FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 27, 1999
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 (I.R.S. Employer
incorporation or organization) Identification No.)
1000 S. Second Street
P. O. Box 471
Sunbury, PA 17801-0471
(Address of principal executive offices) (Zip Code)
(570) 286-4571
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, No Par Value 41,755,913 shares
(Outstanding at end of period)
<PAGE>
WEIS MARKETS, INC.
INDEX
Page No.
Part I. Financial Information
Item 1 Consolidated Balance Sheets -
March 27, 1999 and December 26, 1998 2
Consolidated Statements of Income -
Three Months Ended March 27, 1999
and March 28, 1998 3
Consolidated Statements of Cash Flows -
Three Months Ended March 27, 1999
and March 28, 1998 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Item 3 Quantitative and Qualitative Disclosure of Market Risk 8
Part II. Other Information
Item 4 Submission of Matters to a Vote of Security Holders 9
Item 5 Other Information 10
Item 6 Reports on Form 8-K 10
Signatures 10
1
<PAGE>
PART I - FINANCIAL INFORMATION
WEIS MARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 27, 1999 December 26, 1998
(unaudited) (unaudited)
Assets
Current:
Cash $ 12,540 $ 7,430
Marketable securities 402,275 403,702
Accounts receivable, net 31,380 32,735
Inventories 145,294 158,938
Prepaid expenses 3,533 4,979
Deferred income taxes 2,078 434
_________ _________
Total current assets 597,100 608,218
Property and equipment, net 415,665 398,435
Intangible and other assets, net 22,109 22,549
_________ _________
$ 1,034,874 $ 1,029,202
========= =========
Liabilities
Current:
Accounts payable $ 63,030 $ 74,556
Accrued expenses 16,275 13,876
Accrued self-insurance 14,521 12,814
Payable to employee benefit plans 7,910 8,195
Income taxes payable 14,717 9,302
_________ _________
Total current liabilities 116,453 118,743
Deferred income taxes 18,992 19,818
Shareholders' Equity
Common stock, no par value,
100,800,000 shares authorized,
47,449,829 and 47,449,429
shares issued, respectively 7,482 7,471
Retained earnings 1,013,922 1,003,170
Accumulated other comprehensive income
(Net of deferred taxes of $8,846
in 1999 and $10,238 in 1998) 12,473 14,436
_________ _________
1,033,877 1,025,077
Treasury stock, at cost 5,693,916
and 5,693,585 shares, respectively (134,448) (134,436)
Total shareholders' equity 899,429 890,641
_________ _________
$ 1,034,874 $ 1,029,202
========= =========
See accompanying notes to consolidated financial statements.
2
<PAGE>
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands except per share amounts)
Three months ended
March 27, 1999 March 28, 1998
Net sales $ 496,281 $ 454,723
Cost of sales, including warehousing
and distribution expenses 371,091 340,557
_________ _________
Gross profit on sales 125,190 114,166
Operating, general and
administrative expenses 99,257 92,879
_________ _________
Income from operations 25,933 21,287
Investment income 4,022 18,359
Other income 2,209 2,658
_________ _________
Income before provision
for income taxes 32,164 42,304
Provision for income taxes 10,973 15,686
_________ _________
Net income $ 21,191 $ 26,618
========= =========
Weighted average number of common
shares outstanding 41,765,994 41,779,130
========== ==========
Cash dividends per common share $ 0.25 $ 0.24
========== ==========
Basic and diluted earnings per share $ 0.51 $ 0.64
========== ==========
See accompanying notes to consolidated financial statements.
3
<PAGE>
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Three months ended
March 27, 1999 March 28, 1998
Cash flows from operating activities:
Net income $ 21,191 $ 26,618
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,443 8,975
Amortization 1,258 1,136
Loss on sale of fixed assets 156 7
Gain on sale of marketable securities --- (14,210)
Changes in operating assets and liabilities:
Decrease in inventories 13,644 18,549
(Increase) decrease in accounts receivable
and prepaid expenses 2,801 (761)
Decrease in accounts payable
and other liabilities (7,705) (7,580)
Increase in income taxes payable 5,415 13,527
Decrease in deferred income taxes (1,078) (527)
_______ _______
Net cash provided by operating
activities 45,125 45,734
Cash flows from investing activities:
Purchase of property and equipment (28,083) (9,226)
Proceeds from the sale of property and equipment 436 22
Purchase of marketable securities (8,911) (65,644)
Proceeds from maturities of marketable securities 6,983 22,687
Proceeds from the sale of marketable securities --- 21,871
Increase in intangible assets and other assets --- (2,175)
_______ _______
Net cash used in investing activities (29,575) (32,465)
Cash flows from financing activities:
Proceeds from issuance of common stock 11 13
Dividends paid (10,439) (10,025)
Purchase of treasury stock (12) ---
_______ _______
Net cash used in financing activities (10,440) (10,012)
Net increase in cash 5,110 3,257
Cash at beginning of period 7,430 3,133
_______ _______
Cash at end of period $ 12,540 $ 6,390
======= =======
Cash paid during the period for:
Interest Expense $ --- $ ---
======= =======
Income Taxes $ 6,636 $ 3,000
======= =======
See accompanying notes to consolidated financial statements.
4
<PAGE>
WEIS MARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Significant Accounting Policies
Basis of Presentation: The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
The operating results for the periods presented are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's latest annual report on Form 10-K.
Restatements: Certain amounts in the 1998 financial statements have been
reclassified to conform with current year presentation.
(2) Comprehensive Income
The components of comprehensive income, net of related tax, for the
three-month period ended March 27, 1999 and March 28, 1998 are as
follows:
Three Months Ended
(dollars in thousands) 03/27/99 03/28/98
===============================================================================
Net Income $ 21,191 $ 26,618
Unrealized gains (losses) on
marketable securites (1,963) 10,989
Less: reclassification adjustment for
gains included in net income (8,386)
_______ _______
Comprehensive income $ 19,228 $ 29,221
======= =======
(3) Property and Equipment
Property and equipment, as of March 27, 1999, and December 26, 1998,
consisted of :
Useful Life
(dollars in thousands) (in years) 1999 1998
===============================================================================
Land $ 60,658 $ 58,151
Buildings and improvements 10-60 284,305 277,694
Equipment 3-12 428,237 413,703
Leasehold improvements 5-20 69,780 67,840
_______ _______
Total, at cost 842,980 817,388
Less accumulated depreciation
and amortization 427,315 418,953
_______ _______
$ 415,665 $ 398,435
======= =======
5
<PAGE>
WEIS MARKETS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
Sales for the first quarter ended March 27, 1999, increased 9.1% to
$496,281,000 compared with $454,723,000 in the same quarter last year. The
Company's identical store sales increased 6.5% compared to a 1.5% decline
in identical store sales in the first quarter of 1998. The Company attributes
the sales increase largely to a strong performance from its new and remodeled
stores and its aggressive promotional activity. In addition, sales in the first
quarter of 1998 were lackluster in comparison to the prior year due to the
Easter sales season falling into the first quarter of 1997. In 1999, the Easter
sales period will fall in the second quarter as it did in 1998.
Gross profit of $125,190,000 at 25.2% of sales, increased $11,024,000 or
9.7% versus the same quarter last year. The gross profit dollar increase was
generated primarily from higher sales volume as the gross profit rate
increased .1% compared to last year.
Operating, general and administrative expenses of $99,257,000, at 20.0%
of sales, increased $6,378,000, or 6.9% compared to the first quarter last year.
The dollar increase in expenses was in direct correlation with the sales
volume increase. As a percentage of sales, total-operating expenses
decreased .4% compared to expenses that ran 20.4% of sales in the first
quarter last year.
Investment income of $4,022,000 at .8% of sales compares to $18,359,000
at 4.0% of sales in 1998. During the first quarter of 1998, the Company
realized a gain on the sale of its interest in AquaPenn Spring Water, Co.
during that company's initial public offering at a pretax profit of $14,210,000.
Dividends and interest income for the quarter decreased $127,000 compared to the
same period last year. The investment portfolio has decreased as the Company
continues with its more aggressive capital expansion program. Management
anticipates a further decline in investment income as marketable securities
are used by the Company to fund its expansion plans.
Other income for the quarter of $2,209,000 at .4% of sales decreased
$449,000, or 16.9% compared to the first quarter in 1998. Most of this decline
was due to a drop in the price paid per hundred weight for cardboard salvage
compared to the same period a year ago.
The effective tax rate of 34.1% in the first quarter compares with 37.1%
in the same quarter in 1998. The higher tax rate in 1998 reflects taxes due on
the capital gain realized from the sale of AquaPenn stock at that time.
Net earnings for the quarter of $21,191,000, or 51 cents per share,
compared with $26,618,000, or 64 cents per share, in 1998. The Company's
sale of its AquaPenn stock in 1998 contributed $0.20 to basic and diluted
earnings per share.
As of March 27, 1999 Weis Markets, Inc., was operating 158 retail food
stores, with locations in Pennsylvania, Maryland, New Jersey, New York,
Virginia, and West Virginia. The Company also operates a restaurant and
institutional food supplier, known as Weis Food Service. The Company owns
SuperPetz II, Inc., a chain of 34 pet supply stores with locations in Alabama,
Georgia, Indiana, Kentucky, Maryland, Michigan, North Carolina, Ohio,
Pennsylvania, South Carolina and Tennessee. One SuperPetz store was
closed during the quarter for operational reasons and a second due to the
expiration of a lease agreement. The Company may close or sell additional
stores in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $45,125,000 for the three-month
period ended March 27, 1999 compared to $45,734,000 during the same
period of 1998. Working capital has decreased 1.8% since the beginning of
this year.
6
<PAGE>
WEIS MARKETS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
Net cash used in investing activities during the first quarter of 1999
was $29,575,000 compared to $32,465,000 in 1998. Property and equipment
expenditures in the first quarter of 1999 amounted to $28,083,000 as
compared to $9,226,000 in 1998. Management anticipates the continued use
of the Company's cash for acquisitions, the construction of new superstores,
the expansion and remodeling of existing units, the securing of sites for future
expansion, new technology purchases and the upgrading of its processing
and distribution facilities.
Net cash used in financing activities during the first quarter of 1999 was
$10,440,000, compared to $10,012,000 in 1998. Treasury stock purchases
during the quarter amounted to $12,000, compared to no purchases made in
the first quarter last year. The Board of Directors' 1996 resolution
authorizing the purchase of treasury stock has a remaining balance of 645,591
shares. Cash dividend payments made during the quarter on common stock
amounted to $.25 per share, compared to $.24 in 1998. At a regularly
scheduled meeting held on April 6, 1999, the Board of Directors declared a 25
cents per share dividend payable to holders of record as of May 7, 1999,
payable on May 21, 1999.
The Company funded its working capital requirements for the quarter
through internally generated cash flows from operations, as it has done in
prior years. Company management estimates that its current development
plans will require an investment of approximately $173,615,000 over an
eighteen-month period through mid-year 2000. The Company continues to
pursue acquisitions and investment opportunities to enhance future financial
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 for these activities.
READINESS FOR THE YEAR 2000
The Year 2000, also known as Y2K, issue is the result of computer
programs written using two digits rather than four to define the applicable year
within its calculations. In 1995, the Company began evaluating its information
technology systems and various other systems in order to identify and adjust
date sensitive systems for Year 2000 compliance. In 1996, a project group
comprised of management from various areas within the organization was
established to coordinate the Company's Year 2000 compliance efforts. This
project group is also working with the Company's various suppliers and
contractors to determine their Year 2000 compliance status and to monitor
their compliance progress. Bi-weekly updates and periodic status reports
from the project group keep executive management informed of the team's
progress.
The Company's Year 2000-project group has completed its assessment
of all systems potentially affected by the Year 2000 problem. To date,
approximately 90% of the remediation, testing, and implementation has been
completed on all software applications and hardware systems used within the
Company. Outside consultants are being utilized as needed.
All software application and embedded chip technology reprogramming,
replacement, testing, and implementation are scheduled for completion by
June 30, 1999. Management believes the most critical Year 2000 area
remaining to be fully rectified is the Company's own store billing applications.
To this end, modifications to the billing applications are scheduled to be
completed, tested and in production by June 30, 1999.
7
<PAGE>
WEIS MARKETS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
READINESS FOR THE YEAR 2000 (continued)
The Company does not believe that the Year 2000 presents a material
exposure as it relates to its overall operations and feels its own efforts will
result in full compliance. Management has estimated that total Year 2000
remediation expenditures will cost between $2.0 to $2.5 million.
Consequently, the Year 2000 issue should not have a material impact on the
operational results or on the liquidity and capital resources of the Company.
Normal maintenance and modification costs are being expensed as incurred
and the acquisition cost of new software or hardware is being capitalized and
written off over the expected useful life of the asset.
Management believes it has an effective program in place to resolve its
Year 2000 issue in a timely manner. As a precaution, the Year 2000-project
group is in the process of establishing contingency plans. These plans will
provide viable alternatives to ensure that the Company's core business
operations will be able to continue in the event of a Year 2000 related
systems failure. This contingency planning is also scheduled for completion
by June 30, 1999. The impact on business operations from failure by the
Company to achieve compliance or failure by external entities beyond the
Company's control could potentially have a material and adverse effect on
the Company's future operational results.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this 10-Q Report may contain
forward-looking statements. Any forward-looking statements contained
herein are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected. For example, risks and
uncertainties can arise with changes in : general economic conditions,
including their impact on capital expenditures; business conditions in the
retail industry; the regulatory environment; rapidly changing technology and
competitive factors, including increased competition with regional and
national retailers; and price pressures. Readers are cautioned not to place
undue reliance on forward-looking statements, which reflect management's
analysis only as of the date hereof. The Corporation undertakes no
obligation to publicly revise or update these forward-looking statements to
reflect events or circumstances that arise after the date hereof. Readers
should carefully review the risk factors described in other documents the
Corporation files periodically with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
Quantitative Disclosure - There have been no material changes in the
Company's market risk during the three months ended March 27, 1999.
Quantitative information is set forth on page 16 of the Company's 1998
Annual Report under the caption "Quantitative Disclosures About Market
Risks", which was filed as Exhibit 13 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 26, 1998 and is incorporated
herein by reference.
Qualitative Disclosure - This information is set forth on page 7 of the
Company's 1998 Annual Report under the caption Liquidity and Capital
Resources," within "Management's Discussion and Analysis of Financial
Condition and Results of Operations", which was filed as Exhibit 13 to the
Company's Annual Report on Form 10-K for the fiscal year ended December
26, 1998 and is incorporated herein by reference.
8
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of Weis Markets, Inc., was held on
Tuesday, April 6, 1999, at 10:00 a.m., Eastern Standard Time, at the principal
office of the Corporation.
(b) Proxies for the meeting were solicited pursuant to Regulation 14 under the
Act, there was no solicitation in opposition to the management's nominees as
listed in the proxy statement, and all such nominees were elected.
(c) The meeting was held for the following purposes:
1. To elect seven directors to serve, subject to provisions of the by-laws,
until the next Annual Meeting of shareholders or until their respective
successors have qualified.
2. To approve the appointment of independent public accountants for the
current fiscal year.
3. To approve an amendment to the current 1995 Stock Option Plan.
4. To act upon such other business as may properly come before such meeting,
or any adjournments or postponements thereof.
The official ballot from the meeting submitted to the Secretary by the Judge of
Elections disclosed the following tabulation of votes.
Proposal #1 For Withhold %
_______________________________________________________________________________
Robert F. Weis 39,321,672 132,320 94.2
Norman S. Rich 39,322,464 131,528 94.2
Joseph I. Goldstein 39,321,053 132,938 94.2
Richard E. Shulman 39,322,247 131,745 94.2
Jonathan H. Weis 39,320,652 133,340 94.2
Michael M. Apfelbaum 39,291,912 162,080 94.1
William R. Mills 27,704,257 11,749,735 66.4
Proposal #2 For Against Abstain %
_______________________________________________________________________________
Proposal to approve the
appointment of Ernst &
Young, LLP, as the
independent public accountants
of the corporation. 39,424,841 10,120 19,029 94.4
Proposal #3 For Against Abstain %
_______________________________________________________________________________
Proposal to approve the
stock option plan amendment 34,464,443 4,905,880 83,661 82.5
9
<PAGE>
PART II - OTHER INFORMATION
(continued)
Item 5. Other Information
Central Properties, Inc., a Pennsylvania corporation ("Central
Properties"), owns the land under a Company store and an adjacent
parking lot in Lebanon, Pennsylvania. Central Properties leases
these properties to the Company for rent payments which totaled
$72,866 in 1998. The stockholders of Central Properties include
Robert F. Weis, Chairman of the Board of Directors and Treasurer of
the Company, and family members of Michael M. Apfelbaum, Joseph I.
Goldstein and Jonathan H. Weis, each of whom is a director of the
Company.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K -- There were no reports on Form 8-K filed for
the three months ended March 27, 1999.
SIGNATURES
Pursuant to the requirements 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.
Date
ROBERT F. WEIS
Chairman of the Board & Treasurer
Date
WILLIAM R. MILLS
Vice President-Finance & Secretary
10
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<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-END> MAR-27-1999
<CASH> 12,540,000
<SECURITIES> 402,275,000
<RECEIVABLES> 31,380,000
<ALLOWANCES> 0
<INVENTORY> 145,294,000
<CURRENT-ASSETS> 597,100,000
<PP&E> 842,980,000
<DEPRECIATION> 427,315,000
<TOTAL-ASSETS> 1,034,874,000
<CURRENT-LIABILITIES> 116,453,000
<BONDS> 0
<COMMON> 7,482,000
0
0
<OTHER-SE> 891,947,000
<TOTAL-LIABILITY-AND-EQUITY> 1,034,874,000
<SALES> 496,281,000
<TOTAL-REVENUES> 496,281,000
<CGS> 371,091,000
<TOTAL-COSTS> 464,117,000
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<INCOME-PRETAX> 32,164,000
<INCOME-TAX> 10,973,000
<INCOME-CONTINUING> 21,191,000
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