Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company is engaged in the retail food industry, operating supermarkets in Florida, Georgia, Alabama, South Carolina, Tennessee and North Carolina. The Company plans to expand its retail operations into Virginia in 2017. The Company has no other significant lines of business or industry segments. As of
December 31, 2016
, the Company operated
1,136
supermarkets including
774
located in Florida,
184
in Georgia,
63
in Alabama,
57
in South Carolina,
39
in Tennessee and
19
in North Carolina. In
2016
,
32
supermarkets were opened (including
seven
replacement supermarkets) and
156
supermarkets were remodeled. During
2016
, the Company opened
15
supermarkets in Florida,
eight
in North Carolina,
three
in Georgia,
three
in South Carolina,
two
in Alabama and
one
in Tennessee.
Ten
supermarkets were closed during the period. Of the
seven
replacement supermarkets opened during
2016
, one replaced two of the supermarkets closed in
2016
, four replaced supermarkets also closed in
2016
and
two
replaced supermarkets closed in
2015
that were replaced on site. The
four
remaining supermarkets closed in
2016
will be replaced on site in subsequent periods. In the normal course of operations, the Company replaces supermarkets and closes supermarkets that are not meeting performance expectations. The impact of future supermarket closings is not expected to be material.
The Company’s revenues are earned and cash is generated as merchandise is sold to customers. Income is earned by selling merchandise at price levels that produce sales in excess of the cost of merchandise sold and operating and administrative expenses. The Company has generally been able to increase revenues and net earnings from year to year. Further, the Company has been able to meet its cash requirements from internally generated funds without the need for debt financing. The Company’s year end cash balances are impacted by its operating results as well as by capital expenditures, investment transactions, stock repurchases and dividend payments.
The Company sells a variety of merchandise to generate revenues. This merchandise includes grocery (including dairy, produce, deli, bakery, meat and seafood), health and beauty care, general merchandise and other products and services. Most of the Company’s supermarkets also have pharmacy and floral departments. Merchandise includes a variety of nationally advertised and private label brands as well as unbranded merchandise such as produce, meat and seafood. The Company’s private label brands play an important role in its merchandising strategy.
Operating Environment
The Company is engaged in the highly competitive retail food industry. The Company’s competitors include traditional supermarkets, such as national and regional supermarket chains and independent supermarkets, as well as nontraditional competitors, such as supercenters, membership warehouse clubs, mass merchandisers, dollar stores, drug stores, specialty food stores, restaurants, convenience stores and online retailers. 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 additional retail site locations. The Company also competes with retailers and other labor market competitors in attracting and retaining quality employees. As a result of the highly competitive environment, traditional supermarkets, including the Company, face business challenges. There has been a trend in recent years for traditional supermarkets to lose market share to nontraditional competitors. The Company’s ability to retain its customers depends on its ability to meet the business challenges created by this highly competitive environment.
In order to meet its competitive challenges, the Company continues to focus on its core strategies, including customer service, product quality, shopping environment, competitive pricing and convenient locations. The Company has implemented several strategic business and technology initiatives as part of the execution of these core strategies. The Company believes these core strategies and related strategic initiatives differentiate it from its competition and present opportunities for sustained market share and financial growth.
Results of Operations
The Company’s fiscal year ends on the last Saturday in December. Fiscal year
2016
includes 53 weeks and fiscal years
2015
and
2014
include 52 weeks.
Sales
Sales for
2016
were
$34.0 billion
as compared with
$32.4 billion
in
2015
, an increase of
$1,637.3 million
or
5.1%
. The increase in sales for
2016
as compared with
2015
was primarily due to a
1.9%
increase in sales from the additional week in 2016 and a
1.9%
increase in comparable store sales (supermarkets open for the same weeks in both periods, including replacement supermarkets). Sales for supermarkets that are replaced on site are classified as new supermarket sales since the replacement period for the supermarket is generally 9 to 12 months. Comparable store sales for
2016
increased primarily due to increased product costs and customer counts.
Sales for
2015
were
$32.4 billion
as compared with
$30.6 billion
in
2014
, an increase of
$1,803.1 million
or
5.9%
. The increase in sales for
2015
as compared with
2014
was primarily due to a
4.2%
increase in comparable store sales. Comparable store sales
for
2015
increased primarily due to product cost inflation and increased customer counts resulting from a better economic climate in
2015
.
Gross profit
Gross profit (sales less cost of merchandise sold) as a percentage of sales was
27.3%
,
27.5%
and
27.2%
in
2016
,
2015
and
2014
, respectively. Excluding the last-in, first-out (LIFO) reserve effect of $(4.6) million, $26.0 million and $30.7 million in
2016
,
2015
and
2014
, respectively, gross profit as a percentage of sales would have been 27.2%, 27.6% and 27.3% in
2016
,
2015
and
2014
, respectively. After excluding the LIFO reserve effect, the decrease in gross profit as a percentage of sales for
2016
as compared with
2015
was primarily due to an increase in promotional activities. After excluding the LIFO reserve effect, the increase in gross profit as a percentage of sales for
2015
as compared with
2014
was primarily due to changes in promotional activities and pricing strategies.
Operating and administrative expenses
Operating and administrative expenses as a percentage of sales were
20.0%
in
2016
and
2015
and
20.2%
in
2014
. Operating and administrative expenses as a percentage of sales for
2016
as compared with
2015
remained unchanged primarily due to a decrease in rent as a percentage of sales due to the acquisition of shopping centers with the Company as the anchor tenant offset by an increase in payroll as a percentage of sales. The decrease in operating and administrative expenses as a percentage of sales for
2015
as compared with
2014
was primarily due to a decrease in rent as a percentage of sales due to the acquisition of shopping centers with the Company as the anchor tenant.
Investment income
Investment income was
$133.1 million
,
$156.0 million
and
$143.9 million
in
2016
,
2015
and
2014
, respectively. The decrease in investment income for
2016
as compared with
2015
was primarily due to a decrease in realized gains on the sale of equity securities partially offset by an increase in interest income. The increase in investment income for
2015
as compared with
2014
was primarily due to an increase in realized gains on the sale of equity securities.
Income tax expense
The effective income tax rate was
31.1%
,
31.5%
and
32.5%
in
2016
,
2015
and
2014
, respectively. The decrease in the effective income tax rate for
2016
as compared with
2015
was primarily due to increases in qualified inventory donations, deductions for manufacturing production costs and investment related tax credits partially offset by the effect of a state income tax settlement in
2015
. The decrease in the effective income tax rate for
2015
as compared with
2014
was primarily due to a state income tax settlement and investment related tax credits.
Net earnings
Net earnings were
$2,025.7 million
or
$2.63
per share,
$1,965.0 million
or
$2.54
per share and
$1,735.3 million
or
$2.23
per share for
2016
,
2015
and
2014
, respectively. Net earnings as a percentage of sales were
6.0%
,
6.1%
and
5.7%
for
2016
,
2015
and
2014
, respectively. The decrease in net earnings as a percentage of sales for
2016
as compared with
2015
was primarily due to the decrease in gross profit as a percentage of sales partially offset by the incremental profit from the additional week. The increase in net earnings as a percentage of sales for
2015
as compared with
2014
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.
Liquidity and Capital Resources
Cash and cash equivalents, short-term investments and long-term investments totaled
$7,176.9 million
as of
December 31, 2016
, as compared with
$6,955.1 million
as of
December 26, 2015
. The increase was primarily due to the Company generating cash in excess of the amount needed for operations, capital expenditures, common stock repurchases and dividend payments.
Net cash provided by operating activities
Net cash provided by operating activities was
$3,253.0 million
,
$2,941.4 million
and
$2,777.2 million
in
2016
,
2015
and
2014
, respectively. The increase in net cash provided by operating activities for
2016
as compared with
2015
was primarily due to the timing of the Company’s fiscal year end relative to the Christmas holiday. The increase in net cash provided by operating activities for
2015
as compared with
2014
was primarily due to the timing of income tax payments.
Net cash used in investing activities
Net cash used in investing activities was
$1,806.1 million
,
$1,846.5 million
and
$1,641.7 million
in
2016
,
2015
and
2014
, respectively. The primary use of net cash in investing activities for
2016
was funding capital expenditures and net increases in investment securities. Capital expenditures for
2016
totaled
$1,443.8 million
. These expenditures were incurred in connection with the opening of
32
new supermarkets (including
seven
replacement supermarkets) and remodeling
156
supermarkets. Expenditures were also incurred for supermarkets and remodels in progress, new or enhanced information technology hardware and applications and the acquisition of shopping centers with the Company as the anchor tenant. In
2016
, the payment for investments, net of the proceeds from the sale and maturity of such investments, was
$368.5 million
. The primary use of net cash in investing activities for
2015
was funding capital expenditures and net increases in investment securities. Capital expenditures
for
2015
totaled
$1,235.6 million
. These expenditures were incurred in connection with the opening of 28 new supermarkets (including 10 replacement supermarkets) and remodeling 154 supermarkets. Expenditures were also incurred for supermarkets and remodels in progress, new or enhanced information technology hardware and applications and the acquisition of shopping centers with the Company as the anchor tenant. In
2015
, the payment for investments, net of the proceeds from the sale and maturity of such investments, was
$615.2 million
.
Net cash used in financing activities
Net cash used in financing activities was
$1,360.7 million
,
$1,150.2 million
and
$1,029.9 million
in
2016
,
2015
and
2014
, respectively. The primary use of net cash used in financing activities was funding net common stock repurchases and dividend payments. Net common stock repurchases totaled
$630.2 million
,
$510.5 million
and
$404.2 million
in
2016
,
2015
and
2014
, 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 for amounts similar to those in prior years. 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 dividends on its common stock of
$0.8675
per share or $667.9 million,
$0.79
per share or $612.8 million and
$0.74
per share or $577.2 million in
2016
,
2015
and
2014
, respectively.
Capital expenditure projection
Capital expenditures expected to use cash in
2017
are approximately
$1,850 million
, primarily consisting of new supermarkets, remodeling existing supermarkets, new or enhanced information technology hardware and applications and the acquisition of shopping centers with the Company as the anchor tenant. The shopping center acquisitions are financed with internally generated funds and assumed debt, if prepayment penalties for the debt are determined to be significant. This capital program is subject to continuing change and review.
Cash requirements
In
2017
, the cash requirements for operations, capital expenditures, common stock repurchases and dividend payments are expected to be financed by internally generated funds or liquid assets. Based on the Company’s financial position, it is expected that short-term and long-term borrowings would be available to support the Company’s liquidity requirements, if needed.
Contractual Obligations
Following is a summary of contractual obligations as of
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
Total
|
|
2017
|
|
2018-
2019
|
|
2020-
2021
|
|
There-
after
|
|
|
(Amounts are in thousands)
|
Contractual obligations:
|
|
|
|
|
|
|
|
|
|
|
Operating leases
(1)
|
|
$
|
3,742,606
|
|
|
428,303
|
|
|
780,658
|
|
|
639,738
|
|
|
1,893,907
|
|
Purchase obligations
(2)(3)(4)
|
|
2,044,399
|
|
|
1,130,213
|
|
|
297,035
|
|
|
173,949
|
|
|
443,202
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
Self-insurance reserves
(5)
|
|
355,679
|
|
|
139,554
|
|
|
97,214
|
|
|
40,814
|
|
|
78,097
|
|
Accrued postretirement benefit cost
|
|
107,178
|
|
|
4,638
|
|
|
9,702
|
|
|
10,319
|
|
|
82,519
|
|
Long-term debt
(6)
|
|
250,584
|
|
|
113,999
|
|
|
42,522
|
|
|
34,473
|
|
|
59,590
|
|
Other
|
|
144,760
|
|
|
125,281
|
|
|
1,221
|
|
|
983
|
|
|
17,275
|
|
Total
|
|
$
|
6,645,206
|
|
|
1,941,988
|
|
|
1,228,352
|
|
|
900,276
|
|
|
2,574,590
|
|
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 lease obligations, refer to Note 8(a) Commitments and Contingencies - Operating 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 31, 2016
, the Company had outstanding
$7.6 million
in trade letters of credit and
$11.8 million
in standby letters of credit to support certain of these purchase obligations.
|
|
|
(4)
|
Purchase obligations include
$948.2 million
in real estate taxes, insurance and maintenance commitments related to operating leases. The actual amounts to be paid are variable and have been estimated based on current costs.
|
|
|
(5)
|
As of
December 31, 2016
, the Company had a restricted trust account in the amount of
$164.1 million
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 4 Consolidation of Joint Ventures and Long-Term Debt in the Notes to Consolidated Financial Statements.
|
Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) requiring companies to change the methodology used to measure credit losses on financial instruments. The ASU is effective for reporting periods beginning after December 15, 2019 with early adoption permitted only for reporting periods beginning after
December 15, 2018
. The Company does not expect the adoption of the ASU to have a material effect on the Company’s financial condition or results of operations. The adoption of the ASU will have no effect on the Company’s cash flows.
In February 2016, the FASB issued an ASU on lease accounting. The ASU requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. The ASU is effective for reporting periods beginning after December 15, 2018 with early adoption permitted. While the Company is still evaluating the ASU, the Company expects the adoption of the ASU to have a material effect on the Company’s financial condition due to the recognition of the lease rights and obligations as assets and liabilities on the consolidated balance sheets. The Company does not expect the adoption of the ASU to have a material effect on the Company’s results of operations. The adoption of the ASU will have no effect on the Company’s cash flows.
In January 2016, the FASB issued an ASU requiring companies to measure equity securities at fair value with changes in fair value recognized in net earnings as opposed to other comprehensive earnings. The ASU is effective for reporting periods beginning after December 15, 2017. The adoption of the ASU will have an effect on the Company’s results of operations. The extent of the effect on results of operations will vary with the changes in the fair value of equity securities. The adoption of the ASU will have no effect on the Company’s financial condition or cash flows.
In November 2015, the FASB issued an ASU requiring companies to classify deferred tax assets and liabilities in the noncurrent section of the balance sheet. The ASU is effective for reporting periods beginning after December 15, 2016 with early adoption permitted. The adoption of the ASU will not have a material effect on the Company’s financial condition and will have no effect on the Company’s results of operations or cash flows.
In May 2014, the FASB issued an ASU on the recognition of revenue from contracts with customers. The ASU requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The ASU is effective for reporting periods beginning after December 15, 2017 with early adoption permitted only for reporting periods beginning after December 15, 2016. The Company does not expect the adoption of the ASU to have a material effect on the Company’s financial condition, results of operations or cash flows.
Critical Accounting Policies
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 U.S. generally accepted accounting principles. The preparation of these 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 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 critical accounting policies reflect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Inventories
Inventories are valued at the lower of cost or market. The cost for
83%
and
84%
of inventories was determined using the dollar value LIFO method as of
December 31, 2016
and
December 26, 2015
, 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 manufactured, seasonal, certain perishable and other miscellaneous inventory items because of fluctuating costs and inconsistent product availability. The Company also reduces inventory for estimated losses related to shrink.
Investments
All of the Company’s debt and equity securities are classified as available-for-sale (AFS) and carried at fair value. The Company evaluates whether AFS securities are other-than-temporarily impaired (OTTI) based on criteria that include the extent to which cost exceeds market value, the duration of the market decline, the credit rating of the issuer or security, the failure of the issuer to make scheduled principal or interest payments and the financial health and prospects of the issuer or security. Declines in the value of AFS securities determined to be OTTI are recognized in earnings and reported as OTTI losses, while declines in the value of AFS securities determined to be temporary are reported net of income taxes as other comprehensive losses and included as a component of stockholders’ equity. If market or issuer conditions decline, the Company may incur future impairments.
Debt securities with unrealized losses are considered OTTI if the Company intends to sell the debt security or if the Company will be required to sell the debt security prior to any anticipated recovery. If the Company determines that a debt security is OTTI under these circumstances, the impairment recognized in earnings is measured as the difference between the amortized cost and the current fair value. A debt security is also determined to be OTTI if the Company does not expect to recover the amortized cost of the debt security. However, in this circumstance, if the Company does not intend to sell the debt security and will not be required to sell the debt security, the impairment recognized in earnings equals the estimated credit loss as measured by the difference between the present value of expected cash flows and the amortized cost of the debt security. Expected cash flows are discounted using the debt security’s effective interest rate. Debt securities held by the Company at year end primarily consisted of corporate, state and municipal bonds with high credit ratings; therefore, the Company believes the credit risk is low. The Company believes a 100 basis point increase in interest rates would result in an immaterial unrealized loss on its debt securities. Since the Company does not intend to sell its debt securities or will likely not be required to sell its debt securities prior to any anticipated recovery, such a hypothetical temporary unrealized loss would impact comprehensive earnings, but not net earnings or cash flows.
Equity securities held by the Company 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. An equity security is determined to be OTTI if the Company does not expect to recover the cost of the equity security. A hypothetical decrease of 10% in the value of the Company’s equity securities would result in an immaterial decrease in the value of such long-term investments.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the net book value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the net book value of an asset to the future net undiscounted cash flows expected to be generated by the asset. An impairment loss is recorded for the excess of the net book value over the fair value of the asset. The fair value is estimated based on expected discounted future cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell and are no longer depreciated. Long-lived assets, including buildings and improvements, leasehold improvements, and furniture, fixtures and equipment, are evaluated for impairment at the supermarket level.
The Company’s judgment regarding the existence of circumstances that indicate the potential impairment of an asset’s net book value is based on several factors, including the decision to close a supermarket or a decline in operating cash flows. The variability of these factors depends on a number of conditions, including uncertainty about future events and general economic conditions; therefore, the Company’s accounting estimates may change from period to period. These factors could cause the Company to conclude that a potential impairment exists, and the applicable impairment tests could result in a determination that the value of long-lived assets is impaired, resulting in a write-down of the long-lived assets. The Company attempts to select supermarket sites that will achieve the forecasted operating results. To the extent the Company’s assets are maintained in good condition and the forecasted operating results of the supermarkets are achieved, it is relatively unlikely that future assessments of recoverability would result in impairment charges that would have a material effect on the Company’s financial condition and results of operations. There were no material changes in the estimates or assumptions related to the impairment of long-lived assets in
2016
.
Cost of Merchandise Sold
Cost of merchandise sold includes costs of inventory and costs related to in-store production. Cost of merchandise sold also includes inbound freight charges, purchasing and receiving costs, warehousing costs and other costs of the Company’s distribution network.
Allowances and credits, including cooperative advertising allowances, received from a vendor in connection with the purchase or promotion of the vendor’s products are recognized as a reduction of cost of merchandise sold as earned. These allowances and credits are recognized as earned in accordance with the underlying agreement with the vendor and completion of the earnings process. Short-term vendor agreements with advance payment provisions are recorded as a current liability and recognized over the appropriate period as earned according to the underlying agreements. Long-term vendor agreements with advance payment provisions are recorded as a noncurrent liability and recognized over the appropriate period as earned according to the underlying agreements.
Self-Insurance
The Company is self-insured for health care claims and property, plant and equipment losses. The Company has insurance coverage for losses in excess of self-insurance limits for workers’ compensation, general liability and fleet liability claims. Historically, it has been infrequent for incurred claims to exceed these self-insurance limits.
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. The Company believes a 100 basis point change in the discount rate would result in an immaterial change in the Company’s self-insurance reserves.
Forward-Looking Statements
From time to time, certain information provided by the Company, including written or oral statements made by its representatives, may contain forward-looking information as defined in Section 21E of the Securities Exchange Act of 1934. Forward-looking information includes statements about the future performance of the Company, which is based on management’s assumptions and beliefs in light of the information currently available to them. When used, the words “plan,” “estimate,” “project,” “intend,” “expect,” “believe” and other similar expressions, as they relate to the Company, are intended to identify such forward-looking statements. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from those statements including, but not limited to, the following: competitive practices and pricing in the food and drug industries generally and particularly in the Company’s principal markets; results of programs to increase sales, including private label sales; results of programs to control or reduce costs; changes in buying, pricing and promotional practices; changes in shrink management; changes in the general economy; changes in consumer spending; changes in population, employment and job growth in the Company’s principal markets; and other factors affecting the Company’s business within or beyond the Company’s control. These factors include changes in the rate of inflation, changes in federal, state and local laws and regulations, adverse determinations with respect to litigation or other claims, ability to recruit and retain employees, increases in operating costs including, but not limited to, labor costs, credit card fees and utility costs, particularly electric rates, ability to construct new supermarkets or complete remodels as rapidly as planned and stability of product costs. Other factors and assumptions not identified above could also cause the actual results to differ materially from those set forth in the forward-looking statements. Except as may be required by applicable law, the Company assumes no obligation to publicly update these forward-looking statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company does not utilize financial instruments for trading or other speculative purposes, nor does it utilize leveraged financial instruments.
Cash equivalents and short-term investments are subject to three market risks, namely interest rate risk, credit risk and secondary market 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.
Long-term investments consist of debt and equity securities that are classified as AFS and carried at fair value. The Company evaluates whether AFS securities are OTTI based on criteria that include the extent to which cost exceeds market value, the duration of the market decline, the credit rating of the issuer or security, the failure of the issuer to make scheduled principal or interest payments and the financial health and prospects of the issuer or security. Declines in the value of AFS securities determined to be OTTI are recognized in earnings and reported as OTTI, while declines in the value of AFS securities determined to be temporary are reported net of income taxes as other comprehensive losses and included as a component of stockholders’ equity. If market or issuer conditions decline, the Company may incur future impairments.
Debt securities are subject to both interest rate risk and credit risk. Debt securities with unrealized losses are considered OTTI if the Company intends to sell the debt security or if the Company will be required to sell the debt security prior to any anticipated recovery. If the Company determines that a debt security is OTTI under these circumstances, the impairment recognized in earnings is measured as the difference between the amortized cost and the current fair value. A debt security is also determined to be OTTI if the Company does not expect to recover the amortized cost of the debt security. However, in this circumstance, if the Company does not intend to sell the debt security and will not be required to sell the debt security, the impairment recognized in earnings equals the estimated credit loss as measured by the difference between the present value of expected cash flows and the amortized cost of the debt security. Expected cash flows are discounted using the debt security’s effective interest rate. Debt securities held by the Company at year end primarily consisted of corporate, state and municipal bonds with high credit ratings; therefore, the Company believes the credit risk is low. The Company believes a 100 basis point increase in interest rates would result in an immaterial unrealized loss on its debt securities. Since the Company does not intend to sell its debt securities or will likely not be required to sell its debt securities prior to any anticipated recovery, such a hypothetical temporary unrealized loss would impact comprehensive earnings, but not net 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. An equity security is determined to be OTTI if the Company does not expect to recover the cost of the equity security. A hypothetical decrease of 10% in the value of the Company’s equity securities would result in an immaterial decrease in the value of such long-term investments.
Item 8. Financial Statements and Supplementary Data
|
|
|
|
Index to Consolidated Financial Statements and Schedule
|
|
|
|
Page
|
Report of Independent Registered Public Accounting Firm
|
|
|
|
|
Consolidated Financial Statements:
|
|
|
|
|
Consolidated Balance Sheets – December 31, 2016 and December 26, 2015
|
|
|
|
|
Consolidated Statements of Earnings – Years ended December 31, 2016, December 26, 2015
and December 27, 2014
|
|
|
|
|
Consolidated Statements of Comprehensive Earnings – Years ended December 31, 2016,
December 26, 2015 and December 27, 2014
|
|
|
|
|
Consolidated Statements of Cash Flows – Years ended December 31, 2016, December 26, 2015 and
December 27, 2014
|
|
|
|
|
Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2016,
December 26, 2015 and December 27, 2014
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
|
|
|
The following consolidated financial statement schedule of the Company for the years ended
December 31, 2016, December 26, 2015 and December 27, 2014 is submitted herewith:
|
|
|
|
|
Schedule II – Valuation and Qualifying Accounts
|
|
|
|
|
All other schedules are omitted as the required information is inapplicable or the information is
presented in the financial statements or related notes.
|
|
|
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Publix Super Markets, Inc.:
We have audited the accompanying consolidated balance sheets of Publix Super Markets, Inc. and subsidiaries as of
December 31, 2016
and
December 26, 2015
, and 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 31, 2016
. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Publix Super Markets, Inc. and subsidiaries as of
December 31, 2016
and
December 26, 2015
, and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2016
, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Tampa, Florida
March 1, 2017
Certified Public Accountants
PUBLIX SUPER MARKETS, INC.
Consolidated Balance Sheets
December 31, 2016
and
December 26, 2015
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
ASSETS
|
|
(Amounts are in thousands)
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
438,319
|
|
|
352,176
|
|
|
Short-term investments
|
|
1,591,740
|
|
|
1,376,698
|
|
|
Trade receivables
|
|
715,292
|
|
|
723,685
|
|
|
Merchandise inventories
|
|
1,722,392
|
|
|
1,740,513
|
|
|
Deferred tax assets
|
|
77,496
|
|
|
51,216
|
|
|
Prepaid expenses
|
|
50,434
|
|
|
70,145
|
|
|
Total current assets
|
|
4,595,673
|
|
|
4,314,433
|
|
|
Long-term investments
|
|
5,146,878
|
|
|
5,226,236
|
|
|
Other noncurrent assets
|
|
434,280
|
|
|
431,311
|
|
|
Property, plant and equipment:
|
|
|
|
|
|
Land
|
|
1,415,565
|
|
|
1,157,619
|
|
|
Buildings and improvements
|
|
4,066,743
|
|
|
3,467,015
|
|
|
Furniture, fixtures and equipment
|
|
4,581,924
|
|
|
4,303,132
|
|
|
Leasehold improvements
|
|
1,727,952
|
|
|
1,635,791
|
|
|
Construction in progress
|
|
189,448
|
|
|
148,755
|
|
|
|
|
11,981,632
|
|
|
10,712,312
|
|
|
Accumulated depreciation
|
|
(4,694,509
|
)
|
|
(4,325,014
|
)
|
|
Net property, plant and equipment
|
|
7,287,123
|
|
|
6,387,298
|
|
|
|
|
$
|
17,463,954
|
|
|
16,359,278
|
|
|
See accompanying notes to consolidated financial statements.
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
LIABILITIES AND EQUITY
|
|
(Amounts are in thousands,
except par value)
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,609,652
|
|
|
1,675,858
|
|
|
Accrued expenses:
|
|
|
|
|
|
Contributions to retirement plans
|
|
525,668
|
|
|
513,072
|
|
|
Self-insurance reserves
|
|
139,554
|
|
|
135,865
|
|
|
Salaries and wages
|
|
127,856
|
|
|
131,253
|
|
|
Other
|
|
414,197
|
|
|
380,314
|
|
|
Current portion of long-term debt
|
|
113,999
|
|
|
56,693
|
|
|
Federal and state income taxes
|
|
12,787
|
|
|
9,634
|
|
|
Total current liabilities
|
|
2,943,713
|
|
|
2,902,689
|
|
|
Deferred tax liabilities
|
|
473,980
|
|
|
425,132
|
|
|
Self-insurance reserves
|
|
216,125
|
|
|
214,474
|
|
|
Accrued postretirement benefit cost
|
|
102,540
|
|
|
101,725
|
|
|
Long-term debt
|
|
136,585
|
|
|
179,753
|
|
|
Other noncurrent liabilities
|
|
93,574
|
|
|
104,243
|
|
|
Total liabilities
|
|
3,966,517
|
|
|
3,928,016
|
|
|
Common stock related to Employee Stock Ownership Plan (ESOP)
|
|
3,068,097
|
|
|
2,953,878
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
Common stock of $1 par value. Authorized 1,000,000 shares; issued
and outstanding 763,198 shares in 2016 and 770,175 shares in 2015
|
|
763,198
|
|
|
770,175
|
|
|
Additional paid-in capital
|
|
2,849,947
|
|
|
2,556,391
|
|
|
Retained earnings
|
|
9,836,696
|
|
|
9,041,497
|
|
|
Accumulated other comprehensive earnings
|
|
23,427
|
|
|
26,268
|
|
|
Common stock related to ESOP
|
|
(3,068,097
|
)
|
|
(2,953,878
|
)
|
|
Total stockholders’ equity
|
|
10,405,171
|
|
|
9,440,453
|
|
|
Noncontrolling interests
|
|
24,169
|
|
|
36,931
|
|
|
Total equity
|
|
13,497,437
|
|
|
12,431,262
|
|
|
Commitments and contingencies
|
|
—
|
|
|
—
|
|
|
|
|
$
|
17,463,954
|
|
|
16,359,278
|
|
|
PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Earnings
Years ended
December 31, 2016
,
December 26, 2015
and
December 27, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
(Amounts are in thousands, except per share amounts)
|
|
Revenues:
|
|
|
|
|
|
|
|
Sales
|
|
$
|
33,999,921
|
|
|
32,362,579
|
|
|
30,559,505
|
|
|
Other operating income
|
|
274,188
|
|
|
256,180
|
|
|
242,961
|
|
|
Total revenues
|
|
34,274,109
|
|
|
32,618,759
|
|
|
30,802,466
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Cost of merchandise sold
|
|
24,734,305
|
|
|
23,459,610
|
|
|
22,232,650
|
|
|
Operating and administrative expenses
|
|
6,788,153
|
|
|
6,480,908
|
|
|
6,168,955
|
|
|
Total costs and expenses
|
|
31,522,458
|
|
|
29,940,518
|
|
|
28,401,605
|
|
|
Operating profit
|
|
2,751,651
|
|
|
2,678,241
|
|
|
2,400,861
|
|
|
Investment income
|
|
133,067
|
|
|
156,026
|
|
|
143,875
|
|
|
Other nonoperating income, net
|
|
55,658
|
|
|
34,994
|
|
|
25,385
|
|
|
Earnings before income tax expense
|
|
2,940,376
|
|
|
2,869,261
|
|
|
2,570,121
|
|
|
Income tax expense
|
|
914,688
|
|
|
904,213
|
|
|
834,813
|
|
|
Net earnings
|
|
$
|
2,025,688
|
|
|
1,965,048
|
|
|
1,735,308
|
|
|
Weighted average shares outstanding
|
|
769,267
|
|
|
774,428
|
|
|
778,708
|
|
|
Basic and diluted earnings per share
|
|
$
|
2.63
|
|
|
2.54
|
|
|
2.23
|
|
|
See accompanying notes to consolidated financial statements.
22
PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Comprehensive Earnings
Years ended
December 31, 2016
,
December 26, 2015
and
December 27, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
(Amounts are in thousands)
|
|
Net earnings
|
|
$
|
2,025,688
|
|
|
1,965,048
|
|
|
1,735,308
|
|
|
Other comprehensive earnings:
|
|
|
|
|
|
|
|
Unrealized gain (loss) on available-for-sale (AFS) securities
net of income taxes of $11,093, $(27,605) and $37,133 in
2016, 2015 and 2014, respectively
|
|
17,615
|
|
|
(43,838
|
)
|
|
58,968
|
|
|
Reclassification adjustment for net realized gain on AFS
securities net of income taxes of $(12,464), $(26,972) and
$(22,571) in 2016, 2015 and 2014, respectively
|
|
(19,792
|
)
|
|
(42,829
|
)
|
|
(35,842
|
)
|
|
Adjustment to postretirement benefit obligation net
of income taxes of $(418), $2,394 and $(624) in 2016,
2015 and 2014, respectively
|
|
(664
|
)
|
|
3,801
|
|
|
(991
|
)
|
|
Comprehensive earnings
|
|
$
|
2,022,847
|
|
|
1,882,182
|
|
|
1,757,443
|
|
|
See accompanying notes to consolidated financial statements.
23
PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Cash Flows
Years ended
December 31, 2016
,
December 26, 2015
and
December 27, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
(Amounts are in thousands)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Cash received from customers
|
|
$
|
34,088,337
|
|
|
32,249,651
|
|
|
30,596,486
|
|
|
Cash paid to employees and suppliers
|
|
(30,291,186
|
)
|
|
(28,718,224
|
)
|
|
(27,045,219
|
)
|
|
Income taxes paid
|
|
(683,464
|
)
|
|
(721,226
|
)
|
|
(895,758
|
)
|
|
Self-insured claims paid
|
|
(338,010
|
)
|
|
(315,624
|
)
|
|
(317,441
|
)
|
|
Dividends and interest received
|
|
246,202
|
|
|
219,589
|
|
|
222,134
|
|
|
Other operating cash receipts
|
|
268,347
|
|
|
249,588
|
|
|
235,642
|
|
|
Other operating cash payments
|
|
(37,271
|
)
|
|
(22,389
|
)
|
|
(18,612
|
)
|
|
Net cash provided by operating activities
|
|
3,252,955
|
|
|
2,941,365
|
|
|
2,777,232
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Payment for capital expenditures
|
|
(1,443,827
|
)
|
|
(1,235,648
|
)
|
|
(1,374,124
|
)
|
|
Proceeds from sale of property, plant and equipment
|
|
6,268
|
|
|
4,350
|
|
|
40,222
|
|
|
Payment for investments
|
|
(2,526,973
|
)
|
|
(2,764,436
|
)
|
|
(1,839,814
|
)
|
|
Proceeds from sale and maturity of investments
|
|
2,158,434
|
|
|
2,149,233
|
|
|
1,532,007
|
|
|
Net cash used in investing activities
|
|
(1,806,098
|
)
|
|
(1,846,501
|
)
|
|
(1,641,709
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Payment for acquisition of common stock
|
|
(960,262
|
)
|
|
(855,801
|
)
|
|
(688,339
|
)
|
|
Proceeds from sale of common stock
|
|
330,040
|
|
|
345,319
|
|
|
284,105
|
|
|
Dividends paid
|
|
(667,902
|
)
|
|
(612,766
|
)
|
|
(577,227
|
)
|
|
Repayments of long-term debt
|
|
(49,828
|
)
|
|
(30,164
|
)
|
|
(57,442
|
)
|
|
Other, net
|
|
(12,762
|
)
|
|
3,231
|
|
|
9,005
|
|
|
Net cash used in financing activities
|
|
(1,360,714
|
)
|
|
(1,150,181
|
)
|
|
(1,029,898
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
|
86,143
|
|
|
(55,317
|
)
|
|
105,625
|
|
|
Cash and cash equivalents at beginning of year
|
|
352,176
|
|
|
407,493
|
|
|
301,868
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
438,319
|
|
|
352,176
|
|
|
407,493
|
|
|
See accompanying notes to consolidated financial statements.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
(Amounts are in thousands)
|
|
Reconciliation of net earnings to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
2,025,688
|
|
|
1,965,048
|
|
|
1,735,308
|
|
|
Adjustments to reconcile net earnings to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
624,203
|
|
|
581,892
|
|
|
513,393
|
|
|
(Decrease) increase in LIFO reserve
|
|
(4,643
|
)
|
|
25,996
|
|
|
30,743
|
|
|
Retirement contributions paid or payable in
common stock
|
|
365,936
|
|
|
369,017
|
|
|
338,979
|
|
|
Deferred income taxes
|
|
24,357
|
|
|
108,574
|
|
|
2,392
|
|
|
Loss on disposal and impairment of property,
plant and equipment
|
|
11,035
|
|
|
49,596
|
|
|
26,155
|
|
|
Gain on AFS securities
|
|
(32,256
|
)
|
|
(69,801
|
)
|
|
(58,413
|
)
|
|
Net amortization of investments
|
|
141,869
|
|
|
137,883
|
|
|
137,533
|
|
|
Change in operating assets and liabilities providing (requiring) cash:
|
|
|
|
|
|
|
|
Trade receivables
|
|
8,306
|
|
|
(174,610
|
)
|
|
(8,829
|
)
|
|
Merchandise inventories
|
|
22,764
|
|
|
(168,826
|
)
|
|
(121,449
|
)
|
|
Prepaid expenses and other noncurrent assets
|
|
(14,307
|
)
|
|
(12,571
|
)
|
|
(4,210
|
)
|
|
Accounts payable and accrued expenses
|
|
(74,917
|
)
|
|
114,811
|
|
|
268,491
|
|
|
Self-insurance reserves
|
|
5,340
|
|
|
(14,027
|
)
|
|
8,325
|
|
|
Federal and state income taxes
|
|
159,426
|
|
|
38,920
|
|
|
(86,910
|
)
|
|
Other noncurrent liabilities
|
|
(9,846
|
)
|
|
(10,537
|
)
|
|
(4,276
|
)
|
|
Total adjustments
|
|
1,227,267
|
|
|
976,317
|
|
|
1,041,924
|
|
|
Net cash provided by operating activities
|
|
$
|
3,252,955
|
|
|
2,941,365
|
|
|
2,777,232
|
|
|
PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Stockholders’ Equity
Years ended
December 31, 2016
,
December 26, 2015
and
December 27, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Common Stock (Acquired from) Sold to Stock-
holders
|
Accumu-
lated Other Compre-
hensive
Earnings
|
Common Stock Related to
ESOP
|
|
Total Stock-
holders’
Equity
|
|
|
(Amounts are in thousands, except per share amounts)
|
Balances at December 28, 2013
|
|
$
|
776,721
|
|
|
1,898,974
|
|
|
7,454,448
|
|
|
|
—
|
|
|
|
86,999
|
|
|
|
(2,322,903
|
)
|
|
7,894,239
|
|
Comprehensive earnings
|
|
—
|
|
|
—
|
|
|
1,735,308
|
|
|
|
—
|
|
|
|
22,135
|
|
|
|
—
|
|
|
1,757,443
|
|
Dividends, $0.74 per share
|
|
—
|
|
|
—
|
|
|
(577,227
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(577,227
|
)
|
Contribution of 10,272 shares to retirement plans
|
|
8,063
|
|
|
235,362
|
|
|
—
|
|
|
|
66,289
|
|
|
|
—
|
|
|
|
—
|
|
|
309,714
|
|
Acquisition of 21,356 shares from stockholders
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
(688,339
|
)
|
|
|
—
|
|
|
|
—
|
|
|
(688,339
|
)
|
Sale of 8,835 shares to stockholders
|
|
2,168
|
|
|
66,556
|
|
|
—
|
|
|
|
215,381
|
|
|
|
—
|
|
|
|
—
|
|
|
284,105
|
|
Retirement of 12,480 shares
|
|
(12,480
|
)
|
|
—
|
|
|
(394,189
|
)
|
|
|
406,669
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
Change for ESOP related shares
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(357,625
|
)
|
|
(357,625
|
)
|
Balances at December 27, 2014
|
|
774,472
|
|
|
2,200,892
|
|
|
8,218,340
|
|
|
|
—
|
|
|
|
109,134
|
|
|
|
(2,680,528
|
)
|
|
8,622,310
|
|
Comprehensive earnings
|
|
—
|
|
|
—
|
|
|
1,965,048
|
|
|
|
—
|
|
|
|
(82,866
|
)
|
|
|
—
|
|
|
1,882,182
|
|
Dividends, $0.79 per share
|
|
—
|
|
|
—
|
|
|
(612,766
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(612,766
|
)
|
Contribution of 8,516 shares to retirement plans
|
|
6,172
|
|
|
247,139
|
|
|
—
|
|
|
|
79,248
|
|
|
|
—
|
|
|
|
—
|
|
|
332,559
|
|
Acquisition of 21,276 shares from stockholders
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
(855,801
|
)
|
|
|
—
|
|
|
|
—
|
|
|
(855,801
|
)
|
Sale of 8,463 shares to stockholders
|
|
2,756
|
|
|
108,360
|
|
|
—
|
|
|
|
234,203
|
|
|
|
—
|
|
|
|
—
|
|
|
345,319
|
|
Retirement of 13,225 shares
|
|
(13,225
|
)
|
|
—
|
|
|
(529,125
|
)
|
|
|
542,350
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
Change for ESOP related shares
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(273,350
|
)
|
|
(273,350
|
)
|
Balances at December 26, 2015
|
|
770,175
|
|
|
2,556,391
|
|
|
9,041,497
|
|
|
|
—
|
|
|
|
26,268
|
|
|
|
(2,953,878
|
)
|
|
9,440,453
|
|
Comprehensive earnings
|
|
—
|
|
|
—
|
|
|
2,025,688
|
|
|
|
—
|
|
|
|
(2,841
|
)
|
|
|
—
|
|
|
2,022,847
|
|
Dividends, $0.8675 per share
|
|
—
|
|
|
—
|
|
|
(667,902
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(667,902
|
)
|
Contribution of 7,837 shares to retirement plans
|
|
5,216
|
|
|
239,436
|
|
|
—
|
|
|
|
109,562
|
|
|
|
—
|
|
|
|
—
|
|
|
354,214
|
|
Acquisition of 22,500 shares from stockholders
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
(960,262
|
)
|
|
|
—
|
|
|
|
—
|
|
|
(960,262
|
)
|
Sale of 7,686 shares to stockholders
|
|
1,283
|
|
|
54,120
|
|
|
—
|
|
|
|
274,637
|
|
|
|
—
|
|
|
|
—
|
|
|
330,040
|
|
Retirement of 13,476 shares
|
|
(13,476
|
)
|
|
—
|
|
|
(562,587
|
)
|
|
|
576,063
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
Change for ESOP related shares
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(114,219
|
)
|
|
(114,219
|
)
|
Balances at December 31, 2016
|
|
$
|
763,198
|
|
|
2,849,947
|
|
|
9,836,696
|
|
|
|
—
|
|
|
|
23,427
|
|
|
|
(3,068,097
|
)
|
|
10,405,171
|
|
See accompanying notes to consolidated financial statements.
26
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Publix Super Markets, Inc. and its wholly owned subsidiaries (the Company) are in the business of operating retail food supermarkets in Florida, Georgia, Alabama, South Carolina, Tennessee and North Carolina. The Company plans to expand its retail operations into Virginia in 2017. 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. See percentage of consolidated sales by merchandise category on page 1.
|
|
(b)
|
Principles of Consolidation
|
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and certain joint ventures in which the Company has a controlling financial interest. All significant intercompany balances and transactions are eliminated in consolidation.
The Company’s fiscal year ends on the last Saturday in December. Fiscal year
2016
includes 53 weeks and fiscal years
2015
and
2014
include 52 weeks.
The Company considers all liquid investments with maturities of three months or less to be cash equivalents.
Trade receivables primarily include amounts due from vendor allowances, debit and credit card sales and third party insurance pharmacy billings.
Inventories are valued at the lower of cost or market. The cost for
83%
and
84%
of inventories was determined using the dollar value last-in, first-out (LIFO) method as of
December 31, 2016
and
December 26, 2015
, 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 manufactured, seasonal, certain perishable and other miscellaneous inventory items because of fluctuating costs and inconsistent product availability. The Company also reduces inventory for estimated losses related to shrink. If all inventories were valued using the FIFO method, inventories and current assets would have been higher than reported by
$441,860,000
and
$446,503,000
as of
December 31, 2016
and
December 26, 2015
, respectively.
Debt and equity securities are classified as available-for-sale (AFS) and carried at fair value. The Company evaluates whether AFS securities are other-than-temporarily impaired (OTTI) based on criteria that include the extent to which cost exceeds market value, the duration of the market value decline, the credit rating of the issuer or security, the failure of the issuer to make scheduled principal or interest payments and the financial health and prospects of the issuer or security.
Declines in the value of AFS securities determined to be OTTI are recognized in earnings and reported as OTTI losses. Debt securities with unrealized losses are considered OTTI if the Company intends to sell the debt security or if the Company will be required to sell the debt security prior to any anticipated recovery. If the Company determines that a debt security is OTTI under these circumstances, the impairment recognized in earnings is measured as the difference between the amortized cost and the current fair value. A debt security is also determined to be OTTI if the Company does not expect to recover the amortized cost of the debt security. However, in this circumstance, if the Company does not intend to sell the debt security and will not be required to sell the debt security, the impairment recognized in earnings equals the estimated credit loss as measured by the difference between the present value of expected cash flows and the amortized cost of the debt security. Expected cash flows are discounted using the debt security’s effective interest rate. An equity security is determined to be OTTI if the Company does not expect to recover the cost of the equity security. Declines in the value of AFS securities determined to be temporary are reported net of income taxes as other comprehensive losses and included as a component of stockholders’ equity.
Interest and dividend income, amortization of premiums, accretion of discounts and realized gains and losses on AFS securities are included in investment income. Interest income is accrued as earned. Dividend income is recognized as income on the ex-dividend date of the security. The cost of AFS securities sold is based on the FIFO method.
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
|
|
(h)
|
Property, Plant and Equipment and Depreciation
|
Assets are recorded at cost and are depreciated using the straight-line method over their estimated useful lives or the terms of the related leases, if shorter, as follows:
|
|
|
|
Buildings and improvements
|
|
10–40 years
|
Furniture, fixtures and equipment
|
|
3–20 years
|
Leasehold improvements
|
|
10–20 years
|
Maintenance and repairs are charged to operating expenses 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 as operating and administrative expenses in the consolidated statements of earnings.
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. Long-lived assets, including buildings and improvements, leasehold improvements, and furniture, fixtures and equipment, are evaluated for impairment at the supermarket level.
The Company is self-insured for health care claims and property, plant and equipment losses. The Company has insurance coverage for losses in excess of self-insurance limits for workers’ compensation, general liability and fleet liability claims. Self-insurance reserves are established for health care, workers’ compensation, general liability and fleet 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.
|
|
(k)
|
Postretirement Benefit
|
The Company provides a postretirement life insurance benefit for certain salaried and hourly full-time employees who meet the eligibility requirements. Effective January 1, 2002, the Company amended the postretirement life insurance benefit under its Group Life Insurance Plan. To receive the postretirement life insurance benefit after the amendment, an employee must have had at least
five
years of full-time service and the employee’s age plus years of credited service must have equaled
65
or greater as of October 1, 2001. At retirement, such employees also must be at least age
55
with at least
10
years of full-time service to be eligible to receive the postretirement life insurance benefit.
Actuarial projections are used to calculate the year end postretirement benefit obligation, discounted using a yield curve methodology based on high quality bonds with a rating of AA or better. Actuarial losses are amortized from accumulated other comprehensive earnings into net periodic postretirement benefit cost over future years when the accumulation of such losses exceeds
10%
of the year end postretirement benefit obligation.
|
|
(l)
|
Comprehensive Earnings
|
Comprehensive earnings include net earnings and other comprehensive earnings. Other comprehensive earnings include revenues, expenses, gains and losses that have been excluded from net earnings and recorded directly to stockholders’ equity. Included in other comprehensive earnings for the Company are unrealized gains and losses on AFS securities and adjustments to the postretirement benefit obligation.
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.
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
|
|
(o)
|
Other Operating Income
|
Other operating income is recognized on a net revenue basis as earned. Other operating income includes income generated from other activities, primarily lottery commissions, licensee sales commissions, automated teller transaction fees, mall gift card commissions, vending machine commissions, money transfer fees and coupon redemption income.
|
|
(p)
|
Cost of Merchandise Sold
|
Cost of merchandise sold includes costs of inventory and costs related to in-store production. Cost of merchandise sold also includes inbound freight charges, purchasing and receiving costs, warehousing costs and other costs of the Company’s distribution network.
Allowances and credits, including cooperative advertising allowances, received from a vendor in connection with the purchase or promotion of the vendor’s products are recognized as a reduction of cost of merchandise sold as earned. These allowances and credits are recognized as earned in accordance with the underlying agreement with the vendor and completion of the earnings process. Short-term vendor agreements with advance payment provisions are recorded as a current liability and recognized over the appropriate period as earned according to the underlying agreements. Long-term vendor agreements with advance payment provisions are recorded as a noncurrent liability and recognized over the appropriate period as earned according to the underlying agreements.
Advertising costs are expensed as incurred and were
$260,367,000
,
$248,454,000
and
$232,499,000
for
2016
,
2015
and
2014
, respectively.
|
|
(r)
|
Other Nonoperating Income, net
|
Other nonoperating income, net includes rent received from tenants in owned shopping centers, net of related expenses, and other miscellaneous nonoperating income.
Deferred tax assets and liabilities are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse. The Company recognizes accrued interest and penalties related to income tax liabilities as a component of income tax expense. The Company invests in certain investment related tax credits that promote affordable housing and renewable energy. These investments generate a return primarily through the realization of federal and state tax credits and other tax benefits. The Company accounts for its affordable housing investments using the proportional amortization method. Under this method, the investment is amortized into income tax expense in proportion to the tax credits received and the investment tax credits are recognized as a reduction of income tax expense. The Company accounts for its renewable energy investments using the deferral method. Under this method, the investment tax credits are recognized as a reduction of the renewable energy investments.
|
|
(t)
|
Common Stock and Earnings Per Share
|
Basic and diluted earnings per share are 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.
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.
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(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 AFS securities 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. AFS securities that are included in this category are primarily mutual funds, exchange traded funds and equity securities.
Level 2 – Fair value is determined by using other than quoted prices. By using observable inputs (for example, benchmark yields, interest rates, reported trades and broker dealer quotes), the fair value is determined through processes such as benchmark curves, benchmarking of like securities and matrix pricing of corporate, state and municipal bonds by using pricing of similar bonds based on coupons, ratings and maturities. AFS securities that are included in this category are primarily debt securities (tax exempt and taxable bonds).
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 AFS securities are currently included in this category.
Following is a summary of fair value measurements for AFS securities as of
December 31, 2016
and
December 26, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(Amounts are in thousands)
|
December 31, 2016
|
|
$
|
6,738,618
|
|
|
1,286,625
|
|
|
5,451,993
|
|
|
—
|
|
December 26, 2015
|
|
6,602,934
|
|
|
1,049,791
|
|
|
5,553,143
|
|
|
—
|
|
(3) Investments
Following is a summary of AFS securities as of
December 31, 2016
and
December 26, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross Unrealized
Gains
|
Gross Unrealized
Losses
|
Fair Value
|
|
|
(Amounts are in thousands)
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt bonds
|
|
$
|
3,036,060
|
|
|
|
2,211
|
|
|
|
24,649
|
|
|
|
3,013,622
|
|
Taxable bonds
|
|
2,469,192
|
|
|
|
1,359
|
|
|
|
33,903
|
|
|
|
2,436,648
|
|
Restricted investments
|
|
164,548
|
|
|
|
—
|
|
|
|
463
|
|
|
|
164,085
|
|
Equity securities
|
|
1,021,340
|
|
|
|
110,879
|
|
|
|
7,956
|
|
|
|
1,124,263
|
|
|
|
$
|
6,691,140
|
|
|
|
114,449
|
|
|
|
66,971
|
|
|
|
6,738,618
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt bonds
|
|
$
|
3,336,841
|
|
|
|
12,038
|
|
|
|
2,737
|
|
|
|
3,346,142
|
|
Taxable bonds
|
|
2,214,366
|
|
|
|
1,492
|
|
|
|
10,399
|
|
|
|
2,205,459
|
|
Restricted investments
|
|
164,548
|
|
|
|
—
|
|
|
|
1,389
|
|
|
|
163,159
|
|
Equity securities
|
|
836,153
|
|
|
|
78,378
|
|
|
|
26,357
|
|
|
|
888,174
|
|
|
|
$
|
6,551,908
|
|
|
|
91,908
|
|
|
|
40,882
|
|
|
|
6,602,934
|
|
Realized gains on sales of AFS securities totaled
$47,633,000
for
2016
. Realized losses on sales of AFS securities totaled
$15,377,000
for
2016
.
Realized gains on sales of AFS securities totaled
$94,778,000
for
2015
. Realized losses on sales of AFS securities totaled
$24,977,000
for
2015
.
Realized gains on sales of AFS securities totaled
$61,390,000
for
2014
. Realized losses on sales of AFS securities totaled
$2,977,000
for
2014
.
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
The amortized cost and fair value of AFS securities by expected maturity as of
December 31, 2016
and
December 26, 2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
|
|
|
|
(Amounts are in thousands)
|
|
|
|
Due in one year or less
|
|
$
|
1,592,144
|
|
|
1,591,740
|
|
|
1,375,450
|
|
|
1,376,698
|
|
Due after one year through five years
|
|
3,218,371
|
|
|
3,187,739
|
|
|
3,951,600
|
|
|
3,948,654
|
|
Due after five years through ten years
|
|
680,641
|
|
|
656,162
|
|
|
161,732
|
|
|
162,999
|
|
Due after ten years
|
|
14,096
|
|
|
14,629
|
|
|
62,425
|
|
|
63,250
|
|
|
|
5,505,252
|
|
|
5,450,270
|
|
|
5,551,207
|
|
|
5,551,601
|
|
Restricted investments
|
|
164,548
|
|
|
164,085
|
|
|
164,548
|
|
|
163,159
|
|
Equity securities
|
|
1,021,340
|
|
|
1,124,263
|
|
|
836,153
|
|
|
888,174
|
|
|
|
$
|
6,691,140
|
|
|
6,738,618
|
|
|
6,551,908
|
|
|
6,602,934
|
|
Following is a summary of temporarily impaired AFS securities by the time period impaired as of
December 31, 2016
and
December 26, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt bonds
|
|
$
|
2,360,143
|
|
|
|
24,416
|
|
|
|
6,099
|
|
|
|
233
|
|
|
|
2,366,242
|
|
|
|
24,649
|
|
|
Taxable bonds
|
|
1,921,367
|
|
|
|
33,354
|
|
|
|
51,769
|
|
|
|
549
|
|
|
|
1,973,136
|
|
|
|
33,903
|
|
|
Restricted investments
|
|
164,085
|
|
|
|
463
|
|
|
|
—
|
|
|
|
—
|
|
|
|
164,085
|
|
|
|
463
|
|
|
Equity securities
|
|
61,625
|
|
|
|
3,924
|
|
|
|
38,141
|
|
|
|
4,032
|
|
|
|
99,766
|
|
|
|
7,956
|
|
|
Total temporarily
impaired AFS securities
|
|
$
|
4,507,220
|
|
|
|
62,157
|
|
|
|
96,009
|
|
|
|
4,814
|
|
|
|
4,603,229
|
|
|
|
66,971
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt bonds
|
|
$
|
890,907
|
|
|
|
2,264
|
|
|
|
63,474
|
|
|
|
473
|
|
|
|
954,381
|
|
|
|
2,737
|
|
|
Taxable bonds
|
|
1,676,719
|
|
|
|
9,988
|
|
|
|
70,309
|
|
|
|
411
|
|
|
|
1,747,028
|
|
|
|
10,399
|
|
|
Restricted investments
|
|
163,159
|
|
|
|
1,389
|
|
|
|
—
|
|
|
|
—
|
|
|
|
163,159
|
|
|
|
1,389
|
|
|
Equity securities
|
|
274,517
|
|
|
|
20,561
|
|
|
|
16,112
|
|
|
|
5,796
|
|
|
|
290,629
|
|
|
|
26,357
|
|
|
Total temporarily
impaired AFS securities
|
|
$
|
3,005,302
|
|
|
|
34,202
|
|
|
|
149,895
|
|
|
|
6,680
|
|
|
|
3,155,197
|
|
|
|
40,882
|
|
|
There are
649
AFS securities contributing to the total unrealized loss of
$66,971,000
as of
December 31, 2016
. Unrealized losses related to debt securities are primarily due to interest rate volatility impacting the market value of certain bonds. The Company continues to receive scheduled principal and interest payments on these debt securities. Unrealized losses related to equity securities are primarily due to temporary equity market fluctuations that are expected to recover.
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(4) Consolidation of Joint Ventures and Long-Term Debt
From time to time, the Company enters into Joint Ventures (JV), in the legal form of limited liability companies, with certain real estate developers to partner in the development of shopping centers 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.
As of
December 31, 2016
, the carrying amounts of the assets and liabilities of the consolidated JVs were
$102,254,000
and
$53,278,000
, respectively. As of
December 26, 2015
, the carrying amounts of the assets and liabilities of the consolidated JVs were
$141,355,000
and
$64,928,000
, 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
2016
,
2015
and
2014
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. The Company assumed loans totaling
$63,966,000
and
$40,287,000
during
2016
and
2015
, respectively. Maturities of JV loans range from
April 2017
through
June 2017
and have variable interest rates based on a LIBOR index plus
175
to
250
basis points. Maturities of assumed shopping center loans range from
March 2017
through
January 2027
and have fixed interest rates ranging from
3.7%
to
7.5%
.
As of
December 31, 2016
, the aggregate annual maturities and scheduled payments of long-term debt are as follows:
|
|
|
|
|
Year
|
|
(Amounts are in thousands)
|
2017
|
$
|
113,999
|
|
2018
|
37,873
|
|
2019
|
4,649
|
|
2020
|
19,150
|
|
2021
|
15,323
|
|
Thereafter
|
59,590
|
|
|
$
|
250,584
|
|
|
|
(5) 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 based on a percent of net earnings before taxes 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
$334,422,000
,
$337,703,000
and
$310,050,000
for
2016
,
2015
and
2014
, 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
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
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
$425,514,000
and
$427,226,000
as of
December 31, 2016
and
December 26, 2015
, respectively. The cost of the shares held by the ESOP totaled
$2,642,583,000
and
$2,526,652,000
as of
December 31, 2016
and
December 26, 2015
, 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
$3,068,097,000
and
$2,953,878,000
as of
December 31, 2016
and
December 26, 2015
, respectively. The fair value of the shares held by the ESOP totaled
$8,356,659,000
and
$9,201,171,000
as of
December 31, 2016
and
December 26, 2015
, respectively.
The Company has a 401(k) Plan for the benefit of eligible employees. The 401(k) Plan is a voluntary defined contribution plan. Eligible employees may 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
2016
,
2015
and
2014
, the Board of Directors approved a match of
50%
of eligible annual contributions up to
3%
of annual compensation, not to exceed a maximum match of
$750
per employee. The match, which is determined as of the last day of the plan year and paid in the subsequent plan year, is in common stock of the Company. Compensation expense recorded for the Company’s match to the 401(k) Plan was
$30,899,000
,
$30,775,000
and
$28,475,000
for
2016
,
2015
and
2014
, 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.
(6) Income Taxes
Total income taxes for
2016
,
2015
and
2014
were allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(Amounts are in thousands)
|
Earnings
|
|
$
|
914,688
|
|
|
904,213
|
|
|
834,813
|
|
Other comprehensive (losses) earnings
|
|
(1,789
|
)
|
|
(52,183
|
)
|
|
13,938
|
|
|
|
$
|
912,899
|
|
|
852,030
|
|
|
848,751
|
|
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
Deferred
|
|
Total
|
|
|
(Amounts are in thousands)
|
2016
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
820,989
|
|
|
|
20,697
|
|
|
|
841,686
|
|
State
|
|
69,342
|
|
|
|
3,660
|
|
|
|
73,002
|
|
|
|
$
|
890,331
|
|
|
|
24,357
|
|
|
|
914,688
|
|
2015
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
758,084
|
|
|
|
97,586
|
|
|
|
855,670
|
|
State
|
|
37,555
|
|
|
|
10,988
|
|
|
|
48,543
|
|
|
|
$
|
795,639
|
|
|
|
108,574
|
|
|
|
904,213
|
|
2014
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
754,187
|
|
|
|
2,021
|
|
|
|
756,208
|
|
State
|
|
78,234
|
|
|
|
371
|
|
|
|
78,605
|
|
|
|
$
|
832,421
|
|
|
|
2,392
|
|
|
|
834,813
|
|
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
A reconciliation of the provision for income taxes at the federal statutory tax rate of
35%
to earnings before income taxes compared to the Company’s actual income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(Amounts are in thousands)
|
Federal tax at statutory tax rate
|
|
$
|
1,029,132
|
|
|
1,004,241
|
|
|
899,542
|
|
State income taxes (net of federal tax benefit)
|
|
47,451
|
|
|
31,553
|
|
|
51,093
|
|
ESOP dividend
|
|
(65,232
|
)
|
|
(62,630
|
)
|
|
(61,270
|
)
|
Other, net
|
|
(96,663
|
)
|
|
(68,951
|
)
|
|
(54,552
|
)
|
|
|
$
|
914,688
|
|
|
904,213
|
|
|
834,813
|
|
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of
December 31, 2016
and
December 26, 2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
(Amounts are in thousands)
|
Deferred tax assets:
|
|
|
|
|
Self-insurance reserves
|
|
$
|
119,613
|
|
|
118,082
|
|
Retirement plan contributions
|
|
63,432
|
|
|
61,898
|
|
Postretirement benefit cost
|
|
41,362
|
|
|
40,883
|
|
Investment tax credits
|
|
33,170
|
|
|
6,832
|
|
Inventory capitalization
|
|
18,294
|
|
|
15,072
|
|
Purchase allowances
|
|
18,005
|
|
|
13,792
|
|
Leases
|
|
15,903
|
|
|
19,250
|
|
Reserves not currently deductible
|
|
8,675
|
|
|
10,873
|
|
Other
|
|
3,649
|
|
|
1,489
|
|
Total deferred tax assets
|
|
$
|
322,103
|
|
|
288,171
|
|
Deferred tax liabilities:
|
|
|
|
|
Property, plant and equipment, primarily due
to depreciation
|
|
$
|
704,233
|
|
|
615,408
|
|
Other
|
|
14,354
|
|
|
46,679
|
|
Total deferred tax liabilities
|
|
$
|
718,587
|
|
|
662,087
|
|
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, no valuation allowance has been recorded as of
December 31, 2016
and
December 26, 2015
.
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 return are the 2010 through 2015 tax years. The periods subject to examination for the Company’s state returns are the 2011 through 2015 tax years. The Company believes that the outcome of any examination will not have a material effect on its financial condition, results of operations or cash flows.
The Company had no unrecognized tax benefits in
2016
and
2015
. As a result, there will be no effect on the Company’s effective income tax rate in future periods due to the recognition of unrecognized tax benefits.
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
|
|
(7)
|
Accumulated Other Comprehensive Earnings
|
A reconciliation of the changes in accumulated other comprehensive earnings net of income taxes for
2016
,
2015
and
2014
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS
Securities
|
|
Postretirement
Benefit
|
|
Accumulated Other Comprehensive
Earnings
|
|
|
|
(Amounts are in thousands)
|
|
Balances at December 28, 2013
|
|
|
$
|
94,836
|
|
|
|
|
(7,837
|
)
|
|
|
|
86,999
|
|
|
Unrealized gain on AFS securities
|
|
|
58,968
|
|
|
|
|
—
|
|
|
|
|
58,968
|
|
|
Net realized gain on AFS securities reclassified to investment income
|
|
|
(35,842
|
)
|
|
|
|
—
|
|
|
|
|
(35,842
|
)
|
|
Amortization of actuarial loss reclassified to operating and administrative expenses
|
|
|
—
|
|
|
|
|
(991
|
)
|
|
|
|
(991
|
)
|
|
Net other comprehensive earnings (losses)
|
|
|
23,126
|
|
|
|
|
(991
|
)
|
|
|
|
22,135
|
|
|
Balances at December 27, 2014
|
|
|
117,962
|
|
|
|
|
(8,828
|
)
|
|
|
|
109,134
|
|
|
Unrealized loss on AFS securities
|
|
|
(43,838
|
)
|
|
|
|
—
|
|
|
|
|
(43,838
|
)
|
|
Net realized gain on AFS securities reclassified to investment income
|
|
|
(42,829
|
)
|
|
|
|
—
|
|
|
|
|
(42,829
|
)
|
|
Amortization of actuarial gain reclassified to operating and administrative expenses
|
|
|
—
|
|
|
|
|
3,801
|
|
|
|
|
3,801
|
|
|
Net other comprehensive (losses) earnings
|
|
|
(86,667
|
)
|
|
|
|
3,801
|
|
|
|
|
(82,866
|
)
|
|
Balances at December 26, 2015
|
|
|
31,295
|
|
|
|
|
(5,027
|
)
|
|
|
|
26,268
|
|
|
Unrealized gain on AFS securities
|
|
|
17,615
|
|
|
|
|
—
|
|
|
|
|
17,615
|
|
|
Net realized gain on AFS securities reclassified to investment income
|
|
|
(19,792
|
)
|
|
|
|
—
|
|
|
|
|
(19,792
|
)
|
|
Amortization of actuarial loss reclassified to operating and administrative expenses
|
|
|
—
|
|
|
|
|
(664
|
)
|
|
|
|
(664
|
)
|
|
Net other comprehensive losses
|
|
|
(2,177
|
)
|
|
|
|
(664
|
)
|
|
|
|
(2,841
|
)
|
|
Balances at December 31, 2016
|
|
|
$
|
29,118
|
|
|
|
|
(5,691
|
)
|
|
|
|
23,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(8) Commitments and Contingencies
(a)
Operating Leases
The Company conducts a major portion of its retail operations from leased premises. Initial terms of the leases are typically
20
years, followed by renewal options at
five
year intervals, and may include rent escalation clauses. Minimum rentals represent fixed lease obligations, including insurance and maintenance to the extent they are fixed in the lease. Contingent rentals represent variable lease obligations, including real estate taxes, insurance, maintenance and, for certain premises, 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 recognizes rent expense for operating leases with rent escalation clauses on a straight-line basis over the applicable lease term. The Company estimates excess rent, where applicable, based on annual sales projections and uses the straight-line method to amortize the cost to rent expense. The annual sales projections are reviewed periodically and adjusted if necessary. Additionally, the Company has operating leases for certain transportation and other equipment.
Total rental expense for
2016
,
2015
and
2014
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(Amounts are in thousands)
|
Minimum rentals
|
|
$
|
419,032
|
|
|
426,703
|
|
|
439,525
|
|
Contingent rentals
|
|
125,406
|
|
|
123,152
|
|
|
118,839
|
|
Sublease rental income
|
|
(4,577
|
)
|
|
(4,979
|
)
|
|
(4,867
|
)
|
|
|
$
|
539,861
|
|
|
544,876
|
|
|
553,497
|
|
As of
December 31, 2016
, future minimum lease payments for all noncancelable operating leases and related subleases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
Minimum Rental
Commitments
|
|
Sublease Rental
Income
|
|
Net
|
|
|
(Amounts are in thousands)
|
2017
|
|
$
|
428,303
|
|
|
|
|
4,869
|
|
|
|
423,434
|
|
2018
|
|
405,174
|
|
|
|
|
3,968
|
|
|
|
401,206
|
|
2019
|
|
375,484
|
|
|
|
|
3,601
|
|
|
|
371,883
|
|
2020
|
|
337,991
|
|
|
|
|
440
|
|
|
|
337,551
|
|
2021
|
|
301,747
|
|
|
|
|
230
|
|
|
|
301,517
|
|
Thereafter
|
|
1,893,907
|
|
|
|
|
1,066
|
|
|
|
1,892,841
|
|
|
|
$
|
3,742,606
|
|
|
|
|
14,174
|
|
|
|
3,728,432
|
|
The Company also owns shopping centers which are leased to tenants for minimum monthly rentals plus contingent rentals. Minimum rentals represent fixed lease obligations, including insurance and maintenance. Contingent rentals represent variable lease obligations, including real estate taxes, insurance, maintenance and, for certain premises, excess rent. Rental income was
$133,656,000
,
$95,519,000
and
$63,026,000
for
2016
,
2015
and
2014
, respectively.
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
As of
December 31, 2016
, future minimum rental payments to be received for all noncancelable operating leases are as follows:
|
|
|
|
|
Year
|
|
(Amounts are in thousands)
|
2017
|
$
|
105,570
|
|
2018
|
88,336
|
|
2019
|
69,811
|
|
2020
|
52,371
|
|
2021
|
32,995
|
|
Thereafter
|
125,202
|
|
|
$
|
474,285
|
|
|
|
(b)
Letters of Credit
As of
December 31, 2016
, the Company had outstanding
$7,597,000
in trade letters of credit and
$11,799,000
in standby letters of credit to support certain purchase obligations.
(c)
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.
(9) Subsequent Event
On
January 2, 2017
, the Company declared a quarterly dividend on its common stock of
$0.2225
per share or
$169,700,000
, payable
February 1, 2017
to stockholders of record as of the close of business
January 13, 2017
.
(10) Quarterly Information (unaudited)
Following is a summary of the quarterly results of operations for
2016
and
2015
. All quarters have 13 weeks, except the fourth quarter of
2016
which has 14 weeks.
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
(Amounts are in thousands, except per share amounts)
|
2016
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
8,790,561
|
|
|
8,190,537
|
|
|
8,090,649
|
|
|
9,202,362
|
|
Costs and expenses
|
|
7,963,774
|
|
|
7,531,186
|
|
|
7,555,012
|
|
|
8,472,486
|
|
Net earnings
|
|
581,889
|
|
|
478,187
|
|
|
421,135
|
|
|
544,477
|
|
Basic and diluted earnings per share
|
|
0.75
|
|
|
0.62
|
|
|
0.55
|
|
|
0.71
|
|
2015
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
8,412,745
|
|
|
8,018,031
|
|
|
7,902,144
|
|
|
8,285,839
|
|
Costs and expenses
|
|
7,638,951
|
|
|
7,349,591
|
|
|
7,344,018
|
|
|
7,607,958
|
|
Net earnings
|
|
548,918
|
|
|
482,741
|
|
|
412,314
|
|
|
521,075
|
|
Basic and diluted earnings per share
|
|
0.71
|
|
|
0.62
|
|
|
0.53
|
|
|
0.68
|
|