UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 30, 2006
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-00981
PUBLIX SUPER MARKETS, INC.
(Exact name of Registrant as specified in its charter)
Florida 59-0324412
(State of Incorporation) (I.R.S. Employer Identification No.)
3300 Publix Corporate Parkway
Lakeland, Florida 33811
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (863) 688-1188
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock $1.00 Par Value
Indicate by check mark if the Registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes X No
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Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No X
----- -----
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer X Accelerated filer Non-accelerated filer
--- --- ---
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Act).
Yes No X
----- -----
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $7,722,062,000 as of June 30, 2006, the last
trading day of the Registrant's most recently completed second fiscal quarter.
The number of shares of Registrant's common stock outstanding as of February 9,
2007 was 838,122,000.
DOCUMENTS INCORPORATED BY REFERENCE
Pages 2 through 17 of the Proxy Statement solicited for the 2007 Annual Meeting
of Stockholders to be held on April 17, 2007 are incorporated by reference in
Items 10, 11, 12, 13 and 14 of Part III hereof.
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 1
Item 1A. Risk Factors 2
Item 1B. Unresolved Staff Comments 4
Item 2. Properties 4
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Executive Officers of the Company 6
PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 10
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 23
Management's Report on Internal Control over Financial
Reporting 24
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 50
Item 9A. Controls and Procedures 50
Item 9B. Other Information 50
PART III
Item 10. Directors, Executive Officers and Corporate Governance 51
Item 11. Executive Compensation 51
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 51
Item 13. Certain Relationships, Related Transactions and Director
Independence 51
Item 14. Principal Accounting Fees and Services 51
PART IV
Item 15. Exhibits, Financial Statement Schedules 52
PART I
Item 1. Business
Publix Super Markets, Inc. and its wholly owned subsidiaries,
hereinafter collectively referred to as the "Company," are in the primary
business of operating retail food supermarkets in Florida, Georgia, South
Carolina, Alabama and Tennessee. The Company has no other significant lines
of business or industry segments.
Merchandising and manufacturing
The Company's supermarkets sell grocery, dairy, produce, deli, bakery,
meat, seafood, housewares and health and beauty care items. Most supermarkets
also have pharmacy and floral departments.
The Company's lines of merchandise include a variety of nationally
advertised and private label brands, as well as unbranded merchandise such as
produce, meat and seafood. These products are delivered through Company
distribution centers or directly from manufacturers and wholesalers. The Company
receives the food and non-food products it distributes from many sources. These
products are generally available in sufficient quantities to enable the Company
to adequately satisfy its customers. The Company believes that its sources of
supply of these products and raw materials used in manufacturing are adequate
for its needs and that it is not dependent upon a single supplier or relatively
few suppliers. Private label items are produced in the Company's dairy, bakery
and deli manufacturing facilities or are manufactured for the Company by outside
suppliers.
The Company has experienced no significant changes in the kinds of
products sold or in its methods of distribution since the beginning of the
fiscal year.
Store operations
The Company operated 892 supermarkets at the end of 2006, compared with
875 at the beginning of the year. In 2006, 29 supermarkets were opened, 12
supermarkets were closed and 58 supermarkets were remodeled. The net increase in
square footage was 0.8 million square feet or 2.0% in 2006. At the end of 2006,
the Company had 645 supermarkets located in Florida, 167 in Georgia, 38 in South
Carolina, 28 in Alabama and 14 in Tennessee. Also, as of year end, the Company
had 21 supermarkets under construction in Florida, two in South Carolina, one in
Georgia, and one in Tennessee.
Competition
The Company is engaged in a highly competitive industry. Competition is
based primarily on price, quality of goods and service, convenience, product mix
and store location. The Company's primary competition throughout its market
areas is with several national and regional supermarket chains, independent
supermarkets, supercenters, membership warehouse clubs, mass merchandisers,
dollar stores, drug stores, specialty food stores, restaurants and convenience
stores. The Company anticipates continued competitor format innovation and
location additions in 2007.
Working capital
The Company's working capital at the end of 2006 consisted of $1,966.0
million in current assets and $1,754.8 million in current liabilities. Normal
operating fluctuations in these balances can result in changes to cash flow from
operating activities presented in the consolidated statements of cash flows that
are not necessarily indicative of long-term operating trends. There are no
unusual industry practices or requirements relating to working capital items.
1
Seasonality
The influx of winter residents to Florida and increased purchases of
food during the traditional Thanksgiving, Christmas and Easter holidays
typically result in seasonal sales increases between November and April of each
year.
Employees
The Company had approximately 140,000 employees at the end of 2006,
approximately 66,000 on a full-time basis and 74,000 on a part-time basis. By
comparison, the Company had approximately 134,000 employees at the end of 2005,
approximately 62,000 on a full-time basis and 72,000 on a part-time basis. The
Company considers its employee relations to be good.
Environmental matters
Compliance by the Company with Federal, state and local environmental
protection laws during 2006 had no material effect upon capital expenditures,
results of operations or the competitive position of the Company.
Company information
This Annual Report on Form 10-K and the 2007 Proxy Statement will be
mailed to stockholders of record as of the close of business on February 9,
2007. These reports as well as Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and any amendments to those reports may also be obtained
electronically, free of charge, through the Company's website at
www.publix.com/stock.
Item 1A. Risk Factors
In addition to the other information contained in this Form 10-K, the
following risk factors should be considered carefully in evaluating the
Company's business. The Company's financial condition and results of operations
could be materially adversely affected by any of these risks. Please note that
additional risks not presently known to the Company or that the Company
currently deems immaterial may also impair its operations.
Competition, low profit margins and other factors
The retail food industry is highly competitive and generally
characterized by low profit margins. The Company's competitors include national
and regional supermarket chains, independent supermarkets, supercenters,
membership warehouse clubs, mass merchandisers, dollar stores, drug stores,
specialty food stores, restaurants and convenience stores. Competition is based
primarily on price, quality of goods and service, convenience, product mix and
store location. The Company believes it will face increased competition in the
future from all of these competitors and its financial condition and results of
operations could be impacted by the pricing, purchasing, advertising or
promotional decisions made by the competitors. In addition, the Company's
business could be adversely affected by other factors, including severe weather
conditions, unexpected increases in fuel or other transportation related costs
and volatility in food commodity prices. Any of these factors could adversely
affect the Company's financial condition and results of operations.
Labor intensive business
The retail food industry is labor intensive. In addition, the Company's
operations tend to be more labor intensive than some of its competitors due to
the additional customer service offered in its supermarkets. Tight labor
markets, government mandated increases in the minimum wage or other benefits, an
increased proportion of full-time employees and increased costs of health care
and other benefits could result in an increase in labor costs, which could
adversely affect the Company's financial condition and results of operations.
2
Strategy execution
The Company's core strategy focuses on customer service, product
quality, shopping environment, competitive pricing and convenient locations. The
Company has implemented several strategic business and technology initiatives as
part of the execution of these core strategies. The Company believes these core
strategies and related strategic initiatives differentiate it from its
competition and present opportunities for increased market share and sustained
financial growth. Failure to execute on these core strategies could adversely
affect the Company's financial condition and results of operations.
New supermarket growth
The Company's ability to open new supermarkets is dependent on
identifying and entering into lease or purchase agreements on commercially
reasonable terms for properties that are suitable for its needs. If the Company
fails to identify suitable sites and enter into lease or purchase agreements on
a timely basis for any reason, including competition from other companies
seeking similar sites, the Company's growth may be impaired because it may be
unable to open new supermarkets as anticipated. Similarly, its business may be
harmed if it is unable to renew the leases on its existing supermarkets on
commercially reasonable terms.
Information technology
The Company is dependent on information technology applications to
operate its business, enhance customer service, improve the efficiency of its
supply chain and increase employee efficiency. A failure to timely integrate new
information technology applications or upgrade existing applications could have
an adverse impact on the Company's financial condition and results of
operations. In addition, any disruptions in these applications due to
information security breakdowns, internal failures of technology, severe damage
to the data center or large scale external interruptions in technology
infrastructure, such as power, telecommunications, or the internet, could also
have an adverse impact on the Company's financial condition and results of
operations.
Product liability claims and adverse publicity
The packaging, marketing, distribution and sale of food and drug
products purchased from others or manufactured by the Company entail an inherent
risk of product liability claims, product recall and the resulting adverse
publicity. Such products may contain contaminants that may be inadvertently
distributed by the Company. These contaminants may, in certain cases, result in
illness, injury or death if processing at the consumer level does not eliminate
the contaminants. Even an inadvertent shipment of adulterated products is a
violation of law and may lead to a product recall and/or an increased risk of
exposure to product liability claims. There can be no assurance that such claims
will not be asserted against the Company or that the Company will not be
obligated to perform such a recall in the future. If a product liability claim
is successful, the Company's insurance may not be adequate to cover all
liabilities it may incur, and it may not be able to continue to maintain such
insurance or obtain comparable insurance at a reasonable cost, if at all. If the
Company does not have adequate insurance or contractual indemnification
available, product liability claims relating to defective products could have a
material adverse effect on the Company's ability to successfully market its
products and on the Company's financial condition and results of operations. In
addition, even if a product liability claim is not successful or is not fully
pursued, the adverse publicity surrounding any assertion that the Company's
products caused illness or injury could have a material adverse effect on the
Company's reputation with existing and potential customers and on the Company's
financial condition and results of operations.
Environmental liability
The Company is subject to Federal, state and local laws and regulations
that govern activities that may have adverse environmental effects and impose
liabilities for the costs of cleaning up and certain damages arising from sites
3
of past spills, disposals or other releases of hazardous materials. Under
applicable environmental laws, the Company may be responsible for the
remediation of environmental conditions and may be subject to associated
liabilities relating to its supermarkets and other facilities regardless of
whether the Company leases, subleases or owns the supermarkets or other
facilities and regardless of whether such environmental conditions were created
by the Company or a prior owner or tenant. The costs of investigation,
remediation or removal of environmental conditions may be substantial. There can
be no assurance that environmental conditions relating to prior, existing or
future sites will not adversely affect the Company's financial condition and
results of operations through, for instance, business interruption, cost of
remediation or adverse publicity.
Laws and regulations
In addition to environmental laws and regulations, the Company is
subject to Federal, state and local laws and regulations relating to, among
other things, product safety, zoning, land use, work place safety, public
health, accessibility and restrictions on the sale of various products including
alcoholic beverages, tobacco and drugs. The Company is also subject to laws
governing its relationship with employees, including minimum wage requirements,
overtime, working conditions, disabled access and work permit requirements.
Compliance with, or changes in, these laws could adversely affect the Company's
financial condition and results of operations.
Legal proceedings
The Company is a party in various legal claims and actions considered in
the normal course of business including labor and employment, personal injury,
intellectual property and other issues. Although not currently anticipated by
management, the results of pending or future proceedings could adversely affect
the Company's financial condition or results of operations.
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
At year end, the Company operated approximately 40.8 million square feet
of supermarket space. The Company's supermarkets vary in size. Current
supermarket prototypes range from 28,000 to 61,000 square feet. Supermarkets are
often located in strip shopping centers where the Company is the anchor tenant.
The majority of the Company's supermarkets are leased. Substantially all
of these leases will expire during the next 20 years. However, in the normal
course of business, it is expected that the leases will be renewed or replaced
by leases on other properties. At 62 locations, both the building and land are
owned, and at 33 other locations, the building is owned while the land is
leased.
The Company supplies its supermarkets from eight primary distribution
centers located in Lakeland, Miami, Jacksonville, Sarasota, Orlando, Deerfield
Beach and Boynton Beach, Florida, and Lawrenceville, Georgia.
The Company operates six manufacturing facilities including three dairy
plants located in Lakeland and Deerfield Beach, Florida, and Lawrenceville,
Georgia, two bakery plants located in Lakeland, Florida and Atlanta, Georgia and
a deli plant located in Lakeland, Florida.
4
The Company's corporate offices, primary distribution centers and
manufacturing facilities are owned with no outstanding debt.
The Company's properties are well maintained, in good operating
condition and suitable and adequate for operating its business.
Item 3. Legal Proceedings
The Company is a party in various legal claims and actions considered in
the normal course of business. In the opinion of management, the ultimate
resolution of these legal proceedings will not have a material adverse effect on
the Company's financial condition, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
None
5
EXECUTIVE OFFICERS OF THE COMPANY
Served as
Nature of Family Officer of
Relationship Company
Name Age Position Between Officers Since
John A. Attaway, Jr. 48 Senior Vice President, 2000
General Counsel and
Secretary
Hoyt R. Barnett 63 Vice Chairman 1977
David E. Bornmann 49 Vice President 1998
David E. Bridges 57 Vice President 2000
Scott E. Brubaker 48 Vice President 2005
R. Scott Charlton 48 Senior Vice President 1992
William E. Crenshaw 56 President Cousin of 1990
Charles H. Jenkins, Jr.
G. Gino DiGrazia 44 Vice President 2002
and Controller
David S. Duncan 53 Vice President 1999
William V. Fauerbach 60 Vice President 1997
John R. Frazier 57 Vice President 1997
Linda S. Hall 47 Vice President 2002
M. Clayton Hollis, Jr. 50 Vice President 1994
John T. Hrabusa 51 Senior Vice President 2004
Mark R. Irby 51 Vice President 1989
Charles H. Jenkins, Jr. 63 Chief Executive Cousin of 1974
Officer William E. Crenshaw
Randall T. Jones, Sr. 44 Senior Vice President 2003
Linda S. Kane 41 Vice President and 2000
Assistant Secretary
Thomas M. McLaughlin 56 Vice President 1994
Sharon A. Miller 63 Assistant Secretary 1992
6
EXECUTIVE OFFICERS OF THE COMPANY
Served as
Nature of Family Officer of
Relationship Company
Name Age Position Between Officers Since
Robert H. Moore 64 Vice President 1994
Dale S. Myers 54 Vice President 2001
Alfred J. Ottolino 41 Vice President 2004
David P. Phillips 47 Chief Financial 1990
Officer and Treasurer
James H. Rhodes II 62 Vice President 1995
Richard J. Schuler II 51 Vice President 2000
Edward T. Shivers 67 Vice President 1985
Michael R. Smith 47 Vice President 2005
Sandra J. Woods 47 Vice President 2002
and Controller
Laurie S. Zeitlin 43 Senior Vice President 2006
and Chief Information
Officer
The terms of all officers expire in May 2007 or upon the election of their successors.
7
Name Business Experience During Last Five Years
John A. Attaway, Jr. General Counsel and Secretary of the Company to January 2005, Senior Vice President, General Counsel
and Secretary thereafter.
Hoyt R. Barnett Vice Chairman of the Company and Trustee of the Employee Stock Ownership Plan.
David E. Bornmann Vice President of the Company.
David E. Bridges Vice President of the Company.
Scott E. Brubaker Regional Director of Retail Operations-Lakeland Division of the Company to June 2004,
Regional Director of Retail Operations-Jacksonville Division to July 2005, Vice President thereafter.
R. Scott Charlton Vice President of the Company to July 2005, Senior Vice President thereafter.
William E. Crenshaw President of the Company.
G. Gino DiGrazia Director of Business Analysis and Reporting to May 2002, Vice President and Controller thereafter.
David S. Duncan Vice President of the Company.
William V. Fauerbach Vice President of the Company.
John R. Frazier Vice President of the Company.
Linda S. Hall Director of Internal Audit to November 2002, Vice President thereafter.
M. Clayton Hollis, Jr. Vice President of the Company.
John T. Hrabusa Vice President of Office Depot, Inc. to March 2004, Vice President of the Company to January 2005,
Senior Vice President thereafter.
Mark R. Irby Vice President of the Company.
Charles H. Jenkins, Jr. Chief Executive Officer of the Company.
Randall T. Jones, Sr. Regional Director of Retail Operations - Jacksonville Division of the Company to November 2003,
Vice President to July 2005, Senior Vice President thereafter.
Linda S. Kane Director of Benefits Administration and Assistant Secretary of the Company to May 2002,
Vice President and Assistant Secretary thereafter.
Thomas M. McLaughlin Vice President of the Company.
8
Name Business Experience During Last Five Years
Sharon A. Miller Director of Administration and Assistant Secretary of the Company to May 2003, Executive Director
Publix Super Markets Charities, Inc. and Assistant Secretary thereafter.
Robert H. Moore Vice President of the Company.
Dale S. Myers Vice President of the Company.
Alfred J. Ottolino Vice President of Wakefern Food Corporation to June 2003, Vice President of Winn-Dixie Stores, Inc.
from July 2003 to March 2004, Vice President of the Company thereafter.
David P. Phillips Chief Financial Officer and Treasurer of the Company.
James H. Rhodes II Vice President of the Company.
Richard J. Schuler II Vice President of the Company.
Edward T. Shivers Vice President of the Company.
Michael R. Smith Director of Deli and Bakery Manufacturing to July 2004, Director of Fresh Product Manufacturing to
July 2005, Vice President thereafter.
Sandra J. Woods Director of Corporate Accounting to May 2002, Vice President and Controller thereafter.
Laurie S. Zeitlin Vice President of The Home Depot, Inc.to November 2003, Senior Vice President and Chief Information
Officer of Kinko's, Inc. to February 2004, Senior Vice President and Chief Information Officer of
FedEx Kinko's Office and Print Center, Inc. to January 2006, Senior Vice President and Chief
Information Officer of the Company thereafter.
9
PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
(a) Market Information*
The Company's common stock is not traded on any public stock exchange.
Therefore, substantially all transactions of the Company's common stock
have been among the Company, its employees, former employees, their
families and the benefit plans established for the Company's employees.
The Company's common stock is made available for sale only to the
Company's current employees through the Company's Employee Stock
Purchase Plan (ESPP) and 401(k) Plan. In addition, common stock is made
available under the Employee Stock Ownership Plan (ESOP). Common stock
is also made available for sale to members of the Company's Board of
Directors through the Non-Employee Directors Stock Purchase Plan
(Directors Plan). The Company currently repurchases common stock subject
to certain terms and conditions. The ESPP, 401(k) Plan, ESOP and
Directors Plan each contain provisions prohibiting any transfer for
value without the owner first offering the common stock to the Company.
The Company serves as the registrar and stock transfer agent for its
common stock.
Because there is no trading of the Company's common stock on a public
stock exchange, the market price of the Company's common stock is
determined by the Board of Directors based upon quarterly appraisals
prepared by an independent appraiser. The market prices for the
Company's common stock for 2006 and 2005 were as follows:
2006 2005
---- ----
January - February $15.45 11.70
March - April 16.10 12.80
May - July 17.65 13.30
August - October 18.25 14.55
November - December 19.60 15.45
(b) Approximate Number of Equity Security Holders
As of February 9, 2007, the approximate number of holders of the
Company's common stock was 104,000.
(c) Dividends*
The Company paid an annual cash dividend of $0.20 per share of common
stock in 2006 and $0.14 per share in 2005. Payment of dividends is
within the discretion of the Company's Board of Directors and depends
on, among other factors, net earnings, capital requirements and the
financial condition of the Company. It is believed that comparable cash
dividends will be paid in the future.
* Restated to give retroactive effect for 5-for-1 stock split in
July 2006.
10
(d) Purchases of Equity Securities by the Issuer
Issuer Purchases of Equity Securities
Shares of common stock repurchased by the Company during the three months ended December 30, 2006
were as follows:
Total
Number of Approximate
Shares Dollar Value
Purchased as of Shares
Total Average Part of Publicly that May Yet Be
Number of Price Announced Purchased Under
Shares Paid per Plans or the Plans or
Period Purchased Share Programs (1) Programs (1)
------ --------- ----- ------------ ------------
October 1, 2006
through
November 4, 2006 897,146 $18.53 N/A N/A
November 5, 2006
through
December 2, 2006 5,603,012 19.60 N/A N/A
December 3, 2006
through
December 30, 2006 1,821,966 19.60 N/A N/A
--------- ------
Total 8,322,124 $19.48 N/A N/A
========= ======
(1) Common stock is made available for sale only to the Company's
current employees through the Company's ESPP and 401(k) Plan. In
addition, common stock is made available under the ESOP. Common
stock is also made available for sale to members of the Company's
Board of Directors through the Directors Plan. The Company
currently repurchases common stock subject to certain terms and
conditions. The ESPP, 401(k) Plan, ESOP and Directors Plan each
contain provisions prohibiting any transfer for value without the
owner first offering the common stock to the Company.
The Company's common stock is not traded on any public stock
exchange. The amount of common stock offered to the Company for
repurchase is not within the control of the Company, but is at the
discretion of the stockholders. The Company does not believe that
these repurchases of its common stock are within the scope of a
publicly announced plan or program (although the terms of the
plans discussed above have been communicated to the participants).
Thus, the Company does not believe that it has made any
repurchases during the three months ended December 30, 2006
required to be disclosed in the last two columns of the table.
11
(e) Performance Graph
The following performance graph sets forth the Company's cumulative
total stockholder return during the five years ended December 30, 2006,
with the cumulative total return on the S&P 500 Index and a custom Peer
Group Index including companies in the same line of business (retail
food supermarket companies) (1). The Company added Ahold, Delhaize and
Supervalu to its Peer Group Index due to their significant ownership of
U.S. supermarkets. The Peer Group Index is weighted based on the
various companies' market capitalization. The comparison assumes $100
was invested at the end of 2001 in the Company's common stock and in
each of the related indices and assumes reinvestment of dividends.
The Company's common stock is valued as of the end of each fiscal
quarter. After the end of a quarter, however, shares continue to be
traded at the prior valuation until the new valuation is received. The
cumulative total return for the companies represented in the S&P 500
Index and the custom Peer Group Index is based on those companies'
calendar year end trading price. The following performance graph is
based on the Company's trading price at fiscal year end based on its
appraised value as of the prior fiscal quarter. Because the Company's
fiscal year end valuation of the Company's shares is effective after
the deadline to file this document with the Securities and Exchange
Commission, a performance graph based on the fiscal year end valuation
(appraised value as of March 1, 2007) is not presented below. Rather,
for comparative purposes, a performance graph based on the fiscal year
end valuation is provided in the 2007 Proxy Statement.
Comparison of Five-Year Cumulative Return Based Upon Year End Trading Price
2001 2002 2003 2004 2005 2006
--------------------------------------------------------------------------------------------------------------------------
Publix $100.00 90.92 115.48 146.54 195.54 250.88
S&P 500 100.00 76.65 97.70 109.75 115.32 133.53
Peer Group(1) 100.00 58.97 62.23 64.86 65.96 86.59
(1) Companies included in the Peer Group are: A&P, Ahold, Albertson's (included
through December 2005 - no longer publicly traded), Delhaize, Kroger, Safeway,
Supervalu, Weis Markets and Winn-Dixie. (Winn-Dixie is included through December
2005 as the company filed for Chapter 11 bankruptcy protection. Winn-Dixie's new
common stock did not begin trading until November 2006 so it was not included.)
12
Item 6. Selected Financial Data
2006 2005 2004 2003 2002
---- ---- ---- ---- ----
Sales:
Sales $21,654,774 20,589,130 18,554,486 16,760,749 15,851,301
Percent increase 5.2% 11.0% 10.7% 5.7% 4.2%
Comparable store sales
percent increase
(decrease) 5.2% 5.4% 5.7% 0.0% (0.7%)
Earnings:
Gross profit $ 5,842,817 5,529,450 4,976,746 4,485,617 4,229,539
Earnings before income
tax expense $ 1,687,553 1,550,738 1,295,011 1,047,089 1,002,830
Net earnings $ 1,097,209 989,156 819,383 660,933 632,404
Net earnings as a
percent of sales 5.07% 4.80% 4.42% 3.94% 3.99%
Common stock:*
Weighted average
shares outstanding 849,815,000 860,196,000 883,879,000 920,564,000 972,331,000
Basic and diluted
earnings per
common share,
based on weighted
average shares
outstanding $ 1.29 1.15 0.93 0.72 0.65
Cash dividends per
share $ 0.20 0.14 0.09 0.08 0.066
Financial data:
Capital expenditures $ 481,247 338,946 403,373 563,576 635,891
Working capital $ 211,219 236,488 221,583 209,941 127,870
Current ratio 1.12 1.13 1.13 1.15 1.10
Total assets $ 7,393,086 6,727,223 5,964,271 5,150,717 4,789,602
Stockholders' equity $ 4,974,865 4,205,774 3,585,716 3,169,310 3,008,068
Supermarkets 892 875 850 801 741
NOTE: Amounts are in thousands, except shares outstanding, per share amounts and number of supermarkets.
Fiscal year 2005 includes 53 weeks. All other years include 52 weeks.
* Restated to give retroactive effect for 5-for-1 stock split in July 2006.
13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company is primarily engaged in the retail food industry,
operating supermarkets in Florida, Georgia, South Carolina, Alabama and
Tennessee. The Company has no other significant lines of business or industry
segments. As of December 30, 2006, the Company operated 892 supermarkets
representing approximately 40.8 million square feet of space.
At the end of 2006, the Company had 645 supermarkets located in
Florida, 167 in Georgia, 38 in South Carolina, 28 in Alabama and 14 in
Tennessee. The Company opened 13 supermarkets in Florida, nine supermarkets in
Georgia, three supermarkets in Tennessee, three supermarkets in Alabama and one
supermarket in South Carolina during 2006. The Company closed 12 supermarkets in
2006, including six supermarkets that were replaced by new supermarkets.
The Company's revenues are earned and cash is generated as merchandise
is sold to customers in the supermarkets. Income is earned by selling
merchandise at price levels that produce sales revenues in excess of cost of
merchandise sold and operating and administrative expenses. The Company has
historically been able to increase revenues and net earnings from year to year.
Further, the Company has historically been able to meet its cash requirements
from internally generated funds without the need to generate cash through debt
financing. The Company's year end cash balances are significantly impacted
during the year by capital expenditures, investment transactions, stock
repurchases and the annual cash dividend.
The Company sells a variety of merchandise to generate revenues. This
merchandise includes grocery, dairy, produce, deli, bakery, meat, seafood,
housewares and health and beauty care items. Most of the Company's supermarkets
also have pharmacy and floral departments. Merchandise includes a mix of
nationally advertised and private label brands. The Company's private label
brands play an increasingly important role in its merchandising strategy.
In 2001, the Company began piloting a convenience store concept. As of
December 30, 2006, the Company operated five convenience stores in Florida.
In 2002, the Company acquired a minority interest in Crispers, a
casual dining restaurant chain based in Lakeland, Florida. In 2004, the
Company increased its ownership in Crispers to a majority position. As of
December 30, 2006, Crispers operated 39 restaurants in Florida.
In 2004, the Company began piloting a liquor store concept. The liquor
stores are located adjacent to the Company's supermarkets. As of December 30,
2006, the Company operated 23 liquor stores in Florida.
Operating Environment
The Company is engaged in the highly competitive retail food industry.
Competition is based primarily on price, quality of goods and service,
convenience, and product mix. In addition, the Company competes with other
retailers for prime retail site locations. The Company competes with retailers
as well as other labor market competitors in attracting and retaining quality
employees. The Company's primary competition throughout its market areas is with
several national and regional traditional supermarket chains, independent
supermarkets and specialty food stores, as well as non-traditional
14
competition such as supercenters, membership warehouse clubs, mass
merchandisers, dollar stores, drug stores, restaurants and convenience stores.
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
non-traditional competition. The success of the Company, in particular its
ability to retain its customers, depends on its ability to meet the business
challenges created by this competitive environment.
In order to meet the competitive challenges facing the Company,
management continues to focus on the Company's 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 increased
market share and sustained financial growth.
Liquidity and Capital Resources
Cash and cash equivalents, short-term investments and long-term
investments totaled $2,621.6 million as of December 30, 2006, as compared with
$2,029.1 million and $1,390.4 million as of December 31, 2005 and December 25,
2004, respectively.
Net cash provided by operating activities
Net cash provided by operating activities was $1,629.4 million for the
year ended December 30, 2006, as compared with $1,579.8 million and $1,643.2
million for the years ended December 31, 2005 and December 25, 2004,
respectively. As a result of Hurricane Wilma that occurred during the fourth
quarter of 2005, the Company received an extension on its Federal income tax
payment due December 15, 2005 until February 28, 2006. The delay in this tax
payment increased net cash provided by operating activities by $95 million
during the year ended December 31, 2005 with the resulting decrease in net cash
provided by operating activities occurring during the year ended December 30,
2006. During 2004, the Company experienced an unprecedented four major
hurricanes in six weeks. As a result, the Company received an extension on its
Federal income tax payments due September 15, 2004 and December 15, 2004 until
December 30, 2004 (which fell within the 2005 fiscal year). The delay in these
tax payments increased net cash provided by operating activities by $190 million
during the year ended December 25, 2004 with the resulting decrease in net cash
provided by operating activities occurring during the year ended December 31,
2005. Any net cash in excess of the amount needed for current operations is
invested in short-term and long-term investments.
Net cash used in investing activities
Net cash used in investing activities was $1,139.6 million for the year
ended December 30, 2006, as compared with $1,031.6 million and $950.3 million
for the years ended December 31, 2005 and December 25, 2004, respectively. The
primary use of net cash in investing activities was funding capital expenditures
and purchasing investments. During the year ended December 30, 2006, capital
expenditures totaled $481.2 million. These expenditures were primarily incurred
in connection with the opening of 17 net new supermarkets (29 new supermarkets
opened and 12 supermarkets closed) and remodeling 58 supermarkets. Net new
supermarkets added an additional 0.8 million square feet in the year ended
December 30, 2006, a 2.0% increase. Significant expenditures were also incurred
for new or enhanced information technology hardware and applications and
emergency backup generators. During the year ended December 31, 2005, capital
expenditures totaled $338.9 million. These expenditures were primarily incurred
in connection with the opening of 25 net new supermarkets (36 new supermarkets
opened and 11 supermarkets closed) and remodeling 48 supermarkets. Net new
15
supermarkets added an additional 1.1 million square feet in the year ended
December 31, 2005, a 2.8% increase. Significant expenditures were also incurred
in the expansion of warehouses and new or enhanced information technology
hardware and applications. During the year ended December 25, 2004, capital
expenditures totaled $403.4 million. These expenditures were primarily incurred
in connection with the opening of 49 net new supermarkets (57 new supermarkets
opened and eight supermarkets closed) and remodeling or expanding 71
supermarkets. Net new supermarkets and expansions added an additional 2.1
million square feet in the year ended December 25, 2004, a 5.7% increase.
Significant expenditures were also incurred in the expansion of warehouses,
office construction and new or enhanced information technology hardware and
applications.
Capital expenditure projection
In 2007, the Company plans to open approximately 37 supermarkets.
Although real estate development is unpredictable, the Company's 2007 new store
growth represents a reasonable estimate of anticipated future growth. Capital
expenditures for 2007 are expected to be approximately $600 million, primarily
consisting of new supermarkets, remodeling certain existing supermarkets, new or
enhanced information technology hardware and applications, emergency backup
generators and expansion of warehouses. This capital program is subject to
continuing change and review. 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.
Net cash used in financing activities
Net cash used in financing activities was $602.3 million for the year
ended December 30, 2006, as compared with $582.6 million and $599.7 million for
the years ended December 31, 2005 and December 25, 2004, respectively. The
primary use of net cash in financing activities was funding net common stock
repurchases and payment of the annual cash dividend. The Company currently
repurchases common stock at the stockholders' request in accordance with the
terms of the Company's ESPP, 401(k) Plan, ESOP and Directors Plan. Net common
stock repurchases totaled $430.5 million for the year ended December 30, 2006,
as compared with $460.5 million and $518.8 million for the years ended
December 31, 2005 and December 25, 2004, respectively. 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 currently appraised value for amounts similar to those
in prior years. However, such purchases are not required and the Company retains
the right to discontinue them at any time.
Dividends*
The Company paid an annual cash dividend on its common stock of $0.20
per share or $171.6 million, $0.14 per share or $121.9 million and $0.09 per
share or $80.8 million in 2006, 2005 and 2004, respectively.
Cash requirements
In 2007, the cash requirements for current operations, capital
expenditures and common stock repurchases 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
readily available to support the Company's liquidity requirements, if needed.
* Restated to give retroactive effect for 5-for-1 stock split in July 2006.
16
Contractual Obligations
Following is a summary of contractual obligations as of December 30, 2006:
Payments Due by Period
----------------------
2008 2010 There-
Total 2007 2009 2011 after
----- ---- ---- ---- -----
(Amounts are in thousands)
Contractual Obligations:
Operating leases (1) $4,123,160 352,082 677,577 625,983 2,467,518
Purchase obligations (2)(3)(4) 1,838,775 738,416 215,475 183,518 701,366
Other long-term liabilities:
Self-insurance reserves (5) 363,237 112,177 96,030 44,163 110,867
Accrued postretirement
benefit cost (6) 81,852 2,958 6,673 7,677 64,544
Other noncurrent liabilities 17,729 --- 17,729 --- ---
---------- --------- --------- ------- ---------
Total $6,424,753 1,205,633 1,013,484 861,341 3,344,295
========== ========= ========= ======= =========
(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 30, 2006, the Company had $8.7 million outstanding in
trade letters of credit and $1.7 million outstanding in standby letters
of credit to support certain of these purchase obligations.
(4) Purchase obligations include $1.2 billion 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 30, 2006, the Company had $184.2 million outstanding in
standby letters of credit for the benefit of the Company's insurance
carriers to support this obligation.
(6) For a more detailed description of the postretirement benefit
obligations, refer to Note 5 Postretirement Benefits in the Notes to
Consolidated Financial Statements.
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.
17
Hurricane Impact - 2006
The Company was not impacted by any hurricanes in 2006.
Hurricane Impact - 2005
During the fourth quarter ended December 31, 2005, the Company was
impacted by Hurricane Wilma. The Company recorded the effect of this hurricane
in the fourth quarter of 2005.
Temporary supermarket closings occurred primarily in south Florida due
to weather conditions, evacuations of certain areas and damage to the Company's
supermarkets. Almost all affected supermarkets were reopened within 24 hours,
operating on generator power if normal power had not been restored. All
supermarkets were reopened within nine days, except one location. This
supermarket sustained significant damage causing it to be permanently closed.
The impact of Hurricane Wilma did not have a material adverse effect on
the Company's financial condition, results of operations or cash flows. The
Company estimated additional costs related to Hurricane Wilma included in cost
of merchandise sold were approximately $35 million. These costs were primarily
related to inventory losses due to extensive power outages and additional
distribution costs. The additional operating and administrative expenses related
to Hurricane Wilma were approximately $8 million. These expenses were primarily
related to incremental payroll, facility repairs and disposal fees for inventory
lost due to power outages. The Company estimated the profit on the incremental
sales resulting from customers stocking up and replenishing, as well as sales of
hurricane supplies, partially offset these losses.
The Company maintains property insurance coverage for hurricanes on a
per occurrence basis. The deductible on the Company's insurance coverage for
this occurrence was approximately $31 million. The Company recorded an estimated
amount of insurance recovery in 2005, received partial payment of this recovery
from its insurance carrier in 2006 and expects to receive the balance in 2007.
Hurricane Impact - 2004
During the third quarter ended September 25, 2004, the Company
experienced an unprecedented four major hurricanes in six weeks. The Company
recorded the effect of these hurricanes, Charley, Frances, Ivan and Jeanne, in
the third quarter of 2004.
Temporary supermarket closings occurred throughout the Company due to
weather conditions and evacuations of certain areas. Almost all affected
supermarkets were reopened within 24 hours, operating on generator power if
normal power had not been restored. All supermarkets were reopened within five
days.
The impact of the four hurricanes on the Company did not have a material
adverse effect on the Company's financial condition, results of operations or
cash flows. The Company estimated additional costs related to the four
hurricanes included in cost of merchandise sold were approximately $58 million.
These costs were primarily related to inventory losses due to power outages and
additional distribution costs. The additional operating and administrative
expenses related to the four hurricanes were approximately $5 million. These
expenses were primarily related to facility repairs and disposal fees for
inventory lost due to power outages. The Company estimated the profit on the
incremental sales resulting from repeated cycles of customers stocking up and
replenishing, as well as sales of hurricane supplies, largely offset the losses
incurred by the Company. The losses incurred by the Company were below the
insurance policy deductible limits per occurrence, so there was no recovery of
the losses from insurance coverage.
18
Results of Operations
The Company's fiscal year ends on the last Saturday in December. Fiscal
years 2006 and 2004 included 52 weeks and fiscal year 2005 included 53 weeks.
Sales
Sales for 2006 were $21.7 billion as compared with $20.6 billion in
2005, an increase of $1,065.6 million or a 5.2% increase. After excluding sales
of $387.5 million for the extra week included in 2005, this reflects an increase
of approximately $412.1 million or 2.0% from net new supermarkets and
approximately $1,041.0 million or 5.2% from comparable store sales (supermarkets
open for the same weeks in both periods, including replacement supermarkets).
The Company estimates that sales for 2005 were positively impacted by
approximately $73 million as a result of the hurricane the Company experienced
during the fourth quarter of 2005. If sales for 2005 had not been positively
impacted by the hurricane, the reported 5.2% increase in comparable store sales
for 2006 would have been 5.6%.
Sales for 2005 were $20.6 billion as compared with $18.6 billion in
2004, an increase of $2,034.6 million or an 11.0% increase. Sales increased
approximately $387.5 million or 2.1% from an additional week in 2005,
approximately $645.2 million or 3.5% from net new supermarkets and approximately
$1,001.9 million or 5.4% from comparable store sales. The Company estimates that
sales for 2005 were positively impacted by approximately $73 million as a result
of the hurricane the Company experienced during the fourth quarter of 2005. The
Company estimates that sales for 2004 were positively impacted by approximately
$189 million as a result of the unprecedented four major hurricanes the Company
experienced during 2004. If sales for 2005 and 2004 had not been positively
impacted by the hurricanes, the reported 5.4% increase in comparable store sales
for 2005 would have been 6.1%.
Sales for 2004 were $18.6 billion as compared with $16.8 billion in
2003, an increase of $1,793.7 million or a 10.7% increase. Sales increased
approximately $833.7 million or 5.0% from net new supermarkets and approximately
$960.0 million or 5.7% from comparable store sales. The Company estimates that
sales for 2004 were positively impacted by approximately $189 million as a
result of the unprecedented four major hurricanes the Company experienced during
2004. If sales for 2004 had not been positively impacted by the hurricanes, the
reported 5.7% increase in comparable store sales for 2004 would have been 4.6%.
Gross profit
Gross profit as a percentage of sales was 27.0% in 2006 as compared with
26.9% and 26.8% in 2005 and 2004, respectively. In 2006, gross profit as a
percentage of sales remained relatively unchanged compared to 2005 and 2004.
Operating and administrative expenses
Operating and administrative expenses as a percentage of sales were
20.6%, 20.6% and 20.9% in 2006, 2005 and 2004, respectively. In 2006, operating
and administrative expenses as a percentage of sales remained relatively
unchanged compared to 2005 and 2004. Employee benefit costs decreased as a
percentage of sales during 2006 which were offset by increases in utilities and
other operating expenses. The decrease in operating and administrative expenses
as a percentage of sales during 2005 was primarily due to the incremental sales
from an additional week and a decrease in workers' compensation, partially
offset by increases in certain facilities costs as a percentage of sales.
Investment income, net
Investment income, net was $115.9 million, $74.3 million and $35.3
million in 2006, 2005 and 2004, respectively. The increase in investment income,
net was primarily due to higher average balances of short-term and long-term
investments as well as higher interest rates during 2006 and 2005.
19
Income taxes
The effective income tax rates were 35.0%, 36.2% and 36.7% in 2006, 2005
and 2004, respectively. The decrease in the effective income tax rate is driven
by increases in tax exempt income, dividends paid to ESOP participants,
deductions for manufacturing production costs and the favorable resolution of
certain tax issues.
Impact of inflation
In recent years, the impact of inflation on the Company's product costs
has been lower than the overall increase in the Consumer Price Index.
Net earnings*
Net earnings were $1,097.2 million or $1.29 per share, $989.2 million or
$1.15 per share and $819.4 million or $0.93 per share for 2006, 2005 and 2004,
respectively.
* Restated to give retroactive effect for 5-for-1 stock split in July 2006.
Accounting Standards
In November 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard No. 151, "Inventory Costs,"
(SFAS 151) effective for fiscal years beginning after June 15, 2005. SFAS 151
amends Accounting Research Bulletin No. 43, Chapter 4, "Inventory Pricing," to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs and wasted material. SFAS 151 requires that those items be
recognized as current period charges and requires that allocation of fixed
production overhead to the cost of conversion be based on the normal capacity of
the production facilities. The adoption of SFAS 151 did not have a material
effect on the Company's financial condition, results of operations or cash
flows.
In December 2004, the FASB issued a revision to Statement of Financial
Accounting Standard No. 123, "Share-Based Payment," (SFAS 123(R)) effective for
fiscal years beginning after June 15, 2005. SFAS 123(R) requires all stock-based
compensation awards to be recorded at fair value as an expense in the Company's
consolidated financial statements. The Company does not currently have any
stock-based employee compensation subject to SFAS 123(R). Therefore, the
adoption of SFAS 123(R) had no effect on the Company's financial condition,
results of operations or cash flows.
In May 2005, the FASB issued Statement of Financial Accounting Standard
No. 154, "Accounting Changes and Error Corrections," (SFAS 154) effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. SFAS 154 replaces Accounting Principles Board Opinion
20, "Accounting Changes," and Statement of Financial Accounting Standard No. 3,
"Reporting Accounting Changes in Interim Financial Statements." Among other
changes, SFAS 154 requires retrospective application to prior periods' financial
statements for changes in accounting principle, unless it is impractical to
determine either the period-specific effects or the cumulative effect of the
change. SFAS 154 also requires that a change in depreciation, amortization, or
depletion method for long-lived non-financial assets be accounted for as a
change in accounting estimate effected by a change in accounting principle. The
adoption of SFAS 154 will only affect the Company's financial condition or
results of operations if it has such changes or corrections of errors in the
future.
In June 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109,"
(FIN 48) effective for fiscal years beginning after December 15, 2006. FIN 48
20
clarifies the accounting for uncertainty in tax positions. FIN 48 requires
financial statement recognition of the impact of a tax position when it is more
likely than not, based on its technical merits, that the position will be
sustained upon examination and the cumulative effect of the change in accounting
principle is to be recorded as an adjustment to opening retained earnings. The
adoption of FIN 48 is not expected to have a material effect on the Company's
financial condition, results of operations or cash flows.
In June 2006, the FASB ratified Emerging Issues Task Force
Issue No. 06-3, "How Sales Taxes Collected From Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That Is,
Gross Versus Net Presentation)," (EITF 06-3) effective for periods beginning
after December 15, 2006. EITF 06-3 allows taxes assessed by various governmental
authorities that are directly imposed on revenue-producing transactions between
a seller and a customer, such as sales and some excise taxes, to be presented on
either a gross or net basis. If such taxes are significant, the accounting
policy should be disclosed as well as the amount of taxes included in revenue if
presented on a gross basis. The Company records sales net of applicable sales
taxes. Therefore, the adoption of EITF 06-3 had no effect on the presentation of
the Company's financial statements.
In September 2006, the FASB issued Statement of Financial Accounting
Standard No. 157, "Fair Value Measurement," (SFAS 157) effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements.
SFAS 157 does not require any new fair value measurements. The Company is
currently evaluating the effect of adopting SFAS 157.
In September 2006, the FASB issued Statement of Financial Accounting
Standard No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and
132(R)," (SFAS 158). SFAS 158 requires financial statement recognition of the
overfunded or underfunded status of a defined benefit postretirement plan or
other postretirement plan as an asset or liability and recognition of changes in
the funded status in comprehensive earnings in the year in which the changes
occur, effective for fiscal years ending after December 15, 2006. SFAS 158 also
requires that the measurement date for the calculation of plan assets and
obligations coincide with a company's fiscal year end dates, effective for
fiscal years ending after December 15, 2008. The adoption of the recognition
provision of SFAS 158 did not have a material effect on the Company's financial
condition, results of operations or cash flows.
In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements," (SAB 108) effective for fiscal years ending after November 15,
2006. SAB 108 provides interpretive guidance on the consideration of the effects
of prior year misstatements in quantifying current year misstatements for the
purpose of a materiality assessment. The adoption of SAB 108 is not expected 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 accounting principles
generally accepted in the U.S. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
21
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 of 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 86%
of inventories was determined using the dollar value last-in, first-out method.
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 remaining inventories was determined using the first-in,
first-out ("FIFO") method. The FIFO cost of inventory approximates replacement
or current cost. The Company also reduces inventory for estimated losses related
to shrink.
Investments
The Company reviews its investments for other-than-temporary impairments
based on criteria that include the extent to which cost exceeds market value,
the duration of the market decline and the financial health of and prospects for
the issuer. This review requires significant judgment. If market or issuer
conditions decline, the Company may incur future impairments.
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 their leases, if
shorter, as follows: buildings and improvements are at 10 - 40 years, furniture,
fixtures and equipment are at 3 - 20 years and leasehold improvements are at
3 - 40 years. The Company considers lease renewals in the useful life of its
leasehold improvements when such renewals are reasonably assured.
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. The Company's judgments regarding the existence of impairment
indicators are based on market conditions and operational performance, such as
operating profit and cash flows. The variability of these factors depends on a
number of conditions, including uncertainty about future events; therefore, the
Company's accounting estimates may change from period to period. These factors
could cause the Company to conclude that impairment indicators exist 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.
Revenue Recognition
Revenue is recognized at the point of sale for retail sales. 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.
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.
Vendor allowances and credits, including cooperative advertising fees,
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
22
earned. These allowances and credits are recognized as earned in accordance
with the underlying agreement with the vendor and completion of the earning
process. Short-term vendor agreements with advance payment provisions are
recorded as a current liability and are recognized over the appropriate period
as earned according to the underlying agreement. Long-term vendor agreements
with advance payment provisions are recorded as a noncurrent liability and are
recognized over the appropriate period as earned according to the underlying
agreement.
Self-Insurance
Self-insurance reserves are established for health care, fleet
liability, general liability and workers' compensation 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
are discounted and subject to a high degree of variability. The causes of
variability include, but are not limited to, such factors as future interest and
inflation rates, future economic conditions, litigation trends and benefit level
changes. The Company has insurance coverage for losses in excess of varying
amounts.
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," "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: competitive
practices and pricing in the food and drug industries generally and particularly
in the Company's principal markets; results of programs to control or reduce
costs, improve buying practices and control shrink; results of programs to
increase sales, including private-label sales, improve perishable departments
and improve pricing and promotional efforts; 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 in or beyond the Company's control. These factors include changes in
the rate of inflation, changes in state and Federal legislation or regulation,
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 utility costs, 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. The Company
assumes no obligation to update publicly 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. The
Company does not consider to be material the potential losses in future
earnings, fair values and cash flows from reasonably possible near-term changes
in interest rates.
23
Management's Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting (as defined in
Rule 13a-15(f) and Rule 15d-15(f) under the Securities Exchange Act of 1934).
The Company's internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
U.S. generally accepted accounting principles. Because of inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control
over financial reporting as of December 30, 2006. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control - Integrated
Framework. Based on this assessment and these criteria, management believes that
the Company's internal control over financial reporting was effective as of
December 30, 2006.
The Company's independent registered public accounting firm, KPMG LLP,
has issued an audit report on management's assessment of the Company's internal
control over financial reporting, which is included herein on page 27.
24
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Schedule
Page
----
Reports of Independent Registered Public Accounting Firm 26
Consolidated Financial Statements:
Consolidated Balance Sheets - December 30, 2006 and December 31, 2005 28
Consolidated Statements of Earnings - Years ended December 30, 2006,
December 31, 2005 and December 25, 2004 30
Consolidated Statements of Comprehensive Earnings - Years ended
December 30, 2006, December 31, 2005 and December 25, 2004 31
Consolidated Statements of Cash Flows - Years ended December 30, 2006,
December 31, 2005 and December 25, 2004 32
Consolidated Statements of Stockholders' Equity - Years ended
December 30, 2006, December 31, 2005 and December 25, 2004 34
Notes to Consolidated Financial Statements 35
The following consolidated financial statement schedule of the Company for the
years ended December 30, 2006, December 31, 2005 and December 25, 2004 is
submitted herewith:
Schedule:
II - Valuation and Qualifying Accounts 49
All other schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or related notes.
25
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 (the "Company") as of December 30, 2006 and
December 31, 2005, and the related consolidated statements of earnings,
comprehensive earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended December 30, 2006. In connection with our
audits of the consolidated financial statements, we have also 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 30, 2006 and December 31, 2005,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 30, 2006, 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.
As discussed in Note 5, the Company adopted Statement of Financial Accounting
Standard No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans" as of December 30, 2006.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of December 30, 2006, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated February 26, 2007 expressed an unqualified opinion on management's
assessment of, and the effective operation of, internal control over financial
reporting.
KPMG LLP
February 26, 2007
Tampa, Florida
Certified Public Accountants
26
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Publix Super Markets, Inc.:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that Publix
Super Markets, Inc. and subsidiaries maintained effective internal control over
financial reporting as of December 30, 2006, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.
We conducted our audit 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 effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Publix Super Markets, Inc. and
subsidiaries maintained effective internal control over financial reporting as
of December 30, 2006, is fairly stated, in all material respects, based on
criteria established in Internal Control - Integrated Framework issued by COSO.
Also, in our opinion, Publix Super Markets, Inc. and subsidiaries maintained, in
all material respects, effective internal control over financial reporting as of
December 30, 2006, based on criteria established in Internal Control -
Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets
of Publix Super Markets, Inc. and subsidiaries as of December 30, 2006 and
December 31, 2005, and the related consolidated statements of earnings,
comprehensive earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended December 30, 2006, and our report dated
February 26, 2007 expressed an unqualified opinion on those consolidated
financial statements.
KPMG LLP
February 26, 2007
Tampa, Florida
Certified Public Accountants
27
PUBLIX SUPER MARKETS, INC.
Consolidated Balance Sheets
December 30, 2006 and
December 31, 2005
Assets 2006 2005
---- ----
(Amounts are in thousands)
Current assets:
Cash and cash equivalents $ 223,571 335,969
Short-term investments 126,221 119,303
Trade receivables 363,020 354,950
Merchandise inventories 1,151,907 1,109,543
Deferred tax assets 58,513 85,475
Prepaid expenses 42,784 42,521
---------- ---------
Total current assets 1,966,016 2,047,761
---------- ---------
Long-term investments 2,271,810 1,573,795
Other noncurrent assets 55,938 57,786
Property, plant and equipment:
Land 173,595 162,642
Buildings and improvements 1,104,917 1,101,419
Furniture, fixtures and equipment 3,521,085 3,309,086
Leasehold improvements 996,315 960,005
Construction in progress 76,875 42,460
---------- ---------
5,872,787 5,575,612
Less accumulated depreciation 2,773,465 2,527,731
---------- ---------
Net property, plant and equipment 3,099,322 3,047,881
---------- ---------
$7,393,086 6,727,223
========== =========
See accompanying notes to consolidated financial statements.
28
Liabilities and Stockholders' Equity 2006 2005
---- ----
(Amounts are in thousands,
except par value)
Current liabilities:
Accounts payable $ 934,446 913,521
Accrued expenses:
Contribution to retirement plans 359,753 366,811
Self-insurance reserves 112,177 119,339
Salaries and wages 98,293 98,629
Other 216,889 164,621
---------- ---------
Total accrued expenses 787,112 749,400
---------- ---------
Federal and state income taxes 33,239 148,352
---------- ---------
Total current liabilities 1,754,797 1,811,273
Deferred tax liabilities 225,572 283,979
Self-insurance reserves 251,060 242,449
Accrued postretirement benefit cost 78,894 68,088
Other noncurrent liabilities 107,898 115,660
---------- ---------
Total liabilities 2,418,221 2,521,449
---------- ---------
Stockholders' equity:
Common stock of $1 par value. Authorized
1,000,000 shares; issued and outstanding
839,715 shares in 2006 and 846,942
shares in 2005 839,715 846,942
Additional paid-in capital 533,559 302,178
Retained earnings 3,616,368 3,070,310
---------- ---------
4,989,642 4,219,430
Accumulated other comprehensive losses (14,777) (13,656)
---------- ---------
Total stockholders' equity 4,974,865 4,205,774
Commitments and contingencies --- ---
---------- ---------
$7,393,086 6,727,223
========== =========
29
PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Earnings
Years ended December 30, 2006, December 31, 2005
and December 25, 2004
2006 2005 2004
---- ---- ----
(Amounts are in thousands, except per share amounts)
Revenues:
Sales $ 21,654,774 20,589,130 18,554,486
Other operating income 164,951 155,681 131,885
------------ ---------- ----------
Total revenues 21,819,725 20,744,811 18,686,371
------------ ---------- ----------
Costs and expenses:
Cost of merchandise sold 15,811,957 15,059,680 13,577,740
Operating and administrative expenses 4,459,786 4,231,402 3,869,791
------------ ---------- ----------
Total costs and expenses 20,271,743 19,291,082 17,447,531
------------ ---------- ----------
Operating profit 1,547,982 1,453,729 1,238,840
Investment income, net 115,851 74,293 35,311
Other income, net 23,720 22,716 20,860
------------ ---------- ----------
Earnings before income tax expense 1,687,553 1,550,738 1,295,011
Income tax expense 590,344 561,582 475,628
------------ ---------- ----------
Net earnings $ 1,097,209 989,156 819,383
============ ========== ==========
Weighted average number of common
shares outstanding 849,815 860,196 883,879
============ ========== ==========
Basic and diluted earnings per common
share based on weighted average
shares outstanding $ 1.29 1.15 0.93
============ ========== ==========
See accompanying notes to consolidated financial statements.
30
PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Comprehensive Earnings
Years ended December 30, 2006, December 31, 2005
and December 25, 2004
2006 2005 2004
---- ---- ----
(Amounts are in thousands)
Net earnings $1,097,209 989,156 819,383
Other comprehensive earnings (losses):
Unrealized gain (loss) on investment
securities available-for-sale, net of tax
effect of $4,585, ($8,484) and $419 in
2006, 2005 and 2004, respectively 7,282 (13,510) 668
Reclassification adjustment for net
realized gain on investment securities
available-for-sale, net of tax effect
of ($564), ($1,692) and ($1,348)
in 2006, 2005 and 2004, respectively (895) (2,695) (2,147)
---------- ------- --------
Comprehensive earnings $1,103,596 972,951 817,904
========== ======= ========
See accompanying notes to consolidated financial statements.
31
PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Cash Flows
Years ended December 30, 2006, December 31, 2005
and December 25, 2004
2006 2005 2004
---- ---- ----
(Amounts are in thousands)
Cash flows from operating activities:
Cash received from customers $21,683,210 20,560,245 18,541,695
Cash paid to employees and suppliers (19,355,029) (18,309,454) (16,611,646)
Income taxes paid (735,285) (678,167) (242,569)
Payment for self-insured claims (205,135) (200,477) (185,869)
Dividends and interest received 100,379 73,708 33,230
Other operating cash receipts 152,470 142,185 117,416
Other operating cash payments (11,178) (8,206) (9,079)
----------- ----------- -----------
Net cash provided by operating
activities 1,629,432 1,579,834 1,643,178
----------- ----------- -----------
Cash flows from investing activities:
Payment for property, plant and
equipment (481,247) (338,946) (403,373)
Proceeds from sale of property, plant
and equipment 11,042 11,423 69,254
Proceeds from sale-leasebacks 6,247 4,860 25,961
Payment for investment securities -
available-for-sale (AFS) (1,150,488) (1,090,077) (793,487)
Proceeds from sale and maturity of
investment securities - AFS 479,683 393,933 159,811
Net (payments to) proceeds from joint
ventures and other investments (8,291) 275 (7,244)
Other, net 3,494 (13,045) (1,192)
----------- ----------- -----------
Net cash used in investing activities (1,139,560) (1,031,577) (950,270)
----------- ----------- -----------
Cash flows from financing activities:
Payment for acquisition of common stock (665,376) (592,566) (598,516)
Proceeds from sale of common stock 234,882 132,070 79,719
Dividends paid (171,645) (121,949) (80,764)
Other (131) (131) (131)
----------- ----------- -----------
Net cash used in financing activities (602,270) (582,576) (599,692)
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents (112,398) (34,319) 93,216
Cash and cash equivalents at beginning
of year 335,969 370,288 277,072
----------- ----------- -----------
Cash and cash equivalents at end of year $ 223,571 335,969 370,288
=========== =========== ===========
See accompanying notes to consolidated financial statements.
32
2006 2005 2004
---- ---- ----
(Amounts are in thousands)
Reconciliation of net earnings to net cash
provided by operating activities
Net earnings $1,097,209 989,156 819,383
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 390,996 373,684 379,920
Retirement contributions paid or
payable in common stock 268,006 290,422 244,087
Deferred income taxes (30,738) (32,459) 13,089
Loss on sale of property, plant and
equipment 20,785 7,663 13,582
Amortization of deferred income from
sale-leasebacks (3,461) (5,213) (2,235)
Gain on sale of investments (1,459) (4,387) (3,495)
Net (accretion) amortization of investments (8,551) 10,696 5,075
Self-insurance reserves in excess
of current payments 1,449 5,957 29,632
Postretirement accruals in excess of
(less than) current payments 1,528 (13) 141
Increase (decrease) in advance
purchase allowances 5,669 (130) 119
(Decrease) increase in closed store reserves (11,355) 2,044 (2,726)
Other, net (6,548) (2,122) 2,603
Change in cash from:
Trade receivables (8,070) (65,495) (48,354)
Merchandise inventories (42,364) (55,360) (72,727)
Prepaid expenses (263) (30,717) (2,026)
Accounts payable and accrued expenses 71,712 180,234 47,140
Federal and state income taxes (115,113) (84,126) 219,970
---------- --------- ---------
Total adjustments 532,223 590,678 823,795
---------- --------- ---------
Net cash provided by operating activities $1,629,432 1,579,834 1,643,178
========== ========= =========
33
PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Stockholders' Equity
Years ended December 30, 2006, December 31, 2005
and December 25, 2004
Common Stock
(Acquired Accumulated Total
Additional From) Sold Other Stock-
Common Paid-in Retained to Stock- Comprehensive holders'
Stock Capital Earnings holders Earnings (Losses) Equity
------ ------- -------- ------- ----------------- ------
(Amounts are in thousands, except per share amounts)
Balances at December 27, 2003 $891,847 --- 2,273,435 --- 4,028 3,169,310
Comprehensive earnings (losses) --- --- 819,383 --- (1,479) 817,904
Cash dividends, $0.09 per share --- --- (80,764) --- --- (80,764)
Contribution of 19,230 shares
to retirement plans 12,528 123,221 --- 62,314 --- 198,063
Acquired 55,396 shares
from stockholders --- --- --- (598,516) --- (598,516)
Sale of 7,278 shares to
stockholders 355 3,302 --- 76,062 --- 79,719
Retirement of 41,771 shares (41,771) --- (418,369) 460,140 --- ---
-------- ------- --------- -------- ------- ---------
Balances at December 25, 2004 862,959 126,523 2,593,685 --- 2,549 3,585,716
Comprehensive earnings (losses) --- --- 989,156 --- (16,205) 972,951
Cash dividends, $0.14 per share --- --- (121,949) --- --- (121,949)
Contribution of 17,933 shares
to retirement plans 14,210 172,618 --- 42,724 --- 229,552
Acquired 43,445 shares
from stockholders --- --- --- (592,566) --- (592,566)
Sale of 9,495 shares to
stockholders 273 3,037 --- 128,760 --- 132,070
Retirement of 30,500 shares (30,500) --- (390,582) 421,082 --- ---
-------- ------- --------- -------- ------- ---------
Balances at December 31, 2005 846,942 302,178 3,070,310 --- (13,656) 4,205,774
Comprehensive earnings --- --- 1,097,209 --- 6,387 1,103,596
Cash dividends, $0.20 per share --- --- (171,645) --- --- (171,645)
Contribution of 17,090 shares
to retirement plans 13,576 208,082 --- 53,484 --- 275,142
Acquired 37,799 shares
from stockholders --- --- --- (665,376) --- (665,376)
Sale of 13,482 shares to
stockholders 1,397 23,299 --- 210,186 --- 234,882
Retirement of 22,200 shares (22,200) --- (379,506) 401,706 --- ---
Adjustment to reflect additional
unfunded postretirement benefit
obligation per SFAS 158 --- --- --- --- (7,508) (7,508)
-------- ------- --------- -------- ------- ---------
Balances at December 30, 2006 $839,715 533,559 3,616,368 --- (14,777) 4,974,865
======== ======= ========= ======== ======= =========
See accompanying notes to consolidated financial statements.
34
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
December 30, 2006, December 31, 2005
and December 25, 2004
(1) Summary of Significant Accounting Policies
(a) Business
The Company is in the primary business of operating retail food
supermarkets in Florida, Georgia, South Carolina, Alabama and
Tennessee. The Company operates in a single industry segment.
(b) Principles of Consolidation
The consolidated financial statements include all entities over
which the Company has control, including its majority-owned
subsidiaries. The Company accounts for equity investments in
companies over which it has the ability to exercise significant
influence, but does not hold a controlling interest, under the
equity method. All significant intercompany balances and
transactions are eliminated in consolidation.
(c) Fiscal Year
The fiscal year ends on the last Saturday in December. Fiscal
years 2006 and 2004 include 52 weeks. Fiscal year 2005 includes
53 weeks.
(d) Cash Equivalents
The Company considers all liquid investments with maturities of
three months or less to be cash equivalents.
(e) Trade Receivables
Trade receivables primarily include amounts due from vendor
allowances, debit and credit card sales and third party
insurance pharmacy billings.
(f) Inventories
Inventories are valued at the lower of cost or market. The
cost for 86% of inventories was determined using the dollar
value last-in, first-out method as of December 30, 2006 and
December 31, 2005. The cost of remaining inventories was
determined using the first-in, first-out ("FIFO") method. The
FIFO cost of inventory approximates replacement or current cost.
The Company also reduces inventory for estimated losses related
to shrink.
(g) Investments
The Company determines the appropriate classification of debt
securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Debt securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at cost, adjusted for
amortization of premiums and accretion of discounts to maturity.
Such amortization and accretion is included in investment
income, net. The Company had no held-to-maturity securities as
of December 30, 2006 or December 31, 2005.
35
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
All of the Company's debt and marketable equity securities are
classified as available-for-sale. Available-for-sale securities
are carried at fair value, with the unrealized gains and losses,
net of tax, reported as other comprehensive earnings and
included as a separate component of stockholders' equity. The
cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity.
Such amortization and accretion is included in investment
income, net. The Company reviews its investments for impairment
based on criteria that include the extent to which cost exceeds
market value, the duration of the market decline and the
financial health of and prospects for the issuer. Realized gains
and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are
included in investment income, net. The cost of securities sold
is based on the specific identification method.
Interest income is accrued as earned. Dividend income is
recognized as income on the ex-dividend date of the stock.
The Company also holds other investments in joint ventures,
partnerships or other equity investments for which evaluation of
the existence and quantification of other-than-temporary
declines in value may be required. Realized gains and losses and
declines in value judged to be other-than-temporary on other
investments are included in investment income, net.
(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 their leases, if shorter, as follows:
Buildings and improvements 10 - 40 years
Furniture, fixtures and equipment 3 - 20 years
Leasehold improvements 3 - 40 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.
(i) Capitalized Computer Software Costs
The Company capitalizes certain costs incurred in connection
with developing or obtaining software for internal use. These
costs are capitalized and amortized over a three year life. The
amounts capitalized were $14,297,000, $10,176,000 and
$17,444,000 for the years ended December 30, 2006, December 31,
2005 and December 25, 2004, respectively.
(j) Long-Lived Assets
The Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the
net book value of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the net book value of an asset to the future net
undiscounted cash flows expected to be generated by the
36
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
asset. An impairment loss would be recorded for the excess of
the net book value over the fair value of the asset impaired.
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.
(k) Self-Insurance
Self-insurance reserves are established for health care, fleet
liability, general liability and workers' compensation 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 are
discounted. The Company has insurance coverage for losses in
excess of varying amounts.
(l) Stock Split
On April 18, 2006, the Company's stockholders approved an
increase in the number of authorized shares of common stock from
300 million shares to one billion shares to allow for a 5-for-1
stock split effective July 1, 2006. All applicable data,
including share and per share amounts, in the accompanying
consolidated financial statements have been retroactively
restated to give effect to the stock split.
(m) Comprehensive Earnings
Comprehensive earnings include net earnings and other
comprehensive earnings. Other comprehensive earnings include
revenues, expenses, gains and losses that have been excluded
from net earnings and recorded directly to stockholders' equity.
Included in other comprehensive earnings for the Company are
unrealized gains and losses on available-for-sale securities.
As of December 30, 2006, accumulated other comprehensive losses
include net unrealized losses on available-for-sale securities
of $11,824,000, net of tax effect of $4,555,000 and unfunded
postretirement benefit obligation of $12,236,000, net of tax
effect of $4,728,000. As of December 31, 2005, accumulated other
comprehensive losses include net unrealized losses on
available-for-sale securities of $22,232,000, net of tax effect
of $8,576,000.
(n) Revenue Recognition
Revenue is recognized at the point of sale for retail sales.
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.
(o) Sales Taxes
The Company records sales net of applicable sales taxes.
(p) Other Operating Income
Other operating income includes income generated from other
activities, primarily lottery commissions, automated teller
transactions, commissions on licensee sales, check cashing fees,
circulation commissions, money transfer and money order fees,
coupon handling fees, in-store subleases and vending machine
commissions.
37
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(q) 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.
Vendor allowances and credits, including cooperative advertising
fees, 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 earning process. Short-term vendor agreements with advance
payment provisions are recorded as a current liability and are
recognized over the appropriate period as earned according to
the underlying agreement. Long-term vendor agreements with
advance payment provisions are recorded as a noncurrent
liability and are recognized over the appropriate period as
earned according to the underlying agreement.
(r) Advertising Costs
Advertising costs are expensed as incurred and were
$163,141,000, $153,528,000 and $140,668,000 for the years ended
December 30, 2006, December 31, 2005 and December 25, 2004,
respectively.
(s) Other Income, net
Other income, net includes rent received from shopping center
operations, net of related expenses, and other miscellaneous
nonoperating income.
(t) Income Taxes
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.
(u) Earnings Per Share
Basic and diluted earnings per common share are calculated by
dividing net earnings by the weighted average number of common
shares outstanding. Basic and diluted earnings per common share
are the same because the Company does not have options or other
stock compensation programs that would impact the calculation of
diluted earnings per share.
(v) Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the U.S. 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.
(w) Reclassifications
Certain 2005 and 2004 amounts have been reclassified to conform
with the 2006 presentation.
38
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(2) Merchandise Inventories
If the FIFO method of valuing inventories had been used by the Company
to value all inventories, inventories and current assets would have been
higher than reported by $165,561,000, $152,047,000 and $141,808,000 as
of December 30, 2006, December 31, 2005 and December 25, 2004,
respectively.
(3) Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Cash and cash equivalents: The carrying amount for cash and cash
equivalents approximates fair value.
Investment securities: The fair values for debt and marketable equity
securities are based on quoted market prices.
The carrying amount of the Company's other financial instruments as of
December 30, 2006 and December 31, 2005 approximated their respective
fair values.
All other investments are accounted for using the equity method. The
carrying amount of other investments approximates fair value.
39
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(4) Investments
Following is a summary of investments as of December 30, 2006 and
December 31, 2005:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Amounts are in thousands)
2006
----
Available-for-sale:
Tax exempt bonds $ 644,910 1,161 5,991 640,080
Taxable bonds 1,593,219 3,165 24,261 1,572,123
Equity securities 114,909 15,411 1,309 129,011
---------- ------ ------ ---------
2,353,038 19,737 31,561 2,341,214
Other investments 56,817 --- --- 56,817
---------- ------ ------ ---------
$2,409,855 19,737 31,561 2,398,031
========== ====== ====== =========
2005
----
Available-for-sale:
Tax exempt bonds $ 549,035 605 6,264 543,376
Taxable bonds 1,110,192 2,149 21,728 1,090,613
Equity securities 13,998 3,006 --- 17,004
---------- ------ ------ ---------
1,673,225 5,760 27,992 1,650,993
Other investments 42,105 --- --- 42,105
---------- ------ ------ ---------
$1,715,330 5,760 27,992 1,693,098
========== ====== ====== =========
The realized gains on sales of available-for-sale securities totaled $3,549,000, $5,517,000 and $5,462,000
for the years ended December 30, 2006, December 31, 2005 and December 25, 2004, respectively, and the
realized losses totaled $2,090,000, $1,130,000 and $1,967,000, respectively.
40
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
The amortized cost and estimated fair value of debt and marketable
equity securities classified as available-for-sale and other investments
as of December 30, 2006 and December 31, 2005, by expected maturity, are
as follows:
2006 2005
------------------------- ------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
(Amounts are in thousands)
Due in one year or less $ 126,625 126,221 119,937 119,303
Due after one year through
five years 407,177 403,757 328,729 324,661
Due after five years through
ten years 104,570 102,983 75,403 73,878
Due after ten years 1,599,757 1,579,242 1,135,158 1,116,147
---------- --------- --------- ---------
2,238,129 2,212,203 1,659,227 1,633,989
Equity securities 114,909 129,011 13,998 17,004
Other investments 56,817 56,817 42,105 42,105
---------- --------- --------- ---------
$2,409,855 2,398,031 1,715,330 1,693,098
========== ========= ========= =========
Following is a summary of temporarily impaired investments as of
December 30, 2006 and December 31, 2005:
Less Than 12 Months
12 Months or Longer Total
--------- --------- -----
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
----- ------ ----- ------ ----- ------
(Amounts are in thousands)
2006
----
Tax exempt bonds $241,734 1,350 339,885 4,641 581,619 5,991
Taxable bonds 472,347 3,842 659,608 20,419 1,131,955 24,261
Equity securities 17,376 1,309 --- --- 17,376 1,309
-------- ------ ------- ------ --------- ------
Total temporarily
impaired investments $731,457 6,501 999,493 25,060 1,730,950 31,561
======== ====== ======= ====== ========= ======
2005
----
Tax exempt bonds $294,980 2,333 196,053 3,931 491,033 6,264
Taxable bonds 623,392 13,185 232,159 8,543 855,551 21,728
-------- ------ ------- ------ --------- ------
Total temporarily
impaired investments $918,372 15,518 428,212 12,474 1,346,584 27,992
======== ====== ======= ====== ========= ======
The Company believes the unrealized losses presented above are
temporary. To make this determination, management reviews the length of
time and the extent to which the security's market value has been less
than cost; the financial condition, credit worthiness and near term
prospects of the issuer; the intent and ability to hold the security for
a period of time sufficient to allow recovery of cost; and underlying
factors mitigating risk of loss of principal or default of interest
41
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
payments. There are 383 investment issues contributing to the total
unrealized loss of $31,561,000 as of December 30, 2006. The unrealized
loss is primarily driven by changes in interest rates impacting the
market value of the bonds owned by the Company. The Company continues to
receive scheduled principal and interest payments on these investments.
(5) Postretirement Benefits
The Company provides life insurance benefits for salaried and hourly
full-time employees. Such employees retiring from the Company on or
after attaining age 55 and having ten years of full-time service are
entitled to postretirement life insurance benefits.
Effective January 1, 2002, the Company amended the plan's eligibility
requirements. As of October 1, 2001, 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 to retain
postretirement life insurance benefits at retirement. In addition, the
employee must be at least age 55 with ten years of full-time service at
retirement to receive the benefit.
In September 2006, the FASB issued SFAS 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans - an amendment of
FASB Statements No. 87, 88, 106 and 132(R)." In adopting SFAS 158 as of
December 30, 2006, the Company recognized the underfunded status of its
postretirement plan as a liability and as a component of accumulated
other comprehensive losses, net of tax effect.
The Company made benefit payments to beneficiaries of retirees of
$3,169,000, $2,841,000 and $2,140,000 during the years ended
December 30, 2006, December 31, 2005 and December 25, 2004,
respectively.
The following tables provide a reconciliation of the changes in
the benefit obligations and fair value of plan assets measured as of
October 1.
2006 2005
---- ----
(Amounts are in thousands)
Change in benefit obligation:
Benefit obligation as of beginning of year $85,628 80,174
Service cost 372 479
Interest cost 4,656 4,568
Actuarial (gain) loss (5,635) 3,248
Benefit payments (3,169) (2,841)
------- ------
Benefit obligation as of end of year $81,852 85,628
======= ======
Change in fair value of plan assets:
Fair value of plan assets as of beginning
of year $ --- ---
Employer contributions 3,169 2,841
Benefit payments (3,169) (2,841)
------- ------
Fair value of plan assets as of end of year $ --- ---
======= ======
42
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
2006 2005
---- ----
(Amounts are in thousands)
Funded status $81,852 85,628
Unrecognized actuarial loss (12,236) (19,986)
Unrecognized prior service cost --- 2,446
Amount recognized in noncurrent liabilities 12,236 ---
------- ------
Accrued postretirement benefit costs $81,852 68,088
======= ======
Following are the actuarial assumptions that were used in the
calculation of the year end benefit obligation:
2006 2005 2004
---- ---- ----
Discount rate 5.90% 5.50% 5.75%
Rate of compensation increase 4.00% 4.00% 4.00%
In 2006, the Company determined the discount rate using a yield curve
methodology based on high quality corporate bonds, AA or better. Prior
to 2006, the discount rate was based on the Moody's AA 20 year corporate
bond rate.
Net periodic postretirement benefit cost consists of the following
components:
2006 2005 2004
---- ---- ----
(Amounts are in thousands)
Service cost $ 372 479 674
Interest cost 4,656 4,568 4,337
Amortization of prior service cost (2,446) (4,075) (4,075)
Recognized actuarial loss 2,115 1,856 1,345
------ ------ ------
Net periodic postretirement benefit cost $4,697 2,828 2,281
====== ====== ======
Effective with the adoption of SFAS 158, actuarial losses are amortized
from accumulated other comprehensive losses into net periodic
postretirement benefit cost over future years when the accumulation of
such losses exceeds 10% of the year end benefit obligation.
Following are the actuarial assumptions that were used in the
calculation of the net periodic postretirement benefit cost:
2006 2005 2004
---- ---- ----
Discount rate 5.50% 5.75% 6.00%
Rate of compensation increase 4.00% 4.00% 4.00%
43
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
The following benefit payments, which reflect expected future service,
as appropriate, are expected to be paid:
Year
----
(Amounts are in thousands)
2007 $ 2,958
2008 3,208
2009 3,465
2010 3,720
2011 3,957
2012 through 2016 23,880
The following summarizes the effect of applying SFAS 158 on the
consolidated balance sheet as of December 30, 2006:
Before After
Adoption of Adoption of
SFAS 158 Adjustments SFAS 158
-------- ----------- --------
(Amounts are in thousands)
Accrued postretirement benefit cost:
Current $ 2,958 --- 2,958
Noncurrent 66,658 12,236 78,894
Deferred tax assets 238,146 4,728 242,874
Total liabilities 2,405,985 12,236 2,418,221
Accumulated other comprehensive losses 7,269 7,508 14,777
Total stockholders' equity 4,982,373 (7,508) 4,974,865
(6) Retirement Plans
The Company has a trusteed, noncontributory Employee Stock Ownership
Plan (ESOP) for the benefit of eligible employees. The amount of the
Company's discretionary contribution to the ESOP is determined annually
by the Board of Directors and can be made in Company common stock or
cash. The expense recorded for contributions to this plan was
$249,710,000, $273,429,000 and $228,585,000 for the years ended
December 30, 2006, December 31, 2005 and December 25, 2004,
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 2006, 2005 and 2004, the Board of Directors approved a
match of 50% of eligible contributions up to 3% of eligible wages, 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. The expense
recorded for the Company's match to the 401(k) plan was $18,296,000,
$16,993,000 and $15,502,000 for the years ended December 30, 2006,
December 31, 2005 and December 25, 2004, respectively.
44
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
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.
(7) Income Taxes
Total income taxes for the years ended December 30, 2006, December 31,
2005 and December 25, 2004 were allocated as follows:
2006 2005 2004
---- ---- ----
(Amounts are in thousands)
Earnings $590,344 561,582 475,628
Other comprehensive earnings (losses) 4,021 (10,176) (929)
Accumulated other comprehensive losses (4,728) --- ---
-------- ------- -------
$589,637 551,406 474,699
======== ======= =======
The provision for income taxes consists of the following:
Current Deferred Total
------- -------- -----
(Amounts are in thousands)
2006
----
Federal $560,073 (25,218) 534,855
State 61,009 (5,520) 55,489
-------- ------- -------
$621,082 (30,738) 590,344
======== ======= =======
2005
----
Federal $518,473 (27,920) 490,553
State 75,568 (4,539) 71,029
-------- ------- -------
$594,041 (32,459) 561,582
======== ======= =======
2004
----
Federal $400,202 13,899 414,101
State 62,337 (810) 61,527
-------- ------- -------
$462,539 13,089 475,628
======== ======= =======
The actual tax expense for the years ended December 30, 2006,
December 31, 2005 and December 25, 2004 differs from the "expected" tax
expense for those years (computed by applying the U.S. Federal corporate
tax rate of 35% to earnings before income taxes) as follows:
2006 2005 2004
---- ---- ----
(Amounts are in thousands)
Computed "expected" tax expense $590,644 542,758 453,254
State income taxes (net of
Federal income tax benefit) 36,068 46,169 39,993
Other, net (36,368) (27,345) (17,619)
-------- ------- -------
$590,344 561,582 475,628
======== ======= =======
45
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of
December 30, 2006 and December 31, 2005 are as follows:
2006 2005
---- ----
(Amounts are in thousands)
Deferred tax assets:
Self-insurance reserves $127,596 124,829
Retirement plan contributions 37,851 35,672
Postretirement benefit cost 31,582 26,267
Reserves not currently deductible 14,201 18,395
Advance purchase allowances 11,456 7,866
Inventory capitalization 9,685 6,748
Other 10,503 15,550
-------- -------
Total deferred tax assets $242,874 235,327
======== =======
Deferred tax liabilities:
Property, plant and equipment,
principally due to depreciation $396,726 425,971
Other 13,207 7,860
-------- -------
Total deferred tax liabilities $409,933 433,831
======== =======
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 30, 2006 or December 31, 2005.
(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 payment of 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. The payment of variable real estate taxes,
insurance and maintenance is generally based on the Company's
prorata 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. Additionally, the Company has operating leases for
certain transportation and other equipment.
46
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
Total rental expense for the years ended December 30, 2006,
December 31, 2005 and December 25, 2004, is as follows:
2006 2005 2004
---- ---- ----
(Amounts are in thousands)
Minimum rentals $336,932 350,654 302,055
Contingent rentals 111,624 100,849 87,022
Sublease rental income (8,978) (9,245) (8,461)
-------- ------- -------
$439,578 442,258 380,616
======== ======= =======
As of December 30, 2006, future minimum lease payments for all
noncancelable operating leases and related subleases are as
follows:
Minimum Sublease
Rental Rental
Year Commitments Income Net
---- ----------- ------ ---
(Amounts are in thousands)
2007 $ 352,082 (8,479) 343,603
2008 344,605 (5,215) 339,390
2009 332,972 (4,238) 328,734
2010 321,280 (3,467) 317,813
2011 304,703 (2,006) 302,697
Thereafter 2,467,518 (5,305) 2,462,213
---------- ------- ---------
$4,123,160 (28,710) 4,094,450
========== ======= =========
The Company also owns shopping centers which are leased to
tenants for minimum monthly rentals plus, in certain instances,
contingent rentals. Minimum rentals represent fixed lease
commitments, including insurance and maintenance. Contingent
rentals include variable real estate taxes, insurance,
maintenance and, in certain instances, additional rentals based
on a percentage of sales in excess of stipulated minimums. Total
rental amounts included in trade receivables were $1,255,000 and
$1,429,000 as of December 30, 2006 and December 31, 2005,
respectively. Rental income was $21,565,000, $19,815,000 and
$19,191,000 for the years ended December 30, 2006, December 31,
2005 and December 25, 2004, respectively. The approximate
amounts of minimum future rental payments to be received under
noncancelable operating leases are $15,669,000, $13,279,000,
$10,482,000, $7,511,000 and $5,303,000 for the years 2007
through 2011, respectively, and $28,614,000 thereafter.
(b) Letters of Credit
As of December 30, 2006, the Company had $8,657,000 outstanding
in trade letters of credit and $1,749,000 in standby letters of
credit to support certain purchase obligations. In addition,
the Company had $184,200,000 in standby letters of credit
outstanding for the benefit of the Company's insurance carriers
related to self-insurance reserves.
47
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(c) Litigation
The Company is a party in various legal claims and actions
considered in the normal course of business. 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) Quarterly Information (unaudited)
Following is a summary of the quarterly results of operations for the
years ended December 30, 2006 and December 31, 2005. All quarters have
13 weeks except the fourth quarter of 2005, which has 14 weeks.
Quarter
------------------------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
(Amounts are in thousands, except per share amounts)
2006
----
Revenues $5,551,078 5,382,654 5,286,681 5,599,312
Costs and expenses $5,133,561 5,002,891 4,949,174 5,186,117
Net earnings $ 288,407 264,005 252,867 291,930
Basic and diluted
earnings per common
share, based on
weighted average
shares outstanding $ 0.34 0.31 0.30 0.35
2005
----
Revenues $5,180,473 4,850,927 4,934,116 5,779,295
Costs and expenses $4,792,466 4,502,433 4,647,649 5,348,534
Net earnings $ 259,106 234,904 200,270 294,876
Basic and diluted
earnings per common
share, based on
weighted average
shares outstanding $ 0.30 0.27 0.23 0.35
48
Schedule II
-----------
PUBLIX SUPER MARKETS, INC.
Valuation and Qualifying Accounts
Years ended December 30, 2006, December 31, 2005
and December 25, 2004
(Amounts are in thousands)
Balance at Additions Deductions Balance at
Beginning Charged to From End of
Description of Year Income Reserves Year
----------- ------- ------ -------- ----
Year ended December 30, 2006
Reserves not deducted from assets:
Self-insurance reserves:
Current $119,339 197,973 205,135 112,177
Noncurrent 242,449 8,611 --- 251,060
-------- ------- ------- -------
$361,788 206,584 205,135 363,237
======== ======= ======= =======
Year ended December 31, 2005
Reserves not deducted from assets:
Self-insurance reserves:
Current $115,010 204,806 200,477 119,339
Noncurrent 240,821 1,628 --- 242,449
-------- ------- ------- -------
$355,831 206,434 200,477 361,788
======== ======= ======= =======
Year ended December 25, 2004
Reserves not deducted from assets:
Self-insurance reserves:
Current $123,462 177,417 185,869 115,010
Noncurrent 202,737 38,084 --- 240,821
-------- ------- ------- -------
$326,199 215,501 185,869 355,831
======== ======= ======= =======
49
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report, the Company
carried out an evaluation, under the supervision and with the participation
of the Company's management, including the Company's Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation
of the Company's disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and the
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
included in the Company's periodic Securities and Exchange Commission filings.
There have been no changes in the Company's internal control over financial
reporting identified in connection with the evaluation that occurred during the
quarter ended December 30, 2006, that have materially affected, or are
reasonably likely to materially affect, the internal control over financial
reporting.
Internal Control over Financial Reporting
Management's report on the Company's internal control over financial
reporting is included on page 24 of this report. The independent registered
public accounting firm has issued their report, included herein on page 27,
(1) on management's assessment of the effectiveness of internal control over
financial reporting and (2) on the effectiveness of internal control over
financial reporting.
Item 9B. Other Information
None
50
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Certain information concerning the directors and executive officers of
the Company is incorporated by reference to pages 2 through 9 of the Proxy
Statement of the Company (2007 Proxy Statement) which the Company intends to
file no later than 120 days after its fiscal year end. Certain information
concerning the executive officers of the Company is set forth in Part I under
the caption "Executive Officers of the Company."
The Company has adopted a Code of Ethical Conduct for Financial Managers
that applies to the Company's principal executive officer, principal financial
officer, principal accounting officer or controller and all persons performing
similar functions. A copy of the Code of Ethical Conduct for Financial Managers
was filed as Exhibit 14 to the Annual Report of the Company on Form 10-K for the
year ended December 28, 2002.
Item 11. Executive Compensation
Information regarding executive compensation is incorporated by
reference to pages 10 through 15 of the 2007 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Information regarding security ownership is incorporated by reference to
pages 7 through 9 of the 2007 Proxy Statement.
Item 13. Certain Relationships, Related Transactions and Director
Independence
Information regarding certain relationships and related transactions is
incorporated by reference to pages 3 and 9 of the 2007 Proxy Statement.
Item 14. Principal Accounting Fees and Services
Information regarding principal accounting fees and services is
incorporated by reference to page 17 of the 2007 Proxy Statement.
51
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) Consolidated Financial Statements and Schedule
The consolidated financial statements and schedule listed in the
accompanying Index to Consolidated Financial Statements and Schedule are
filed as part of this Annual Report on Form 10-K.
(b) Exhibits
3.1(a) Composite of the Restated Articles of Incorporation of the
Company dated June 25, 1979 as amended by (i) Articles of
Amendment dated February 22, 1984, (ii) Articles of Amendment
dated June 24, 1992, (iii) Articles of Amendment dated June 4,
1993, and (iv) Articles of Amendment dated April 18, 2006 are
incorporated by reference to the exhibits to the Quarterly
Report of the Company on Form 10-Q for the quarter ended
April 1, 2006.
3.1(b) Articles of Amendment of the Restated Articles of
Incorporation of the Company dated April 18, 2006 are
incorporated by reference to the exhibits to the Quarterly
Report of the Company on Form 10-Q for the quarter ended
April 1, 2006.
3.2 Amended and Restated By-laws of the Company are incorporated
by reference to the exhibits to the Quarterly Report of the
Company on Form 10-Q for the quarter ended June 29, 2002.
10. Indemnification Agreement is incorporated by reference to the
form attached as an exhibit to the Quarterly Report of the
Company on Form 10-Q for the quarter ended March 31, 2001,
between the Company and all of its directors and officers as
reported in the quarterly, annual and current reports of the
Company on Form 10-Q, Form 10-K and Form 8-K for the periods
ended March 31, 2001, June 30, 2001, September 29, 2001,
June 29, 2002, December 28, 2002, September 27, 2003,
December 27, 2003, March 27, 2004, May 18, 2005, July 1, 2005
and January 30, 2006.
10.1 Non-Employee Directors Stock Purchase Plan Summary Plan
Description, as registered in the Form S-8 filed with the
Securities and Exchange Commission on June 21, 2001, is
incorporated by reference to the exhibits to the Quarterly
Report of the Company on Form 10-Q for the quarter ended
June 30, 2001.
10.2 Incentive Bonus Plan is incorporated by reference to the
exhibits to the Annual Report of the Company on Form 10-K for
the year ended December 25, 2004.
14. Code of Ethical Conduct for Financial Managers is incorporated
by reference to the exhibits to the Annual Report of the
Company on Form 10-K for the year ended December 28, 2002.
21. Subsidiaries of the Registrant.
23. Consent of Independent Registered Public Accounting Firm.
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PUBLIX SUPER MARKETS, INC.
February 28, 2007 By: /s/ John A. Attaway, Jr.
--------------------------------------
John A. Attaway, Jr.
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Carol Jenkins Barnett Director February 28, 2007
----------------------------
Carol Jenkins Barnett
/s/ Hoyt R. Barnett Vice Chairman and Director February 28, 2007
----------------------------
Hoyt R. Barnett
/s/ Joan G. Buccino Director February 28, 2007
----------------------------
Joan G. Buccino
/s/ William E. Crenshaw President and Director February 28, 2007
----------------------------
William E. Crenshaw
/s/ Sherrill W. Hudson Director February 28, 2007
----------------------------
Sherrill W. Hudson
/s/ Charles H. Jenkins, Jr. Chief Executive Officer February 28, 2007
--------------------------- and Director (Principal
Charles H. Jenkins, Jr. Executive Officer)
/s/ Howard M. Jenkins Chairman of the Board February 28, 2007
---------------------------- and Director
Howard M. Jenkins
/s/ E. Vane McClurg Director February 28, 2007
----------------------------
E. Vane McClurg
/s/ Kelly E. Norton Director February 28, 2007
----------------------------
Kelly E. Norton
/s/ Maria A. Sastre Director February 28, 2007
----------------------------
Maria A. Sastre
/s/ David P. Phillips Chief Financial Officer February 28, 2007
---------------------------- and Treasurer (Principal
David P. Phillips Financial and Accounting Officer)
53