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(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 iNo 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 iNo 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. iYes 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. iYes 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 iNon-accelerated filer X
Smaller reporting
company i Emerging growth company i
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. i
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes iNo X
The aggregate market value of the common stock held by non-affiliates of the Registrant was approximately $i19,947,149,000
as of June 26, 2020, the last business day of the Registrant’s most recently completed second fiscal quarter.
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 2021 Annual Meeting of Stockholders to be held on April 13, 2021.
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, North Carolina, Tennessee 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 a variety of merchandise which includes grocery (including dairy, produce, floral, deli, bakery, meat and seafood), health and beauty care, general merchandise, pharmacy and other products and services. This merchandise includes nationally advertised and private label brands as well as unbranded products such as produce, meat and seafood. 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 receives the food and nonfood products it sells from many sources. The Company believes its sources of supply for these products and
the raw materials used in manufacturing are adequate for its needs and that it is not dependent upon a single supplier or relatively few suppliers. Merchandise is delivered to the supermarkets through Company distribution centers or directly from suppliers and is generally available in sufficient quantities to enable the Company to satisfy its customers. The cost of merchandise delivered to the supermarkets through the Company’s distribution centers is approximately 76% of the total product costs. The coronavirus pandemic has impacted the Company’s sources of supply, product mix and the availability of certain products. However, the Company
has generally been able to secure alternative sources of supply to serve the needs of its customers. The future impact of the coronavirus pandemic on sources of supply, product mix and customer demand is uncertain and difficult to predict.
Store operations
The Company operated 1,264 supermarkets at the end of 2020, compared with 1,239 at the beginning of the year. In 2020, 39 supermarkets were opened (including nine replacement supermarkets) and 154 supermarkets were remodeled. Fourteen supermarkets were closed during the period. The replacement supermarkets that opened in 2020 replaced four supermarkets closed in 2020 and five supermarkets closed in a previous period. Five supermarkets closed in 2020 will be replaced on site in a subsequent period and five supermarkets will not be replaced. Net new
supermarkets added 1.2 million square feet in 2020, an increase of 2.1%. At the end of 2020, the Company had 816 supermarkets located in Florida, 191 in Georgia, 79 in Alabama, 63 in South Carolina, 49 in North Carolina, 47 in Tennessee and 19 in Virginia. Also, at the end of 2020, the Company had 20 supermarkets under construction in Florida, four in Georgia, three in Tennessee, two in Alabama and two in South Carolina.
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 2020 consisted of $4,417.8 million in current assets and $4,366.8 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. However, the impact of the coronavirus pandemic on travel, tourism and consumer spending may affect the Company’s seasonal sales.
Human Capital Resources
The Company is the largest employee-owned
company in the U.S. with 227,000 employees at the end of 2020. The Company is dedicated to the dignity, value and employment security of its employees and recognizes they are its most important asset and primary competitive advantage. 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
Government regulation
The Company is subject to federal, state and local laws and regulations, including environmental 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. 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. 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 and regulations governing its relationship with employees, including minimum wage requirements, overtime, working conditions, disabled access and work permit requirements. Compliance with these laws and regulations 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 (Annual Report), 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.
Industry and Economic Risks
Unfavorable impacts of the coronavirus pandemic or any future public health crisis on operations, customers, employees,
suppliers and tenants could adversely affect the Company.
On March 13, 2020, the coronavirus pandemic was declared a national emergency. The coronavirus pandemic resulted in national, state and local authorities mandating or recommending isolation and other preventative measures for large portions of the population, including mandatory business restrictions and closures. These measures, which were necessary to slow the spread of the virus and protect lives, resulted in significant job losses and are expected to continue to have serious adverse impacts on domestic and foreign economies for an unknown length of time. The effects of economic stabilization efforts, including government payments to affected citizens and industries, remains uncertain.
The
Company’s operations may be adversely impacted by the fear of exposure to or actual effects of the coronavirus. These impacts include:
•operating cost increases due to changes in customer demand, changes in supermarket processes or increased government regulation;
•delays in the timing of remodels and opening new supermarkets;
•reduced workforce due to illness, quarantine or government mandates impacting the Company’s supermarket, distribution, manufacturing and support operations;
•temporary supermarket closings or reduced hours of operation due to reduced workforce, enhanced cleaning processes, increased stocking
or government mandates;
•supply chain risks from goods produced in areas of significant coronavirus outbreak or disruption from suppliers due to financial or operational difficulties;
•reduction in travel, tourism or consumer spending due to government recommendations or mandates, fear of exposure to the coronavirus or adverse economic conditions;
•changes in customer demand from discretionary or higher priced products to lower priced products; or
•uncertainty as to future operations of tenants in Company owned shopping centers due to adverse economic conditions.
The extent to which the coronavirus pandemic will continue to impact the
Company will depend on future developments, which remain highly uncertain and difficult to predict, including the scope, severity and duration of the pandemic, the speed and effectiveness of the vaccine and treatment development and delivery, the direct and indirect economic effects of the pandemic and potential changes in consumer behavior, among others. The future impact of the coronavirus pandemic could adversely affect the Company’s financial condition and results of operations.
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
2
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.
Adverse 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. Other conditions that could reduce consumer spending include increases in tax, interest and inflation rates, increases in fuel and energy costs, increases in health care costs, the impact of natural disasters, public health crises or acts of terrorism, and other factors. Reductions in the level of consumer spending could cause changes in customer demand from discretionary or higher priced products to lower priced products or shift spending to lower priced competitors, which could adversely affect the Company’s financial condition and results of operations.
Business and Operational Risks
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, 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 and disproportionately impact the Company in comparison to some of its competitors. 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.
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.
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.
Information Security and Technology Risks
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.
3
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.
Self-insured Claims and Product Liability Risks
Changes in the factors affecting self-insured claims could adversely affect the Company.
Claims related to health care, employee benefits, workers’ compensation, general liability, property, plant and equipment, fleet liability and directors and officers liability are generally self-insured. The Company uses third party insurance in certain instances to partially mitigate the risk related to these potential losses. While the Company estimates its exposure for these claims and establishes reserves for the estimated liabilities,
the actual liabilities could be in excess of these reserves. In addition, 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 and the Company does not have contractual indemnification available, the claim 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.
Legal and Regulatory Risks
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 and regulations, 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 and regulations 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.
4
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 59.6 million square feet of supermarket space. The Company’s supermarkets vary in size. Current supermarket prototypes range from 31,000 to 55,000 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 361 locations. The building is owned while the land is leased at 79 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. A new distribution center is currently under construction in Greensboro, North Carolina. 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
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.
5
The market prices for the
Company’s common stock for 2020 and 2019 were as follows:
2020
2019
January - February
$
47.10
42.70
March
- April
48.90
42.85
May - July
50.10
44.75
August - October
54.35
44.10
November - December
57.95
47.10
(b)Approximate
Number of Equity Security Holders
As of February 2, 2021, the approximate number of holders of record of the Company’s common stock was 205,000.
(c)Dividends
The Company paid quarterly dividends per share on its common stock in 2020 and 2019 as follows:
Quarter
2020
2019
First
$
0.30
0.26
Second
0.32
0.30
Third
0.32
0.30
Fourth
0.32
0.30
$
1.26
1.16
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.
(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 26, 2020 were as follows (amounts are in thousands, except per share amounts):
(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 26, 2020 required to be disclosed in the last two columns of the table.
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(e)Performance
Graph
The following performance graph sets forth the Company’s cumulative total stockholder return during the five years ended December 26, 2020, 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 2015 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, 2021) is provided in the 2021
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
2015
2016
2017
2018
2019
2020
Publix
$100.00
98.04
92.15
109.41
123.82
156.02
S&P
500
100.00
111.07
135.32
128.28
170.57
198.54
Peer Group (1)
100.00
92.99
85.62
95.06
101.63
111.48
___________________________
(1)Companies
included in the Peer Group are Ahold Delhaize, Kroger and Weis Markets.
7
Item 6. Selected Financial Data
2020
2019
2018
2017
2016(1)
(Amounts are in thousands, except per share amounts, ratios and number of supermarkets)
Sales:
Sales
$
44,863,507
38,116,402
36,093,907
34,558,286
33,999,921
Percent
change
17.7
%
5.6
%
4.4
%
1.6
%
5.1
%
Comparable
store sales percent change
16.0
%
3.6
%
2.1
%
1.7
%
1.9
%
Earnings:
Gross
profit (2)
$
12,508,901
10,375,933
9,782,516
9,428,569
9,265,616
Earnings before income tax expense
$
5,036,655
3,785,986
2,920,968
3,027,506
2,940,376
Net
earnings
$
3,971,838
3,005,395
2,381,167
2,291,894 (3)
2,025,688
Net earnings as a percent of sales
8.9
%
7.9
%
6.6
%
6.6%
(3)
6.0
%
Common stock:
Weighted
average shares outstanding
700,587
713,535
726,407
753,483
769,267
Earnings per share
$
5.67
4.21
3.28
3.04
(3)
2.63
Dividends per share
$
1.26
1.16
1.01
0.9125
0.8675
Financial data:
Capital
expenditures
$
1,228,387
1,141,118
1,350,089
1,429,059
1,443,827
Working capital
$
50,952
226,886 (4)
804,641
942,607
1,574,464
Current
ratio
1.01
1.06 (4)
1.27
1.30
1.53
Total assets
$
28,094,077
24,507,120 (4)
18,982,516
18,183,506
17,386,458
Long-term
obligations (including current portion)
$
3,365,955
3,244,572 (4)
167,665
193,074
250,584
Common stock related to ESOP
$
3,484,549
3,259,230
3,134,999
3,053,138
3,068,097
Total
equity
$
19,285,864
16,901,344
14,994,664
14,108,619
13,497,437
Supermarkets
1,264
1,239
1,211
1,167
1,136
Non-GAAP
Financial Measures: (5)
Net earnings excluding impact of fair value adjustment
$
3,689,204
2,615,572
2,517,493
N/A
N/A
Net
earnings as a percent of sales excluding impact of fair value adjustment
8.2
%
6.9
%
7.0
%
N/A
N/A
Earnings per share excluding impact of fair value adjustment
$
5.27
3.67
3.47
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, North Carolina, Tennessee and Virginia. The Company has no other significant lines of business or industry segments. As of December 26, 2020, the Company operated 1,264 supermarkets including 816 located in Florida, 191 in Georgia, 79 in Alabama, 63 in South Carolina, 49 in North Carolina, 47 in Tennessee and 19 in Virginia. In 2020, 39 supermarkets were opened (including nine replacement
supermarkets) and 154 supermarkets were remodeled. During 2020, the Company opened 21 supermarkets in Florida, five in Georgia, four in North Carolina, four in Virginia, three in Alabama, one in South Carolina and one in Tennessee. Fourteen supermarkets were closed during the period. The replacement supermarkets that opened in 2020 replaced four supermarkets closed in 2020 and five supermarkets closed in a previous period. Five supermarkets closed in 2020 will be replaced on site in a subsequent period and five supermarkets 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 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 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.
Profit 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.
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.
Coronavirus Pandemic Impact
On March 13, 2020, the coronavirus pandemic was declared a national emergency. The coronavirus pandemic resulted in national, state and local authorities mandating or recommending isolation and other preventative measures for large portions of the population, including mandatory business restrictions and closures. These measures, which were necessary to slow the spread of the virus and protect lives, resulted
in significant job losses and are expected to continue to have serious adverse impacts on domestic and foreign economies for an unknown length of time. The effects of economic stabilization efforts, including government payments to affected citizens and industries, remain uncertain.
The Company has been classified as an essential business in all locations in which it operates and has remained open to serve the needs of its customers. It remains a top priority of the Company to serve its customers in a way that protects the health and safety of its employees and customers. The Company estimates that its sales for 2020 increased approximately $4.6 billion due to the impact of the coronavirus
pandemic. The Company incurred additional payroll related, transportation and other costs to meet the significant sales demand and protect the health and safety of its employees and customers. The profit on the incremental sales resulting from increased customer purchases of food and cleaning supplies more than offset the additional costs incurred. The future impact of the coronavirus pandemic is uncertain and difficult to predict.
9
Results of Operations
The Company’s fiscal year ends on the last Saturday in December. Fiscal
years 2020, 2019 and 2018 include 52 weeks.
Sales
Sales for 2020 were $44.9 billion as compared with $38.1 billion in 2019, an increase of $6,747.1 million or 17.7%. The increase in sales for 2020 as compared with 2019 was primarily due to the impact of the coronavirus pandemic. The Company estimates that its sales for 2020 increased approximately $4.6 billion or 12.1% due to the impact of the coronavirus pandemic. Comparable store sales (supermarkets open for the same weeks in both periods, including replacement supermarkets) for 2020 increased 16.0% primarily due to the impact of the coronavirus pandemic. 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.
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. Comparable store sales for 2019 increased primarily due to increased product costs.
Gross profit
Gross profit (sales less cost of merchandise sold) as a percentage of sales was 27.9%, 27.2% and 27.1% in 2020, 2019 and 2018, respectively. Excluding the last-in, first-out (LIFO) reserve effect of $19.8 million, $39.9 million and $24.2 million in 2020, 2019 and 2018, respectively, gross profit as a percentage of sales would have been 27.9%, 27.3% and 27.2% in 2020, 2019 and 2018, respectively. After excluding the LIFO reserve effect, the increase in gross profit as a percentage of sales for 2020 as compared with 2019 was primarily due
to reduced shrink and volume driven efficiencies related to the impact of the coronavirus pandemic. After excluding the LIFO reserve effect, gross profit as a percentage of sales for 2019 as compared with 2018 remained relatively unchanged.
Operating and administrative expenses
Operating and administrative expenses as a percentage of sales were 19.7%, 20.6% and 20.3% in 2020, 2019 and 2018, respectively. The decrease in operating and administrative expenses as a percentage of sales for 2020 as compared with 2019 was primarily due to volume driven efficiencies related to the impact of the coronavirus pandemic. 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.
Operating profit
Operating
profit as a percentage of sales was 8.9% in 2020 and 7.6% in 2019 and 2018. The increase in operating profit as a percentage of sales for 2020 as compared with 2019 was primarily due to the increase in gross profit as a percentage of sales and the decrease in operating and administrative expenses as a percentage of sales.
Investment income
Investment income was $975.0 million, $814.4 million and $56.7 million in 2020, 2019 and 2018, respectively. Excluding the impact of net unrealized gains on equity securities in 2020 and 2019 and net unrealized losses on equity securities in 2018, investment income would have been $596.0 million, $291.7 million and $239.5 million for 2020, 2019 and 2018, respectively. Excluding the impact of net unrealized gains on equity securities, the increase in investment income for 2020 as compared with 2019 was primarily due to an increase in net realized
gains on investments. Excluding the impact of net unrealized gains on equity securities in 2019 and net unrealized losses on equity securities in 2018, the increase in investment income for 2019 as compared with 2018 was primarily due to an increase in interest and dividend income.
Income tax expense
The effective income tax rate was 21.1%, 20.6% and 18.5% in 2020, 2019 and 2018, respectively. The increase in the effective income tax rate for 2020 as compared with 2019 was primarily due to the decreased impact of permanent deductions and credits due to the increase in earnings before income tax expense. 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.
10
Net
earnings
Net earnings were $3,971.8 million or $5.67 per share, $3,005.4 million or $4.21 per share and $2,381.2 million or $3.28 per share in 2020, 2019 and 2018, respectively. Net earnings as a percentage of sales were 8.9%, 7.9% and 6.6% in 2020, 2019 and 2018, respectively. Excluding the impact of net unrealized gains on equity securities in 2020 and 2019 and net unrealized losses on equity securities in 2018, net earnings would have been $3,689.2 million or $5.27 per share and 8.2% as a percentage of sales for 2020, $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. Excluding the impact of net unrealized gains on equity securities, the increase in net earnings as a percentage of sales for 2020 as compared with 2019 was primarily due to the impact of the coronavirus pandemic. Excluding the impact of net unrealized
gains on equity securities in 2019 and net unrealized losses on equity securities in 2018, net earnings as a percentage of sales for 2019 as compared with 2018 remained relatively unchanged.
Non-GAAP Financial Measures
In addition to reporting financial results for 2020, 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 2020, 2019 and 2018:
2020
2019
2018
(Amounts
are in millions, except per share amounts)
Net earnings
$
3,971.8
3,005.4
2,381.2
Fair value adjustment, due to net unrealized (gain) loss, on equity securities held at end of year
(554.6)
(472.5)
107.5
Net
gain (loss) on sale of equity securities previously recognized through fair value adjustment
175.6
(50.2)
75.3
Income tax expense (benefit) (1)
96.4
132.9
(46.5)
Net
earnings excluding impact of fair value adjustment
$
3,689.2
2,615.6
2,517.5
Weighted average shares outstanding
700.6
713.5
726.4
Earnings
per share excluding impact of fair value adjustment
$
5.27
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 $11,961.7 million as of December 26, 2020, as compared with $9,189.8 million as of December 28, 2019. The increase was primarily due to increased sales as a result of the coronavirus pandemic.
Net cash provided by operating activities
Net cash provided by operating activities was $5,424.2 million, $4,024.4 million and $3,631.9 million in 2020, 2019 and 2018, respectively. The increase in net cash provided by operating activities for 2020 as compared with 2019 was primarily due to increased sales as a result of the coronavirus pandemic, the timing of payments for merchandise and the deferral of 2020 payroll tax payments under a coronavirus
tax relief provision, partially offset by the increase in income taxes paid. 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.
Net cash used in investing activities
Net cash used in investing activities was $3,428.5 million, $2,257.0 million and $1,742.8 million in 2020, 2019 and 2018, respectively. The primary use of net cash in investing activities for 2020 was funding capital expenditures and net increases in investments. Capital expenditures for 2020 totaled $1,228.4 million. These expenditures were incurred in connection with the opening of39 supermarkets (including nine replacement supermarkets) and the remodeling of 154 supermarkets. Expenditures were also incurred for new supermarkets and
remodels in progress and new or enhanced information technology hardware and software. In 2020, the payment for investments, net of the proceeds from the sale and maturity of investments, was $2,210.4 million. The primary use of net cash in investing activities for 2019 was funding capital expenditures and net increases in investments. 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.
Net
cash used in financing activities
Net cash used in financing activities was $2,085.7 million, $1,603.3 million and $1,869.8 million in 2020, 2019 and 2018, respectively. The primary use of net cash in financing activities was funding net common stock repurchases and dividend payments. Net common stock repurchases totaled $1,190.5 million, $776.6 million and $1,097.9 million in 2020, 2019 and 2018, 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 $884.4 million or $1.26 per share, $828.7 million or $1.16 per share and $734.5 million or $1.01 per share in 2020, 2019 and 2018, respectively.
Capital expenditures projection
Capital
expenditures for 2021 are expected to be approximately $1,600 million, primarily related to new supermarkets, remodeling existing supermarkets, construction or expansion of warehouses, new or enhanced information technology hardware and software and the acquisition or development of shopping centers in which the Company operates. 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 2021, 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 26, 2020:
Payments
Due by Period
Total
2021
2022-
2023
2024-
2025
There- after
(Amounts are in thousands)
Contractual obligations:
Operating
leases (1)
$
3,624,709
438,358
787,096
602,146
1,797,109
Finance leases (1)
351,967
32,962
51,042
34,388
233,575
Purchase
obligations (2)(3)(4)
2,879,969
1,467,545
432,991
220,457
758,976
Other long-term liabilities:
Self-insurance
reserves (5)
397,081
161,223
113,649
45,502
76,707
Accrued postretirement benefit cost
137,786
6,430
13,374
13,970
104,012
Long-term
debt (6)
160,227
36,392
63,932
32,565
27,338
Other
43,454
27,291
757
652
14,754
Total
$
7,595,193
2,170,201
1,462,841
949,680
3,012,471
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 26, 2020, the Company had outstanding $9.1 million in
trade letters of credit and $3.7 million in standby letters of credit to support certain of these purchase obligations.
(4)Purchase obligations include $1,019.4 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 $359.5 million in lease agreements that have not yet commenced.
(5)As of December 26, 2020, the Company maintained restricted investments in the amount of $182.1 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
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.
Forward-Looking Statements
Certain information provided by the Company in this Annual Report may be 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 and is based on management’s assumptions and beliefs in light of the information currently available to them, including as it relates to the coronavirus pandemic. 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, including the economic downturn associated with the coronavirus pandemic; changes in consumer spending; changes in population, employment and job growth in the Company’s principal
markets; impacts of a public health crisis or other significant catastrophic event, such as the coronavirus pandemic; impacts of an intrusion into, compromise of or disruption in the Company’s information technology systems; 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.
14
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 50 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 $210 million recognized in earnings, but would not impact cash flows.
Item 8. Financial Statements and Supplementary Data
Index
to Consolidated Financial Statements and Schedule
All
other schedules are omitted as the required information is inapplicable or the information is
presented in the consolidated financial statements or related notes.
15
Report of Independent Registered Public Accounting Firm
To 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 (the Company) as of December 26, 2020 and December 28, 2019, 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 26, 2020, 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 26, 2020 and December 28, 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 26, 2020, in conformity with U.S. generally accepted accounting principles.
Change in Accounting Principle
As discussed in Note 4(a) 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
16
Evaluation of self-insurance reserves
As discussed in Note 1(k) to the consolidated financial statements, the Company estimates its self-insurance reserves for workers’ compensation and general liability exposures by considering historical claims experience and actuarial analyses using actuarial assumptions and generally
accepted actuarial methods. The self-insurance reserves balance as of December 26, 2020 of $397 million includes the self-insurance reserves related to workers’ compensation and general liability. The Company engages actuaries to estimate its workers’ compensation and general liability self-insurance reserves at least annually.
We identified the evaluation of the Company’s workers’ compensation and general liability self-insurance reserves as a critical audit matter because of the specialized skills necessary to evaluate the Company’s key assumption, the loss development factors, and the selection of the actuarial projections derived
from various actuarial methods.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls related to the workers’ compensation and general liability actuarial projections. This included controls related to the loss development factors used to estimate the actuarial projections and the selection of the actuarial projections derived from various actuarial methods. We involved actuarial professionals with specialized skills and knowledge who assisted in:
•Assessing the actuarial models used by the Company for consistency with generally accepted actuarial standards;
•Evaluating the
Company’s ability to estimate self-insurance reserves by comparing its historical estimates with actual incurred losses; and
•Evaluating the key assumption, the loss development factors, and actuarial projections by developing an independent expectation of the workers’ compensation and general liability self-insurance reserves and comparing them to the amounts recorded by the Company.
Unrealized gain (loss) on debt securities net of income taxes of $i47,253, $i50,504
and $(i6,521) in 2020, 2019 and 2018, respectively.
i138,989
i148,141
(i19,126)
Reclassification
adjustment for net realized (gain) loss on debt securities net of income taxes of $(i4,616), $(i205)
and $i118 in 2020, 2019 and 2018, respectively.
(i13,591)
(i602)
i346
Adjustment
to postretirement benefit obligation net of income taxes of $(i1,955), $(i3,576)
and $i2,963 in 2020, 2019 and 2018, respectively.
(i5,736)
(i10,488)
i8,692
Comprehensive
earnings
$
i4,091,500
i3,142,446
i2,371,079
See
accompanying notes to consolidated financial statements.
See
accompanying notes to consolidated financial statements.
24
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
i
(1) Summary of Significant Accounting Policies
(a)iBusiness
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, North Carolina, Tennessee 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)iPrinciples
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)iFiscal
Year
The Company’s fiscal year ends on the last Saturday in December. Fiscal years 2020, 2019 and 2018 include 52 weeks.
(d)iCash Equivalents
The Company considers all liquid investments with maturities of three months or less to be cash
equivalents.
(e)iTrade Receivables
Trade receivables primarily include amounts due from vendor rebates, debit and credit card sales and third party insurance pharmacy billings.
(f)iInventories
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 i84% and i85% of inventories as of December 26, 2020 and December 28,
2019, respectively. 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 due to 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 $i548,749,000
and $i528,997,000 as of December 26, 2020 and December 28, 2019, respectively.
(g)iInvestments
In
2020, the Company adopted the Accounting Standards Update (ASU) requiring companies to recognize credit losses on debt securities in earnings through an allowance that is reevaluated each reporting period. The Company adopted the ASU on a prospective basis as of December 29, 2019. Prior to the adoption of the ASU, credit losses in which the Company did not expect to recover the cost of the debt security were recognized in earnings as an other-than-temporary impairment. The adoption of the ASU idid
not have a material effect on the Company’s financial position, results of operations or cash flows.
Debt securities are classified as available-for-sale and measured at fair value. The Company evaluates debt securities on an individual security basis to determine if an unrealized loss is due to a credit loss or other factors, including interest rate fluctuations. The collectability of debt securities is evaluated 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 fair value, 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.
Credit losses on debt securities the Company does not intend to sell and will not be required to sell prior to any anticipated recovery are recognized in earnings through an allowance. The allowance is measured as the difference between the present value of expected cash flows and the cost of the debt security, limited to the difference between the cost and the fair value of the debt security. Expected cash flows are discounted using the debt security’s effective interest rate. Subsequent changes to the allowance are recognized in earnings in the period of the change. Credit losses on debt securities the Company intends to sell or will be required to sell prior to any anticipated recovery are recognized in earnings and measured as the difference between
the cost and the fair value of the debt security.
/
25
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
Other unrealized losses on debt securities the Company does not intend to sell and will not be required to sell prior to any anticipated recovery are reported in other comprehensive earnings net of income taxes and included as a
component of stockholders’ equity. Other unrealized losses on debt securities the Company intends to sell or will be required to sell prior to any anticipated recovery are recognized in earnings and measured as the difference between the cost and the fair value of the debt security.
Equity securities are measured at fair value with net unrealized gains and losses from changes in the fair value recognized in earnings (fair value adjustment).
Interest and dividend income, amortization of premiums, accretion of discounts and realized gains and losses on 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.
(h)iLeases
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 i20
years followed by five year renewal options and may include rent escalation clauses. The Company recognizes right-of-use assets and lease liabilities based on the present value of future lease payments. Future lease payments include the initial lease term and any renewal options to the extent it is reasonably certain the option will be exercised. The present value of future lease payments 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)iProperty,
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 (i10–i40 years);
furniture, fixtures and equipment (i3–i20 years); and leasehold improvements (i10–i20 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)iLong-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)iSelf-Insurance
The
Company is generally self-insured for claims related to health care, employee benefits, workers’ compensation, general liability, property, plant and equipment, fleet liability and directors and officers liability. The Company uses third party insurance in certain instances to partially mitigate the risk related to these potential losses. 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. Actuarial projections of losses for general liability and workers’ compensation claims are discounted.
26
PUBLIX
SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(l)iPostretirement 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 i65 or greater as of October 1,
2001. At retirement, such employees also must be at least age i55 with at least i10
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 i10% of the year end postretirement
benefit obligation.
(m)iComprehensive 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 are certain unrealized gains and losses on debt securities and adjustments to the postretirement benefit obligation net
of income taxes.
(n)iRevenue 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 i85%
of sales for 2020 and ii84/% of sales for 2019
and 2018. All other products and services were i15% of sales for 2020 and ii16/%
of sales for 2019 and 2018.
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)iOther
Operating Income
Other operating income is recognized on a net basis as earned. Other operating income includes income generated from other activities, primarily automated teller transaction fees, licensee sales commissions, lottery commissions, mall gift card commissions, money order commissions, money transfer fees and vending machine commissions.
(p)iCost 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.
Rebates 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 vendor rebates 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)iAdvertising Costs
Advertising costs are expensed as incurred and were $i244,839,000,
$i245,403,000 and $i249,123,000 for 2020, 2019 and 2018, respectively.
(r)iOther
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)iIncome
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)iCommon
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)iUse 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.
i
(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 similar 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.
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.
Following
is a summary of debt securities with other unrealized losses by the time period impaired as of December 26, 2020 and December 28, 2019:
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)
2020
Tax exempt bonds
$
i3,704
i88
i—
i—
i3,704
i88
Taxable
bonds
i1,157,387
i7,946
i39,622
i378
i1,197,009
i8,324
$
i1,161,091
i8,034
i39,622
i378
i1,200,713
i8,412
2019
Tax
exempt bonds
$
i48,462
i11
i99,976
i119
i148,438
i130
Taxable
bonds
i573,315
i888
i197,641
i555
i770,956
i1,443
$
i621,777
i899
i297,617
i674
i919,394
i1,573
/
There
are i51 debt securities contributing to the total unrealized losses of $i8,412,000
as of December 26, 2020. 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
The fair value of equity securities was $i2,089,907,000
and $i2,354,346,000 as of December 26, 2020 and December 28, 2019, respectively.
(c)Investment Income
Net realized gain on investments represents the difference between the cost and the proceeds from the sale of debt and equity securities. The net realized gain on investments excludes the net gain or loss on the sale of equity securities previously recognized through the fair
value adjustment, which is presented separately in the following table.
i
Following is a summary of investment income for 2020, 2019 and 2018:
2020
2019
2018
(Amounts
are in thousands)
Interest and dividend income
$
i199,435
i186,748
i129,953
Net
realized gain on investments
i396,584
i104,905
i109,547
i596,019
i291,653
i239,500
Fair
value adjustment, due to net unrealized gain (loss), on equity securities held at end of year
i554,547
i472,490
(i107,466)
Net
(gain) loss on sale of equity securities previously recognized through fair value adjustment
(i175,560)
i50,229
(i75,335)
$
i975,006
i814,372
i56,699
/
30
PUBLIX
SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(4) Leases
(a)iiLessee/
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 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.
i
Following
is a summary of finance lease right-of-use assets included in net property, plant and equipment and finance lease liabilities included in other accrued expenses and other noncurrent liabilities as of December 26, 2020 and December 28, 2019.
2020
2019
(Amounts
are in thousands)
Finance lease right-of-use assets
$
i291,556
i154,217
Finance
lease liabilities:
Current
i25,254
i29,480
Noncurrent
i246,411
i104,806
/i
Lease
expense for 2020 and 2019 was as follows:
2020
2019
(Amounts are in thousands)
Operating
lease expense
$
i443,063
i434,555
Finance
lease expense:
Amortization of right-of-use assets
i9,850
i8,128
Interest
on lease liabilities
i4,651
i3,105
Variable
lease expense
i159,236
i147,463
Sublease
rental income
(i2,819)
(i2,874)
$
i613,981
i590,377
Supplemental
cash flow information related to leases for 2020 and 2019 was as follows:
2020
2019
(Amounts
are in thousands)
Operating cash flows from rent paid for operating lease liabilities
$
i436,988
i422,596
Right-of-use
assets obtained in exchange for new lease liabilities:
Operating leases
i364,757
i463,727
Finance
leases
i174,307
i65,539
/
31
PUBLIX
SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
The weighted average remaining lease term and weighted average discount rate as of December 26, 2020 and December 28, 2019 are as follows:
2020
2019
Weighted
average remaining lease term:
Operating leases
i12 years
i12
years
Finance leases
i19 years
i18
years
Weighted average discount rate:
Operating leases
i3.4
%
i3.5
%
Finance
leases
i3.3
%
i3.9
%
Maturities
of lease liabilities as of December 26, 2020 are as follows:
ii
Year
Operating Leases
Finance Leases
(Amounts
are in thousands)
2021
$
i438,358
i32,962
2022
i414,464
i18,163
2023
i372,632
i32,879
2024
i326,523
i17,194
2025
i275,623
i17,194
Thereafter
i1,797,109
i233,575
i3,624,709
i351,967
Less:
Imputed interest
(i690,646)
(i80,302)
$
i2,934,063
i271,665
//
As
of December 26, 2020, the Company has lease agreements that have not yet commenced with fixed lease payments totaling $i359,498,000. These leases will commence in future periods with terms ranging up to i20
years.
Prior to the adoption of the ASU, minimum rentals represented fixed lease obligations, including insurance and maintenance to the extent they were fixed in the lease. Contingent rentals represented variable lease obligations, including real estate taxes, insurance, maintenance and, for certain locations, excess rent. The Company recognized rent expense for operating leases with rent escalation clauses on a straight-line basis over the applicable lease term.
i
Total
rental expense for 2018 was as follows:
2018
(Amounts are in thousands)
Minimum rentals
$
i449,138
Contingent
rentals
i133,382
Sublease rental income
(i4,339)
$
i578,181
/
32
PUBLIX
SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
i
(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 from tenants recognized on a straight-line basis over the applicable lease term. Variable lease income represents tenant payments for real estate taxes, insurance, maintenance and, for certain locations, excess rent.
Total lease income was $i172,309,000, $i190,785,000
and $i183,963,000 for 2020, 2019 and 2018, respectively. iTotal lease income for 2020 and 2019 was as follows:
2020
2019
(Amounts
are in thousands)
Lease income
$
i133,512
i149,313
Variable
lease income
i38,797
i41,472
$
i172,309
i190,785
In
2020, the Company offered two months of rent relief to tenants in Company owned shopping centers that were impacted by the coronavirus pandemic. The rent relief was recorded as a reduction to lease income and variable lease income.
i
Future fixed lease payments for all noncancelable operating leases as of December 26, 2020 are as follows:
Year
(Amounts
are in thousands)
2021
$
i149,716
2022
i122,580
2023
i97,354
2024
i69,995
2025
i44,908
Thereafter
i159,256
$
i643,809
//
33
PUBLIX
SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
i
(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. The Company is considered to have a controlling financial interest in a JV when it has (1) the power to direct the activities of the JV that most significantly impact the JV’s economic performance and (2) the obligation to absorb losses or the right to receive benefits from the JV that could potentially be significant to such JV.
The Company evaluates a JV using specific criteria to determine whether the
Company has a controlling financial interest and is the primary beneficiary of the JV. Factors considered in determining whether the Company is the primary beneficiary include risk and reward sharing, experience and financial condition of the other JV members, voting rights, involvement in routine capital and operating decisions and each member’s influence over the JV owned shopping center’s economic performance.
Generally, most major JV decision making is shared between all members. In particular, the use and sale of JV assets, business plans and budgets are generally required to be approved by all members. However, the Company, through its anchor tenant operating lease agreement, has the power to direct the activities that most significantly influence the
economic performance of the JV owned shopping center. Additionally, through its member equity interest in the JV, the Company will receive a significant portion of the JV’s benefits or is obligated to absorb a significant portion of the JV’s losses. Substantially all of the JVs are consolidated as the Company is the primary beneficiary of the JVs.
As of December 26, 2020, the carrying amounts of the assets and liabilities of the consolidated JVs were $i199,230,000
and $i77,565,000, respectively. As of December 28, 2019, the carrying amounts of the assets and liabilities of the consolidated JVs were $i154,659,000 and $i78,472,000,
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 2020, 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. iiNo/
loans were assumed during 2020 or 2019. Maturities of JV loans range from iJanuary 2021 through iApril 2027 and have variable interest rates based on a LIBOR index plus i175
to i250 basis points. Maturities of assumed shopping center loans range from iApril 2021 through iJanuary
2027 and have fixed interest rates ranging from i3.7% to i7.5%.
i
As
of December 26, 2020, the aggregate annual maturities and scheduled payments of long-term debt are as follows:
Year
(Amounts are in thousands)
2021
$
i36,392
2022
i25,238
2023
i38,694
2024
i32,165
2025
i400
Thereafter
i27,338
$
i160,227
//
34
PUBLIX
SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
i
(6) Retirement Plans
The Company has a trusteed, noncontributory ESOP for the benefit of eligible employees. The Company recognizes an expense related to the Company’s
discretionary contribution to the ESOP that is approved by the Board of Directors each year. ESOP contributions can be made in Company common stock or cash. Compensation expense recorded for contributions to this plan was $i417,800,000, $i370,778,000
and $i337,712,000 for 2020, 2019 and 2018, respectively.
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 $i444,801,000
and $i287,328,000 as of December 26, 2020 and December 28, 2019, respectively. The cost of the shares held by the ESOP totaled $i3,039,748,000
and $i2,971,902,000 as of December 26, 2020 and December 28, 2019, 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 consolidated balance sheets and totaled $i3,484,549,000
and $i3,259,230,000 as of December 26, 2020 and December 28, 2019, respectively. The fair value of the shares held by the ESOP totaled $i9,976,034,000
and $i8,585,189,000 as ofDecember 26, 2020 and December 28, 2019, respectively.
The Company has a 401(k) Plan for the benefit of eligible employees. The 401(k) Plan is a voluntary defined
contribution plan. Effective January 1, 2020, eligible employees may contribute up to i30% of their eligible annual compensation, subject to the maximum contribution limits established by federal law. Previously, eligible employees could contribute up to 10% of their eligible annual compensation, subject to the maximum contribution limits established by federal law. The Company
may make a discretionary annual matching contribution to eligible participants of this plan as determined by the Board of Directors. During 2020, 2019 and 2018, the Board of Directors approved a match of iii50//%
of eligible annual contributions up to iii3//%
of eligible annual compensation, not to exceed a maximum match of $iii750//
per employee. Compensation expense recorded for the Company’s match to the 401(k) Plan was $i39,858,000, $i38,112,000
and $i34,980,000 for 2020, 2019 and 2018, respectively.
The Company intends to continue its retirement plans; however, the right to modify, amend, terminate or merge these plans has been reserved. In the event of termination, all amounts contributed under the plans must be paid to the participants or their beneficiaries.
/
35
PUBLIX
SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
i
(7) Income Taxes
i
Total
income taxes for 2020, 2019 and 2018 were allocated as follows:
2020
2019
2018
(Amounts
are in thousands)
Earnings
$
i1,064,817
i780,591
i539,801
Other
comprehensive earnings (losses)
i40,682
i46,723
(i3,440)
$
i1,105,499
i827,314
i536,361
/i
The
provision for income taxes consists of the following:
Current
Deferred
Total
(Amounts
are in thousands)
2020
Federal
$
i871,187
i56,382
i927,569
State
i144,074
(i6,826)
i137,248
$
i1,015,261
i49,556
i1,064,817
2019
Federal
$
i504,047
i171,422
i675,469
State
i61,540
i43,582
i105,122
$
i565,587
i215,004
i780,591
2018
Federal
$
i413,735
i59,377
i473,112
State
i62,821
i3,868
i66,689
$
i476,556
i63,245
i539,801
/i
A
reconciliation of the provision for income taxes at the federal statutory income tax rate of iii21//%
to earnings before income taxes compared to the Company’s actual income tax expense is as follows:
2020
2019
2018
(Amounts
are in thousands)
Federal tax at statutory income tax rate
$
i1,057,698
i795,057
i613,403
State
income taxes (net of federal tax benefit)
i108,426
i83,046
i52,684
ESOP
dividend
(i47,449)
(i45,493)
(i41,175)
Other,
net
(i53,858)
(i52,019)
(i85,111)
$
i1,064,817
i780,591
i539,801
//
36
PUBLIX
SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
i
The tax effects of temporary differences that give rise to significant portions of deferred income taxes as of December 26, 2020 and December 28, 2019 are as follows:
2020
2019
(Amounts are in thousands)
Deferred
tax liabilities and (assets):
Lease assets
$
i789,369
i770,182
Property,
plant and equipment
i719,212
i671,864
Investments
i337,147
i176,744
Inventories
i30,906
i30,398
Lease
liabilities
(i815,024)
(i781,250)
Self-insurance
reserves
(i84,509)
(i80,655)
Payroll
tax deferral
(i75,770)
i—
Retirement
plan contributions
(i48,390)
(i46,196)
Postretirement
benefit cost
(i35,031)
(i32,064)
Vendor
rebates
(i18,517)
(i15,299)
Other
(i26,671)
(i11,240)
$
i772,722
i682,484
/
The
Company expects the results of future operations and the reversal of deferred tax liabilities to generate sufficient taxable income to allow utilization of deferred tax assets; therefore, iino/
valuation allowance has been recorded as of December 26, 2020 and December 28, 2019.
The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns as well as all open tax years in these jurisdictions. The periods subject to examination for the Company’s federal income tax returns are the 2017 through 2019 tax years. The periods subject to examination for the Company’s state income tax returns are the 2015 through 2019 tax years. The
Company believes that the outcome of any examinations will not have a material effect on its financial condition, results of operations or cash flows.
The Company had no unrecognized tax benefits in 2020 and 2019. As a result, there will be iino/
effect on the Company’s effective income tax rate in future periods due to the recognition of unrecognized tax benefits.
37
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
i
(8) Accumulated
Other Comprehensive Earnings (Losses)
A reconciliation of the changes in accumulated other comprehensive earnings (losses) net of income taxes for 2020, 2019 and 2018 is as follows:
In
2018, the Company adopted the ASU requiring equity securities be measured at fair value with net unrealized gains and losses from changes in the fair value recognized in earnings. Prior to the 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 $i198,310,000
from accumulated other comprehensive earnings to retained earnings.
/
38
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
i
(9) Commitments
and Contingencies
(a) Letters of Credit
As of December 26, 2020, the Company had outstanding $i9,118,000 in trade letters of credit and $i3,709,000
in standby letters of credit to support certain purchase obligations.
(b) Litigation
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.
Following is a summary of the quarterly results of operations for 2020 and 2019. All quarters have 13 weeks.
First
Second
Third
Fourth
(Amounts are in thousands, except per share amounts)
2020
Revenues
$
i11,306,951
i11,468,563
i11,136,409
i11,292,036
Costs
and expenses
i10,155,340
i10,391,518
i10,260,086
i10,385,042
Net
earnings
i667,335
i1,367,055
i917,584
i1,019,864
Earnings
per share
i0.94
i1.94
i1.31
i1.47
2019
Revenues
$
i9,760,110
i9,446,916
i9,417,933
i9,837,794
Costs
and expenses
i8,903,535
i8,767,478
i8,805,903
i9,096,588
Net
earnings
i980,971
i661,057
i574,026
i789,341
Earnings
per share
i1.37
i0.92
i0.81
i1.11
/i
Following
is a summary of the quarterly net earnings and earnings per share excluding the impact of net unrealized gains and losses on equity securities for 2020 and 2019.
First
Second
Third
Fourth
(Amounts are in thousands, except per share amounts)
Item 9. Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer each concluded that the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that such information has been accumulated and communicated to the Company’s management, including the
Company’s Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation that occurred during the quarter ended December 26, 2020 that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management oftheCompany
is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness
of the Company’s internal control over financial reporting as of December 26, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). Based on this assessment and these criteria, management believes that the Company’s internal control over financial reporting was effective as of December 26, 2020.
Item 9B. Other Information
None
PART
III
Item 10. Directors, Executive Officers and Corporate Governance
Certain information concerning the executive officers of the Company is set forth on the following page. All other information regarding this item is incorporated by reference from the Proxy Statement of the Company (2021 Proxy Statement), which the Company intends to file no later than 120 days after its fiscal year end.
The
Company has adopted a Code of Ethical Conduct for Financial Managers that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller and all persons performing similar functions. A copy of the Code of Ethical Conduct for Financial Managers was filed as Exhibit 14 to the Annual Report on Form 10-K for the year ended December 28, 2002.
Senior Vice President and Chief Information Officer of the Company to January 2019, Senior Vice President, Chief Information Officer and Chief Digital Officer thereafter.
Chief
Financial Officer and Treasurer of the Company and Trustee of the Committee of Trustees of the ESOP to May 2016, Executive Vice President, Chief Financial Officer and Treasurer and Trustee of the Committee of Trustees of the ESOP thereafter.
Assistant General Counsel of the
Company to May 2016, Assistant General Counsel and Assistant Secretary to June 2019,Vice President, General Counsel and Secretary thereafter.
2016
Brad E. Oliver
47
Business Development Director of Grocery Retail Support of the Company to March 2017, Business Development Director of DSD Products to January 2018, Vice President thereafter.
2018
Samuel J. Pero
58
Regional
Director of Retail Operations of the Company to May 2016, Vice President thereafter.
2016
John F. Provenzano
47
Executive Director of the National Association of State Treasurers to June 2017, Vice President of the Company thereafter.
2017
William W. Rayburn, IV
58
Director
of Real Estate Assets of the Company to September 2017, Vice President thereafter.
Vice
President of Pharmacy Business Development of Albertsons Companies to August 2016, Group Vice President of Pharmacy Operations of Albertsons Companies to June 2018, Vice President of the Company thereafter.
The terms of all officers expire in May 2021 or upon the election of their successors.
43
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)Consolidated
Financial Statements and Schedule
The consolidated financial statements and schedule listed in the accompanying Index to Consolidated Financial Statements and Schedule are filed as part of this Annual Report.
The following financial information from this Annual Report is formatted in Extensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Earnings, (iii) Consolidated Statements of Comprehensive Earnings, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Stockholders’ Equity and (vi) Notes to Consolidated
Financial Statements.
* Represents management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary
None
44
SIGNATURES
Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
