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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 25, 2004
( ) 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 0-981
-----
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 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 an accelerated filer.
Yes X No
------- -------
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 2, 2005 was approximately $5,289,122,000.
The number of shares of Registrant's common stock outstanding as of February 2,
2005 was 172,233,759.
DOCUMENTS INCORPORATED BY REFERENCE
Pages 2 through 12 of the Proxy Statement solicited for the 2005 Annual Meeting
of Stockholders to be held on April 12, 2005 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 2. Properties 2
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a Vote of Security Holders 3
Executive Officers of the Company 4
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 8
Item 6. Five Year Summary of Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 19
Management's Report on Internal Control over
Financial Reporting 20
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 46
Item 9A. Controls and Procedures 46
Item 9B. Other Information 46
PART III
Item 10. Directors and Executive Officers of the Registrant 47
Item 11. Executive Compensation 47
Item 12. Security Ownership of Certain Beneficial Owners
and Management 47
Item 13. Certain Relationships and Related Transactions 47
Item 14. Principal Accounting Fees and Services 47
PART IV
Item 15. Exhibits, Financial Statement Schedules 48
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 groceries, dairy, produce, deli, bakery,
meat, seafood, housewares and health and beauty care items. Many supermarkets
also have pharmacy and floral departments. In addition, the Company has
agreements with commercial banks to operate in many of its supermarkets.
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 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 850 supermarkets at the end of 2004, compared with 801
at the beginning of the year. In 2004, 57 supermarkets were opened, eight
supermarkets were closed and 71 supermarkets were expanded or remodeled. The net
increase in square footage was 2.1 million square feet or 5.7% since 2003. At
the end of 2004, the Company had 626 supermarkets located in Florida, 159 in
Georgia, 37 in South Carolina, 21 in Alabama and seven in Tennessee. Also, as of
year end, the Company had 12 supermarkets under construction in Florida, two in
Georgia and two in Tennessee.
Competition
- -----------
The Company is engaged in a highly competitive industry. Competition is
based primarily on price, quality of goods and service, convenience and product
mix. 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 and
drug stores. The Company anticipates continued competitor format innovation and
location additions in 2005.
Working capital
- ---------------
The Company's working capital at the end of 2004 consisted of $1,899.4
million in current assets and $1,677.8 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 results in
seasonal sales increases between November and April of each year.
Employees
- ---------
The Company had approximately 128,000 employees at the end of 2004,
compared with 125,000 at the end of 2003. Of this total, approximately 69,000 at
the end of 2004 and 2003 were not full-time employees. The Company considers its
employee relations to be good.
Government regulation
- ---------------------
Compliance by the Company with Federal, state and local environmental
protection laws during 2004 had no material effect upon capital expenditures,
earnings or the competitive position of the Company.
Company information
- -------------------
The Company makes available through its website, free of charge, its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and any amendments to those reports as soon as reasonably practicable after such
material is electronically filed with the Securities and Exchange Commission.
The Company's website address is http://www.publix.com/stock.
---------------------------
Item 2. Properties
- -------------------
At year end, the Company operated approximately 38.9 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 61 locations, both the building and land are
owned and at 39 other locations, the building is owned while the land is leased.
The Company supplies its supermarkets from eight 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.
The Company's corporate offices, distribution facilities and manufacturing
plants are owned with no outstanding debt.
All of the Company's properties are well maintained and in good operating
condition and are suitable and adequate for operating its business.
2
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
3
EXECUTIVE OFFICERS OF THE COMPANY
---------------------------------
Served as
Nature of Family Officer of
Relationship Company
Name Age Position Between Officers Since
- ---- --- -------- ---------------- -----
Charles H. Jenkins, Jr. 61 Chief Executive Cousin of 1974
Officer William E. Crenshaw
William E. Crenshaw 54 President Cousin of 1990
Charles H. Jenkins, Jr.
Hoyt R. Barnett 61 Vice Chairman 1977
John A. Attaway, Jr. 46 Senior Vice President, 2000
General Counsel and
Secretary
David E. Bornmann 47 Vice President 1998
David E. Bridges 55 Vice President 2000
R. Scott Charlton 46 Vice President 1992
G. Gino DiGrazia 42 Vice President 2002
and Controller
David S. Duncan 51 Vice President 1999
William V. Fauerbach 58 Vice President 1997
John R. Frazier 55 Vice President 1997
Linda S. Hall 45 Vice President 2002
M. Clayton Hollis, Jr. 48 Vice President 1994
John T. Hrabusa 49 Senior Vice President 2004
Mark R. Irby 49 Vice President 1989
Randall T. Jones, Sr. 42 Vice President 2003
Linda S. Kane 39 Vice President and 2000
Assistant Secretary
James J. Lobinsky 65 Senior Vice President 1992
Thomas M. McLaughlin 54 Vice President 1994
Sharon A. Miller 61 Assistant Secretary 1992
4
EXECUTIVE OFFICERS OF THE COMPANY
---------------------------------
Served as
Nature of Family Officer of
Relationship Company
Name Age Position Between Officers Since
- ---- --- -------- ---------------- -----
Robert H. Moore 62 Vice President 1994
Dale S. Myers 52 Vice President 2001
Alfred J. Ottolino 39 Vice President 2004
David P. Phillips 45 Chief Financial 1990
Officer and Treasurer
James H. Rhodes II 60 Vice President 1995
Daniel M. Risener 64 Senior Vice President 1985
and Chief Information
Officer
Richard J. Schuler II 49 Vice President 2000
Edward T. Shivers 65 Vice President 1985
Sandra J. Woods 45 Vice President 2002
and Controller
The terms of all officers expire in May 2005 or upon the election of their
successors.
5
Name Business Experience During Last Five Years
- ---- ------------------------------------------
Charles H. Jenkins, Jr. Chairman of the Executive Committee of the Company to
June 2000, Chairman of the Executive Committee and
Chief Operating Officer to May 2001, Chief Executive
Officer thereafter.
William E. Crenshaw President of the Company.
Hoyt R. Barnett Vice Chairman of the Company and Trustee of the
Employee Stock Ownership Plan.
John A. Attaway, Jr. Corporate Counsel of the Company to May 2000, General
Counsel and Secretary to January 2005, Senior Vice
President, General Counsel and Secretary thereafter.
David E. Bornmann Vice President of the Company.
David E. Bridges Regional Director of Retail Operations - Lakeland
Division of the Company to July 2000, Vice President
thereafter.
R. Scott Charlton Vice 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.
Randall T. Jones, Sr. Regional Director of Retail Operations - Jacksonville
Division of the Company to November 2003, Vice
President thereafter.
Linda S. Kane Director of Benefits Administration of the Company to
June 2000, Director of Benefits Administration and
Assistant Secretary to May 2002, Vice President and
Assistant Secretary thereafter.
James J. Lobinsky Senior Vice President of the Company.
Thomas M. McLaughlin Vice President of the Company.
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.
6
Name Business Experience During Last Five Years
- ---- ------------------------------------------
Robert H. Moore Vice President of the Company.
Dale S. Myers Regional Director of Retail Operations - Lakeland
Division of the Company to July 2001, Vice President
thereafter.
Alfred J. Ottolino Vice President of Wakefern Food Corporation from June
1998 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.
Daniel M. Risener Senior Vice President and Chief Information Officer of
the Company.
Richard J. Schuler II Miami Distribution Manager of the Company to June
2000, Vice President thereafter.
Edward T. Shivers Vice President of the Company.
Sandra J. Woods Director of Corporate Accounting to May 2002, Vice
President and Controller thereafter.
7
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 and members of its Board of Directors through the
Company's Employee Stock Purchase Plan (ESPP), Non-Employee Directors Stock
Purchase Plan (Directors Plan) and 401(k) Plan. In addition, common stock
is made available under the Employee Stock Ownership Plan (ESOP). The
Company currently repurchases common stock subject to certain terms and
conditions. The ESPP, Directors Plan, 401(k) Plan and ESOP each contain
provisions prohibiting any transfer for value without the owner first
offering the common stock to the Company. The Company serves as the
registrar and stock transfer agent for its common stock.
Because there is no trading of the Company's common stock on 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 price for 2004 and 2003 was as follows:
2004 2003
---- ----
January - February $46.50 37.00
March - April 51.50 38.50
May - July 52.25 37.50
August - October 58.50 42.25
November - December 58.50 46.50
(b) Approximate Number of Equity Security Holders
- --------------------------------------------------
As of February 2, 2005, the approximate number of holders of the Company's
common stock was 91,000.
(c) Dividends
- --------------
The Company paid an annual cash dividend of $.45 per share of common stock
in 2004 and $.40 per share in 2003. Payment of dividends is within the
discretion of the Company's Board of Directors and depends on, among other
factors, earnings, capital requirements and the operating and financial
condition of the Company. It is believed that comparable cash dividends
will be paid in the future.
8
(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 25, 2004 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)
------ --------- ----- ----------- -----------
September 26, 2004
through
October 30, 2004 941,563 $58.50 N/A N/A
October 31, 2004
through
November 27, 2004 643,391 58.50 N/A N/A
November 28, 2004
through
December 25, 2004 465,159 58.50 N/A N/A
--------- ------
Total 2,050,113 $58.50 N/A N/A
========= ======
(1) Common stock is made available for sale only to the Company's current
employees and members of its Board of Directors through the Company's
Employee Stock Purchase Plan (ESPP), Non-Employee Directors Stock
Purchase Plan (Directors Plan) and 401(k) Plan. In addition, common
stock is made available under the Employee Stock Ownership Plan (ESOP).
The Company currently repurchases common stock subject to certain terms
and conditions. The ESPP, Directors Plan, 401(k) Plan and ESOP each
contain provisions prohibiting any transfer for value without the owner
first offering the common stock to the Company.
The Company'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
25, 2004 required to be disclosed in the last two columns of the table.
9
Item 6. Five Year Summary of Selected Financial Data
- -----------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Sales:
Sales $18,554,486 16,760,749 15,851,301 15,209,824 14,522,366
Percent increase 10.7% 5.7% 4.2% 4.7% 11.2%
Comparable store sales
percent increase
(decrease) 5.7% 0.0% (0.7%) 3.9% 4.1%
Earnings:
Gross profit $ 4,976,746 4,485,617 4,229,539 3,857,254 3,635,622
Earnings before income
tax expense $ 1,295,011 1,047,089 1,002,830 826,823 823,553
Net earnings $ 819,383 660,933 632,404 530,421 530,406
Net earnings as a
percent of sales 4.42% 3.94% 3.99% 3.49% 3.65%
Common stock:
Weighted average
shares outstanding 176,775,733 184,112,742 194,466,212 202,171,794 210,145,666
Basic and diluted
earnings per
common share,
based on weighted
average shares
outstanding $ 4.64 3.59 3.25 2.62 2.52
Cash dividends per
share $ .45 .40 .33 .32 .27
Financial data:
Capital expenditures $ 403,373 563,576 635,891 656,422 558,133
Working capital $ 221,583 209,941 127,870 49,328 193,088
Current ratio 1.13 1.15 1.10 1.04 1.16
Total assets $ 5,964,271 5,150,717 4,789,602 4,408,187 4,250,067
Stockholders' equity $ 3,585,716 3,169,310 3,008,068 2,762,551 2,662,435
Stores:
Number of supermarkets 850 801 741 684 647
Number of convenience
stores 5 4 4 2 -
NOTE: Amounts are in thousands, except shares outstanding, per share amounts
and number of stores. Fiscal year 2000 includes 53 weeks. All other years
include 52 weeks.
Certain prior year amounts have been reclassified to conform to the 2004
presentation.
10
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
Overview
- --------
The Company is primarily engaged in the retail supermarket business,
operating stores in Florida, Georgia, South Carolina, Alabama and Tennessee. The
Company has no other significant lines of business or industry segments. As of
December 25, 2004, the Company operated 850 supermarkets representing
approximately 38.9 million square feet of supermarket space.
In 2001, the Company began piloting a convenience store concept. As of
December 25, 2004, the Company operated five convenience stores. 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 25, 2004, Crispers operated
26 restaurants, all located 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 25,
2004, the Company operated five liquor stores in Florida.
At the end of fiscal year 2004, the Company had 626 supermarkets located in
Florida, 159 in Georgia, 37 in South Carolina, 21 in Alabama and seven in
Tennessee. The Company opened 32 supermarkets in Florida, 13 supermarkets in
Georgia, nine supermarkets in Alabama and three supermarkets in South Carolina
during 2004.
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 profits 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 impacted by capital expenditures and stock
repurchases during the year.
The Company sells a variety of merchandise to generate revenues. This
merchandise includes groceries, dairy, produce, deli, bakery, meat, seafood,
housewares and health and beauty care items. Many of the Company's supermarkets
also have pharmacy and floral departments. Merchandise includes a mix of
nationally advertised and private label brands. Private label brands play an
increasingly important role in the Company's merchandising strategy.
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 and independent
supermarkets, as well as non-traditional competition such as supercenters,
membership warehouse clubs, mass merchandisers, dollar stores and drug
stores. As a result of the highly competitive environment, traditional
supermarkets, including the Company, face increasing business challenges.
There has been a trend in recent years for traditional supermarkets to
11
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: customer service, product
quality, shopping environment and competitive pricing. 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 competition and present
opportunities for increased market share and sustained financial growth.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents and short-term and long-term investments totaled
approximately $1,390.4 million at December 25, 2004, compared to $674.6 million
and $591.9 million at December 27, 2003 and December 28, 2002, respectively.
Net cash provided by operating activities
- -----------------------------------------
Net cash provided by operating activities was approximately $1,643.2
million for the year ended December 25, 2004, as compared with $1,303.7 million
and $1,211.0 million for the years ended December 27, 2003 and December 28,
2002, respectively. Due to the hurricanes described below, the Company received
an extension on its Federal income tax payments due September 15, 2004 and
December 15, 2004 until December 30, 2004. The delay in these tax payments
increased net cash provided by operating activities by $190.0 million. 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 approximately $950.3 million for
the year ended December 25, 2004, as compared with $526.5 million and $625.5
million for the years ended December 27, 2003 and December 28, 2002,
respectively. The primary use of net cash in investing activities was funding
capital expenditures and purchasing investments. During the year ended December
25, 2004, capital expenditures totaled approximately $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 added an
additional 2.1 million square feet in the year ended December 25, 2004, a 5.7%
increase. The average cost per supermarket opened during the year ended December
25, 2004 was less than the average cost per supermarket opened during the year
ended December 27, 2003. Significant expenditures were also incurred in the
construction and expansion of warehouses and new or enhanced information
technology applications. During the year ended December 27, 2003, capital
expenditures totaled approximately $563.6 million. These expenditures were
primarily incurred in connection with the opening of 60 net new supermarkets (78
new supermarkets opened and 18 supermarkets closed) and remodeling or expanding
80 supermarkets. Net new supermarkets added an additional 3.2 million square
feet in the year ended December 27, 2003, a 9.4% increase. Significant
expenditures were also incurred in the expansion of warehouses and new or
enhanced information technology applications. During the year ended December 28,
2002, capital expenditures totaled approximately $635.9 million. These
expenditures were primarily incurred in connection with the opening of 57 net
new supermarkets (76 new supermarkets opened and 19 supermarkets closed) and
remodeling or expanding 91 supermarkets. Net new supermarkets added an
additional 2.7 million square feet in the year ended December 28, 2002,
12
an 8.8% increase. Significant expenditures were also incurred in the expansion
of warehouses, office construction and new or enhanced information technology
applications.
Capital expenditure projection
- ------------------------------
In 2005, the Company plans to open approximately 45 supermarkets. Although
real estate development is unpredictable, the Company's 2005 new store growth
represents a reasonable estimate of anticipated future growth. Capital
expenditures for 2005, primarily consisting of new supermarkets, remodeling and
expanding certain existing supermarkets, new or enhanced information technology
applications and expansion of warehouses, are expected to be approximately
$400.0 million. 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 approximately $599.7 million for
the year ended December 25, 2004, as compared with $707.6 million and $589.3
million for the years ended December 27, 2003 and December 28, 2002,
respectively. The primary use of net cash in financing activities was funding
net common stock repurchases. The Company currently repurchases common stock at
the stockholders' request in accordance with the terms of the Company's Employee
Stock Purchase Plan, Non-Employee Directors Stock Purchase Plan, 401(k) Plan and
Employee Stock Ownership Plan. Net common stock repurchases totaled
approximately $518.8 million for the year ended December 25, 2004, as compared
with $632.0 million and $523.7 million for the years ended December 27, 2003 and
December 28, 2002, 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 $80.8
million or $.45 per share, $75.5 million or $.40 per share and $65.4 million or
$.33 per share in 2004, 2003 and 2002, respectively.
Credit facility
- ---------------
The Company's committed line of credit totaling $100 million expired on
December 31, 2004. This 364-day line of credit facility was available to fund
liquidity requirements if necessary. The interest rate was based on LIBOR or
prime. There were no amounts outstanding on this line of credit as of December
25, 2004. Since the Company did not require additional liquidity, this line of
credit facility was not renewed.
Cash requirements
- -----------------
In 2005, 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.
13
Contractual Obligations
- -----------------------
Following is a summary of contractual obligations as of December 25, 2004:
Payments Due by Period
----------------------
2006 - 2008 - There-
Total 2005 2007 2009 after
----- ---- ---- ---- -----
(Amounts are in thousands)
Contractual Obligations:
Operating leases (1) $4,323,140 336,938 654,876 611,793 2,719,533
Purchase obligations (2)(3) 431,527 407,454 23,235 388 450
Other long-term
liabilities reflected
on the Company's Balance
Sheet under GAAP (4) 224,443 --- 224,443 --- ---
---------- ------- ------- ------- ---------
Total $4,979,110 744,392 902,554 612,181 2,719,983
========== ======= ======= ======= =========
(1) For a more detailed description of the operating lease obligations refer to
Note 9(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 25, 2004, the Company had $6.8 million outstanding in trade
letters of credit and $2.1 million outstanding in standby letters of credit
to support certain of these purchase obligations.
(4) Includes standby letters of credit of $224.4 million for the benefit of the
Company's insurance carriers for the self-insured portion of workers'
compensation and fleet liability. The estimated amounts of these
liabilities are included in the Company's consolidated balance sheets.
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.
14
Hurricane Impact
- ----------------
During the third quarter ended September 25, 2004, the Company and the
State of Florida 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.
Store closings occurred throughout the Company due to weather conditions
and evacuations of certain areas. Almost all affected stores were reopened
within 24 hours, operating on generator power if normal power had not been
restored. All stores 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 that its inventory losses due to power outages
and additional distribution costs included in cost of merchandise sold related
to the four hurricanes was approximately $58.0 million. The estimate of the
additional operating and administrative expenses related to the four hurricanes
was approximately $5.0 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 are below the insurance policy deductible limits so there will be
no recovery of the losses from insurance coverage.
Results of Operations
- ---------------------
The Company's fiscal year ends on the last Saturday in December. Fiscal
years 2004, 2003 and 2002 included 52 weeks.
Sales
- -----
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. The Company estimates that
its sales increased approximately $833.7 million or 5.0% from net new
supermarkets and approximately $960.0 million or 5.7% in comparable store sales
(supermarkets open for the same weeks in both periods, including replacement
supermarkets) since the beginning of 2003. Included in comparable store sales is
approximately $189.0 million or 1.1% of sales related to the impact of the
hurricanes described above. Sales for 2003 were $16.8 billion as compared with
$15.9 billion in 2002, an increase of $909.4 million or a 5.7% increase. All of
this increase was from net new supermarkets since the beginning of 2002 as
comparable store sales were unchanged. Sales for 2002 were $15.9 billion as
compared with $15.2 billion in 2001, an increase of $641.5 million or a 4.2%
increase. This reflects an increase of $748.5 million or 4.9% from net new
supermarkets and a decrease of $107.0 million or 0.7% in comparable store sales
since the beginning of 2001. During the first quarter of 2002, the Company
modified its calculation of comparable store sales to include replacement
supermarkets. The comparable store sales calculation was modified to improve the
comparability of this key performance measure to others in the food retailing
industry.
15
Gross profit
- ------------
Gross profit, as a percentage of sales, was approximately 26.8% in 2004 and
2003 as compared with 26.7% in 2002, respectively. In 2004, gross profit
remained relatively unchanged compared to 2003 and 2002. During 2003, the
Company modified its calculation of cost of merchandise sold to improve the
comparability of the Company's gross profit to others in the food retailing
industry.
Operating and administrative expenses
- -------------------------------------
Operating and administrative expenses, as a percentage of sales, were
approximately 20.9%, 21.6% and 21.3% in 2004, 2003 and 2002, respectively. The
decrease in operating and administrative expenses as a percentage of sales was
due to the incremental sales from the hurricanes discussed above and the closure
of PublixDirect, LLC, ("PublixDirect") during 2003 described below. The
hurricanes decreased operating and administrative expenses as a percentage of
sales in 2004 and the closure of PublixDirect increased the operating and
administrative expenses as a percentage of sales in 2003. Additionally, the
decrease in operating and administrative expenses as a percentage of sales
during 2004 was primarily due to decreases in payroll, workers' compensation and
repair and maintenance costs, which were partially offset by increases in health
insurance and certain facilities costs. The increase during 2003 in operating
and administrative expenses as a percentage of sales was primarily due to the
closure of PublixDirect as well as increases in certain facilities costs and
other expenses, which were partially offset by decreases in payroll and employee
benefit costs. The operating and administrative expenses as a percentage of
sales for prior years were adjusted due to the modification of the cost of
merchandise sold calculation noted above.
Income taxes
- ------------
The effective income tax rates were 36.7% in 2004 and 36.9% in 2003 and
2002, respectively. The effective income tax rates differ from the expected
Federal statutory rate of 35.0% in all years primarily due to the impact of
state income taxes, partially offset by the Federal benefit of state income
taxes, tax exempt interest and dividends paid to ESOP participants.
PublixDirect closure
- --------------------
During the third quarter of 2003, the Company announced its decision to
close its online grocery shopping service operated under its wholly owned
subsidiary, PublixDirect. As a result of the decision to close PublixDirect
effective August 23, 2003, the Company recorded an expense of $30.0 million
during the third quarter of 2003. The expense recorded represented approximately
$17.0 million in asset impairments, $10.0 million in operating lease obligations
and $3.0 million in payroll obligations and other costs. The expense was
recognized in the Company's consolidated statements of earnings and is included
in operating and administrative expenses. The impact of the expense recorded on
net earnings was approximately $18.0 million or $.10 per share for the fiscal
year ended December 27, 2003.
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 $819.4 million or $4.64 per share, $660.9 million or
$3.59 per share and $632.4 million or $3.25 per share for 2004, 2003 and 2002,
respectively.
16
Accounting Standards
- --------------------
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51" (FIN 46). FIN 46 addresses the consolidation of
entities whose equity holders (a) have not provided sufficient equity at risk to
allow the entity to finance its own activities or (b) do not possess certain
characteristics of a controlling financial interest. FIN 46 requires the
consolidation of these entities, known as variable interest entities (VIEs), by
the primary beneficiary of the entity. The primary beneficiary is the entity, if
any, that is subject to a majority of the risk of loss from the VIEs'
activities, entitled to receive a majority of the VIEs' residual returns, or
both. In December 2003, the FASB issued FIN 46(R), "Consolidation of Variable
Interest Entities," which represents a revision to FIN 46. FIN 46(R) provided
clarifications to FIN 46 and excluded certain entities from its scope. The
requirements of FIN 46(R) for entities commonly referred to as special-purpose
entities (SPEs) are effective for periods ending after December 15, 2003. The
requirements for all other types of entities are effective for periods ending
after March 15, 2004. The Company does not have any entities classified as VIEs
or SPEs; therefore, the adoption of FIN 46(R) had no effect on the Company's
financial condition, results of operations or cash flows.
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 is not expected to have a material effect
on the Company's financial condition, results of operations or cash flows.
In December 2004, the Financial Accounting Standards Board (FASB) issued a
revision to Statement of Financial Accounting Standard No. 123, "Share-Based
Payment," (SFAS 123(R)) effective for the first interim or annual reporting
period beginning after June 15, 2005. SFAS 123(R) will require 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 have any stock-based
employee compensation; therefore, the adoption of SFAS 123(R) will have no
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 United States of America. The preparation of these
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The Company's significant
accounting policies are described in Note 1 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:
17
Inventories
-----------
Inventories are valued at the lower of cost or market. The cost for
substantially all of the Company's 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 all
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 10 - 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 under the
provisions of Financial Accounting Standards Board Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," 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.
18
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.
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 subject to a high degree of variability. The causes of
variability include, but are not limited to, such factors as future
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 pricing and promotional programs; 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 stores 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.
19
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 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 25, 2004. 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 25, 2004.
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 23.
20
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
Index to Consolidated Financial Statements and Schedule
Page
----
Reports of Independent Registered Public Accounting Firm 22
Consolidated Financial Statements:
Consolidated Balance Sheets - December 25, 2004 and
December 27, 2003 24
Consolidated Statements of Earnings - Years ended
December 25, 2004, December 27, 2003 and December 28, 2002 26
Consolidated Statements of Comprehensive Earnings - Years ended
December 25, 2004, December 27, 2003 and December 28, 2002 27
Consolidated Statements of Stockholders' Equity - Years ended
December 25, 2004, December 27, 2003 and December 28, 2002 28
Consolidated Statements of Cash Flows - Years ended
December 25, 2004, December 27, 2003 and December 28, 2002 29
Notes to Consolidated Financial Statements 31
The following consolidated financial statement schedule
of the Company for the years ended December 25, 2004,
December 27, 2003 and December 28, 2002 is submitted
herewith:
Schedule:
II - Valuation and Qualifying Accounts 45
All other schedules are omitted as the required information
is inapplicable or the information is presented in the
financial statements or related notes.
21
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 25, 2004 and
December 27, 2003, 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 25, 2004. 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 25, 2004 and December 27, 2003,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 25, 2004, 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.
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 25, 2004, 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 22, 2005 expressed an unqualified opinion on management's
assessment of, and the effective operation of, internal control over financial
reporting.
KPMG LLP
Tampa, Florida
February 22, 2005
22
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 25, 2004, 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 25, 2004, 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 25, 2004, 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 25, 2004 and December
27, 2003, 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 25, 2004, and our report dated February 22,
2005 expressed an unqualified opinion on those consolidated financial
statements.
KPMG LLP
Tampa, Florida
February 22, 2005
23
PUBLIX SUPER MARKETS, INC.
Consolidated Balance Sheets
December 25, 2004 and
December 27, 2003
Assets 2004 2003
------ ---- ----
(Amounts are in thousands)
Current assets:
Cash and cash equivalents $ 370,288 277,072
Short-term investments 101,718 16,661
Trade receivables 289,455 241,101
Merchandise inventories 1,054,183 981,456
Deferred tax assets 71,934 55,479
Prepaid expenses 11,804 9,778
---------- ---------
Total current assets 1,899,382 1,581,547
---------- ---------
Long-term investments 918,443 380,852
Other noncurrent assets 18,372 1,119
Property, plant and equipment:
Land 159,023 174,283
Buildings and improvements 1,096,776 1,108,605
Furniture, fixtures and equipment 3,160,507 2,936,339
Leasehold improvements 912,689 833,569
Construction in progress 72,765 88,015
---------- ---------
5,401,760 5,140,811
Less accumulated depreciation 2,273,686 1,953,612
---------- ---------
Net property, plant and equipment 3,128,074 3,187,199
---------- ---------
$5,964,271 5,150,717
========== =========
See accompanying notes to consolidated financial statements.
24
Liabilities and Stockholders' Equity 2004 2003
------------------------------------ ---- ----
(Amounts are in thousands,
except par value and share amounts)
Current liabilities:
Accounts payable $ 762,655 724,228
Accrued expenses:
Contribution to retirement plans 290,136 244,848
Self-insurance reserves 115,010 123,462
Salaries and wages 90,069 76,050
Other 187,451 190,510
---------- ---------
Total accrued expenses 682,666 634,870
---------- ---------
Federal and state income taxes 232,478 12,508
---------- ---------
Total current liabilities 1,677,799 1,371,606
Deferred tax liabilities, net 313,073 284,458
Self-insurance reserves 240,821 202,737
Accrued postretirement benefit cost 68,101 67,960
Other noncurrent liabilities 78,761 54,646
---------- ---------
Total liabilities 2,378,555 1,981,407
---------- ---------
Stockholders' equity:
Common stock of $1 par value. Authorized
300,000,000 shares; issued and outstanding
172,591,732 shares in 2004 and 178,369,413
shares in 2003 172,592 178,369
Additional paid-in capital 630,983 494,154
Retained earnings 2,779,592 2,492,759
---------- ---------
3,583,167 3,165,282
Accumulated other comprehensive earnings 2,549 4,028
---------- ---------
Total stockholders' equity 3,585,716 3,169,310
Commitments and contingencies --- ---
---------- ---------
$5,964,271 5,150,717
========== =========
25
PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Earnings
Years ended December 25, 2004, December 27, 2003
and December 28, 2002
2004 2003 2002
---- ---- ----
(Amounts are in thousands, except shares
outstanding and per share amounts)
Revenues:
Sales $ 18,554,486 16,760,749 15,851,301
Other operating income 131,885 126,120 121,296
------------ ----------- -----------
Total revenues 18,686,371 16,886,869 15,972,597
------------ ----------- -----------
Costs and expenses:
Cost of merchandise sold 13,577,740 12,275,132 11,621,762
Operating and administrative expenses 3,869,791 3,613,759 3,381,244
------------ ----------- -----------
Total costs and expenses 17,447,531 15,888,891 15,003,006
------------ ----------- -----------
Operating profit 1,238,840 997,978 969,591
------------ ----------- -----------
Investment income, net 35,311 21,926 16,477
Other income, net 20,860 27,185 16,762
------------ ----------- -----------
Earnings before income tax expense 1,295,011 1,047,089 1,002,830
Income tax expense 475,628 386,156 370,426
------------ ----------- -----------
Net earnings $ 819,383 660,933 632,404
============ =========== ===========
Weighted average number of common
shares outstanding 176,775,733 184,112,742 194,466,212
============ =========== ===========
Basic and diluted earnings per common
share based on weighted average
shares outstanding $ 4.64 3.59 3.25
============ =========== ===========
See accompanying notes to consolidated financial statements.
26
PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Comprehensive Earnings
Years ended December 25, 2004, December 27, 2003
and December 28, 2002
2004 2003 2002
---- ---- ----
(Amounts are in thousands)
Net earnings $819,383 660,933 632,404
Other comprehensive earnings
Unrealized gain (loss) on investment
securities available-for-sale, net of
tax effect of $419, $3,174 and ($456)
in 2004, 2003 and 2002, respectively 668 5,055 (726)
Reclassification adjustment for net
realized (gain) loss on investment
securities available-for-sale, net of
tax effect of ($1,348), ($800) and $3,854
in 2004, 2003 and 2002, respectively (2,147) (1,274) 6,136
-------- ------- -------
Comprehensive earnings $817,904 664,714 637,814
======== ======= =======
See accompanying notes to consolidated financial statements.
27
PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Stockholders' Equity
Years ended December 25, 2004, December 27, 2003
and December 28, 2002
Common
Stock
(Acquired Accumulated Total
Additional From) Sold Other Stock-
Common Paid-in Retained to Stock- Comprehensive holders'
Stock Capital Earnings holders Earnings Equity
----- ------- -------- ------- -------- ------
(Amounts are in thousands, except per share and share amounts)
Balances at December 29, 2001 $197,112 343,834 2,226,768 --- (5,163) 2,762,551
Comprehensive earnings for the year --- --- 632,404 --- 5,410 637,814
Cash dividends, $.33 per share --- --- (65,439) --- --- (65,439)
Contribution of 4,801,677 shares
to retirement plans 1,809 72,350 --- 122,710 --- 196,869
Acquired 14,558,822 shares
from stockholders --- (703) --- (597,776) --- (598,479)
Sale of 1,813,378 shares to
stockholders 137 5,538 --- 69,077 --- 74,752
Retirement of 9,890,943 shares (9,890) --- (396,099) 405,989 --- ---
-------- ------- --------- -------- ------ ---------
Balances at December 28, 2002 189,168 421,019 2,397,634 --- 247 3,008,068
Comprehensive earnings for the year --- --- 660,933 --- 3,781 664,714
Cash dividends, $.40 per share --- --- (75,455) --- --- (75,455)
Contribution of 5,298,904 shares
to retirement plans 1,705 69,313 --- 132,990 --- 204,008
Acquired 17,631,828 shares
from stockholders --- --- --- (694,669) --- (694,669)
Sale of 1,534,568 shares to
stockholders 102 3,822 --- 58,720 --- 62,644
Retirement of 12,605,111 shares (12,606) --- (490,353) 502,959 --- ---
-------- ------- --------- -------- ------ ---------
Balances at December 27, 2003 178,369 494,154 2,492,759 --- 4,028 3,169,310
Comprehensive earnings for the year --- --- 819,383 --- (1,479) 817,904
Cash dividends, $.45 per share --- --- (80,764) --- --- (80,764)
Contribution of 3,845,892 shares
to retirement plans 2,506 133,243 --- 62,314 --- 198,063
Acquired 11,079,191 shares
from stockholders --- --- --- (598,516) --- (598,516)
Sale of 1,455,618 shares to
stockholders 71 3,586 --- 76,062 --- 79,719
Retirement of 8,354,336 shares (8,354) --- (451,786) 460,140 --- ---
-------- ------- --------- -------- ------ ---------
Balances at December 25, 2004 $172,592 630,983 2,779,592 --- 2,549 3,585,716
======== ======= ========= ======== ====== =========
See accompanying notes to consolidated financial statements.
28
PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Cash Flows
Years ended December 25, 2004, December 27, 2003
and December 28, 2002
2004 2003 2002
---- ---- ----
(Amounts are in thousands)
Cash flows from operating activities:
Cash received from customers $ 18,541,695 16,752,469 15,867,962
Cash paid to employees and suppliers (16,611,646) (15,044,383) (14,313,864)
Income taxes paid (242,569) (344,364) (307,799)
Payment for self-insured claims (185,869) (179,424) (153,674)
Dividends and interest received 33,230 20,900 27,363
Other operating cash receipts 117,416 108,072 101,647
Other operating cash payments (9,079) (9,613) (10,649)
------------ ----------- -----------
Net cash provided by operating
activities 1,643,178 1,303,657 1,210,986
------------ ----------- -----------
Cash flows from investing activities:
Payment for property, plant and
equipment (403,373) (563,576) (635,891)
Proceeds from sale of property, plant
and equipment 69,254 35,679 15,512
Proceeds from sale-leasebacks 25,961 8,098 ---
Payment for investment securities -
available-for-sale (AFS) (793,487) (340,499) (265,381)
Proceeds from sale and maturity of
investment securities - AFS 159,811 327,485 259,622
Net (payments) proceeds to/from joint
ventures and other investments (7,244) 6,528 644
Other, net (1,192) (212) 32
------------ ----------- -----------
Net cash used in investing activities (950,270) (526,497) (625,462)
------------ ----------- -----------
Cash flows from financing activities:
Payment for acquisition of common stock (598,516) (694,669) (598,479)
Proceeds from sale of common stock 79,719 62,644 74,752
Dividends paid (80,764) (75,455) (65,439)
Other, net (131) (131) (131)
------------ ----------- -----------
Net cash used in financing activities (599,692) (707,611) (589,297)
------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents 93,216 69,549 (3,773)
Cash and cash equivalents at beginning
of year 277,072 207,523 211,296
------------ ----------- -----------
Cash and cash equivalents at end of year $ 370,288 277,072 207,523
============ =========== ===========
See accompanying notes to consolidated financial statements.
29
PUBLIX SUPER MARKETS, INC.
Consolidated Statements of Cash Flows
(Continued)
2004 2003 2002
---- ---- ----
(Amounts are in thousands)
Reconciliation of net earnings to net cash
provided by operating activities
Net earnings $ 819,383 660,933 632,404
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 379,920 343,997 309,793
Retirement contributions paid or
payable in common stock 244,087 199,620 213,722
Deferred income taxes 13,089 45,415 59,526
Loss on sale of property, plant and
equipment 13,582 21,578 28,977
Amortization of deferred income from
sale-leasebacks (2,235) (483) ---
(Gain) loss on sale of investments (3,495) (2,074) 9,990
Self-insurance reserves in excess
of current payments 29,632 46,582 39,095
Postretirement accruals in excess
of (less than) current payments 141 (1,102) (1,089)
Increase (decrease) in advance
purchase allowances 119 (2,466) (6,721)
Other, net 4,952 1,531 3,120
Change in cash from:
Trade receivables (48,354) (53,024) (16,199)
Merchandise inventories (72,727) (59,213) (82,128)
Prepaid expenses (2,026) (5,515) (1,262)
Accounts payable and accrued expenses 47,140 111,501 18,657
Federal and state income taxes 219,970 (3,623) 3,101
---------- --------- ---------
Total adjustments 823,795 642,724 578,582
---------- --------- ---------
Net cash provided by operating activities $1,643,178 1,303,657 1,210,986
========== ========= =========
See accompanying notes to consolidated financial statements.
30
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
December 25, 2004, December 27, 2003
and December 28, 2002
(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 the Company and its
wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(c) Fiscal Year
-----------
The fiscal year ends on the last Saturday in December. Fiscal years
2004, 2003 and 2002 include 52 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 includes 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
approximately 86% and 87% of inventories was determined using the
dollar value last-in, first-out method as of December 25, 2004 and
December 27, 2003, respectively. The cost of all remaining
inventories was determined using the first-in, first-out ("FIFO")
method. The FIFO cost of inventory approximates replacement or
current cost.
(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 25, 2004 and December 27, 2003.
31 (Continued)
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 from time to time holds 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 10 - 40 years
In 2002, the Company changed its useful life for leasehold
improvement additions for new and existing stores to the lesser of 20
years or the terms of the applicable leases. The Company considers
lease renewals in the useful life of its leasehold improvements when
such renewals are reasonably assured.
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 in 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 approximately $17,444,000, $22,351,000 and
$26,282,000 for the fiscal years ended December 25, 2004, December
27, 2003 and December 28, 2002, respectively.
32 (Continued)
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(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 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 experience including, where
necessary, actuarial studies. The Company has insurance coverage for
losses in excess of varying amounts.
(l) Comprehensive Earnings
----------------------
Comprehensive earnings includes net earnings and other comprehensive
earnings. Other comprehensive earnings includes 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 net of income taxes.
(m) 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.
(n) Other Operating Income
----------------------
Other operating income includes income generated from other
activities conducted in the Company's stores, primarily automated
teller transactions, lottery commissions, check cashing fees,
commissions on licensee sales, coupon handling fees, money transfer
and money order fees, vending machine commissions and in-store
subleases.
(o) 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.
33 (Continued)
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
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.
During 2003, the Company modified its calculation of cost of
merchandise sold to improve the comparability of its gross profit to
others in the food retailing industry.
(p) Advertising Costs
-----------------
Advertising costs are expensed as incurred and were approximately
$140,668,000, $125,209,000 and $116,210,000 for the fiscal years
ended December 25, 2004, December 27, 2003 and December 28, 2002,
respectively.
(q) Other Income, net
-----------------
Other income, net includes rent received from shopping center
operations, net of related expenses and other miscellaneous
nonoperating income.
(r) 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.
(s) 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.
(t) Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
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.
(u) Reclassifications
-----------------
Certain 2003 and 2002 amounts have been reclassified to conform with
the 2004 presentation.
34 (Continued)
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(2) Merchandise Inventories
-----------------------
If the first-in, first-out 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 approximately $141,808,000, $127,989,000
and $117,581,000 as of December 25, 2004, December 27, 2003 and December
28, 2002, 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 25, 2004 and December 27, 2003 approximated their respective fair
values.
All other investments are accounted for using the equity method. The
carrying amount of other investments approximates fair value.
35 (Continued)
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(4) Investments
-----------
Following is a summary of investments as of December 25, 2004 and December
27, 2003:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Amounts are in thousands)
2004
----
Available-for-sale:
Tax exempt bonds $ 408,393 1,222 2,539 407,076
Taxable bonds 533,903 1,925 4,241 531,587
Equity securities 41,124 7,856 74 48,906
---------- ------ ----- ---------
983,420 11,003 6,854 987,569
Other investments 32,592 --- --- 32,592
---------- ------ ----- ---------
$1,016,012 11,003 6,854 1,020,161
========== ====== ===== =========
2003
----
Available-for-sale:
Tax exempt bonds $ 144,352 2,082 2,055 144,379
Taxable bonds 131,584 457 2,049 129,992
Equity securities 85,122 8,630 508 93,244
---------- ------ ----- ---------
361,058 11,169 4,612 367,615
Other investments 29,898 --- --- 29,898
---------- ------ ----- ---------
$ 390,956 11,169 4,612 397,513
========== ====== ===== =========
The realized gains on sales of available-for-sale securities totaled
approximately $5,462,000, $4,544,000 and $5,957,000 for the fiscal years
ended December 25, 2004, December 27, 2003 and December 28, 2002,
respectively, and the realized losses totaled approximately $1,967,000,
$2,470,000 and $15,947,000, respectively.
The net realized gains on other investments totaled approximately
$3,930,000, $259,000 and $1,903,000 for the fiscal years ended December
25, 2004, December 27, 2003 and December 28, 2002, respectively.
36 (Continued)
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 25, 2004 and December 27, 2003, by expected maturity, are as
follows:
2004 2003
-------------------- --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
(Amounts are in thousands)
Due in one year or less $ 101,771 101,718 16,681 16,661
Due after one year through
five years 207,800 206,933 55,964 56,897
Due after five years through
ten years 65,896 65,786 47,818 47,325
Due after ten years 566,829 564,226 155,473 153,488
---------- --------- ------- -------
942,296 938,663 275,936 274,371
Equity securities 41,124 48,906 85,122 93,244
Other investments 32,592 32,592 29,898 29,898
---------- --------- ------- -------
$1,016,012 1,020,161 390,956 397,513
========== ========= ======= =======
Following is a summary of temporarily impaired investments as of December
25, 2004:
Less Than 12 Months
12 Months or Longer Total
--------- --------- -----
Unreal- Unreal- Unreal-
Fair ized Fair ized Fair ized
Value Losses Value Losses Value Losses
----- ------ ----- ------ ----- ------
(Amounts are in thousands)
2004
----
Tax exempt bonds $286,815 1,722 25,696 817 312,511 2,539
Taxable bonds 294,955 2,994 48,097 1,247 343,052 4,241
Equity securities 3,798 17 126 57 3,924 74
-------- ----- ------ ----- ------- -----
Total temporarily
impaired
investments $585,568 4,733 73,919 2,121 659,487 6,854
======== ===== ====== ===== ======= =====
The Company believes the unrealized losses presented above are temporary.
To make this determination, management reviews the credit worthiness of
the issuers as well as underlying factors mitigating risk of loss of
principal or default of interest payments. There are 179 investment issues
contributing to the total unrealized loss of $6,854,000. Of this amount,
$6,780,000 or 99% of the unrealized loss is driven by changes in interest
rates impacting the market value of the tax exempt and taxable bonds owned
by the Company. The Company continues to receive scheduled principal and
interest payments on these investments.
37 (Continued)
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(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 credited 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.
The Company funds the life insurance benefits on a pay-as-you-go basis.
The Company made benefit payments to beneficiaries of retirees of
approximately $2,140,000, $2,255,000 and $1,879,000 during the fiscal
years ended December 25, 2004, December 27, 2003 and December 28, 2002,
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, and a statement of the funded status as of December 25, 2004 and
December 27, 2003:
2004 2003
---- ----
(Amounts are in thousands)
Change in benefit obligation:
Benefit obligation as of beginning of year $ 72,702 62,297
Service cost 674 775
Interest cost 4,337 4,191
Actuarial loss 4,601 7,694
Benefit payments (2,140) (2,255)
-------- -------
Benefit obligation as of end of year $ 80,174 72,702
======== =======
Change in fair value of plan assets:
Fair value of plan assets as of beginning
of year $ --- ---
Employer contributions 2,140 2,255
Benefit payments (2,140) (2,255)
-------- -------
Fair value of plan assets as of end of year $ --- ---
======== =======
Funded status $(80,174) (72,702)
Unrecognized actuarial loss 18,594 15,338
Unrecognized prior service cost (6,521) (10,596)
-------- -------
Accrued postretirement benefit cost $(68,101) (67,960)
======== =======
38 (Continued)
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
Following are the actuarial assumptions that were used in the calculation
of the year end benefit obligation:
2004 2003 2002
---- ---- ----
Discount rate 5.75% 6.00% 6.75%
Rate of compensation increase 4.00% 4.00% 4.00%
Net periodic postretirement benefit cost consists of the following
components:
2004 2003 2002
---- ---- ----
(Amounts are in thousands)
Service cost $ 674 775 830
Interest cost 4,337 4,191 4,035
Amortization of prior service cost (4,075) (4,075) (4,075)
Recognized actuarial loss 1,345 262 ---
------- ------ ------
Net periodic postretirement benefit cost $ 2,281 1,153 790
======= ====== ======
Actuarial losses are amortized over the average remaining service life of
active participants when the accumulation of such losses exceeds 10% of
the greater of the projected benefit obligation or the fair value of plan
assets.
Following are the actuarial assumptions that were used in the calculation
of the net periodic postretirement benefit cost:
2004 2003 2002
---- ---- ----
Discount rate 6.00% 6.75% 7.25%
Rate of compensation increase 4.00% 4.00% 4.00%
The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid:
Year
----
(Amounts are in thousands)
2005 $ 2,433
2006 2,686
2007 2,939
2008 3,197
2009 3,457
2010 through 2014 21,431
39 (Continued)
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(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 approximately $228,585,000,
$184,849,000 and $198,315,000 for the fiscal years ended December 25,
2004, December 27, 2003 and December 28, 2002, 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
2004, 2003 and 2002, 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 approximately $15,502,000, $14,771,000 and $15,407,000 for
the fiscal years ended December 25, 2004, December 27, 2003 and December
28, 2002, respectively.
The Company intends to continue its retirement plans; however, the right
to modify, amend, terminate or merge these plans has been reserved. In the
event of termination, all amounts contributed under the plans must be paid
to the participants or their beneficiaries.
(7) Income Taxes
------------
The provision for income taxes consists of the following:
Current Deferred Total
------- -------- -----
(Amounts are in thousands)
2004
----
Federal $400,202 13,899 414,101
State 62,337 (810) 61,527
-------- ------ -------
$462,539 13,089 475,628
======== ====== =======
2003
----
Federal $294,488 39,021 333,509
State 46,253 6,394 52,647
-------- ------ -------
$340,741 45,415 386,156
======== ====== =======
2002
----
Federal $270,386 50,411 320,797
State 41,510 8,119 49,629
-------- ------ -------
$311,896 58,530 370,426
======== ====== =======
40 (Continued)
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
The actual tax expense for the fiscal years ended December 25, 2004,
December 27, 2003 and December 28, 2002 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:
2004 2003 2002
---- ---- ----
(Amounts are in thousands)
Computed "expected" tax expense $453,254 366,481 350,991
State income taxes (net of
Federal income tax benefit) 39,993 34,221 32,259
Tax exempt interest (3,973) (3,210) (4,088)
Other, net (13,646) (11,336) (8,736)
-------- ------- -------
$475,628 386,156 370,426
======== ======= =======
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of
December 25, 2004 and December 27, 2003 are as follows:
2004 2003
---- ----
(Amounts are in thousands)
Deferred tax assets:
Self-insurance reserves $125,254 115,682
Retirement plan contributions 29,863 24,217
Postretirement benefit cost 26,272 26,206
Reserves not currently deductible 17,602 16,308
Advance purchase allowances 11,197 11,226
Inventory capitalization 6,526 7,760
Other 6,370 1,547
-------- -------
Total deferred tax assets $223,084 202,946
======== =======
Deferred tax liabilities:
Property, plant and equipment,
principally due to depreciation $454,134 417,327
Other 10,089 14,598
-------- -------
Total deferred tax liabilities $464,223 431,925
======== =======
The Company expects the results of future operations and the reversal of
deferred tax liabilities to generate sufficient taxable income to allow
utilization of net deferred tax assets; therefore, no valuation allowance
has been recorded as of December 25, 2004 and December 27, 2003.
41 (Continued)
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(8) PublixDirect Closure
--------------------
During the third quarter of 2003, the Company announced its decision to
close its online grocery shopping service operated under its wholly owned
subsidiary, PublixDirect. As a result of the decision to close
PublixDirect effective August 23, 2003, the Company recorded an expense of
$30.0 million during the third quarter of 2003. The expense recorded
represented approximately $17.0 million in asset impairments, $10.0
million in operating lease obligations and $3.0 million in payroll
obligations and other costs. The expense was recognized in the Company's
consolidated statements of earnings and is included in operating and
administrative expenses. The impact of the expense recorded on net
earnings was approximately $18.0 million or $.10 per share for the fiscal
year ended December 27, 2003.
(9) Commitments and Contingencies
-----------------------------
(a) Operating Leases
----------------
The Company conducts a major portion of its retail operations from
leased store premises. Initial terms of the leases are typically 20
years, followed by renewal options at five year intervals and may
include rent escalation clauses. Contingent rentals include
reimbursement of real estate taxes, insurance and maintenance and in
certain stores, additional rentals based on a percentage of sales in
excess of stipulated minimums. The reimbursement of real estate
taxes, insurance and maintenance is generally based on the Company's
prorata share using square footage.
The Company recognizes rent expense for operating leases with step
rent provisions and escalation clauses on a straight-line basis over
the applicable lease term. As of December 25, 2004, less than 10.0%
of the Company's store leases include rent escalation clauses during
the initial term or the renewal options.
Total rental expense for the fiscal years ended December 25, 2004,
December 27, 2003 and December 28, 2002, is as follows:
2004 2003 2002
---- ---- ----
(Amounts are in thousands)
Minimum rentals $320,365 295,539 257,258
Contingent rentals 7,851 6,392 8,949
Sublease rental income (10,087) (10,105) (10,181)
-------- ------- -------
$318,129 291,826 256,026
======== ======= =======
42 (Continued)
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
As of December 25, 2004, 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)
2005 $ 336,938 8,637 328,301
2006 332,505 6,499 326,006
2007 322,371 4,005 318,366
2008 311,567 1,756 309,811
2009 300,226 670 299,556
Thereafter 2,719,533 547 2,718,986
---------- ------ ---------
$4,323,140 22,114 4,301,026
========== ====== =========
The Company also owns shopping centers which are leased to tenants
for minimum monthly rentals plus, in certain instances, contingent
rentals. Contingent rentals include reimbursement of real estate
taxes, insurance and maintenance and in certain instances, additional
rentals based on a percentage of sales in excess of stipulated
minimums. Contingent rentals are included in trade receivables and
were approximately $1,604,000 and $1,262,000 as of December 25, 2004
and December 27, 2003, respectively. Rental income was approximately
$15,048,000, $16,789,000 and $14,057,000 for the fiscal years ended
December 25, 2004, December 27, 2003 and December 28, 2002,
respectively. The approximate amounts of minimum future rental
payments to be received under noncancelable operating leases are
$12,779,000, $10,645,000, $8,244,000, $5,983,000 and $4,380,000 for
the years 2005 through 2009, respectively, and $19,126,000
thereafter.
(b) Line of Credit
--------------
The Company's committed line of credit totaling $100 million expired
on December 31, 2004. This 364-day line of credit facility was
available to fund liquidity requirements if necessary. The interest
rate was based on LIBOR or prime. There were no amounts outstanding
on this line of credit as of December 25, 2004. Since the Company did
not require additional liquidity, this line of credit facility was
not renewed.
(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.
43 (Continued)
PUBLIX SUPER MARKETS, INC.
Notes to Consolidated Financial Statements
(10) Quarterly Information (unaudited)
---------------------------------
Following is a summary of the quarterly results of operations for the
fiscal years ended December 25, 2004 and December 27, 2003. All quarters
have 13 weeks.
Quarter Ended
----------------------------------------------------
March June September December
----- ---- --------- --------
(Amounts are in thousands, except per share amounts)
2004
----
Revenues $4,682,820 4,527,748 4,662,731 4,813,072
Costs and expenses $4,369,490 4,221,165 4,391,943 4,464,933
Net earnings $ 203,396 199,409 183,711 232,867
Basic and diluted
earnings per common
share, based on
weighted average
shares outstanding $ 1.14 1.11 1.04 1.34
2003
----
Revenues $4,329,575 4,119,603 4,076,324 4,361,367
Costs and expenses $4,042,182 3,873,510 3,880,804 4,092,395
Net earnings $ 187,108 161,510 134,570 177,745
Basic and diluted
earnings per common
share, based on
weighted average
shares outstanding $ .99 .87 .74 .99
44
Schedule II
-----------
PUBLIX SUPER MARKETS, INC.
Valuation and Qualifying Accounts
Years ended December 25, 2004, December 27, 2003
and December 28, 2002
(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 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
======== ======= ======= =======
Year ended December 27, 2003
Reserves not deducted from assets:
Self-insurance reserves:
-Current $102,722 200,164 179,424 123,462
-Noncurrent 176,895 25,842 --- 202,737
-------- ------- ------- -------
$279,617 226,006 179,424 326,199
======== ======= ======= =======
Year ended December 28, 2002
Reserves not deducted from assets:
Self-insurance reserves:
-Current $103,048 153,348 153,674 102,722
-Noncurrent 137,474 39,421 --- 176,895
-------- ------- ------- -------
$240,522 192,769 153,674 279,617
======== ======= ======= =======
45
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 significant changes in the Company's internal control over
financial reporting during the quarter ended December 25, 2004, 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 20 of this report. The independent registered
public accounting firm has issued their report, included herein on page 23, (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
46
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
Certain information concerning the directors and executive officers of the
Company is incorporated by reference to pages 2 through 8 of the Proxy Statement
of the Company (2005 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 page 5 and pages 8 through 11 of the 2005 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
Information regarding security ownership is incorporated by reference to
pages 6 through 8 of the 2005 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
Information regarding certain relationships and related transactions is
incorporated by reference to pages 3 and 8 of the 2005 Proxy Statement.
Item 14. Principal Accounting Fees and Services
- -----------------------------------------------
Information regarding principal accounting fees and services is
incorporated by reference to page 12 of the 2005 Proxy Statement.
47
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(a). Articles of Incorporation of the Company, together with all
amendments thereto, are incorporated by reference to the exhibits
to the Annual Report of the Company on Form 10-K for the year
ended December 25, 1993.
3(b). 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, in 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 and annual
reports of the Company on Form 10-Q and Form 10-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
and March 27, 2004.
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
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.
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.
48
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.
March 2, 2005 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 March 2, 2005
- ---------------------------
Carol Jenkins Barnett
/s/ Hoyt R. Barnett Vice Chairman and Director March 2, 2005
- ---------------------------
Hoyt R. Barnett
/s/ Joan G. Buccino Director March 2, 2005
- ---------------------------
Joan G. Buccino
/s/ William E. Crenshaw President and Director March 2, 2005
- ---------------------------
William E. Crenshaw
/s/ Mark C. Hollis Director March 2, 2005
- ---------------------------
Mark C. Hollis
/s/ Sherrill W. Hudson Director March 2, 2005
- ---------------------------
Sherrill W. Hudson
Chief Executive Officer and
Director
/s/ Charles H. Jenkins, Jr. (Principal Executive Officer) March 2, 2005
- ---------------------------
Charles H. Jenkins, Jr.
Chairman of the Board and
/s/ Howard M. Jenkins Director March 2, 2005
- ---------------------------
Howard M. Jenkins
/s/ E. Vane McClurg Director March 2, 2005
- ---------------------------
E. Vane McClurg
/s/ Kelly E. Norton Director March 2, 2005
- ---------------------------
Kelly E. Norton
Chief Financial Officer
and Treasurer
(Principal Financial and
/s/ David P. Phillips Accounting Officer) March 2, 2005
- ---------------------------
David P. Phillips
49