UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2019
Commission File Number: 000-00981
 publixlogorev2a08.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
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 Exchange Act).
Yes                 No    X  
The number of shares of the Registrant’s common stock outstanding as of October 15, 2019 was 710,518,000.

 





PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
PUBLIX SUPER MARKETS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts are in thousands, except par value)
(Unaudited)
 
September 28, 2019
 
December 29, 2018
ASSETS
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
1,294,010

 
 
 
599,264

 
Short-term investments
 
453,132

 
 
 
560,992

 
Trade receivables
 
700,836

 
 
 
682,981

 
Inventories
 
1,760,688

 
 
 
1,848,735

 
Prepaid expenses
 
98,527

 
 
 
122,224

 
Total current assets
 
4,307,193

 
 
 
3,814,196

 
Long-term investments
 
7,145,508

 
 
 
6,016,438

 
Other noncurrent assets
 
458,207

 
 
 
515,265

 
Operating lease right-of-use assets
 
2,909,462

 
 
 

 
Property, plant and equipment
 
15,058,784

 
 
 
14,174,564

 
Accumulated depreciation
 
(5,949,761
)
 
 
 
(5,537,947
)
 
Net property, plant and equipment
 
9,109,023

 
 
 
8,636,617

 
 
 
$
23,929,393

 
 
 
18,982,516

 
LIABILITIES AND EQUITY
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
 
$
1,815,800

 
 
 
1,864,604

 
Accrued expenses:
 
 
 
 
 
 
 
Contributions to retirement plans
 
467,665

 
 
 
540,760

 
Self-insurance reserves
 
153,719

 
 
 
145,241

 
Salaries and wages
 
291,702

 
 
 
132,916

 
Other
 
564,356

 
 
 
321,080

 
Current portion of long-term debt
 
26,354

 
 
 
4,954

 
Current portion of operating lease liabilities
 
332,648

 
 
 

 
Total current liabilities
 
3,652,244

 
 
 
3,009,555

 
Deferred income taxes
 
588,319

 
 
 
420,757

 
Self-insurance reserves
 
225,324

 
 
 
222,419

 
Accrued postretirement benefit cost
 
105,487

 
 
 
105,308

 
Long-term debt
 
145,300

 
 
 
162,711

 
Operating lease liabilities
 
2,562,160

 
 
 

 
Other noncurrent liabilities
 
127,010

 
 
 
67,102

 
Total liabilities
 
7,405,844

 
 
 
3,987,852

 
Common stock related to Employee Stock Ownership Plan (ESOP)
 
3,284,701

 
 
 
3,134,999

 
Stockholders’ equity:
 
 
 
 
 
 
 
Common stock of $1 par value. Authorized 1,000,000 shares;
issued 722,126 shares in 2019 and 715,445 shares in 2018
 
722,126

 
 
 
715,445

 
Additional paid-in capital
 
3,738,659

 
 
 
3,458,004

 
Retained earnings
 
12,441,159

 
 
 
10,840,654

 
Treasury stock at cost, 11,391 shares in 2019
 
(500,296
)
 
 
 

 
Accumulated other comprehensive earnings (losses)
 
83,911

 
 
 
(55,762
)
 
Common stock related to ESOP
 
(3,284,701
)
 
 
 
(3,134,999
)
 
Total stockholders’ equity
 
13,200,858

 
 
 
11,823,342

 
Noncontrolling interests
 
37,990

 
 
 
36,323

 
Total equity
 
16,523,549

 
 
 
14,994,664

 
 
 
$
23,929,393

 
 
 
18,982,516

 

See accompanying notes to condensed consolidated financial statements.     
1



PUBLIX SUPER MARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts are in thousands, except per share amounts)
(Unaudited)

 
 
Three Months Ended
 
 
September 28, 2019
 
September 29, 2018
Revenues:
 
 
 
 
 
 
 
Sales
 
$
9,343,380

 
 
 
8,788,762

 
Other operating income
 
74,553

 
 
 
69,339

 
Total revenues
 
9,417,933

 
 
 
8,858,101

 
Costs and expenses:
 
 
 
 
 
 
 
Cost of merchandise sold
 
6,840,075

 
 
 
6,436,041

 
Operating and administrative expenses
 
1,965,828

 
 
 
1,838,908

 
Total costs and expenses
 
8,805,903

 
 
 
8,274,949

 
Operating profit
 
612,030

 
 
 
583,152

 
Investment income
 
70,049

 
 
 
230,234

 
Other nonoperating income, net
 
20,241

 
 
 
19,051

 
Earnings before income tax expense
 
702,320

 
 
 
832,437

 
Income tax expense
 
128,294

 
 
 
154,693

 
Net earnings
 
$
574,026

 
 
 
677,744

 
Weighted average shares outstanding
 
712,605

 
 
 
723,236

 
Earnings per share
 
$
0.81

 
 
 
0.94

 


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Amounts are in thousands)
(Unaudited)

 
 
Three Months Ended
 
 
September 28, 2019
 
September 29, 2018
Net earnings
 
$
574,026

 
 
 
677,744

 
Other comprehensive earnings:
 
 
 
 
 
 
 
Unrealized gain (loss) on debt securities net of income taxes of $6,776 and $(708) in 2019 and 2018, respectively.
 
22,131

 
 
 
(2,076
)
 
Reclassification adjustment for net realized gain on debt securities net of income taxes of $(149) and $(62) in 2019 and 2018, respectively.
 
(439
)
 
 
 
(181
)
 
Adjustment to postretirement benefit obligation net of income taxes of
$192 in 2018.
 

 
 
 
564

 
Comprehensive earnings
 
$
595,718

 
 
 
676,051

 




See accompanying notes to condensed consolidated financial statements.     
2



PUBLIX SUPER MARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts are in thousands, except per share amounts)
(Unaudited)

 
 
Nine Months Ended
 
 
September 28, 2019
 
September 29, 2018
Revenues:
 
 
 
 
 
 
 
Sales
 
$
28,366,021

 
 
 
26,814,561

 
Other operating income
 
258,938

 
 
 
215,350

 
Total revenues
 
28,624,959

 
 
 
27,029,911

 
Costs and expenses:
 
 
 
 
 
 
 
Cost of merchandise sold
 
20,619,057

 
 
 
19,483,545

 
Operating and administrative expenses
 
5,857,859

 
 
 
5,486,465

 
Total costs and expenses
 
26,476,916

 
 
 
24,970,010

 
Operating profit
 
2,148,043

 
 
 
2,059,901

 
Investment income
 
582,378

 
 
 
342,687

 
Other nonoperating income, net
 
56,836

 
 
 
64,709

 
Earnings before income tax expense
 
2,787,257

 
 
 
2,467,297

 
Income tax expense
 
571,203

 
 
 
493,110

 
Net earnings
 
$
2,216,054

 
 
 
1,974,187

 
Weighted average shares outstanding
 
715,053

 
 
 
729,434

 
Earnings per share
 
$
3.10

 
 
 
2.71

 


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Amounts are in thousands)
(Unaudited)

 
 
Nine Months Ended
 
 
September 28, 2019
 
September 29, 2018
Net earnings
 
$
2,216,054

 
 
 
1,974,187

 
Other comprehensive earnings:
 
 
 
 
 
 
 
Unrealized gain (loss) on debt securities net of income taxes of $46,885 and $(9,770) in 2019 and 2018, respectively.
 
139,782

 
 
 
(28,657
)
 
Reclassification adjustment for net realized (gain) loss on debt securities net of income taxes of $(36) and $91 in 2019 and 2018, respectively.
 
(109
)
 
 
 
266

 
Adjustment to postretirement benefit obligation net of income taxes of
$577 in 2018.
 

 
 
 
1,693

 
Comprehensive earnings
 
$
2,355,727

 
 
 
1,947,489

 


See accompanying notes to condensed consolidated financial statements.         
3


PUBLIX SUPER MARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts are in thousands)
(Unaudited)

 
 
Nine Months Ended
 
 
September 28, 2019
 
September 29, 2018
Cash flows from operating activities:
 
 
 
 
 
 
 
Cash received from customers
 
$
28,478,388

 
 
 
26,976,556

 
Cash paid to employees and suppliers
 
(25,061,839
)
 
 
 
(23,613,609
)
 
Income taxes paid
 
(361,130
)
 
 
 
(548,092
)
 
Self-insured claims paid
 
(288,782
)
 
 
 
(292,064
)
 
Dividends and interest received
 
159,812

 
 
 
140,673

 
Other operating cash receipts
 
255,608

 
 
 
211,856

 
Other operating cash payments
 
(15,069
)
 
 
 
(12,329
)
 
Net cash provided by operating activities
 
3,166,988

 
 
 
2,862,991

 
Cash flows from investing activities:
 
 
 
 
 
 
 
Payment for capital expenditures
 
(885,386
)
 
 
 
(1,098,845
)
 
Proceeds from sale of property, plant and equipment
 
7,561

 
 
 
9,408

 
Payment for investments
 
(2,214,737
)
 
 
 
(1,941,469
)
 
Proceeds from sale and maturity of investments
 
1,813,477

 
 
 
1,752,100

 
Net cash used in investing activities
 
(1,279,085
)
 
 
 
(1,278,806
)
 
Cash flows from financing activities:
 
 
 
 
 
 
 
Payment for acquisition of common stock
 
(814,306
)
 
 
 
(1,192,046
)
 
Proceeds from sale of common stock
 
233,395

 
 
 
228,032

 
Dividends paid
 
(615,549
)
 
 
 
(547,693
)
 
Repayment of long-term debt
 
(7,427
)
 
 
 
(42,253
)
 
Other, net
 
10,730

 
 
 
6,133

 
Net cash used in financing activities
 
(1,193,157
)
 
 
 
(1,547,827
)
 
Net increase in cash and cash equivalents
 
694,746

 
 
 
36,358

 
Cash and cash equivalents at beginning of period
 
599,264

 
 
 
579,925

 
Cash and cash equivalents at end of period
 
$
1,294,010

 
 
 
616,283

 


See accompanying notes to condensed consolidated financial statements.     (Continued)
4


PUBLIX SUPER MARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts are in thousands)
(Unaudited)
 
 
 
Nine Months Ended
 
 
September 28, 2019
 
September 29, 2018
Reconciliation of net earnings to net cash
provided by operating activities:
 
 
 
 
 
 
 
Net earnings
 
$
2,216,054

 
 
 
1,974,187

 
Adjustments to reconcile net earnings to net cash
provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
 
534,747

 
 
 
501,098

 
Increase in last-in, first out (LIFO) reserve
 
30,788

 
 
 
22,926

 
Retirement contributions paid or payable
in common stock
 
295,407

 
 
 
273,950

 
Deferred income taxes
 
120,713

 
 
 
47,828

 
Loss on disposal and impairment of property,
plant and equipment
 
5,775

 
 
 
10,612

 
Gain on investments
 
(446,852
)
 
 
 
(249,808
)
 
Net amortization of investments
 
33,102

 
 
 
50,357

 
Changes in operating assets and liabilities
providing (requiring) cash:
 
 
 
 
 
 
 
Trade receivables
 
(18,633
)
 
 
 
21,566

 
Inventories
 
57,259

 
 
 
100,983

 
Other assets
 
47,293

 
 
 
64,758

 
Accounts payable and accrued expenses
 
264,323

 
 
 
262,581

 
Federal and state income taxes
 
27,863

 
 
 
(217,775
)
 
Other liabilities
 
(851
)
 
 
 
(272
)
 
Total adjustments
 
950,934

 
 
 
888,804

 
Net cash provided by operating activities
 
$
3,166,988

 
 
 
2,862,991

 



See accompanying notes to condensed consolidated financial statements.         
5


PUBLIX SUPER MARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts are in thousands, except per share amounts)
(Unaudited)

 
 
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
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 29, 2018
 
$
715,445

 
3,458,004

 
10,840,654

 
 

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

Comprehensive earnings
 

 

 
980,971

 
 

 
 
59,814

 
 

 
1,040,785

Dividends, $0.26 per share
 

 

 
(185,835
)
 
 

 
 

 
 

 
(185,835
)
Contribution of 8,587 shares to retirement plans
 
5,605

 
235,017

 

 
 
127,329

 
 

 
 

 
367,951

Acquisition of 7,802 shares from stockholders
 

 

 

 
 
(333,857
)
 
 

 
 

 
(333,857
)
Sale of 2,641 shares to stockholders
 
621

 
26,019

 

 
 
86,556

 
 

 
 

 
113,196

Change for ESOP related shares
 

 

 

 
 

 
 

 
 
(375,184
)
 
(375,184
)
Balances at March 30, 2019
 
721,671

 
3,719,040

 
11,635,790

 
 
(119,972
)
 
 
4,052

 
 
(3,510,183
)
 
12,450,398

Comprehensive earnings
 

 

 
661,057

 
 

 
 
58,167

 
 

 
719,224

Dividends, $0.30 per share
 

 

 
(215,552
)
 
 

 
 

 
 

 
(215,552
)
Acquisition of 5,790 shares from stockholders
 

 

 

 
 
(256,851
)
 
 

 
 

 
(256,851
)
Sale of 904 shares to stockholders
 

 
6

 

 
 
40,276

 
 

 
 

 
40,282

Change for ESOP related shares
 

 

 

 
 

 
 

 
 
159,560

 
159,560

Balances at June 29, 2019
 
721,671

 
3,719,046

 
12,081,295

 
 
(336,547
)
 
 
62,219

 
 
(3,350,623
)
 
12,897,061

Comprehensive earnings
 

 

 
574,026

 
 

 
 
21,692

 
 

 
595,718

Dividends, $0.30 per share
 

 

 
(214,162
)
 
 

 
 

 
 

 
(214,162
)
Acquisition of 5,061 shares from stockholders
 

 

 

 
 
(223,598
)
 
 

 
 

 
(223,598
)
Sale of 1,811 shares to stockholders
 
455

 
19,613

 

 
 
59,849

 
 

 
 

 
79,917

Change for ESOP related shares
 

 

 

 
 

 
 

 
 
65,922

 
65,922

Balances at September 28, 2019
 
$
722,126

 
3,738,659

 
12,441,159

 
 
(500,296
)
 
 
83,911

 
 
(3,284,701
)
 
13,200,858


See accompanying notes to condensed consolidated financial statements.         
6


PUBLIX SUPER MARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts are in thousands, except per share amounts)
(Unaudited)

 
 
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
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 30, 2017
 
$
733,440

 
3,139,647

 
10,044,564

 
 

 
 
152,636

 
 
(3,053,138
)
 
11,017,149

Comprehensive earnings
 

 

 
680,271

 
 

 
 
(23,394
)
 
 

 
656,877

Dividends, $0.23 per share
 

 

 
(168,597
)
 
 

 
 

 
 

 
(168,597
)
Contribution of 8,440 shares to retirement plans
 
6,221

 
261,423

 

 
 
81,780

 
 

 
 

 
349,424

Acquisition of 10,714 shares from stockholders
 

 

 

 
 
(432,894
)
 
 

 
 

 
(432,894
)
Sale of 2,590 shares to stockholders
 
531

 
21,632

 

 
 
84,651

 
 

 
 

 
106,814

Change for ESOP related shares
 

 

 

 
 

 
 

 
 
(402,207
)
 
(402,207
)
Cumulative effect of net unrealized gain on equity securities reclassified to retained earnings
 

 

 
198,310

 
 

 
 
(198,310
)
 
 

 

Balances at March 31, 2018
 
740,192

 
3,422,702

 
10,754,548

 
 
(266,463
)
 
 
(69,068
)
 
 
(3,455,345
)
 
11,126,566

Comprehensive earnings
 

 

 
616,172

 
 

 
 
(1,611
)
 
 

 
614,561

Dividends, $0.26 per share
 

 

 
(190,655
)
 
 

 
 

 
 

 
(190,655
)
Acquisition of 7,623 shares from stockholders
 

 

 

 
 
(317,877
)
 
 

 
 

 
(317,877
)
Sale of 1,139 shares to stockholders
 
1

 
6

 

 
 
47,454

 
 

 
 

 
47,461

Change for ESOP related shares
 

 

 

 
 

 
 

 
 
205,027

 
205,027

Balances at June 30, 2018
 
740,193

 
3,422,708

 
11,180,065

 
 
(536,886
)
 
 
(70,679
)
 
 
(3,250,318
)
 
11,485,083

Comprehensive earnings
 

 

 
677,744

 
 

 
 
(1,693
)
 
 

 
676,051

Dividends, $0.26 per share
 

 

 
(188,441
)
 
 

 
 

 
 

 
(188,441
)
Acquisition of 10,424 shares from stockholders
 

 

 

 
 
(441,275
)
 
 

 
 

 
(441,275
)
Sale of 1,735 shares to stockholders
 
402

 
16,704

 

 
 
56,651

 
 

 
 

 
73,757

Change for ESOP related shares
 

 

 

 
 

 
 

 
 
61,821

 
61,821

Balances at September 29, 2018
 
$
740,595

 
3,439,412

 
11,669,368

 
 
(921,510
)
 
 
(72,372
)
 
 
(3,188,497
)
 
11,666,996



See accompanying notes to condensed consolidated financial statements.         
7


PUBLIX SUPER MARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



(1)
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Publix Super Markets, Inc. and subsidiaries (the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. Accordingly, the accompanying statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these statements include all adjustments that are of a normal and recurring nature necessary to present fairly the Company’s financial position and results of operations. Due to the seasonal nature of the Company’s business, the results of operations for the three and nine months ended September 28, 2019 are not necessarily indicative of the results for the entire 2019 fiscal year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 29, 2018.
The preparation of financial statements in conformity with GAAP 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 September 28, 2019 and December 29, 2018:
 
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
 
(Amounts are in thousands)
September 28, 2019
 
$
7,598,640

 
1,844,244

 
5,754,396

 

December 29, 2018
 
6,577,430

 
2,372,931

 
4,204,499

 



8


PUBLIX SUPER MARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



(3)
Investments
(a)
Debt Securities
Following is a summary of debt securities as of September 28, 2019 and December 29, 2018:
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
 
(Amounts are in thousands)
September 28, 2019
 
 
 
 
 
 
 
 
Tax exempt bonds
 
$
893,665

 
1,930

 
889

 
894,706

Taxable bonds
 
4,244,287

 
113,021

 
3,369

 
4,353,939

Restricted investments
 
169,832

 
10,080

 

 
179,912

 
 
$
5,307,784

 
125,031

 
4,258

 
5,428,557

December 29, 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 September 28, 2019 and December 29, 2018 are as follows:
 
 
September 28, 2019
 
December 29, 2018
 
 
Cost
 
Fair
Value
 
Cost
 
Fair
Value
 
 
(Amounts are in thousands)
Due in one year or less
 
$
453,132

 
453,132

 
563,272

 
560,992

Due after one year through five years
 
3,556,932

 
3,610,463

 
2,831,916

 
2,768,971

Due after five years through ten years
 
1,292,049

 
1,359,068

 
542,488

 
541,852

Due after ten years
 
5,671

 
5,894

 
6,783

 
6,895

 
 
$
5,307,784

 
5,428,557

 
3,944,459

 
3,878,710



9


PUBLIX SUPER MARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Following is a summary of temporarily impaired debt securities by the time period impaired as of September 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)
 
September 28, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tax exempt bonds
 
$
383,034

 
 
501

 
 
171,681

 
 
388

 
 
554,715

 
 
889

 
Taxable bonds
 
420,027

 
 
1,297

 
 
518,304

 
 
2,072

 
 
938,331

 
 
3,369

 
 
 
$
803,061

 
 
1,798

 
 
689,985

 
 
2,460

 
 
1,493,046

 
 
4,258

 
December 29, 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 169 debt securities contributing to the total unrealized losses of $4,258,000 as of September 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.
(b)
Equity Securities
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 of equity securities was $2,170,083,000 and $2,698,720,000 as of September 28, 2019 and December 29, 2018, respectively.
Prior to adoption of the ASU, equity securities were classified as available-for-sale and measured at fair value. Changes in fair value determined to be temporary were reported in other comprehensive earnings net of income taxes. Upon adoption of the ASU, the Company reclassified the cumulative effect of the net unrealized gain on equity securities net of income taxes as of December 31, 2017 of $198,310,000 from accumulated other comprehensive earnings to retained earnings. The fair value adjustment includes the cumulative effect of the ASU reclassified to retained earnings as of December 31, 2017.


10


PUBLIX SUPER MARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



(c)
Investment Income
In the following table, net realized gain on the sale of investments represents the difference between the cost and the proceeds from the sale of debt and equity securities. The net realized gain on the sale of investments excludes the net gain or loss on the sale of equity securities previously recognized through the fair value adjustment, which is presented separately.
Following is a summary of investment income for the three and nine months ended September 28, 2019 and September 29, 2018:
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
September 28, 2019
September 29, 2018
September 28, 2019
September 29, 2018
 
(Amounts are in thousands)
Interest and dividend income
 
$
46,796

 
 
32,726

 
 
135,526

 
 
92,879

 
Net realized gain on sale of investments
 
33,798

 
 
69,251

 
 
104,242

 
 
92,918

 
 
 
80,594

 
 
101,977

 
 
239,768

 
 
185,797

 
Fair value adjustment, due to net unrealized (loss) gain, on equity securities held at end of period
 
(26,936
)
 
 
166,267

 
 
292,381

 
 
217,314

 
Net loss (gain) on sale of equity securities previously recognized through fair value adjustment
 
16,391

 
 
(38,010
)
 
 
50,229

 
 
(60,424
)
 
 
 
$
70,049

 
 
230,234

 
 
582,378

 
 
342,687

 
(4)
Leases
(a)
Lessee
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. As of December 30, 2018, the Company recognized its operating lease right-of-use assets and operating lease liabilities on the 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.
The Company included finance lease right-of-use assets of $149,309,000 in net property, plant and equipment and finance lease liabilities of $29,410,000 and $102,247,000 in other accrued expenses and other noncurrent liabilities, respectively, on the condensed consolidated balance sheet as of September 28, 2019.
The Company conducts a major portion of its retail operations from leased locations. 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. Additionally, the Company has operating leases for certain transportation and other equipment with initial lease terms ranging up to five years.
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 to variable lease expense.


11


PUBLIX SUPER MARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Lease expense for the three and nine months ended September 28, 2019 was as follows:
 
 
Three Months Ended
Nine Months Ended
 
 
 
September 28, 2019
September 28, 2019
 
 
 
(Amounts are in thousands)
 
Operating lease expense
 
 
$
107,262

 
 
324,735

 
 
Finance lease expense:
 
 
 
 
 
 
 
 
Amortization of right-of-use assets
 
 
1,686

 
 
6,022

 
 
Interest on lease liabilities
 
 
752

 
 
2,189

 
 
Variable lease expense
 
 
15,189

 
 
44,077

 
 
Sublease rental income
 
 
(660
)
 
 
(2,203
)
 
 
 
 
 
$
124,229

 
 
374,820

 
 
Supplemental cash flow information related to leases for the nine months ended September 28, 2019 was as follows:
 
Nine Months Ended
 
September 28, 2019
 
(Amounts are in thousands)
Operating cash flows from rent paid for operating lease liabilities
 
$
315,418

 
Right-of-use assets obtained in exchange for new lease liabilities:
 
 
 
Operating leases
 
331,274

 
Finance leases
 
61,672

 
The weighted-average remaining lease term and weighted-average discount rate as of September 28, 2019 are as follows:
 
September 28, 2019
Weighted-average remaining lease term:
 
 
 
Operating leases
 
 12 years

 
Finance leases
 
18 years

 
Weighted-average discount rate:
 
 
 
Operating leases
 
3.5
%
 
Finance leases
 
3.9
%
 


12


PUBLIX SUPER MARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Maturities of lease liabilities as of September 28, 2019 are as follows:
 
 
 
 
 
Year
Operating
Leases
 
 
Finance
Leases
 
(Amounts are in thousands)
2019
$
106,457

 
 
2,130

2020
423,548

 
 
32,749

2021
394,701

 
 
7,781

2022
358,936

 
 
7,781

2023
316,511

 
 
22,497

Thereafter
1,997,096

 
 
94,752

 
3,597,249

 
 
167,690

Less: Imputed interest
(702,441
)
 
 
(36,033
)

$
2,894,808

 
 
131,657

As of September 28, 2019, the Company has lease agreements that have not yet commenced with fixed lease payments totaling $309,611,000. These leases will commence in future periods with terms ranging up to 20 years.
(b)
Lessor
The Company leases space in owned shopping centers to tenants under noncancelable operating leases. The Company determines whether a lease exists at inception. Initial lease terms are typically five years followed by five year renewal options and may include rent escalation clauses. Lease income primarily represents fixed lease payments received from tenants recognized on a straight-line basis over the applicable lease term. Variable lease income represents the receipt of real estate taxes, insurance, maintenance and, for certain locations, excess rent.
Total lease income for the three and nine months ended September 28, 2019 was as follows:
 
 
Three Months Ended
Nine Months Ended
 
 
September 28, 2019
September 28, 2019
 
 
(Amounts are in thousands)
Lease income
 
 
$
37,924

 
 
111,331

 
Variable lease income
 
 
11,155

 
 
32,355

 
 
 
 
$
49,079

 
 
143,686

 


13


PUBLIX SUPER MARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Fixed lease payments to be received for all noncancelable operating leases as of September 28, 2019 are as follows:
Year
 
(Amounts are in thousands)
2019
$
39,407

2020
139,491

2021
113,695

2022
87,697

2023
64,394

Thereafter
201,943

 
$
646,627

(5)
Consolidation of Joint Ventures and Long-Term Debt
From time to time, the Company enters into a joint venture (JV), in the legal form of a limited liability company, with certain real estate developers to partner in the development of a shopping center with the Company as the anchor tenant. The Company consolidates certain of these JVs in which it has a controlling financial interest. As of September 28, 2019, the carrying amounts of the assets and liabilities of the consolidated JVs were $154,123,000 and $77,897,000, respectively. As of December 29, 2018, the carrying amounts of the assets and liabilities of the consolidated JVs were $144,197,000 and $71,342,000, respectively. The assets are owned by and the liabilities are obligations of the JVs, not the Company, except for a portion of the long-term debt of certain JVs guaranteed by the Company. The JVs are financed with capital contributions from the members, loans and/or the cash flows generated by the JV owned shopping centers once in operation. Total earnings attributable to noncontrolling interests for 2019 and 2018 were immaterial. The Company’s involvement with these JVs does not have a significant effect on the Company’s financial condition, results of operations or cash flows.
The Company’s long-term debt results primarily from the consolidation of loans of certain JVs and loans assumed in connection with the acquisition of certain shopping centers with the Company as the anchor tenant. No loans were assumed during the nine months ended September 28, 2019. The Company assumed loans totaling $9,936,000 during the nine months ended September 29, 2018. Maturities of JV loans range from June 2020 through April 2027 and have variable interest rates based on a LIBOR index plus 175 to 250 basis points. Maturities of assumed shopping center loans range from December 2020 through January 2027 and have fixed interest rates ranging from 3.7% to 7.5%.
(6)
Retirement Plan
The Company has a trusteed, noncontributory Employee Stock Ownership Plan (ESOP) for the benefit of eligible employees. Since the Company’s common stock is not traded on an established securities market, the ESOP includes a put option for shares of the Company’s common stock distributed from the ESOP. Shares are distributed from the ESOP primarily to separated vested participants and certain eligible participants who elect to diversify their account balances. Under the Company’s administration of the ESOP’s put option, if the owners of distributed shares desire to sell their shares, the Company is required to purchase the shares at fair value for a specified time period after distribution of the shares from the ESOP. The fair value of distributed shares subject to the put option totaled $283,179,000 and $288,580,000 as of September 28, 2019 and December 29, 2018, respectively. The cost of the shares held by the ESOP totaled $3,001,522,000 and $2,846,419,000 as of September 28, 2019 and December 29, 2018, respectively. Due to the Company’s obligation under the put option, the distributed shares subject to the put option and the shares held by the ESOP are classified as temporary equity in the mezzanine section of the condensed consolidated balance sheets and totaled $3,284,701,000 and $3,134,999,000 as of September 28, 2019 and December 29, 2018, respectively. The fair value of the shares held by the ESOP totaled $8,121,725,000 and $8,061,399,000 as of September 28, 2019 and December 29, 2018, respectively.


14


PUBLIX SUPER MARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



(7)
Accumulated Other Comprehensive Earnings (Losses)
A reconciliation of the changes in accumulated other comprehensive earnings (losses) net of income taxes for the three months ended September 28, 2019 and September 29, 2018 is as follows:
 
 
Investments
 
Postretirement Benefit
 
Accumulated Other Comprehensive Earnings (Losses)
 
 
 
(Amounts are in thousands)
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
Balances at June 29, 2019
 
 
$
68,948

 
 
 
(6,729
)
 
 
 
62,219

 
Unrealized gain on debt securities
 
 
22,131

 
 
 

 
 
 
22,131

 
Net realized gain on debt securities reclassified to investment income
 
 
(439
)
 
 
 

 
 
 
(439
)
 
Net other comprehensive earnings
 
 
21,692

 
 
 

 
 
 
21,692

 
Balances at September 28, 2019
 
 
$
90,640

 
 
 
(6,729
)
 
 
 
83,911

 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
 
 
 
Balances at June 30, 2018
 
 
$
(56,387
)
 
 
 
(14,292
)
 
 
 
(70,679
)
 
Unrealized loss on debt securities
 
 
(2,076
)
 
 
 

 
 
 
(2,076
)
 
Net realized gain on debt securities reclassified to investment income
 
 
(181
)
 
 
 

 
 
 
(181
)
 
Adjustment to postretirement benefit obligation
 
 

 
 
 
564

 
 
 
564

 
Net other comprehensive (losses) earnings
 
 
(2,257
)
 
 
 
564

 
 
 
(1,693
)
 
Balances at September 29, 2018
 
 
$
(58,644
)
 
 
 
(13,728
)
 
 
 
(72,372
)
 


15


PUBLIX SUPER MARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



A reconciliation of the changes in accumulated other comprehensive earnings (losses) net of income taxes for the nine months ended September 28, 2019 and September 29, 2018 is as follows:
 
 
Investments
 
Postretirement Benefits
 
Accumulated Other Comprehensive Earnings (Losses)
 
 
 
(Amounts are in thousands)
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 29, 2018
 
 
$
(49,033
)
 
 
 
(6,729
)
 
 
 
(55,762
)
 
Unrealized gain on debt securities
 
 
139,782

 
 
 

 
 
 
139,782

 
Net realized gain on debt securities reclassified to investment income
 
 
(109
)
 
 
 

 
 
 
(109
)
 
Net other comprehensive earnings
 
 
139,673

 
 
 

 
 
 
139,673

 
Balances at September 28, 2019
 
 
$
90,640

 
 
 
(6,729
)
 
 
 
83,911

 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
 
 
 
Balances at December 30, 2017
 
 
$
168,057

 
 
 
(15,421
)
 
 
 
152,636

 
Unrealized loss on debt securities
 
 
(28,657
)
 
 
 

 
 
 
(28,657
)
 
Net realized loss on debt securities reclassified to investment income
 
 
266

 
 
 

 
 
 
266

 
Adjustment to postretirement benefit obligation
 
 

 
 
 
1,693

 
 
 
1,693

 
Net other comprehensive (losses) earnings
 
 
(28,391
)
 
 
 
1,693

 
 
 
(26,698
)
 
Cumulative effect of net unrealized gain on equity securities reclassified to retained earnings
 
 
(198,310
)
 
 
 

 
 
 
(198,310
)
 
Balances at September 29, 2018
 
 
$
(58,644
)
 
 
 
(13,728
)
 
 
 
(72,372
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(8)
Subsequent Event
On October 1, 2019, the Company declared a quarterly dividend on its common stock of $0.30 per share or $213,200,000, payable November 1, 2019 to stockholders of record as of the close of business October 15, 2019.


16



Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company is engaged in the retail food industry and as of September 28, 2019 operated 1,228 supermarkets in Florida, Georgia, Alabama, South Carolina, Tennessee, North Carolina and Virginia. For the nine months ended September 28, 2019, 22 supermarkets were opened (including four replacement supermarkets) and 120 supermarkets were remodeled. Five supermarkets were closed during the period. The replacement supermarkets that opened during the nine months ended September 28, 2019 replaced one supermarket closed during the same period and three supermarkets closed during a previous period. The remaining supermarkets closed in 2019 will be replaced on site in a subsequent period. 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.
Results of Operations
Sales
Sales for the three months ended September 28, 2019 were $9.3 billion as compared with $8.8 billion for the three months ended September 29, 2018, an increase of $554.6 million or 6.3%. The increase in sales for the three months ended September 28, 2019 as compared with the three months ended September 29, 2018 was primarily due to new supermarket sales and a 4.3% 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. The Company estimates that its sales for the three months ended September 28, 2019 increased $80 million or 0.9% due to the impact of Hurricane Dorian. Comparable store sales for the three months ended September 28, 2019 increased primarily due to increased product costs and the impact of the hurricane.
Sales for the nine months ended September 28, 2019 were $28.4 billion as compared with $26.8 billion for the nine months ended September 29, 2018, an increase of $1,551.5 million or 5.8%. The increase in sales for the nine months ended September 28, 2019 as compared with the nine months ended September 29, 2018 was primarily due to new supermarket sales and a 3.7% increase in comparable store sales. Comparable store sales for the nine months ended September 28, 2019 increased primarily due to increased product costs.
Gross profit
Gross profit (sales less cost of merchandise sold) as a percentage of sales was 26.8% for the three months ended September 28, 2019 and September 29, 2018. Gross profit as a percentage of sales was 27.3% for the nine months ended September 28, 2019 and September 29, 2018.
Operating and administrative expenses
Operating and administrative expenses as a percentage of sales were 21.0% and 20.9% for the three months ended September 28, 2019 and September 29, 2018, respectively. Operating and administrative expenses as a percentage of sales were 20.7% and 20.5% for the nine months ended September 28, 2019 and September 29, 2018, respectively. The increase in operating and administrative expenses as a percentage of sales for the three and nine months ended September 28, 2019 as compared with the three and nine months ended September 29, 2018 was primarily due to an increase in payroll costs as a percentage of sales.
Operating profit
Operating profit as a percentage of sales was 6.6% for the three months ended September 28, 2019 and September 29, 2018. Operating profit as a percentage of sales was 7.6% and 7.7% for the nine months ended September 28, 2019 and September 29, 2018, respectively. Operating profit as a percentage of sales for the nine months ended September 28, 2019 as compared with the nine months ended September 29, 2018 remained relatively unchanged.


17



Investment income
Investment income was $70.0 million and $230.2 million for the three months ended September 28, 2019 and September 29, 2018, respectively. The decrease in investment income for the three months ended September 28, 2019 as compared with the three months ended September 29, 2018 was primarily due to net unrealized losses on equity securities in 2019 and net unrealized gains on equity securities in 2018 and a decrease in realized gains on the sale of equity securities. Excluding the impact of net unrealized losses on equity securities in 2019 and net unrealized gains on equity securities in 2018, investment income would have been $80.6 million and $102.0 million for the three months ended September 28, 2019 and September 29, 2018, respectively.
Investment income was $582.4 million and $342.7 million for the nine months ended September 28, 2019 and September 29, 2018, respectively. The increase in investment income for the nine months ended September 28, 2019 as compared with the nine months ended September 29, 2018 was primarily due to increases in net unrealized gains on equity securities and realized gains on the sale of equity securities. Excluding the impact of net unrealized gains on equity securities in 2019 and 2018, investment income would have been $239.8 million and $185.8 million for the nine months ended September 28, 2019 and September 29, 2018, respectively.
Income tax expense
The effective income tax rate was 18.3% and 18.6% for the three months ended September 28, 2019 and September 29, 2018, respectively. The decrease in the effective income tax rate for the three months ended September 28, 2019 as compared with the three months ended September 29, 2018 was primarily due to the impact of net unrealized losses on equity securities in 2019 compared with net unrealized gains on equity securities in 2018. The effective income tax rate was 20.5% and 20.0% for the nine months ended September 28, 2019 and September 29, 2018, respectively. The increase in the effective income tax rate for the nine months ended September 28, 2019 as compared with the nine months ended September 29, 2018 was primarily due to the increase in net unrealized gains on equity securities.
Net earnings
Net earnings were $574.0 million or $0.81 per share and $677.7 million or $0.94 per share for the three months ended September 28, 2019 and September 29, 2018, respectively. Net earnings as a percentage of sales were 6.1% and 7.7% for the three months ended September 28, 2019 and September 29, 2018, respectively. The decrease in net earnings as a percentage of sales for the three months ended September 28, 2019 as compared with the three months ended September 29, 2018 was primarily due to a decrease in investment income. Net earnings and earnings per share for the three months ended September 28, 2019 and September 29, 2018 were impacted by net unrealized gains and losses on equity securities. Excluding the impact of net unrealized losses on equity securities in 2019 and net unrealized gains on equity securities in 2018, net earnings would have been $580.3 million or $0.81 per share and 6.2% as a percentage of sales for the three months ended September 28, 2019 and $582.0 million or $0.80 per share and 6.6% as a percentage of sales for the three months ended September 29, 2018. Excluding the impact of net unrealized losses on equity securities in 2019 and net unrealized gains on equity securities in 2018, the decrease in net earnings as a percentage of sales for the three months ended September 28, 2019 as compared with the three months ended September 29, 2018 was primarily due to a decrease in realized gains on the sale of equity securities.
Net earnings were $2,216.1 million or $3.10 per share and $1,974.2 million or $2.71 per share for the nine months ended September 28, 2019 and September 29, 2018, respectively. Net earnings as a percentage of sales were 7.8% and 7.4% for the nine months ended September 28, 2019 and September 29, 2018, respectively. The increase in net earnings as a percentage of sales for the nine months ended September 28, 2019 as compared with the nine months ended September 29, 2018 was primarily due to an increase in investment income. Net earnings and earnings per share for the nine months ended September 28, 2019 and September 29, 2018 were impacted by net unrealized gains on equity securities. Excluding the impact of net unrealized gains on equity securities in 2019 and 2018, net earnings would have been $1,959.0 million or $2.74 per share and 6.9% as a percentage of sales for the nine months ended September 28, 2019 and $1,857.2 million or $2.55 per share and 6.9% as a percentage of sales for the nine months ended September 29, 2018.


18



Non-GAAP Financial Measures
In addition to reporting financial results for the three and nine months ended September 28, 2019 and September 29, 2018 in accordance with 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 the three and nine months ended September 28, 2019 and September 29, 2018:
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
September 28, 2019
September 29, 2018
September 28, 2019
September 29, 2018
 
(amounts are in millions, except per share amounts)
Net earnings
 
$
574.0

 
 
677.7

 
 
2,216.1

 
 
1,974.2

 
Fair value adjustment, due to net unrealized loss (gain), on equity securities held at end of period
 
26.9

 
 
(166.3
)
 
 
(292.4
)
 
 
(217.3
)
 
Net (loss) gain on sale of equity securities previously recognized through fair value adjustment
 
(16.4
)
 
 
38.0

 
 
(50.2
)
 
 
60.4

 
Income tax (benefit) expense (1)
 
(4.2
)
 
 
32.6

 
 
85.5

 
 
39.9

 
Net earnings excluding impact of fair value adjustment
 
$
580.3

 
 
582.0

 
 
1,959.0

 
 
1,857.2

 
Weighted average shares outstanding
 
712.6

 
 
723.2

 
 
715.1

 
 
729.4

 
Earnings per share excluding impact of fair value adjustment
 
$
0.81

 
 
0.80

 
 
2.74

 
 
2.55

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


19



Liquidity and Capital Resources
Cash and cash equivalents, short-term investments and long-term investments totaled $8,892.7 million as of September 28, 2019, as compared with $7,176.7 million as of December 29, 2018 and $7,469.8 million as of September 29, 2018. The increase from the third quarter of 2018 to the third quarter of 2019 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 $3,167.0 million and $2,863.0 million for the nine months ended September 28, 2019 and September 29, 2018, respectively. The increase in net cash provided by operating activities for the nine months ended September 28, 2019 as compared with the nine months ended September 29, 2018 w