
Cash flows from operating activities:
 
 
 
 
 
 
 
Cash received from customers
 
$
38,269,943

 
36,296,870

 
34,729,287

 
Cash paid to employees and suppliers
 
(34,017,408
)
 
(32,177,582
)
 
(30,821,593
)
 
Income taxes paid
 
(373,172
)
 
(563,983
)
 
(478,457
)
 
Self-insured claims paid
 
(394,495
)
 
(395,457
)
 
(344,905
)
 
Dividends and interest received
 
217,574

 
192,528

 
241,773

 
Other operating cash receipts
 
341,929

 
297,098

 
273,435

 
Other operating cash payments
 
(19,940
)
 
(17,548
)
 
(19,259
)
 
Net cash provided by operating activities
 
4,024,431

 
3,631,926

 
3,580,281

 
Cash flows from investing activities:
 
 
 
 
 
 
 
Payment for capital expenditures
 
(1,141,118
)
 
(1,350,089
)
 
(1,429,059
)
 
Proceeds from sale of property, plant and equipment
 
8,609

 
43,834

 
6,300

 
Payment for investments
 
(3,237,807
)
 
(2,778,691
)
 
(3,069,417
)
 
Proceeds from sale and maturity of investments
 
2,113,287

 
2,342,162

 
3,256,077

 
Net cash used in investing activities
 
(2,257,029
)
 
(1,742,784
)
 
(1,236,099
)
 
Cash flows from financing activities:
 
 
 
 
 
 
 
Payment for acquisition of common stock
 
(1,088,570
)
 
(1,405,872
)
 
(1,751,864
)
 
Proceeds from sale of common stock
 
311,950

 
307,933

 
283,222

 
Dividends paid
 
(828,733
)
 
(734,510
)
 
(689,660
)
 
Repayment of long-term debt
 
(11,061
)
 
(43,593
)
 
(75,325
)
 
Other, net
 
13,130

 
6,239

 
31,051

 
Net cash used in financing activities
 
(1,603,284
)
 
(1,869,803
)
 
(2,202,576
)
 
Net increase in cash and cash equivalents
 
164,118

 
19,339

 
141,606

 
Cash and cash equivalents at beginning of year
 
599,264

 
579,925

 
438,319

 
Cash and cash equivalents at end of year
 
$
763,382

 
599,264

 
579,925

 











See accompanying notes to consolidated financial statements.
22


 
 
 
 
 
 
 
 
 
 
2019
 
2018
 
2017
 
 
 
(Amounts are in thousands)
 
Reconciliation of net earnings to net cash provided by operating activities:
 
 
 
 
 
 
 
Net earnings
 
$
3,005,395

 
2,381,167

 
2,291,894

 
Adjustments to reconcile net earnings to net cash
provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
 
716,669

 
677,154

 
664,009

 
Increase in last-in, first out (LIFO) reserve
 
39,939

 
24,170

 
23,028

 
Retirement contributions paid or payable in
common stock
 
409,614

 
373,350

 
353,659

 
Deferred income taxes
 
215,004

 
63,245

 
(99,856
)
 
Loss (gain) on disposal and impairment of property,
plant and equipment
 
11,036

 
(13,185
)
 
15,231

 
(Gain) loss on investments
 
(627,624
)

73,254


(108,924
)
 
Net amortization of investments
 
42,753

 
63,654

 
109,240

 
Change in operating assets and liabilities providing (requiring) cash:
 
 
 
 
 
 
 
Trade receivables
 
(54,890
)
 
(10,790
)
 
43,870

 
Inventories
 
(104,514
)
 
3,614

 
(177,155
)
 
Other assets
 
136,796

 
199,930

 
82,089

 
Accounts payable and accrued expenses
 
181,154

 
112,383

 
151,186

 
Federal and state income taxes
 
40,548

 
(313,989
)
 
241,686

 
Other liabilities
 
12,551

 
(2,031
)
 
(9,676
)
 
Total adjustments
 
1,019,036

 
1,250,759

 
1,288,387

 
Net cash provided by operating activities
 
$
4,024,431

 
3,631,926

 
3,580,281

 



23


PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Stockholders’ Equity
Years ended December 28, 2019December 29, 2018
and December 30, 2017
 
 
Common Stock
 
Additional
Paid-in Capital
 
Retained Earnings
 
Common Stock (Acquired from) Sold to Stock-
holders
Accumu-
lated Other Compre-
hensive Earnings (Losses)
Common Stock Related to ESOP
 
Total Stock-
holders’ Equity
 
 
(Amounts are in thousands, except per share amounts)
Balances at December 31, 2016
 
$
763,198

 
2,849,947

 
9,836,696

 
 

 
 
23,427

 
 
(3,068,097
)
 
10,405,171

Comprehensive earnings
 

 

 
2,291,894

 
 

 
 
102,145

 
 

 
2,394,039

Dividends, $0.9125 per share
 

 

 
(689,660
)
 
 

 
 

 
 

 
(689,660
)
Contribution of 8,833 shares to retirement plans
 
6,540

 
262,684

 

 
 
92,058

 
 

 
 

 
361,282

Acquisition of 45,952 shares from stockholders
 

 

 

 
 
(1,751,864
)
 
 

 
 

 
(1,751,864
)
Sale of 7,361 shares to stockholders
 
677

 
27,016

 

 
 
255,529

 
 

 
 

 
283,222

Retirement of 36,975 shares
 
(36,975
)
 

 
(1,367,302
)
 
 
1,404,277

 
 

 
 

 

Change for ESOP related shares
 

 

 

 
 

 
 

 
 
14,959

 
14,959

Remeasurement of deferred income taxes reclassified to retained earnings
 

 

 
(27,064
)
 
 

 
 
27,064

 
 

 

Balances at December 30, 2017
 
733,440

 
3,139,647

 
10,044,564

 
 

 
 
152,636

 
 
(3,053,138
)
 
11,017,149

Comprehensive earnings
 

 

 
2,381,167

 
 

 
 
(10,088
)
 
 

 
2,371,079

Dividends, $1.01 per share
 

 

 
(734,510
)
 
 

 
 

 
 

 
(734,510
)
Contribution of 8,440 shares to retirement plans
 
6,221

 
261,423

 

 
 
81,780

 
 

 
 

 
349,424

Acquisition of 33,770 shares from stockholders
 

 

 

 
 
(1,405,872
)
 
 

 
 

 
(1,405,872
)
Sale of 7,335 shares to stockholders
 
1,380

 
56,934

 

 
 
249,619

 
 

 
 

 
307,933

Retirement of 25,596 shares
 
(25,596
)
 

 
(1,048,877
)
 
 
1,074,473

 
 

 
 

 

Change for ESOP related shares
 

 

 

 
 

 
 

 
 
(81,861
)
 
(81,861
)
Cumulative effect of net unrealized gain on equity securities reclassified to retained earnings
 

 

 
198,310

 
 

 
 
(198,310
)
 
 

 

Balances at December 29, 2018
 
715,445

 
3,458,004

 
10,840,654

 
 

 
 
(55,762
)
 
 
(3,134,999
)
 
11,823,342

Comprehensive earnings
 

 

 
3,005,395

 
 

 
 
137,051

 
 

 
3,142,446

Dividends, $1.16 per share
 

 

 
(828,733
)
 
 

 
 

 
 

 
(828,733
)
Contribution of 8,587 shares to retirement plans
 
5,605

 
235,017

 

 
 
127,329

 
 

 
 

 
367,951

Acquisition of 24,506 shares from stockholders
 

 

 

 
 
(1,088,570
)
 
 

 
 

 
(1,088,570
)
Sale of 7,026 shares to stockholders
 
1,497

 
65,045

 

 
 
245,408

 
 

 
 

 
311,950

Retirement of 15,995 shares
 
(15,995
)
 

 
(699,838
)
 
 
715,833

 
 

 
 

 

Change for ESOP related shares
 

 

 

 
 

 
 

 
 
(124,231
)
 
(124,231
)
Balances at December 28, 2019
 
$
706,552

 
3,758,066

 
12,317,478

 
 

 
 
81,289

 
 
(3,259,230
)
 
13,604,155


See accompanying notes to consolidated financial statements.
24


PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements


(1)    Summary of Significant Accounting Policies
(a)
Business
Publix Super Markets, Inc. and its wholly owned subsidiaries (Company) are in the business of operating retail food supermarkets in Florida, Georgia, Alabama, South Carolina, Tennessee, North Carolina and Virginia. The Company was founded in 1930 and later merged into another corporation that was originally incorporated in 1921. The Company has no other significant lines of business or industry segments.
(b)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and certain joint ventures in which the Company has a controlling financial interest. All significant intercompany balances and transactions are eliminated in consolidation.
(c)
Fiscal Year
The Company’s fiscal year ends on the last Saturday in December. Fiscal years 2019, 2018 and 2017 include 52 weeks.
(d)
Cash Equivalents
The Company considers all liquid investments with maturities of three months or less to be cash equivalents.
(e)
Trade Receivables
Trade receivables primarily include amounts due from vendor allowances, debit and credit card sales and third party insurance pharmacy billings.
(f)
Inventories
Inventories are valued at the lower of cost or market. The dollar value last-in, first-out (LIFO) method was used to determine the cost for 85% of inventories as of December 28, 2019 and December 29, 2018. Under this method, inventory is stated at cost, which is determined by applying a cost-to-retail ratio to each similar merchandise category’s ending retail value. The cost of the remaining inventories was determined using the first-in, first-out (FIFO) method. The FIFO cost of inventory approximates replacement or current cost. The FIFO method is used to value certain manufactured, seasonal, perishable and other miscellaneous inventory items because of fluctuating costs and inconsistent product availability. The Company also reduces inventory for estimated losses related to shrink. If all inventories were valued using the FIFO method, inventories and current assets would have been higher than reported by $528,997,000 and $489,058,000 as of December 28, 2019 and December 29, 2018, respectively.
(g)
Investments
Debt securities are classified as available-for-sale and measured at fair value. The Company evaluates whether debt securities are other-than-temporarily impaired (OTTI) based on criteria that include the extent to which the cost (cost of the debt security adjusted for amortization of premium or accretion of discount) exceeds market value, the duration of the market value decline, the credit rating of the issuer or security, the failure of the issuer to make scheduled principal or interest payments and the financial health and prospects of the issuer or security.
Declines in the fair value of debt securities determined to be OTTI are recognized in earnings and reported as OTTI losses. Debt securities with unrealized losses are considered OTTI if the Company intends to sell the debt security or if the Company will be required to sell the debt security prior to any anticipated recovery. If the Company determines that a debt security is OTTI under these circumstances, the impairment recognized in earnings is measured as the difference between the cost and the fair value. A debt security is also determined to be OTTI if the Company does not expect to recover the cost of the debt security. However, in this circumstance, if the Company does not intend to sell the debt security and will not be required to sell the debt security, the impairment recognized in earnings equals the estimated credit loss as measured by the difference between the present value of expected cash flows and the cost of the debt security. Expected cash flows are discounted using the debt security’s effective interest rate. Changes in the fair value of debt securities determined to be temporary are reported in other comprehensive earnings net of income taxes and included as a component of stockholders’ equity.
In 2018, the Company adopted the Accounting Standards Update (ASU) requiring equity securities be measured at fair value with net unrealized gains and losses from changes in the fair value recognized in earnings (fair value adjustment). The fair value adjustment also includes the cumulative effect of the ASU as of December 31, 2017 reclassified from accumulated other comprehensive earnings to retained earnings.


25


PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements


Prior to the adoption of the ASU, changes in the fair value of equity securities were accounted for similar to changes in the fair value of debt securities. Equity securities were classified as available-for-sale and measured at fair value. Declines in the fair value of equity securities determined to be OTTI were recognized in earnings and reported as OTTI losses. An equity security was determined to be OTTI if the Company did not expect to recover the cost of the equity security. Changes in the fair value of equity securities determined to be temporary were reported in other comprehensive earnings net of income taxes and included as a component of stockholders’ equity.
Interest and dividend income, amortization of premiums, accretion of discounts and realized gains and losses on the sale of debt and equity securities are included in investment income. Interest income is accrued as earned. Dividend income is recognized as income on the ex-dividend date. The cost of debt and equity securities sold is based on the specific identification method. With the adoption of the ASU, the fair value adjustment on equity securities held as of December 28, 2019 and December 29, 2018 is also included in investment income.
(h)
Leases
The Company conducts a major portion of its retail operations from leased locations. In 2019, the Company adopted the ASU requiring the lease rights and obligations arising from existing and new lease agreements be recognized as assets and liabilities on the balance sheet. The Company adopted the ASU on a modified retrospective basis and elected the transitional provisions eliminating the requirement to restate reporting periods prior to the date of adoption. The Company also elected to not reassess the original conclusions reached regarding lease identification, lease classification and initial direct costs for leases entered into prior to the adoption of the ASU. Prior to the adoption of the ASU, the Company was not required to record operating leases on the balance sheet when it was the lessee.
The Company determines whether a lease exists at inception. Initial lease terms are typically 20 years followed by five year renewal options and may include rent escalation clauses. A renewal option is included in the right-of-use asset and lease liability to the extent it is reasonably certain the option will be exercised. The present value of future payments for each lease is determined by using the Company’s incremental borrowing rate at the time of lease commencement. The incremental borrowing rate is estimated based on a composite index of debt for similarly rated companies with comparable terms.
Operating lease expense primarily represents fixed lease payments for operating leases recognized on a straight-line basis over the applicable lease term. Variable lease expense represents the payment of real estate taxes, insurance, maintenance and, for certain locations, additional rentals based on a percentage of sales in excess of stipulated minimums (excess rent). The payment of variable real estate taxes, insurance and maintenance is generally based on the Company’s pro-rata share of total shopping center square footage. The Company estimates excess rent, where applicable, based on annual sales projections and uses the straight-line method to amortize the cost. The annual sales projections are reviewed periodically and adjusted if necessary.
(i)
Property, Plant and Equipment and Depreciation
Assets are recorded at cost and depreciated or amortized using the straight-line method over their estimated useful lives or the terms of the related leases, if shorter, as follows: buildings and improvements (10–40 years); furniture, fixtures and equipment (3–20 years); and leasehold improvements (10–20 years).
Maintenance and repairs are expensed as incurred. Expenditures for renewals and betterments are capitalized. The gain or loss realized on disposed assets or assets to be disposed of is recorded in earnings.
(j)
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the net book value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the net book value of an asset to the future net undiscounted cash flows expected to be generated by the asset. An impairment loss is recorded for the excess of the net book value over the fair value of the asset. The fair value is estimated based on expected discounted future cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell and are no longer depreciated or amortized. Long-lived assets, including operating lease right-of-use assets, buildings and improvements, leasehold improvements, and furniture, fixtures and equipment, are evaluated for impairment at the supermarket level.
(k)
Self-Insurance
The Company is self-insured for health care claims and certain property, plant and equipment losses. The Company has third party insurance for losses in excess of self-insurance limits for workers’ compensation, general liability and fleet liability claims. Self-insurance reserves are established for health care, workers’ compensation, general liability and fleet


26


PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements


liability claims. These reserves are determined based on actual claims experience and an estimate of claims incurred but not reported including, where necessary, actuarial studies. Actuarial projections of losses for general liability and workers’ compensation claims are discounted.
(l)
Postretirement Benefit
The Company provides a postretirement life insurance benefit for certain salaried and hourly full-time employees who meet the eligibility requirements. Effective January 1, 2002, the Company amended the postretirement life insurance benefit under its Group Life Insurance Plan. To receive the postretirement life insurance benefit after the amendment, an employee must have had at least five years of full-time service and the employee’s age plus years of credited service must have equaled 65 or greater as of October 1, 2001. At retirement, such employees also must be at least age 55 with at least 10 years of full-time service to be eligible to receive the postretirement life insurance benefit.
Actuarial projections are used to calculate the year end postretirement benefit obligation, discounted using a yield curve methodology based on high quality bonds with a rating of AA or better. Actuarial losses are amortized from accumulated other comprehensive earnings into net periodic postretirement benefit cost over future years when the accumulation of such losses exceeds 10% of the year end postretirement benefit obligation.
(m)
Comprehensive Earnings
Comprehensive earnings include net earnings and other comprehensive earnings. Other comprehensive earnings include revenues, expenses, gains and losses that have been excluded from net earnings and recorded directly to stockholders’ equity. Included in other comprehensive earnings for the Company are unrealized gains and losses on debt securities in 2019 and 2018, unrealized gains and losses on debt and equity securities in 2017 and adjustments to the postretirement benefit obligation.
(n)
Revenue Recognition
The Company sells grocery (including dairy, produce, floral, deli, bakery, meat and seafood), health and beauty care, general merchandise, pharmacy and other products and services. Grocery was 84% of sales for 2019, 2018 and 2017. All other products and services were 16% of sales for 2019, 2018 and 2017.
Revenue is recognized at the point of sale for retail sales. Customer returns are immaterial. Vendor coupons that are reimbursed are accounted for as sales. Coupons and other sales incentives offered by the Company that are not reimbursed are recorded as a reduction of sales. The Company records sales net of applicable sales taxes.
(o)
Other Operating Income
Other operating income is recognized on a net basis as earned. Other operating income includes income generated from other activities, primarily lottery commissions, licensee sales commissions, mall gift card commissions, automated teller transaction fees, vending machine commissions, money transfer fees and money order commissions.
(p)
Cost of Merchandise Sold
Cost of merchandise sold includes costs of inventory and costs related to in-store production. Cost of merchandise sold also includes inbound freight charges, purchasing and receiving costs, warehousing costs and other costs of the Company’s distribution network.
Allowances and credits, including cooperative advertising allowances, received from a vendor in connection with the purchase or promotion of the vendor’s products are recognized as a reduction of cost of merchandise sold as earned. These allowances and credits are recognized as earned in accordance with the underlying agreement with the vendor and completion of the earnings process. Short-term vendor agreements with advance payment provisions are recorded as a current liability and recognized over the appropriate period as earned according to the underlying agreements. Long-term vendor agreements with advance payment provisions are recorded as a noncurrent liability and recognized over the appropriate period as earned according to the underlying agreements.
(q)
Advertising Costs
Advertising costs are expensed as incurred and were $245,403,000, $249,123,000 and $251,933,000 for 2019, 2018 and 2017, respectively.
(r)
Other Nonoperating Income, net
Other nonoperating income, net includes rent from tenants in owned shopping centers, net of related expenses, and other miscellaneous nonoperating income.


27


PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements


(s)
Income Taxes
Deferred income taxes are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in income tax rates expected to be in effect when the temporary differences reverse. The Company recognizes accrued interest and penalties related to income tax liabilities as a component of income tax expense. The Company invests in certain investment related tax credits that promote affordable housing and renewable energy. These investments generate a return primarily through the realization of federal and state tax credits and other tax benefits. The Company accounts for its affordable housing investments using the proportional amortization method. Under this method, the investment is amortized into income tax expense in proportion to the tax credits received and the investment tax credits are recognized as a reduction of income tax expense. The Company accounts for its renewable energy investments using the deferral method. Under this method, the investment tax credits are recognized as a reduction of the renewable energy investments.
(t)
Common Stock and Earnings Per Share
Earnings per share is calculated by dividing net earnings by the weighted average shares outstanding. Basic and diluted earnings per share are the same because the Company does not have options or other stock compensation programs that impact the calculation of diluted earnings per share. All shares owned by the Employee Stock Ownership Plan (ESOP) are included in the earnings per share calculations. Dividends paid to the ESOP, as well as dividends on all other common stock shares, are reflected as a reduction of retained earnings. All common stock shares, including ESOP and 401(k) Plan shares, receive one vote per share and have the same dividend rights. The voting rights for ESOP shares allocated to participants’ accounts are passed through to the participants. The Trustee of the Company’s common stock in the 401(k) Plan votes the shares held in that plan.
(u)
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(2)    Fair Value of Financial Instruments
The fair value of certain of the Company’s financial instruments, including cash and cash equivalents, trade receivables and accounts payable, approximates their respective carrying amounts due to their short-term maturity.
The fair value of investments is based on market prices using the following measurement categories:
Level 1 – Fair value is determined by using quoted prices in active markets for identical investments. Investments included in this category are equity securities (exchange traded funds and individual equity securities).
Level 2 – Fair value is determined by using other than quoted prices. By using observable inputs (for example, benchmark yields, interest rates, reported trades and broker dealer quotes), the fair value is determined through processes such as benchmark curves, benchmarking of like securities and matrix pricing of corporate, state and municipal bonds by using pricing of similar bonds based on coupons, ratings and maturities. Investments included in this category are primarily debt securities (tax exempt and taxable bonds), including restricted investments in taxable bonds held as collateral.
Level 3 – Fair value is determined by using other than observable inputs. Fair value is determined by using the best information available in the circumstances and requires significant management judgment or estimation. No investments are currently included in this category.
Following is a summary of fair value measurements for investments as of December 28, 2019 and December 29, 2018:
 
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
 
(Amounts are in thousands)
December 28, 2019
 
$
8,426,385

 
2,028,547

 
6,397,838

 

December 29, 2018
 
6,577,430

 
2,372,931

 
4,204,499

 



28


PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements


(3)    Investments
(a)
Debt Securities
Following is a summary of debt securities as of December 28, 2019 and December 29, 2018:

 
Cost
 
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value

 
(Amounts are in thousands)
2019
 
 
 
 
 
 
 
 
 
 
 
Tax exempt bonds
 
$
767,931

 
 
3,429

 
 
130

 
 
771,230

Taxable bonds
 
5,002,036

 
 
120,132

 
 
1,443

 
 
5,120,725

Restricted investments
 
169,983

 
 
10,101

 
 

 
 
180,084


 
$
5,939,950

 
 
133,662

 
 
1,573

 
 
6,072,039

2018
 


 
 

 
 

 
 

Tax exempt bonds
 
$
1,256,673

 
 
184

 
 
12,759

 
 
1,244,098

Taxable bonds
 
2,527,468

 
 
1,737

 
 
55,085

 
 
2,474,120

Restricted investment
 
160,318

 
 
520

 
 
346

 
 
160,492


 
$
3,944,459

 
 
2,441

 
 
68,190

 
 
3,878,710

The Company maintains restricted investments primarily for the benefit of the Company’s insurance carrier related to self-insurance reserves. These investments are held as collateral and not used for claim payments.
The cost and fair value of debt securities by expected maturity as of December 28, 2019 and December 29, 2018 are as follows:
  
 
2019
 
2018
 
 
Cost
 
Fair
Value
 
Cost
 
Fair
Value
 
 
 
 
(Amounts are in thousands)
 
 
 
Due in one year or less
 
$
437,236


438,105


563,272


560,992

Due after one year through five years
 
3,836,333


3,900,904


2,831,916


2,768,971

Due after five years through ten years
 
1,661,143


1,727,594


542,488


541,852

Due after ten years
 
5,238


5,436


6,783


6,895


 
$
5,939,950


6,072,039


3,944,459


3,878,710



29


PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements


Following is a summary of temporarily impaired debt securities by the time period impaired as of December 28, 2019 and December 29, 2018:
 
 
Less Than
12 Months
 
12 Months
or Longer
 
Total
 
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
 
 
(Amounts are in thousands)
 
2019
 

 
 

 
 

 
 

 
 

 
 

 
Tax exempt bonds
 
$
48,462

 
 
11

 
 
99,976

 
 
119

 
 
148,438

 
 
130

 
Taxable bonds
 
573,315

 
 
888

 
 
197,641

 
 
555

 
 
770,956

 
 
1,443

 

 
$
621,777

 
 
899

 
 
297,617

 
 
674

 
 
919,394

 
 
1,573

 
2018
 

 
 

 
 

 
 

 
 

 
 

 
Tax exempt bonds
 
$
25,150

 
 
95

 
 
1,182,783

 
 
12,664

 
 
1,207,933

 
 
12,759

 
Taxable bonds
 
645,379

 
 
5,821

 
 
1,464,208

 
 
49,264

 
 
2,109,587

 
 
55,085

 
Restricted investment
 
28,687

 
 
346

 
 

 
 

 
 
28,687

 
 
346

 

 
$
699,216

 
 
6,262

 
 
2,646,991

 
 
61,928

 
 
3,346,207

 
 
68,190

 
There are 80 debt securities contributing to the total unrealized losses of $1,573,000 as of December 28, 2019. Unrealized losses related to debt securities are primarily due to increases in interest rates that occurred since the debt securities were purchased. The Company continues to receive scheduled principal and interest payments on these debt securities.