Item 1. Financial Statements
PUBLIX SUPER MARKETS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts are in thousands, except par value)
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September 30, 2017
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December 31, 2016
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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670,695
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438,319
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Short-term investments
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1,256,724
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1,591,740
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Trade receivables
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647,332
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715,292
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Merchandise inventories
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1,706,304
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1,722,392
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Prepaid expenses
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48,915
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50,434
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Total current assets
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4,329,970
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4,518,177
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Long-term investments
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5,243,817
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5,146,878
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Other noncurrent assets
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562,896
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434,280
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Property, plant and equipment
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12,825,095
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11,981,632
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Accumulated depreciation
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(4,992,734
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)
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(4,694,509
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)
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Net property, plant and equipment
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7,832,361
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7,287,123
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$
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17,969,044
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17,386,458
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LIABILITIES AND EQUITY
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Current liabilities:
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Accounts payable
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$
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1,778,927
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1,609,652
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Accrued expenses:
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Contributions to retirement plans
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444,509
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525,668
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Self-insurance reserves
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142,825
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139,554
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Salaries and wages
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253,615
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127,856
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Other
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398,274
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414,197
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Current portion of long-term debt
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65,417
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113,999
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Federal and state income taxes
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162,361
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12,787
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Total current liabilities
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3,245,928
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2,943,713
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Deferred tax liabilities
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462,537
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396,484
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Self-insurance reserves
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214,546
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216,125
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Accrued postretirement benefit cost
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102,884
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102,540
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Long-term debt
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153,186
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136,585
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Other noncurrent liabilities
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87,428
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93,574
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Total liabilities
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4,266,509
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3,889,021
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Common stock related to Employee Stock Ownership Plan (ESOP)
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3,122,163
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3,068,097
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Stockholders’ equity:
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Common stock of $1 par value. Authorized 1,000,000 shares;
issued 770,415 shares in 2017 and 763,198 shares in 2016
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770,415
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763,198
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Additional paid-in capital
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3,139,647
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2,849,947
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Retained earnings
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10,842,179
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9,836,696
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Treasury stock at cost; 30,247 shares in 2017
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(1,158,839
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)
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—
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Accumulated other comprehensive earnings
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70,657
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23,427
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Common stock related to ESOP
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(3,122,163
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)
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(3,068,097
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)
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Total stockholders’ equity
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10,541,896
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10,405,171
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Noncontrolling interests
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38,476
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24,169
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Total equity
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13,702,535
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13,497,437
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$
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17,969,044
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17,386,458
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See accompanying notes to condensed consolidated financial statements.
1
PUBLIX SUPER MARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts are in thousands, except per share amounts)
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Three Months Ended
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September 30, 2017
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September 24, 2016
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(Unaudited)
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Revenues:
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Sales
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$
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8,520,569
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8,026,548
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Other operating income
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65,511
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64,101
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Total revenues
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8,586,080
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8,090,649
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Costs and expenses:
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Cost of merchandise sold
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6,219,735
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5,902,079
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Operating and administrative expenses
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1,731,551
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1,652,933
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Total costs and expenses
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7,951,286
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7,555,012
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Operating profit
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634,794
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535,637
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Investment income
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38,430
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29,000
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Other nonoperating income, net
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17,218
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13,721
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Earnings before income tax expense
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690,442
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578,358
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Income tax expense
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215,515
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157,223
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Net earnings
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$
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474,927
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421,135
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Weighted average shares outstanding
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748,347
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768,941
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Basic and diluted earnings per share
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$
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0.63
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0.55
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Dividends paid per share
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$
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0.23
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0.2225
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Amounts are in thousands)
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Three Months Ended
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September 30, 2017
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September 24, 2016
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(Unaudited)
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Net earnings
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$
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474,927
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421,135
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Other comprehensive earnings:
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Unrealized gain on available-for-sale (AFS) securities net of income taxes of $30,884 and $13,390 in 2017 and 2016, respectively
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49,043
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21,263
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Reclassification adjustment for net realized gain on AFS securities net of income taxes of $(3,989) and $(2,346) in 2017 and 2016, respectively
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(6,334
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)
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(3,725
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)
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Comprehensive earnings
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$
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517,636
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438,673
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See accompanying notes to condensed consolidated financial statements.
2
PUBLIX SUPER MARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts are in thousands, except per share amounts)
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Nine Months Ended
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September 30, 2017
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September 24, 2016
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(Unaudited)
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Revenues:
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Sales
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$
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25,620,710
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24,873,954
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Other operating income
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201,143
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197,793
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Total revenues
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25,821,853
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25,071,747
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Costs and expenses:
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Cost of merchandise sold
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18,592,991
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18,054,675
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Operating and administrative expenses
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5,240,753
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4,995,297
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Total costs and expenses
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23,833,744
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23,049,972
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Operating profit
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1,988,109
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2,021,775
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Investment income
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192,906
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82,222
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Other nonoperating income, net
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49,745
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39,737
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Earnings before income tax expense
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2,230,760
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2,143,734
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Income tax expense
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705,490
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662,523
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Net earnings
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$
|
1,525,270
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1,481,211
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Weighted average shares outstanding
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759,284
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|
770,695
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Basic and diluted earnings per share
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$
|
2.01
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|
|
1.92
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Dividends paid per share
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$
|
0.6825
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|
|
|
0.645
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Amounts are in thousands)
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Nine Months Ended
|
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|
September 30, 2017
|
|
September 24, 2016
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|
|
(Unaudited)
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|
Net earnings
|
|
$
|
1,525,270
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|
|
|
|
1,481,211
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|
Other comprehensive earnings:
|
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|
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Unrealized gain on AFS securities net of income taxes of $70,268 and $34,017 in 2017 and 2016, respectively
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111,585
|
|
|
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|
54,019
|
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|
Reclassification adjustment for net realized gain on AFS securities net of income taxes of $(40,526) and $(5,007) in 2017 and 2016, respectively
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(64,355
|
)
|
|
|
|
(7,951
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)
|
|
Comprehensive earnings
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|
$
|
1,572,500
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|
|
|
|
1,527,279
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|
See accompanying notes to condensed consolidated financial statements.
3
PUBLIX SUPER MARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts are in thousands)
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Nine Months Ended
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|
September 30, 2017
|
|
September 24, 2016
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|
(Unaudited)
|
|
Cash flows from operating activities:
|
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|
|
|
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Cash received from customers
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|
$
|
25,786,802
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|
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25,024,422
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Cash paid to employees and suppliers
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(22,593,366
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)
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(21,995,448
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)
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Income taxes paid
|
|
(478,456
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)
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|
|
(505,330
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)
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|
Self-insured claims paid
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(270,036
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)
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(242,803
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)
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Dividends and interest received
|
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185,542
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|
|
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|
175,698
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|
Other operating cash receipts
|
|
197,277
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|
|
|
|
193,482
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|
Other operating cash payments
|
|
(14,748
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)
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|
|
|
(31,258
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)
|
|
Net cash provided by operating activities
|
|
2,813,015
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|
|
|
|
2,618,763
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|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Payment for capital expenditures
|
|
(1,063,152
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)
|
|
|
|
(1,110,516
|
)
|
|
Proceeds from sale of property, plant and equipment
|
|
4,460
|
|
|
|
|
4,300
|
|
|
Payment for investments
|
|
(2,353,947
|
)
|
|
|
|
(1,891,611
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)
|
|
Proceeds from sale and maturity of investments
|
|
2,593,592
|
|
|
|
|
1,352,848
|
|
|
Net cash used in investing activities
|
|
(819,047
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)
|
|
|
|
(1,644,979
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)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Payment for acquisition of common stock
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|
(1,438,628
|
)
|
|
|
|
(722,641
|
)
|
|
Proceeds from sale of common stock
|
|
215,424
|
|
|
|
|
252,803
|
|
|
Dividends paid
|
|
(519,787
|
)
|
|
|
|
(497,318
|
)
|
|
Repayment of long-term debt
|
|
(46,019
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)
|
|
|
|
(40,831
|
)
|
|
Other, net
|
|
27,418
|
|
|
|
|
(13,412
|
)
|
|
Net cash used in financing activities
|
|
(1,761,592
|
)
|
|
|
|
(1,021,399
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
|
232,376
|
|
|
|
|
(47,615
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
438,319
|
|
|
|
|
352,176
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
670,695
|
|
|
|
|
304,561
|
|
|
See accompanying notes to condensed consolidated financial statements. (Continued)
4
PUBLIX SUPER MARKETS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts are in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30, 2017
|
|
September 24, 2016
|
|
|
(Unaudited)
|
|
Reconciliation of net earnings to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
1,525,270
|
|
|
|
|
1,481,211
|
|
|
Adjustments to reconcile net earnings to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
484,307
|
|
|
|
|
458,694
|
|
|
Increase in LIFO reserve
|
|
20,720
|
|
|
|
|
7,020
|
|
|
Retirement contributions paid or payable
in common stock
|
|
280,571
|
|
|
|
|
278,335
|
|
|
Deferred income taxes
|
|
36,311
|
|
|
|
|
(10,889
|
)
|
|
Loss on disposal and impairment of property,
plant and equipment
|
|
1,991
|
|
|
|
|
2,756
|
|
|
Gain on AFS securities
|
|
(104,881
|
)
|
|
|
|
(12,958
|
)
|
|
Net amortization of investments
|
|
87,982
|
|
|
|
|
105,968
|
|
|
Changes in operating assets and liabilities
providing (requiring) cash:
|
|
|
|
|
|
|
|
Trade receivables
|
|
67,952
|
|
|
|
|
90,128
|
|
|
Merchandise inventories
|
|
(4,632
|
)
|
|
|
|
70,809
|
|
|
Prepaid expenses and other noncurrent assets
|
|
(5,410
|
)
|
|
|
|
(18,999
|
)
|
|
Accounts payable and accrued expenses
|
|
264,196
|
|
|
|
|
42,951
|
|
|
Self-insurance reserves
|
|
1,692
|
|
|
|
|
930
|
|
|
Federal and state income taxes
|
|
162,748
|
|
|
|
|
129,501
|
|
|
Other noncurrent liabilities
|
|
(5,802
|
)
|
|
|
|
(6,694
|
)
|
|
Total adjustments
|
|
1,287,745
|
|
|
|
|
1,137,552
|
|
|
Net cash provided by operating activities
|
|
$
|
2,813,015
|
|
|
|
|
2,618,763
|
|
|
See accompanying notes to condensed consolidated financial statements.
5
PUBLIX SUPER MARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(1)
|
Basis of Presentation
|
The accompanying unaudited condensed consolidated financial statements of Publix Super Markets, Inc. and subsidiaries (the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. Accordingly, the accompanying statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these statements include all adjustments that are of a normal and recurring nature necessary to present fairly the Company’s financial position and results of operations. Due to the seasonal nature of the Company’s business, the results of operations for the
three and nine months ended September 30, 2017
are not necessarily indicative of the results for the entire
2017
fiscal year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016
.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
|
|
(2)
|
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. The Company retrospectively adopted the ASU during the quarter ended April 1, 2017, and therefore reclassified $77,496,000 from current deferred tax assets to noncurrent deferred tax liabilities as of December 31, 2016 on the condensed consolidated balance sheet.
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. 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.
PUBLIX SUPER MARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
(3)
|
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 available-for-sale (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
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(Amounts are in thousands)
|
September 30, 2017
|
|
$
|
6,500,541
|
|
|
2,266,877
|
|
|
4,233,664
|
|
|
—
|
|
December 31, 2016
|
|
6,738,618
|
|
|
1,286,625
|
|
|
5,451,993
|
|
|
—
|
|
Debt and equity securities are classified as AFS and are 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 first-in, first-out method.
PUBLIX SUPER MARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of AFS securities as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
|
(Amounts are in thousands)
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt bonds
|
|
$
|
2,054,341
|
|
|
|
5,308
|
|
|
|
2,841
|
|
|
|
2,056,808
|
|
Taxable bonds
|
|
2,185,377
|
|
|
|
3,639
|
|
|
|
14,000
|
|
|
|
2,175,016
|
|
Restricted investments
|
|
164,548
|
|
|
|
463
|
|
|
|
—
|
|
|
|
165,011
|
|
Equity securities
|
|
1,971,825
|
|
|
|
134,123
|
|
|
|
2,242
|
|
|
|
2,103,706
|
|
|
|
$
|
6,376,091
|
|
|
|
143,533
|
|
|
|
19,083
|
|
|
|
6,500,541
|
|
December 31, 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
|
|
Realized gains on sales of AFS securities totaled
$11,179,000
and
$109,815,000
for the
three and nine months ended
September 30, 2017
, respectively. Realized losses on sales of AFS securities totaled
$856,000
and
$4,934,000
for the
three and nine months ended
September 30, 2017
, respectively.
Realized gains on sales of AFS securities totaled
$7,012,000
and
$18,896,000
for the three and nine months ended September
24, 2016, respectively. Realized losses on sales of AFS securities totaled
$941,000
and
$5,938,000
for the
three and nine months ended September 24, 2016
, respectively.
The amortized cost and fair value of AFS securities by expected maturity as of
September 30, 2017
and
December 31, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
|
|
(Amounts are in thousands)
|
Due in one year or less
|
|
$
|
1,256,912
|
|
|
1,256,724
|
|
|
1,592,144
|
|
|
1,591,740
|
|
Due after one year through five years
|
|
2,583,254
|
|
|
2,577,163
|
|
|
3,218,371
|
|
|
3,187,739
|
|
Due after five years through ten years
|
|
389,425
|
|
|
387,386
|
|
|
680,641
|
|
|
656,162
|
|
Due after ten years
|
|
10,127
|
|
|
10,551
|
|
|
14,096
|
|
|
14,629
|
|
|
|
4,239,718
|
|
|
4,231,824
|
|
|
5,505,252
|
|
|
5,450,270
|
|
Restricted investments
|
|
164,548
|
|
|
165,011
|
|
|
164,548
|
|
|
164,085
|
|
Equity securities
|
|
1,971,825
|
|
|
2,103,706
|
|
|
1,021,340
|
|
|
1,124,263
|
|
|
|
$
|
6,376,091
|
|
|
6,500,541
|
|
|
6,691,140
|
|
|
6,738,618
|
|
PUBLIX SUPER MARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of temporarily impaired AFS securities by the time period impaired as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
12 Months
|
|
|
12 Months
or Longer
|
|
|
Total
|
|
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
|
(Amounts are in thousands)
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt bonds
|
|
$
|
510,790
|
|
|
|
1,699
|
|
|
|
232,906
|
|
|
|
1,142
|
|
|
|
743,696
|
|
|
|
2,841
|
|
|
Taxable bonds
|
|
964,755
|
|
|
|
5,332
|
|
|
|
643,454
|
|
|
|
8,668
|
|
|
|
1,608,209
|
|
|
|
14,000
|
|
|
Equity securities
|
|
62,700
|
|
|
|
1,239
|
|
|
|
3,526
|
|
|
|
1,003
|
|
|
|
66,226
|
|
|
|
2,242
|
|
|
|
|
$
|
1,538,245
|
|
|
|
8,270
|
|
|
|
879,886
|
|
|
|
10,813
|
|
|
|
2,418,131
|
|
|
|
19,083
|
|
|
December 31, 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
|
|
|
|
|
$
|
4,507,220
|
|
|
|
62,157
|
|
|
|
96,009
|
|
|
|
4,814
|
|
|
|
4,603,229
|
|
|
|
66,971
|
|
|
There are
282
AFS securities contributing to the total unrealized loss of
$19,083,000
as of
September 30, 2017
. 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.
|
|
(5)
|
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
September 30, 2017
, the carrying amounts of the assets and liabilities of the consolidated JVs were
$143,312,000
and
$66,018,000
, respectively. 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. 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
2017
and
2016
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.
PUBLIX SUPER MARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company’s long-term debt results primarily from the consolidation of loans of certain JVs and loans assumed in connection with the acquisition of certain shopping centers with the Company as the anchor tenant. No loans were assumed during the
nine months ended September 30, 2017
. The Company assumed loans totaling
$63,971,000
during the
nine months ended September 24, 2016
. Maturities of JV loans range from
June 2020
through
April 2027
and have variable interest rates based on a LIBOR index plus
175
to
250
basis points. Maturities of assumed shopping center loans range from
October 2017
through
January 2027
and have fixed interest rates ranging from
3.7%
to
7.5%
.
The Company has a trusteed, noncontributory Employee Stock Ownership Plan (ESOP) for the benefit of eligible employees. Since the Company’s common stock is not traded on an established securities market, the ESOP includes a put option for shares of the Company’s common stock distributed from the ESOP. Shares are distributed from the ESOP primarily to separated vested participants and certain eligible participants who elect to diversify their account balances. Under the Company’s administration of the ESOP’s put option, if the owners of distributed shares desire to sell their shares, the Company is required to purchase the shares at fair value for a specified time period after distribution of the shares from the ESOP. The fair value of distributed shares subject to the put option totaled
$348,486,000
and
$425,514,000
as of
September 30, 2017
and
December 31, 2016
, respectively. The cost of the shares held by the ESOP totaled
$2,773,677,000
and
$2,642,583,000
as of
September 30, 2017
and
December 31, 2016
, respectively. Due to the Company’s obligation under the put option, the distributed shares subject to the put option and the shares held by the ESOP are classified as temporary equity in the mezzanine section of the condensed consolidated balance sheets and totaled
$3,122,163,000
and
$3,068,097,000
as of
September 30, 2017
and
December 31, 2016
, respectively. The fair value of the shares held by the ESOP totaled
$7,173,372,000
and
$8,356,659,000
as of
September 30, 2017
and
December 31, 2016
, respectively.
|
|
(7)
|
Accumulated Other Comprehensive Earnings
|
A reconciliation of the changes in accumulated other comprehensive earnings net of income taxes for the three months ended
September 30, 2017
and
September 24, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS
Securities
|
|
Postretirement
Benefits
|
|
Accumulated Other Comprehensive
Earnings
|
|
|
|
(Amounts are in thousands)
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at July 1, 2017
|
|
|
$
|
33,639
|
|
|
|
|
(5,691
|
)
|
|
|
|
27,948
|
|
|
Unrealized gain on AFS securities
|
|
|
49,043
|
|
|
|
|
—
|
|
|
|
|
49,043
|
|
|
Net realized gain on AFS securities reclassified to investment income
|
|
|
(6,334
|
)
|
|
|
|
—
|
|
|
|
|
(6,334
|
)
|
|
Net other comprehensive earnings
|
|
|
42,709
|
|
|
|
|
—
|
|
|
|
|
42,709
|
|
|
Balances at September 30, 2017
|
|
|
$
|
76,348
|
|
|
|
|
(5,691
|
)
|
|
|
|
70,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
Balances at June 25, 2016
|
|
|
$
|
59,825
|
|
|
|
|
(5,027
|
)
|
|
|
|
54,798
|
|
|
Unrealized gain on AFS securities
|
|
|
21,263
|
|
|
|
|
—
|
|
|
|
|
21,263
|
|
|
Net realized gain on AFS securities reclassified to investment income
|
|
|
(3,725
|
)
|
|
|
|
—
|
|
|
|
|
(3,725
|
)
|
|
Net other comprehensive earnings
|
|
|
17,538
|
|
|
|
|
—
|
|
|
|
|
17,538
|
|
|
Balances at September 24, 2016
|
|
|
$
|
77,363
|
|
|
|
|
(5,027
|
)
|
|
|
|
72,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PUBLIX SUPER MARKETS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the changes in accumulated other comprehensive earnings net of income taxes for the
nine months ended
September 30, 2017
and
September 24, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS
Securities
|
|
Postretirement
Benefits
|
|
Accumulated Other Comprehensive
Earnings
|
|
|
|
(Amounts are in thousands)
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2016
|
|
|
$
|
29,118
|
|
|
|
|
(5,691
|
)
|
|
|
|
23,427
|
|
|
Unrealized gain on AFS securities
|
|
|
111,585
|
|
|
|
|
—
|
|
|
|
|
111,585
|
|
|
Net realized gain on AFS securities reclassified to investment income
|
|
|
(64,355
|
)
|
|
|
|
—
|
|
|
|
|
(64,355
|
)
|
|
Net other comprehensive earnings
|
|
|
47,230
|
|
|
|
|
—
|
|
|
|
|
47,230
|
|
|
Balances at September 30, 2017
|
|
|
$
|
76,348
|
|
|
|
|
(5,691
|
)
|
|
|
|
70,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
Balances at December 26, 2015
|
|
|
$
|
31,295
|
|
|
|
|
(5,027
|
)
|
|
|
|
26,268
|
|
|
Unrealized gain on AFS securities
|
|
|
54,019
|
|
|
|
|
—
|
|
|
|
|
54,019
|
|
|
Net realized gain on AFS securities reclassified to investment income
|
|
|
(7,951
|
)
|
|
|
|
—
|
|
|
|
|
(7,951
|
)
|
|
Net other comprehensive earnings
|
|
|
46,068
|
|
|
|
|
—
|
|
|
|
|
46,068
|
|
|
Balances at September 24, 2016
|
|
|
$
|
77,363
|
|
|
|
|
(5,027
|
)
|
|
|
|
72,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
October 2, 2017
, the Company declared a quarterly dividend of
$0.23
per share or
$169,900,000
, payable
November 1, 2017
to stockholders of record as of the close of business
October 13, 2017
.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company is engaged in the retail food industry and as of
September 30, 2017
operated
1,154
supermarkets in Florida, Georgia, Alabama, South Carolina, Tennessee, North Carolina and Virginia. For the
nine months ended September 30, 2017
,
27
supermarkets were opened (including
four
replacement supermarkets) and
100
supermarkets were remodeled.
Nine
supermarkets were closed during the period. The
four
replacement supermarkets that opened during the
nine months ended September 30, 2017
replaced two supermarkets that closed during the same period and two supermarkets that closed in 2016. The seven remaining supermarkets closed in 2017 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.
Hurricane Impact
In September 2017, the Company was impacted by Hurricane Irma. Temporary supermarket closings occurred primarily in Florida due to weather conditions and evacuations of certain areas. Almost all affected supermarkets were reopened within two days following the passing of Hurricane Irma, operating on generator power if normal power had not been restored. All supermarkets were reopened within six days except one supermarket in Key West, Florida, which reopened the following week.
The Company estimates that its sales increased $250 million due to the impact of Hurricane Irma. The Company incurred additional costs for inventory losses due to power outages, fuel for generators and facility repairs and clean-up totaling an estimated $25 million. The Company is self-insured for these losses. The Company estimates the profit on the incremental sales resulting from customers stocking up and replenishing, as well as sales of hurricane supplies, more than offset the losses incurred.
Results of Operations
Sales
Sales for the
three months ended September 30, 2017
were
$8.5 billion
as compared with
$8.0 billion
for the
three months ended September 24, 2016
, an increase of
$494.0 million
or
6.2%
. The increase in sales for the
three months ended September 30, 2017
as compared with the
three months ended September 24, 2016
was primarily due to new supermarket sales and the impact of Hurricane Irma. The Company estimates that its sales increased $250
million or 3.1% due to the hurricane. Comparable store sales (supermarkets open for the same weeks in both periods, including replacement supermarkets) increased
4.3%
primarily due to the hurricane. 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 the
nine months ended September 30, 2017
were
$25.6 billion
as compared with
$24.9 billion
for the
nine months ended September 24, 2016
, an increase of
$746.8 million
or
3.0%
. The increase in sales for the
nine months ended September 30, 2017
as compared with the
nine months ended September 24, 2016
was primarily due to new supermarket sales and the impact of Hurricane Irma. The Company estimates that its sales increased $250
million or 1.0% due to the hurricane. Comparable store sales increased
1.2%
primarily due to the hurricane.
Gross profit
Gross profit (sales less cost of merchandise sold) as a percentage of sales was
27.0%
and
26.5%
for the
three months ended September 30, 2017
and
September 24, 2016
, respectively. The increase in gross profit as a percentage of sales for the
three months ended September 30, 2017
as compared with the
three months ended September 24, 2016
was primarily due to volume driven efficiencies related to Hurricane Irma. Gross profit as a percentage of sales was
27.4%
for the
nine months ended September 30, 2017
and
September 24, 2016
.
Operating and administrative expenses
Operating and administrative expenses as a percentage of sales were
20.3%
and
20.6%
for the three months ended September
30, 2017 and
September 24, 2016
, respectively. The decrease in operating and administrative expenses as a percentage of sales for the
three months ended September 30, 2017
as compared with the
three months ended September 24, 2016
was primarily due to volume driven efficiencies related to Hurricane Irma. Operating and administrative expenses as a percentage of sales were
20.5%
and
20.1%
for the
nine months ended September 30, 2017
and
September 24, 2016
, respectively. The increase in operating and administrative expenses as a percentage of sales for the
nine months ended September 30, 2017
as compared with the
nine months ended September 24, 2016
was primarily due to increases in payroll and facility costs as a percentage of sales.
Investment income
Investment income was
$38.4 million
and
$29.0 million
for the
three months ended September 30, 2017
and
September 24, 2016
, respectively. The increase in investment income for the
three months ended September 30, 2017
as compared with the
three months ended September 24, 2016
was primarily due to increases in dividend income and realized gains on the sale of equity securities. Investment income was
$192.9 million
and
$82.2 million
for the
nine months ended September 30, 2017
and
September 24, 2016
, respectively. The increase in investment income for the
nine months ended September 30, 2017
as compared with the
nine months ended September 24, 2016
was primarily due to an increase in realized gains on the sale of equity securities.
Income tax expense
The effective income tax rate was
31.2%
and
27.2%
for the
three months ended September 30, 2017
and
September 24, 2016
, respectively. The increase in the effective income tax rate for the
three months ended September 30, 2017
as compared with the
three months ended September 24, 2016
was primarily due to a decrease in investment related tax credits and the decreased impact of the permanent deductions due to the increase in earnings before income tax expense. The effective income tax rate was
31.6%
and
30.9%
for the
nine months ended September 30, 2017
and
September 24, 2016
, respectively. The increase in the effective income tax rate for the
nine months ended September 30, 2017
as compared with the
nine months ended September 24, 2016
was primarily due to a decrease in investment related tax credits.
Net earnings
Net earnings were
$474.9 million
or
$0.63
per share and
$421.1 million
or
$0.55
per share for the three months ended
September 30, 2017
and
September 24, 2016
, respectively. Net earnings as a percentage of sales were
5.6%
and
5.2%
for the
three months ended September 30, 2017
and
September 24, 2016
, respectively. The increase in net earnings as a percentage of sales for the
three months ended September 30, 2017
as compared with the
three months ended September 24, 2016
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.
Net earnings were
$1,525.3 million
or
$2.01
per share and
$1,481.2 million
or
$1.92
per share for the
nine months ended September 30, 2017
and
September 24, 2016
, respectively. Net earnings as a percentage of sales was
6.0%
for the
nine months ended September 30, 2017
and
September 24, 2016
.
Liquidity and Capital Resources
Cash and cash equivalents, short-term investments and long-term investments totaled
$7,171.2 million
as of
September 30, 2017
, as compared with
$7,176.9 million
as of
December 31, 2016
and $7,355.1 million as of
September 24, 2016
. The decrease from the third quarter of 2016 to the third quarter of 2017 was primarily due to the increase in common stock repurchases, partially offset by the increase in cash generated by operations, including the extension of the September 15, 2017 federal income tax payment until January 31, 2018 due to Hurricane Irma.
Net cash provided by operating activities
Net cash provided by operating activities was
$2,813.0 million
and
$2,618.8 million
for the nine months ended September
30, 2017 and
September 24, 2016
, respectively. The increase in net cash provided by operating activities for the
nine months ended September 30, 2017
as compared with the
nine months ended September 24, 2016
was primarily due to the net effect of timing differences related to operating assets and liabilities, including the extension of the federal income tax payment due to Hurricane Irma.
Net cash used in investing activities
Net cash used in investing activities was
$819.0 million
and
$1,645.0 million
for the
nine months ended September 30, 2017
and
September 24, 2016
, respectively. The primary use of net cash in investing activities for the nine months ended September
30, 2017 was funding capital expenditures, partially offset by net investment activities. Capital expenditures for the
nine months ended September 30, 2017
totaled
$1,063.2 million
. These expenditures were incurred in connection with the opening of
27
new supermarkets (including
four
replacement supermarkets) and remodeling
100
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. For the
nine months ended September 30, 2017
, the proceeds from the sale and maturity of investments, net of the payment for such investments, was
$239.6 million
.
Net cash used in financing activities
Net cash used in financing activities was
$1,761.6 million
and
$1,021.4 million
for the
nine months ended September 30, 2017
and
September 24, 2016
, respectively. The primary use of net cash in financing activities was funding net common stock repurchases and dividend payments. Net common stock repurchases totaled
$1,223.2 million
and
$469.8 million
for the
nine months ended September 30, 2017
and
September 24, 2016
, respectively. The Company currently repurchases common stock at the stockholders’ request in accordance with the terms of the Employee Stock Purchase Plan (ESPP), Non-Employee Directors Stock Purchase Plan (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
$0.6825
per share or
$519.8 million
and
$0.645
per share or
$497.3 million
during the
nine months ended September 30, 2017
and
September 24, 2016
, respectively.
Capital expenditures projection
Capital expenditures for the remainder of
2017
are expected to be approximately
$400 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.
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 3. 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. There have been no material changes in the market risk factors from those disclosed in the Company’s Form 10-K for the year ended
December 31, 2016
.
Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, 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 are 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. 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
September 30, 2017
that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.