UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 27, 1997 Commission file number 1-5039
WEIS MARKETS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 24-0755415
(State or other jurisdiction of (IRS Employee Identification No.)
incorporation or organization)
1000 South Second Street, Sunbury, PA 17801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 717-286-4571
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common stock, no par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
The aggregate market value of Common Stock held by non-affiliates of the
Registrant is approximately $1,000,109,000. Shares of common stock outstanding
as of February 10, 1997 - 41,772,607.
The index to Exhibits is located in Part IV, Item 14(c).
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the 1997 Weis Markets, Inc. Annual Report to Shareholders
are incorporated by reference in Part II and Part IV of this Form 10-K.
Selected portions of the Weis Markets, Inc. definitive proxy statement dated
March 3, 1998 are incorporated by reference in Part III of this Form 10-K.
<PAGE>
WEIS MARKETS, INC.
PART I
Item 1. Business:
(a) Weis Markets, Inc. is a Pennsylvania business corporation formed in
1924. The Company is engaged principally in the retail sale of
food. There was no material change in the nature of the Company's
business during fiscal 1997.
(b) The principal business activity which the Company has been engaged
in for the last five fiscal years is the retail sale of food.
(c)(1)(i) The Company operates 129 retail food markets in Pennsylvania, 18 in
Maryland, 1 in New Jersey, 3 in New York, 2 in Virginia, and 1 in
West Virginia. The stores trade under the name Weis Markets,
except for 18 Pennsylvania stores which trade as Mr. Z's Food Mart,
6 Pennsylvania stores which trade as King's Supermarkets, 3
Pennsylvania stores which trade as Scot's Lo Cost, 3 Pennsylvania
stores which trade as Save A Lot, and 1 Pennsylvania store which
trades as Big Top Market. During the past fiscal year, 4 new
stores were opened of which 2 were replacements for older units.
Three stores were closed for financial reasons. The Company also
owns and operates Weis Food Service, a restaurant and
institutional supplier. On December 26, 1993, the Company
purchased an 80% interest in SuperPetz, Inc. The investment was
used to acquire 2 pet supply stores located in Dayton, Ohio. On
August 6, 1994, SuperPetz acquired five pet supply stores in
Georgia and South Carolina from Pet Owners Warehouse, Inc. On
November 24, 1995 SuperPetz acquired seven stores located in
Michigan and Ohio from Pet Food Warehouse, Inc. SuperPetz
opened 1 additional store and closed 1 store during the year and
as of December 27, 1997, operated 2 stores in Alabama, 1 store in
Georgia, 1 store in Indiana, 1 store in Kentucky, 1 store in
Maryland, 7 stores in Michigan, 9 stores in Ohio, 7 stores in
Pennsylvania, 8 stores in South Carolina, and 6 stores in
Tennessee. The Company supplies its retail food stores from
distribution centers in Sunbury, Northumberland, and Milton,
Pennsylvania. The percentage of net sales contributed by each
class of similar products for each of the five fiscal years
ended December 27, 1997 was:
<TABLE>
<CAPTION>
Grocery Meat Produce SuperPetz Other
<S> <C> <C> <C> <C> <C>
1993 60.74 14.80 11.06 13.40
1994 59.76 14.41 11.06 14.77
1995 58.71 13.82 11.05 2.03 14.39
1996 56.77 13.52 10.80 4.17 14.74
1997 56.00 13.44 11.06 4.43 15.06
</TABLE>
(c)(1)(vi) The Company has its own distribution center with warehouses located
within a 15 mile radius of its corporate offices in Sunbury,
Pennsylvania. The Company is required to use a significant amount
of working capital to provide for the required amount of
inventory to meet demand for its products through efficient use of
buying power and effective utilization of space in the warehouse
facilities.
<PAGE>
WEIS MARKETS, INC.
(c)(1)(x) The business of the Company is highly competitive, and, in the
areas served by it, the Company competes based on price and service
with national retail food chains, local chains and many independent
food stores. The following list includes, but is not limited to,
the competitors of the Company: A&P, Acme Markets, Aldi, BiLo,
Festival Foods, Giant Eagle, Giant Foods of Carlisle, Giant Foods
of Landover, Insalaco, K-Mart, Riverside Markets, Sam's, Shop Rite,
Super Rite, Super Valu, and Walmart. On the basis of sales volume,
the Company believes it is the leading food retailer in the
majority of the areas in which it operates.
(c)(1)(xiii) The Company has approximately 18,600 employees.
Item 2. Properties:
The Company owns and operates 82 of its retail food stores and
leases and operates 72 stores under operating leases for varying
periods of time up to the year 2025. SuperPetz, leases all 43 of
it's retail store locations. The Company owns all of its trade
fixtures and equipment in its stores and several parcels of
vacant land which are available as locations for possible future
stores or other expansion.
The Company owns and operates one warehouse in Sunbury,
Pennsylvania totaling approximately 551,000 square feet, one in
Milton, Pennsylvania of approximately 1,092,000 square feet, and
one in Northumberland, Pennsylvania totaling approximately
121,000 square feet. The Company also operates an ice cream
plant, meat processing plant and milk processing plant at its
Sunbury location.
Item 3. Legal Proceedings:
Neither the Company nor any subsidiary is presently a party to, nor
is any of their property subject to, any material pending legal
proceedings, other than routine litigation incidental to the
business.
Item 4. Submission of Matters to a Vote of Security Holders:
There were no matters submitted to a vote of security holders
during the fourth quarter of 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters:
"Stock Prices and Dividend Information by Quarter" on page 16
and "Stock Traded" on the inside back cover of the 1997 Weis
Markets, Inc. Annual Report to Shareholders are incorporated herein
by reference.
<PAGE>
WEIS MARKETS, INC.
The approximate number of shareholders on December 27, 1997 is
determined by the Company's transfer agent..
Item 6. Selected Financial Data:
"Five-Year Review of Operations" on page 16 of the 1997 Weis
Markets, Inc. Annual Report to Shareholders is incorporated herein
by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" on page 7 of the 1997 Weis Markets, Inc.
Annual Report to Shareholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data:
The following information is incorporated herein by reference from
the 1997 Weis Markets, Inc. Annual Report to Shareholders: The
consolidated financial statements on pages 8 to 10, the notes to
consolidated financial statements on pages 11 to 15, and the
independent auditors' report on page 15.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure:
None.
PART III
Item 10. Directors and Executive Officers of the Registrant:
"Election of Directors" on pages 4 and 5 of the Weis Markets, Inc.
definitive proxy statement dated March 3, 1998 is incorporated
herein by reference.
Item 11. Executive Compensation:
"Board Compensation Committee Report on Executive Compensation,"
"Summary Compensation Table," "Option/SAR Grants in Last Fiscal
Year," "Aggregated Option/SAR Exercises in Last Fiscal Year and
FY-End Option/SAR Values," "Retirement Plans," "Pension Plan
Table," "Shareholder Return Performance," "Comparative Five-Year
Total Returns," and "Comparative Ten-Year Income Percentages,"
on pages 6 to 10 of the Weis Markets, Inc. definitive proxy
statement dated March 3, 1998 are incorporated herein by reference.
<PAGE>
WEIS MARKETS, INC.
Item 12. Security Ownership of Certain Beneficial Owners and Management:
"Outstanding Voting Securities and Voting Rights" on page 3 of the
Weis Markets, Inc. definitive proxy statement dated March 3, 1998
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions:
"Compensation of Directors", "Compensation Committee Interlocks and
Insider Participation", "Board Compensation Committee Report on
Executive Compensation," "Summary Compensation Table," "Option/SAR
Grants in Last Fiscal Year," "Aggregated Option/SAR Exercises in
Last Fiscal Year and FY-End Option/SAR Values," "Retirement Plans,"
"Pension Plan Table," "Shareholder Return Performance,"
"Comparative Five-Year Total Returns," and "Comparative Ten-Year
Income Percentages," on pages 5 to 10 of the Weis Markets, Inc.,
definitive proxy statement dated March 3, 1998 are incorporated
herein by reference.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
The following information is incorporated herein by reference from
the 1997 Weis Markets, Inc. Annual Report to Shareholders: The
consolidated financial statements on pages 8 to 10, the notes to
consolidated financial statements on pages 11 to 15, and the
independent auditors' report on page 15.
(a) The financial statement schedules are omitted for the reason that
they are either not applicable or not required or because the
information required is contained in the financial statements or
notes thereto.
(b) There were no reports on Form 8-K filed during the quarter ended
December 27, 1997.
<PAGE>
WEIS MARKETS, INC.
(c) A listing of exhibits filed or incorporated by reference is as
follows:
Exhibit No.
3-A Articles of Incorporation
3-B By-Laws
3-C Amendments to the By-Laws
10-A Profit Sharing Plan
10-B Stock Bonus Plan
10-C Company Appreciation Plan
10-D Stock Option Plan
10-E Supplemental Employee Retirement Plan
10-F Executive Employment Contract
13 Annual Report to Shareholders for the Fiscal Year ended
December 27, 1997
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
Exhibits 3-A and 3-B have been filed as exhibits under
Part IV, Item 14(c) in Form 10-K for the fiscal year ended
December 27, 1980 and are incorporated herein by reference.
Exhibit 3-C has been filed as an 8-K on January 27, 1998
and is herein incorporated by reference. Exhibits 10-A
through 10-F, have been filed as exhibits under Part IV,
Item 14(c) in Form 10-K for the fiscal year ended December
31, 1994 and are incorporated herein by reference.
The foregoing exhibits are available upon request from the
Secretary of the Company at a fee of $10.00 per copy.
<PAGE>
WEIS MARKETS, INC.
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.
WEIS MARKETS, INC.
(Registrant)
Date
Robert F. Weis
Chairman of the Board of Directors,
and Treasurer and Director
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.
Date
Robert F. Weis
(Principal Financial Officer)
Chairman of the Board of Directors,
and Treasurer and Director
Date
Norman S. Rich
(Principal Executive Officer)
President and Director
Date
William R. Mills
Vice President Finance, Secretary
and Director
<PAGE>
EXHIBIT 13
Weis Markets, Inc.
(cover page)
Meeting Our
Customers' (This area contains a picture of a woman
serving food to her son.)
Changing Needs
Weis
Weis Markets, Inc.
1997 Annual Report
<PAGE>
Shifting Focus
Our Customers Are Changing, And So Are We.
(This area contains two pictures. An exterior picture of a new Weis Markets
store and a new store interior picture of the Delicatessen area)
Each week, more than a million customers shop at our stores. Meeting their
changing needs is our Company's standard for success.
To grow and prosper today, retailers have to understand how their
customers are changing and respond accordingly. Life's pace is faster and more
demanding as sixty percent of all U.S. households now have two wage earners.
Time and money are our customers' most precious commodities. In the
1990s, customers work longer hours and juggle different priorities.
Consequently, they have less time to shop. They are also shopping at fewer
stores than they were two years ago. Combine this trend with the fact that
customers have more options than ever before, and you quickly realize why
customers are changing how, when and where they shop. To earn their business,
we must be willing to change with them. And Weis Markets is doing just that.
(This area contains a picture of a Weis Markets female customer with a full
shopping cart of various food products.)
<PAGE>
Highlights
Financial Highlights of 1997
Net Sales Shareholders'
(in millions) Equity
(in millions)
(This area contains a 5-year bar graph (This area contains a 5-year bar graph of
of Net Sales from 1993 through 1997 Shareholders Equity at the end of each
year, from 1993 through 1997)
1993 $1,441 1993 $738
1994 $1,557 1994 $762
1995 $1,646 1995 $792
1996 $1,753 1996 $819
1997 $1,818 1997 $847
Number of Number of
Employees Stores
(in thousands)
(This area contains a 5 year bar graph (This area contains a 5 year bar graph
of Number of Employees at the end of Grocery Stores in operation at the of
of each year, from 1993 through 1997) each year, from 1993 through 1997)
1993 15,000 1993 141
1994 16,500 1994 149
1995 17,800 1995 151
1996 18,400 1996 155
1997 18,600 1997 154
<TABLE>
<CAPTION>
(dollars in thousands, except per share amounts)
For the Fiscal Years Ended December 27, 1997
December 28, 1996, and December 30, 1995 1997 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 1,818,816 $ 1,753,246 $ 1,646,435
Income before provision for income taxes 118,582 120,709 121,717
Net income 78,194 78,855 79,420
Cash dividends 39,347 37,199 34,499
Shareholders' equity 847,333 818,527 791,562
Depreciation and amortization 43,503 38,136 33,168
Basic and diluted earnings per share 1.87 1.87 1.84
Cash dividends per share . $ .94 $ .88 $ .80
Shares outstanding 41,772,107 42,040,856 42,533,617
Number of grocery stores 154 155 151
Number of pet supply stores 43 43 35
</TABLE>
<PAGE>
EXPANDING NEW MARKETS
(There is a picture in this area of Robert F. Weis, Chairman & Treasurer and
Norman S. Rich, President)
Robert F. Weis (left) and Norman S. Rich (right)
Letter To Our Shareholders
As we complete our 85th year of operation, we are pleased to report our sales
for the 52-week period ending December 27, 1997 increased 3.7 % to
$1,818,816,000 compared to $1,753,246,000 in 1996. Our earnings in 1997 totaled
$78,194,000, compared to $78,855,000 the previous year. This slight decline is
due to our continuing efforts to correct the problems of our SuperPetz
subsidiary, in which we hold an 80% interest.
Earnings per share were $1.87 in 1997, compared to $1.87 in 1996. In August,
Weis Markets' Board of Directors increased the quarterly dividend for the 32nd
consecutive year to $.24 or 4.3%.
Depreciation and amortization charges increased from $38,136,000 to $43,503,000
due to our expansion program. Return on equity was 8.1% and shareholder equity
increased to $847,333,000 compared to $818,527,000 in 1996.
In 1997, your company completed the third year of its most aggressive expansion
ever. Over the past twelve months, we built superstores in Gap, Pottsville,
York, Chambersburg and Brodheadsville. We also completed additions for three
stores and the remodel of 13 others. Our retail space, which increased by
127,568 square feet, now exceeds 6.2 million square feet. Since 1995, we
have built 25 superstores and expanded or remodeled 38 others - more than
one-third of our 154 stores.
In 1997, we invested $64,171,000 for new stores, remodels and expansions, and
support facilities. We had expected to spend $93,920,000, but we were slowed
by a lengthy approval process on several projects. Our continuing expansion
program, which is self-financed, has helped increase our sales and market share
in areas where we currently operate and in the new markets we enter.
<PAGE>
Our expansion has been aided by our new store prototype, which we first
introduced three years ago. Since then, we have adapted this design to all of
the stores we build, expand or remodel.
These stores are larger and contain more service departments than the ones we
operated ten years ago.
In addition, a strong and varied merchandising program has complemented our
expansion. We completed the introduction of our Weis Club Preferred Shopper
program in Maryland during the past year. Our Club Card is now in all Weis
Markets stores. It has helped us increase our sales and enhanced the value
of our offerings to our customers.
We also continue to make substantial investments in the technologies that
improve the efficiency of our store and warehouse operations. In 1997, we
completed the installation of a satellite-based Wide Area Network (WAN) in
our stores, which has greatly greatly enhanced our store communication
systems.
Over the next 18 months, our current plans call for the construction of 11
superstores, the expansion of 11 units and the remodel of seven others.
Construction has already begun on a 65,000-square-foot replacement unit in
Lancaster, and a number of others are expected to begin in the spring.
We also plan to build a 16,500-square-foot trailer salvage center at our
Distribution Center complex in Milton, Pennsylvania. It is designed to
handle the return of reusable shipping containers and the cleaning of
inbound trailers in a more efficient manner. This center will also
free up additional dock space in our adjacent 1.1-million square-foot
distribution center.
As in recent years, we plan to finance all construction and new equipment
purchases from internally generated funds and to remain debt free. Over the
next eighteen months, we expect to make a $127,500,000 investment in our capital
expansion program, which includes all store projects, the salvage center, new
equipment and technologies.
While we have done much to improve the competitive standing of your company, we
know there is more to be done in the coming year. Fortunately, we are aided in
our efforts by the 18,600 men and women who work for Weis Markets. With their
help, we will move confidently into 1998.
Robert F. Weis Norman S. Rich
Chairman and Treasurer President
<PAGE>
In 1979, Weis Markets opened its first in-store pharmacy. Today, Weis Markets
operates pharmacies in 88 stores. Pharmacies are an important part of our
one-stop shopping convenience strategy and continue to be a key part of our new
store designs. Our new pharmacy design includes a larger consultation area,
which allows our pharmacists to offer a variety of counseling and screening
services.
(A picture of a Pharmacy department in a new Weis Markets store is located in
this area.)
SHIFTING FOCUS
Shifting Our Focus To Meet The Changing Needs Of Our Customers
To succeed in today's changing marketplace, a supermarket needs to offer
convenience, quality service and value. Customers are better informed and
more careful about their purchases than ever before. That's why our Weis
Club Preferred Shopper's Card is so popular. Each week, our Weis Club Card
offers extensive savings on a wide range of products in our stores. Over a
million of our customers have Weis Club Cards-and the number grows every month.
Of course, price is only part of the equation. Convenient store locations are
also important. Twenty-five percent of a store's business is based on the
accessibility of its location. At Weis Markets, one of our top priorities is
finding good store sites. We want our stores to be near customers' rooftops.
Next we give our customers choices. In today's supermarket business, one size
does not fit all. Many customers have little time to cook and want meals to go.
Others shop for a week's worth of groceries. Options are important-pharmacies
with consultation areas and in-store bank
(A picture of a Weis Club Preferred Shoppers Card is located in this area.)
<PAGE>
branches add to our one-stop shopping convenience. Customer lifestyles have
changed, too; they are traveling more and living healthier lives. That's why
our stores now offer more specialty foods and larger produce departments.
Knowing when our customers shop is also important. Since they work longer
hours, customers shop more frequently at night and on weekends. Compared to
two years ago, 28% more customers now shop on Sundays and 37% more shop on
Saturdays. During the week, the busiest time in our stores is after 5:00 p.m.
(A picture of a woman with her son sitting at the dinner table is located in
this area.)
(A picture of the Produce department in a new Weis Markets store is located in
this area.)
<PAGE>
Today, Weis Markets' produce departments offer 390 products, up significantly
over the past decade and still growing. Weis Markets' new superstores and
remodeled stores have larger produce departments that include an expanded
fresh-cut fruit and salad bar. Our produce departments also have a wide
selection of pre-cut vegetables, fruits and greens--one of the fastest
growing categories in the produce business.
Whenever they shop, our customers' shopping experiences must be quick,
convenient and hassle-free.
For this reason, we are investing in new technologies at the store level. Take
debit and credit transactions. Since 1990, the number of debit and credit
transactions in Weis Markets stores has more than tripled. In 1997, we
completed the installation of a state-of-the-art satellite dish system capable
of handling our increasing number of transactions with a three-second approval
time. These technology investments will help us increase the value of our
products and services. And while our customers may not be aware of these
technologies, they do recognize the increased service, better values and added
convenience.
Our technology investments will be matched by our commitment to our employees.
As our Company grows, we will continue to provide intensive training programs
for our employees. In addition, we will continue to expand our management
training program, which has produced many of our management personnel. Both
our customers and our Company will benefit from a well-trained work force that
is ready to meet the challenges of a changing market place.
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Sales for the fiscal year ended December 28, 1997 increased $65,570,000 to
$1,818,816,000, up 3.7% over sales of $1,753,246,000 in 1996. Company sales in
1996 were 6.5% higher than in 1995. The same store sales in 1997, 1996 and 1995
increased by 1.3% , 3.0% and 2.3% (1994 sales adjusted to 52-weeks for
comparison) respectively. The Company's sales increased despite minimal
inflation, pockets of deflation, a soft sales environment and intense
competition in its core markets in Pennsylvania and Maryland. Management
attributes the sales increases over the last three years primarily to its
aggressive expansion program, which includes the construction of twenty-five
new superstores and the expansion and/or remodel of thirty-eight existing units.
Gross profit for 1997 of $462,991,000, increased $12,959,000 or 2.9%,
compared to $450,032,000, in the prior year. Gross profit as a percentage of
sales has remained consistent over the last three years at 25.5%, 25.7% and
25.4% in 1997, 1996 and 1995, respectively. Earnings were charged $27,000
for the LIFO adjustment in 1997, compared with a credit of $336,000 in 1996,
and a charge of $1,899,000 in 1995.
Operating, general and administrative expenses as a percentage of sales
increased .3% to 20.8% in 1997, compared with 20.5% in 1996 and 20.2% in 1995.
Depreciation and amortization expense, which are the result of the Company's
aggressive capital expenditure program, increased .2% as a percentage of sales
over the prior year in both 1997 and 1996. During 1997, the Company expensed
$3,312,000 for an unrealizable asset relating to SuperPetz and $3,937,000
related to the termination of the Weis Markets, Inc. Pension Plan.
In 1997, the Company's investment income increased by 12.2% to $22,014,000,
or 1.2% of sales, compared to $19,617,000, or 1.1% of sales, in 1996. The
Company sold securities in 1997 at a gain of $5,068,000. Interest and dividend
income related to investments declined in 1997 due to the reduction in the
Company's marketable security holdings and a decline in yield on municipal
bond purchases in recent years. The reduction in the marketable security
holdings over the past three years is primarily due to the Company's expansion,
the stock repurchase program, and increased dividend payments. The Company's
investment portfolio consists of Pennsylvania tax-free state and municipal
bonds, U.S. Treasury securities, equity securities and other short-term
investments. It is management's intent to maintain a liquid portfolio to take
advantage of acquisition and other investment opportunities. Therefore, all
securities are classified as available-for-sale on the consolidated balance
sheets.
Other income of $11,438,000, at .6% of sales increased $972,000 in 1997
compared to 1996. Other income is primarily generated from rental income,
coupon handling fees, cardboard salvage and gains on the sales of fixed assets.
The effective tax rate was 34.1% in 1997, 34.7% in 1996, and 34.8% in 1995.
Net Income in 1997 was $78,194,000, or 4.3% of sales, compared with
$78,855,000, or 4.5% of sales in 1996, and $79,420,000, or 4.8% of sales in
1995. The after-tax loss at SuperPetz in 1997 amounted to $6,939,000 as
compared with an after-tax loss of $3,485,000 in 1996. Net income per common
share, assuming dilution, remained at $1.87 in 1997, the same as in 1996.
As of the end of the fiscal year, Weis Markets, Inc. was operating 154 retail
food stores, 43 SuperPetz pet supply stores and Weis Food Service, a restaurant
and institutional supplier. The Company currently operates supermarkets in
Pennsylvania, Maryland, New Jersey, New York, Virginia and West Virginia.
SuperPetz operates stores in Alabama, Georgia, Indiana, Kentucky, Maryland,
Michigan, North Carolina, Ohio, Pennsylvania, South Carolina and Tennessee.
Liquidity and Capital Resources
Net cash provided by operating activities for the current year was
$95,470,000, compared to $103,666,000 in 1996, and $96,927,000 in 1995.
Inventories increased $2,478,000 in 1997 and $27,620,000 in 1996, due to the
addition of new stores and the expansion of several existing units. Accounts
payable and other liabilities decreased $23,080,000 in 1997 and increased
$15,173,000 in 1996, due primarily to the timing of normal vendor payment terms.
Working capital increased 1.8% in 1997, decreased 5.7% in 1996 and decreased
2.8% in 1995.
Net cash used in investing activities during 1997 was $47,672,000, compared
to $51,808,000 in 1996 and $37,600,000 in 1995. Property and equipment
purchases during fiscal 1997 totaled $64,171,000, compared to $95,289,000 in
1996 and $72,759,000 in 1995. In 1997, proceeds from the maturity of marketable
securites were $135,394,000. These proceeds were used for the purchase of
$127,925,000 in new securities and, to a lesser degree, the purchase of property
and equipment. Management anticipates the continued use of the Company's cash
for acquisitions, the construction of new superstores, the expansion and
remodeling of existing stores, the securing of sites for future expansion,
and the upgrading of its processing and distribution facilities.
Net cash used in financing activities during 1997 was $47,543,000, compared
to $52,265,000 in 1996 and $60,053,000 in 1995. Treasury stock purchases
amounted to $8,236,000 in 1997, compared to $15,066,000 in 1996 and $25,554,000
in 1995. The Board of Directors' 1996 resolution authorizing the purchase of
treasury stock has a remaining balance of 664,185 shares. Total cash dividend
payments on common stock amounted to $.94 per share in 1997, compared to $.88
in 1996 and $.80 in 1995.
The Company has completed an assessment of its key financial, informational
and operational systems. As a result, it will continue to take appropriate
action to insure that the Year 2000 programming issue is addressed in a timely
and cost-effective manner. Management does not anticipate that the Company
will encounter significant operational issues related to the Year 2000. The
Company will use both internal and external resources to reprogram, or replace,
and test software and hardware for Year 2000 modifications. The financial
impact of implementing the required systems changes is not expected to be
material to the Company's consolidated financial position, results of operations
or cash flows.
The Company funded its 1997 working capital requirements through internally
generated cash flows from operations, as it has done in prior years. It is
estimated that the Company's current development plans will require an
investment of approximately $127,500,000 over the next eighteen months. The
Company continues to actively seek acquisitions and investment opportunities
to enhance future performance. The financial and liquidity position of the
Company, combined with its historical insurance loss experience rates, has
allowed it to carry higher deductible and retention levels on its employee
and business insurance coverage. The Company plans to maintain these higher
exposure levels, thus benefiting from reduced premium expenses. In view of
the Company's significant liquid assets, lack of debt financing, and its
ability to generate working capital internally, it is not expected that any type
of external financing will be needed.
<PAGE>
<TABLE>
Consolidated Balance Sheets
<CAPTION>
(dollars in thousands)
December 27, 1997
and December 28, 1996 1997 1996
__________________________________________________________________________
<S> <C> <C>
Assets
Current:
Cash $ 3,133 $ 2,878
Marketable securities 374,117 387,794
Accounts receivable, net 32,609 32,439
Inventories 161,825 159,347
Prepaid expenses 4,149 8,186
__________________________________________________________________________
Total current assets 575,833 590,644
__________________________________________________________________________
Property and equipment, net 365,197 343,900
Intangible and other assets, net 30,722 31,768
__________________________________________________________________________
$ 971,752 $ 966,312
==========================================================================
Liabilities
Current:
Accounts payable $ 68,788 $ 88,057
Accrued expenses 9,257 12,221
Accrued self-insurance 11,911 13,320
Payable to employee benefit plans 8,134 7,572
Income taxes payable 3,969 1,656
Deferred income taxes 2,212 4,563
__________________________________________________________________________
Total current liabilities 104,271 127,389
__________________________________________________________________________
Deferred income taxes 20,148 20,396
__________________________________________________________________________
Shareholders' Equity
Common stock, no par value,
100,800,000 shares authorized,
47,447,429 shares issued and 47,445,929
shares issued, respectively 7,420 7,380
Retained earnings 960,419 921,572
Unrealized gain on marketable securities
(Net of deferred taxes of $9,417 in 1997
and $10,726 in 1996.) 13,278 15,123
__________________________________________________________________________
981,117 944,075
Treasury stock at cost - 5,675,322
and 5,405,073 shares, respectively (133,784) (125,548)
__________________________________________________________________________
Total shareholders' equity 847,333 818,527
__________________________________________________________________________
$ 971,752 $ 966,312
==========================================================================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Income
<CAPTION>
(dollars in thousands, except per share amounts)
For the Fiscal Years Ended December 27, 1997,
December 28, 1996, and December 30, 1995 1997 1996 1995
_______________________________________________________________________________
<S> <C> <C> <C>
Net sales $ 1,818,816 $ 1,753,246 $ 1,646,435
Cost of sales, including warehousing
and distribution expenses 1,355,825 1,303,214 1,228,178
_______________________________________________________________________________
Gross profit on sales 462,991 450,032 418,257
Operating, general and administrative
expenses 377,861 359,406 332,060
_______________________________________________________________________________
Income from operations 85,130 90,626 86,197
Investment income 22,014 19,617 21,383
Other income 11,438 10,466 14,137
_______________________________________________________________________________
Income before provision for income taxes 118,582 120,709 121,717
Provision for income taxes 40,388 41,854 42,297
_______________________________________________________________________________
Net income $ 78,194 $ 78,855 $ 79,420
===============================================================================
Weighted average shares outstanding 41,842,583 42,280,352 43,083,449
Cash dividends per share $ .94 $ .88 $ .80
Basic and diluted earnings per share $ 1.87 $ 1.87 $ 1.84
_______________________________________________________________________________
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Shareholders' Equity
<CAPTION>
(dollars in thousands)
For the Fiscal Years Ended December 27, 1997
December 28, 1996 and December 30, 1995
Gain(Loss) on Total
Common Retained Marketable Treasury Shareholders'
Stock Earnings Securities Stock Equity
________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 $ 7,380 $ 834,995 $ 4,933 $ (84,928) $ 762,380
Treasury stock
purchased (949,924
shares) - - - (25,554) (25,554)
Dividends paid - (34,499) - - (34,499)
Net unrealized gain
on marketable securities - - 9,815 - 9,815
Net income - 79,420 - - 79,420
________________________________________________________________________________
Balance at
December 30, 1995 7,380 879,916 14,748 (110,482) 791,562
Treasury stock
purchased (492,761
shares) - - - (15,066) (15,066)
Dividends paid - (37,199) - - (37,199)
Net unrealized
gain on marketable
securities - - 375 - 375
Net income - 78,855 - - 78,855
________________________________________________________________________________
Balance at
December 28, 1996 7,380 921,572 15,123 (125,548) 818,527
Shares issued for
options 40 - - - 40
Treasury stock
purchased (270,249
shares) - - - (8,236) (8,236)
Dividends paid - (39,347) - - (39,347)
Net unrealized
gain (loss) on
marketable securities - - (1,845) - (1,845)
Net income - 78,194 - - 78,194
________________________________________________________________________________
Balance at
December 27, 1997 $ 7,420 $ 960,419 $ 13,278 $ (133,784) $ 847,333
================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
(dollars in thousands)
For the Fiscal Years Ended December 27, 1997,
December 28, 1996, and December 30, 1995 1997 1996 1995
Cash flows from operating activities:
_______________________________________________________________________________
<S> <C> <C> <C>
Net income $ 78,194 $ 78,855 $ 79,420
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 43,503 38,136 33,168
(Gain) Loss on sale of fixed assets (491) 19 (582)
Gain on sale of marketable securities (5,068) (40) (86)
Changes in operating assets and liabilities:
Increase in inventories (2,478) (27,620) (1,708)
(Increase) decrease in accounts
receivable and prepaid expenses 3,867 (1,344) (10,920)
Increase (decrease) in accounts
payable and other liabilities (23,080) 15,173 (3,217)
Increase (decrease) in income
taxes payable 2,313 (2,421) 988
Increase (decrease) in deferred
income taxes (1,290) 2,908 (136)
________________________________________________________________________________
Net cash provided by operating activities 95,470 103,666 96,927
________________________________________________________________________________
Cash flows from investing activities:
Purchase of property and equipment (64,171) (95,289) (72,759)
Proceeds from the sale of property and
equipment 1,433 255 1,107
Purchase of marketable securities (127,925) (81,567) (94,007)
Proceeds from maturities of marketable
securities 135,394 126,571 125,435
Proceeds from sale of marketable
securities 8,122 57 6,086
Increase in intangible and other assets (525) (1,835) (3,462)
_______________________________________________________________________________
Net cash used in investing activities (47,672) (51,808) (37,600)
_______________________________________________________________________________
Cash flows from financing activities:
Proceeds from issuance of common stock 40 - -
Dividends paid (39,347) (37,199) (34,499)
Purchase of treasury stock (8,236) (15,066) (25,554)
_______________________________________________________________________________
Net cash used in financing activities (47,543) (52,265) (60,053)
_______________________________________________________________________________
Net increase (decrease) in cash 255 (407) (726)
Cash at beginning of year 2,878 3,285 4,011
_______________________________________________________________________________
Cash at end of year $ 3,133 $ 2,878 $ 3,285
===============================================================================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
The following is a summary of the significant accounting policies utilized in
preparing the Company's consolidated financial statements:
(a) Description of Business
Weis Markets, Inc. is a Pennsylvania business corporation formed in 1924. The
Company is engaged principally in the retail sale of food in Pennsylvania and
surrounding states. The Company is also engaged in the sale of pet supplies
through its 80% owned subsidiary, SuperPetz, Inc. There was no material
change in the nature of the Company's business during fiscal 1997.
(b) Definition of Fiscal Year
The Company's fiscal year ends on the last Saturday in December. Fiscal 1997,
1996, and 1995 were each comprised of 52 weeks.
(c) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
(d) Intangible Assets
Intangible assets are generally amortized over periods ranging from 3 to 40
years. A portion of the excess of cost of investments over net assets acquired
prior to November 1, 1970, ($2,322,000) is not being amortized because, in the
opinion of management, there has been no decrease in value.
(e) Inventories
Inventories are valued at the lower of cost or market, using both the last-in,
first-out (LIFO) and average cost methods.
(f) Marketable Securities
Marketable securities consist of Pennsylvania tax-free state and municipal
bonds, U.S. Treasury securities, equity securities, and other short-term
investments. By policy, the Company invests primarily in high-grade marketable
securities. The Company classifies all of its marketable securities as
available-for-sale.
Available-for-sale securities are recorded at fair value as determined by quoted
market price. Unrealized holding gains and losses, net of the related tax
effect, are excluded from earnings and are reported as a separate component
of shareholders' equity until realized. A decline in the market value below
cost that is deemed other than temporary results in a charge to earnings and
the establishment of a new cost basis for the security. Dividend and
interest income are recognized when earned. Realized gains and losses are
included in earnings and are derived using the specific identification method
for determining the cost of securities.
(g) Property and Equipment
Property and equipment are carried at cost. Depreciation is provided on the
cost of buildings and improvements and equipment principally using
accelerated methods. Leasehold improvements are amortized over the terms of
the leases or the useful lives of the assets, whichever is shorter.
Maintenance and repairs are expensed, and renewals and betterments are
capitalized. When assets are retired or otherwise disposed of, the assets and
accumulated depreciation are removed from the respective accounts and any profit
or loss on the disposition is credited or charged to income.
(h) Insurance Programs
The Company maintains self-insurance programs for the majority of its employee
health care benefits and worker's compensation claims. Self-insurance costs are
accrued based upon the aggregate of the liability for reported claims and an
estimated liability for claims incurred but not reported. The Company is
liable for employee health claims up to a life-time aggregate of $1,000,000
per member and for workers compensation claims up to $1,000,000 per claim.
Property and casualty insurance coverages are maintained with outside carriers
at deductible or retention levels ranging from $0 to $250,000.
(i) Income Taxes
Under the asset and liability method of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (Statement 109), deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled.
(j) Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" (Statement 128). Statement 128 replaced the calculation
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. Basic and diluted earnings per share are the same
amounts for all periods presented, and dual presentation is accomplished in one
line on the income statements.
(k) Pre-Opening Costs
Pre-opening costs of retail stores are charged against earnings as incurred.
(l) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(m) Reclassifications
Certain amounts in the 1996 and 1995 financial statements have been reclassified
to conform with the current year presentation.
<PAGE>
(2) Income Taxes
The provision for income taxes consists of:
<TABLE>
<CAPTION>
(dollars in thousands) 1997 1996 1995
_______________________________________________________________________________
<S> <C> <C> <C>
Currently payable:
Federal $ 30,817 $ 29,013 $ 32,450
State 10,861 9,580 9,983
Deferred (1,290) 3,261 (136)
_______________________________________________________________________________
$ 40,388 $ 41,854 $ 42,297
===============================================================================
</TABLE>
The following is a reconciliation between the applicable income tax expense
and the amount of income taxes which would have been provided at the Federal
statutory rate. The statutory rate was 35% in 1997, 1996, and 1995.
<TABLE>
<CAPTION>
(dollars in thousands) 1997 1996 1995
_______________________________________________________________________________
<S> <C> <C> <C>
Tax at statutory rate $ 41,504 $ 42,248 $ 42,601
State income taxes, net of federal
income tax benefit 7,059 6,227 6,029
Other - principally tax-exempt
investment income (8,175) (6,621) (6,333)
_______________________________________________________________________________
Actual provision (effective tax rate 34.1%,
34.7% and 34.8%, respectively) $ 40,388 $ 41,854 $ 42,297
===============================================================================
</TABLE>
Cash paid for income taxes was $37,281,000, $41,772,000, and $41,688,000
in 1997, 1996 and 1995, respectively.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 27,
1997, and December 28, 1996, are presented below:
<TABLE>
<CAPTION>
(dollars in thousands) 1997 1996
______________________________________________________________________________
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 457 $ 372
Inventories 1,673 1,577
Compensated absences 580 549
Employee benefit plans 3,412 1,801
General liability insurance 2,299 2,390
______________________________________________________________________________
Total deferred tax assets 8,421 6,689
______________________________________________________________________________
Deferred tax liabilities:
Unrealized gain on marketable securities (9,417) (10,726)
Depreciation (20,148) (20,396)
Other (1,216) (526)
______________________________________________________________________________
Total deferred tax liabilities (30,781) (31,648)
______________________________________________________________________________
Net deferred tax liability $ (22,360) $ (24,959)
______________________________________________________________________________
Current deferred liability - net $ (2,212) $ (4,563)
Noncurrent deferred liability - net (20,148) (20,396)
______________________________________________________________________________
Net deferred tax liability $ (22,360) $ (24,959)
==============================================================================
</TABLE>
(3) Inventories
Merchandise inventories, as of December 27, 1997 and December 28, 1996, were
valued as follows:
<TABLE>
<CAPTION>
(dollars in thousands) 1997 1996
______________________________________________________________________________
<S> <C> <C>
LIFO $ 115,338 $ 109,965
Average cost 46,487 49,382
______________________________________________________________________________
$ 161,825 $ 159,347
==============================================================================
</TABLE>
If all inventories were valued on the average cost method, which
approximates current cost, total inventories would have been $44,027,000 and
$44,000,000 higher than as reported on the above methods as of December 27,
1997, and December 28, 1996, respectively.
Although management believes the use of the LIFO method for valuing
certain inventories (as set forth above) represents the most appropriate
matching of costs and revenues in the Company's circumstances, the following
summary of net income and per share amounts based on the use of the average
cost method for valuing all inventories is presented for comparative purposes.
<TABLE>
<CAPTION>
(dollars in thousands except
per share amounts) 1997 1996 1995
_______________________________________________________________________________
<S> <C> <C> <C>
Net income $ 78,208 $ 78,658 $ 80,531
Net income per share $ 1.87 $ 1.86 $ 1.87
===============================================================================
</TABLE>
(4) Property and Equipment
Property and equipment, as of December 27, 1997, and December 28, 1996,
consisted of:
<TABLE>
<CAPTION>
Useful Life
(dollars in thousands) (in years) 1997 1996
______________________________________________________________________________
<S> <C> <C> <C>
Land $ 52,612 $ 44,770
Buildings and improvements 10-60 253,543 235,973
Equipment 3-12 378,400 363,331
Leasehold improvements 5-20 63,814 51,288
______________________________________________________________________________
Total, at cost 748,369 695,362
Less accumulated depreciation
and amortization 383,172 351,462
______________________________________________________________________________
$ 365,197 $ 343,900
==============================================================================
</TABLE>
<PAGE>
(5) Marketable Securities
Marketable securities, as of December 27, 1997, and December 28, 1996, consisted
of:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
December 27, 1997 Amortized Holding Holding Fair
(dollars in thousands) Cost Gains Losses Value
________________________________________________________________________________
<S> <C> <C> <C> <C>
Available-for-sale:
Pennsylvania state and
municipal bonds $ 329,043 $ 2,674 $ 92 $ 331,625
U.S. Treasury securities 10,418 12 1 10,429
Equity Securities 9,058 20,102 - 29,160
Other short-term investments 2,903 - - 2,903
________________________________________________________________________________
$ 351,422 $ 22,788 $ 93 $ 374,117
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
December 28, 1996 Amortized Holding Holding Fair
(dollars in thousands) Cost Gains Losses Value
________________________________________________________________________________
<S> <C> <C> <C> <C>
Available-for-sale:
Pennsylvania state and
municipal bonds $ 330,080 $ 2,853 $ 857 $ 332,076
U.S. Treasury securities 10,425 214 - 10,639
Equity Securities 12,071 23,639 - 35,710
Other short-term investments 9,369 - - 9,369
________________________________________________________________________________
$ 361,945 $ 26,706 $ 857 $ 387,794
================================================================================
</TABLE>
Maturities of marketable securities classified as available-for-sale at
December 27, 1997, were as follows:
<TABLE>
<CAPTION>
Amortized Fair
(dollars in thousands) Cost Value
________________________________________________________________________________
<S> <C> <C>
Available-for-sale:
Due within one year $ 97,917 $ 98,394
Due after one year through five years 243,447 245,563
Due after five years through ten years 1,000 1,000
Equity securities 9,058 29,160
________________________________________________________________________________
$ 351,422 $ 374,117
================================================================================
</TABLE>
(6) Retirement Plans
The Company has a noncontributory defined benefit pension plan and a
contributory retirement savings plan (401(k)) covering substantially all
full-time employees, a noncontributory profit-sharing plan covering eligible
employees, and a supplemental retirement plan covering certain officers of
the Company. An eligible employee as defined in the Profit Sharing Plan
includes salaried employees, store management, and administrative support
personnel. The Company's policy is to fund pension, 401(k) and profit-sharing
cost accrued, but not supplemental retirement costs. Contributions to the
defined benefit pension plan are based on guidelines of the Employee Retirement
Income Security Act of 1974, whereas contributions to the profit-sharing plan
and the 401(k) plan are made at the sole discretion of the Company.
The Company's supplemental retirement plan provides for the payment of
specific amounts of annual retirement benefits to the officers or to their
beneficiaries over an actuarially computed normal life expectancy. The
actuarial present value of accumulated benefits amounted to $5,746,000 and
$5,808,000 at December 27, 1997, and December 28, 1996, respectively.
Plan costs are based upon the deferral of retirement rather than upon future
service and all benefits are fully vested.
Retirement plan costs amounted to:
<TABLE>
<CAPTION>
(dollars in thousands) 1997 1996 1995
________________________________________________________________________________
<S> <C> <C> <C>
Pension plan $ 3,937 $ (883) $ (444)
Retirement savings plan 401(k) 842 831 727
Profit sharing plan 815 814 815
Supplemental retirement plan 605 417 403
________________________________________________________________________________
$ 6,199 $ 1,179 $ 1,501
================================================================================
</TABLE>
<TABLE>
The net periodic defined benefit pension expense (credit) is computed as
follows:
<CAPTION>
(dollars in thousands) 1997 1996 1995
________________________________________________________________________________
<S> <C> <C> <C>
Service cost $ - $ - $ -
Interest cost 2,305 1,855 1,835
Actual return on plan assets (2,356) (4,121) (4,798)
Partial settlement (1,584) - -
Net amortization and deferral 5,572 1,403 2,519
________________________________________________________________________________
Net pension expense (credit) $ 3,937 $ (883) $ (444)
================================================================================
</TABLE>
The funded status of the Company's pension plan at December 31, 1997, and
September 30, 1996 (the measurement dates) is as follows:
<TABLE>
<CAPTION>
(dollars in thousands) 1997 1996
________________________________________________________________________________
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ (6,277) $ (28,978)
================================================================================
Accumulated benefit obligation $ (6,277) $ (28,978)
================================================================================
Projected benefit obligation $ (6,277) $ (28,978)
Plan assets at fair value 6,277 31,448
________________________________________________________________________________
Plan assets in excess of projected benefit
obligation - 2,470
Unrecognized net (gain) or loss (29) 3,215
Unrecognized transition asset (300) (2,076)
________________________________________________________________________________
Prepaid (accrued) pension cost $ (329) $ 3,609
================================================================================
</TABLE>
<PAGE>
On February 1, 1994, the Board of Directors of the Company voted to freeze
the Pension Plan. Effective March 15, 1994, the Plan was frozen and all
participants became fully vested. On April 30, 1997 the Company amended the
Plan to state that as of the date of termination, lump sum benefit payments
would not be less than the amount that would have been payable on March 15,
1994. This amendment resulted in an increase of $5,901,000 in the projected
benefit obligation. Benefit obligation of $30,250,000 were settled prior to the
end of the plan year to the majority of plan participants, resulting in the
recognition of a partial settlement gain of $1,584,000.
Plan assets consist primarily of common stocks, bonds, and U.S. government
obligations. The assumed long-term rate of return on pension plan assets
used to determine pension costs was 7.5% for fiscal 1997 and 8.5% for fiscal
1996 and 1995. Pension benefit obligations were determined using an assumed
discount rate of 7.0% for fiscal 1997 and 1996.
The Company has no other post-retirement benefit plans.
(7) Incentive Plans
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options.
The effect of applying Statement No. 123's fair value method to the Company's
stock-based awards results in proforma net income and earnings per share that
are not materially different from amounts reported.
(a) Stock Option Plan
The Company has an incentive stock option plan for officers and other key
employees under which 287,500 shares of common stock are reserved for issuance
at December 27, 1997. Under the terms of the plan, option prices are 100% of
the "fair market value" of the shares on the date granted. Options granted are
immediately exercisable and expire ten years after date of grant.
Changes during the three years ended December 27, 1997, in options outstanding
under the plan were as follows:
<TABLE>
<CAPTION>
Option Prices Shares
Per Share Under Option
<S> <C> <C>
Balance, December 31, 1994 $16.28 to $26.88 16,070
Issued $28.00 to $28.00 7,140
Expired $16.28 to $16.28 (820)
Balance, December 30, 1995 $24.25 to $28.00 22,390
Issued $31.50 to $31.50 12,500
Expired $26.50 to $26.50 (300)
Balance, December 28, 1996 $25.25 to $31.50 34,590
Issued $32.88 to $32.88 13,500
Exercised $26.75 to $26.88 (1,500)
Balance, December 27, 1997 $25.25 to $32.88 46,590
<FN>
At December 27, 1997, all options were exercisable.
</TABLE>
(b) Company Appreciation Plan
Under a Company Appreciation Plan, officers and other employees are awarded
rights equivalent to shares of Company common stock. At the maturity date,
usually one year after the date of award, the value of any appreciation from
the original date of issue is paid in cash to the participants.
During 1997, 1996, and 1995, 39,150, 28,200, and 26,050 rights,
respectively, were awarded under the program. In 1997, 1996, and 1995,
$39,000, $96,000, and $64,000, respectively, were charged to earnings.
(8) Lease Commitments
At December 27, 1997, the Company leased approximately 58% of its facilities
under operating leases which expire at various dates up to 2025. These leases
generally provide for fixed annual rentals; however, several provide for minimum
annual rentals plus contingent rentals as a percentage of annual sales, and a
number of leases require the Company to pay for all or a portion of insurance,
real estate taxes, water and sewer rentals and repairs, the cost of which is
charged to the related expense category rather than being accounted for as rent
expense. Most of the leases contain multiple renewal options, under which the
Company may extend the lease terms from 5 to 20 years.
Rent expense on all leases consisted of:
<TABLE>
(dollars in thousands) 1997 1996 1995
________________________________________________________________________________
<S> <C> <C> <C>
Minimum annual rentals $ 22,899 $ 20,536 $ 16,949
Contingent rentals 252 169 452
________________________________________________________________________________
$ 23,151 $ 20,705 $ 17,401
================================================================================
</TABLE>
The following is a schedule by year of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of December 27, 1997.
<TABLE>
<CAPTION>
(dollars in thousands)
________________________________________________________________________________
<S> <C>
1998 $ 23,603
1999 23,932
2000 22,431
2001 20,827
2002 19,314
Thereafter 141,354
________________________________________________________________________________
$ 251,461
================================================================================
</TABLE>
As of December 27, 1997, the future minimum rentals to be received under
noncancelable leases and subleases were $10,715,000.
<PAGE>
(9) Fair Value Information
The carrying amounts for cash, trade receivables, and trade payables approximate
fair value because of the short maturities of these instruments. The fair
values of the Company's marketable securities are based on quoted market prices
(See note 5).
(10) Acquisitions
On December 31, 1995, SuperPetz acquired one store located in Michigan from Pet
Food Warehouse, Inc. On November 24, 1995, SuperPetz acquired seven stores
located in Michigan and Ohio from Pet Food Warehouse, Inc. These cash only
transactions were made from loans by Weis Markets, Inc. and were accounted for
by the purchase method. Goodwill arising from these transactions, which was not
material, is being amortized over a 15-year period on a straight-line basis.
(11) Summary of Quarterly Results (Unaudited)
Quarterly financial data for 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(dollars in thousands,
except per share amounts) Thirteen Weeks Ended
________________________________________________________________________________
Mar. 29, '97 June 28, '97 Sep. 27, '97 Dec. 27, '97
________________________________________________________________________________
<S> <C> <C> <C> <C>
Net sales $ 456,786 $ 446,945 $ 444,743 $ 470,342
Gross profit on sales 112,932 114,521 114,896 120,642
Net income 18,238 18,792 19,145 22,019
Basic and diluted
earnings per share .43 .45 .46 .53
</TABLE>
<TABLE>
<CAPTION>
Thirteen Weeks Ended
________________________________________________________________________________
Mar. 30, '96 June 29, '96 Sep. 28, '96 Dec. 28, '96
________________________________________________________________________________
<S> <C> <C> <C> <C>
Net sales $ 433,199 $ 432,584 $ 424,747 $ 462,716
Gross profit on sales 109,851 111,145 112,795 116,241
Net income 19,699 19,401 19,615 20,140
Basic and diluted
earnings per share .46 .46 .47 .48
</TABLE>
The 1996 and 1997 earnings per share amounts have been restated to comply with
Statement of Financial Accounting Standards No. 128, "Earnings per Share." Net
income for the period ended June 28, 1997, has been adjusted to reflect the tax
effected impact on pension cost associated with a retroactive pension plan
amendment, and the gain on a sale of an investment asset.
(12) Contingencies
The Company is involved in various legal actions arising out of the normal
course of business. In the opinion of management, the ultimate disposition
of these matters will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
(13) Subsequent Event
The Company sold 1,859,000 shares of AquaPenn Spring Water, Co.'s common stock
in conjunction with AquaPenn's initial public offering on January 30, 1998. The
Company realized $14,358,000 in pre-tax profit from this sale transaction in
the first quarter of 1998.
Report of Independent Auditors
The Board of Directors
Weis Markets, Inc.
Sunbury, Pennsylvania
We have audited the accompanying consolidated balance sheets of Weis Markets,
Inc. as of December 27, 1997, and December 28, 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The consolidated financial statements
of Weis Markets, Inc. for the year ended December 30, 1995, were audited by
other independent auditors whose report, dated January 26, 1996, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 1997 and 1996 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Weis Markets, Inc. at December 27, 1997, and December 28, 1996, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Harrisburg, PA Ernst & Young
LLP
January 30, 1998
<PAGE>
<TABLE>
Weis Markets, Inc.
Five Year Review of Operations
(dollars in thousands, except per share amounts)
<CAPTION>
52 Weeks 52 Weeks 52 Weeks 53 Weeks 52 Weeks
Ended Ended Ended Ended Ended
Dec. 27, Dec. 28, Dec. 30, Dec. 31, Dec. 25,
1997 1996 1995 1994 1993
________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,818,816 $1,753,246 $1,646,435 $1,556,663 $1,441,090
Costs and expenses 1,733,686 1,662,620 1,560,238 1,476,661 1,361,420
________________________________________________________________________________
Income from operations 85,130 90,626 86,197 80,002 79,670
Other income, net 33,452 30,083 35,520 37,191 33,984
________________________________________________________________________________
Income before provision
for income taxes 118,582 120,709 121,717 117,193 113,654
Provision for income taxes 40,388 41,854 42,297 40,944 40,701
________________________________________________________________________________
Net income 78,194 78,855 79,420 76,249 72,953
Retained earnings,
beginning of year 921,572 879,916 834,995 791,072 748,796
________________________________________________________________________________
999,766 958,771 914,415 867,321 821,749
Cash dividends 39,347 37,199 34,499 32,326 30,677
Retained earnings,
end of year $ 960,419 $ 921,572 $ 879,916 $ 834,995 $ 791,072
________________________________________________________________________________
Weighted average shares
outstanding 41,842,583 42,280,352 43,083,449 43,662,031 43,827,168
________________________________________________________________________________
Cash dividends per share $ .94 $ .88 $ .80 $ .74 $ .70
Basic and diluted
earnings per share $ 1.87 $ 1.87 $ 1.84 $ 1.75 $ 1.66
________________________________________________________________________________
Working capital $ 471,562 $ 463,255 $ 491,135 $ 505,449 $ 513,184
Total assets $ 971,752 $ 966,312 $ 923,421 $ 892,093 $ 844,490
Shareholders' equity $ 847,333 $ 818,527 $ 791,562 $ 762,380 $ 738,115
Number of grocery stores 154 155 151 149 141
Number of pet supply stores 43 43 35 14 -
</TABLE>
Stock Prices and Dividend Information by Quarter
The approximate number of shareholders on December 27, 1997 was 8,089.
<TABLE>
<CAPTION>
1997 1996
________________________________________________________________________________
4th 3rd 2nd 1st 4th 3rd 2nd 1st
________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Prices
High 36 1/4 34 7/8 29 7/8 32 1/4 34 3/8 34 7/8 32 3/4 30 3/8
Low 33 3/8 28 3/4 26 7/8 28 3/8 29 5/8 30 3/4 28 7/8 27 3/4
Dividends Per
Share .24 .24 .23 .23 .23 .23 .21 .21
</TABLE>
<PAGE>
The Board of Directors
(This area contains a pictures of the Board of Directors above their respective
names.)
Robert F. Weis
Chairman and Treasurer
Norman S. Rich William R. Mills
President Vice President Finance
and Secretary
Jonathan H. Weis Richard E. Shulman
Vice President President, Industry Systems
Property Management and Development Development Corporation
Joseph I. Goldstein Michael M. Apfelbaum
Partner, Crowell & Moring Partner, Apfelbaum, Apfelbaum
Attorneys at Law & Apfelbaum Attorneys at Law
Officers
Robert F. Weis Harold G. Graber
Chairman Vice President
and Treasurer Real Estate
Norman S. Rich Leslie H. Knox
President Vice President
Merchandising
William R. Mills Richard L. Kunkle
Vice President Finance Vice President
and Secretary Pharmacy
Alan L. Barrick Edward W. Rakoskie
Vice President Vice President
Engineering and Store Operations
Manufacturing
Stephen J. Bowers Jonathan H. Weis
Vice President Vice President
Weis Food Service Property Management and
Development
Walter B. Bruce
Vice President
Private Label
Annual Meeting
The annual meeting of the shareholders of the Company will be held at 10 a.m. on
Tuesday, April 7, 1998, at the Corporate offices, 1000 South Second Street,
Sunbury, PA 17801.
Registrar and Transfer Agent
American Stock Transfer & Trust Company
40 Wall Street, 46th floor,
New York, NY 10005
(718) 921-8210
Auditors
Ernst & Young LLP
Commerce Court, Suite 200
2601 Market Place
Harrisburg, PA 17110-9359
Stock Traded
New York Stock Exchange
<PAGE>
(This area contains a picture of various Weis Quality private label Health and
Beauty Care products.)
Weis Markets has one of the best-developed private label programs in the nation.
Started in 1912, the Weis Markets private label program offers brand name
quality at unbeatable prices. Pictured are Weis private label Health and
Beauty Care products, which were recently repackaged to include the new Weis
logo.
Weis
Weis Markets, Inc.
1000 S. Second Street
Sunbury, PA 17801
<PAGE>
<TABLE>
EXHIBIT 21
WEIS MARKETS, INC.
SUBSIDIARIES OF THE REGISTRANT
<CAPTION>
Percent
State of Owned by
Incorporation Registrant
<S> <C> <C>
Albany Public Markets, Inc. New York 100%
Dutch Valley Food Company, Inc. Pennsylvania 100%
King's Supermarkets, Inc. Pennsylvania 100%
Martin's Farm Market, Inc. Pennsylvania 100%
Shamrock Wholesale Distributors, Inc. Pennsylvania 100%
SuperPetz, Inc. Pennsylvania 80%
</TABLE>
The consolidated financial statements include the accounts of the Company and
its subsidiaries.
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report on (Form
10-K) of Weis Markets, Inc. of our report dated January 30, 1998 included in the
1997 Annual Report to Shareholders of Weis Markets, Inc.
(Signed Ernst & Young LLP)
Harrisburg, Pennsylvania
January 30, 1998
<PAGE>
EXHIBIT 99
Independent Auditors' Report
The Board of Directors
Weis Markets, Inc.
Sunbury, Pennsylvania
We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows of Weis Markets, Inc. and subsidiaries for
the year ended December 30, 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 results of operations and cash flows of
Weis Markets, Inc. and subsidaries for the years ended December 30, 1995 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Harrisburg, PA
January 26, 1996
Note: Not included in the Annual Report
<TABLE> <S> <C>
<ARTICLE>5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> DEC-27-1997
<CASH> 3,133,000
<SECURITIES> 374,117,000
<RECEIVABLES> 32,609,000
<ALLOWANCES> 0
<INVENTORY> 161,825,000
<CURRENT-ASSETS> 575,833,000
<PP&E> 365,197,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 971,752,000
<CURRENT-LIABILITIES> 104,271,000
<BONDS> 0
0
0
<COMMON> 7,420,000
<OTHER-SE> 960,419,000
<TOTAL-LIABILITY-AND-EQUITY> 971,752,000
<SALES> 1,818,816,000
<TOTAL-REVENUES> 1,818,816,000
<CGS> 1,355,825,000
<TOTAL-COSTS> 1,700,234,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 118,582,000
<INCOME-TAX> 40,388,000
<INCOME-CONTINUING> 78,194,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,194,000
<EPS-PRIMARY> 1.870
<EPS-DILUTED> 1.870
