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 June 26, 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 41,688,975 shares
(Outstanding at end of period)
<PAGE>
WEIS MARKETS, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Consolidated Balance Sheets -
June 26, 1999 and December 26, 1998 2
Consolidated Statements of Income -
Six Months Ended June 26, 1999
and June 27, 1998 3
Consolidated Statements of Cash Flows -
Six Months Ended June 26, 1999
and June 27, 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 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
1
<PAGE>
PART I - FINANCIAL INFORMATION
WEIS MARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands)
June 26, 1999 December 26, 1998
Assets
Current:
Cash $ 5,577 $ 7,430
Marketable securities 398,194 403,702
Accounts receivable, net 30,996 32,735
Inventories 138,934 158,938
Prepaid expenses 3,698 4,979
Deferred income taxes 4,585 434
_________ _________
Total current assets 581,984 608,218
Property and equipment, net 422,362 398,435
Intangible and other assets, net 21,268 22,549
_________ _________
$ 1,025,614 $ 1,029,202
========= =========
Liabilities
Current:
Accounts payable $ 61,686 $ 74,556
Accrued expenses 17,518 13,876
Accrued self-insurance 16,535 12,814
Payable to employee benefit plans 7,735 8,195
Income taxes payable 483 9,302
_________ _________
Total current liabilities 103,957 118,743
Deferred income taxes 18,662 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 1,022,698 1,003,170
Accumulated other comprehensive income
(Net of deferred taxes of $6,804
in 1999 and $10,238 in 1998) 9,594 14,436
_________ _________
1,039,774 1,025,077
Treasury stock, at cost 5,760,854
and 5,693,585 shares, respectively (136,779) (134,436)
_________ _________
Total shareholders' equity 902,995 890,641
_________ _________
$ 1,025,614 $ 1,029,202
========= =========
See accompanying notes to consolidated financial statements.
2
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WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands except per share amounts)
Three Months Ended Six Months Ended
06/26/99 06/27/98 06/26/99 06/27/98
Net sales $ 490,019 $ 457,566 $ 986,300 $ 912,289
Cost of sales, including
warehousing and
distribution expenses 365,503 342,681 736,593 683,238
_______ _______ _______ _______
Gross profit on sales 124,516 114,885 249,707 229,051
Operating, general and
administrative expenses 101,123 96,048 200,380 188,927
_______ _______ _______ _______
Income from operations 23,393 18,837 49,327 40,124
Investment income 4,015 4,394 8,037 22,753
Other income 2,062 2,593 4,270 5,251
_______ _______ _______ _______
Income before provision
for income taxes 29,470 25,824 61,634 68,128
Provision for income taxes 10,270 9,086 21,243 24,772
_______ _______ _______ _______
Net income $ 19,200 $ 16,738 $ 40,391 $ 43,356
======= ======= ======= =======
Weighted average number
of common shares
outstanding 41,723,014 41,780,066 41,744,376 41,779,606
========== ========== ========== ==========
Cash dividends per
common share $ 0.25 $ 0.24 $ 0.50 $ 0.48
========== ========== ========== ==========
Basic and diluted
earnings per share $ 0.46 $ 0.40 $ 0.97 $ 1.04
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
3
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Six months ended
June 26, 1999 June 27, 1998
Cash flows from operating activities:
Net income $ 40,391 $ 43,356
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 19,100 18,373
Amortization 2,430 2,347
Loss on sale of fixed assets 231 42
Gain on sale of marketable securities --- (14,210)
Changes in operating assets and liabilities:
Decrease in inventories 20,004 26,415
Decrease in accounts receivable
and prepaid expenses 3,020 3,730
Decrease in accounts payable
and other liabilities (5,967) (10,530)
Increase (decrease) in income taxes payable (8,819) 1,437
Decrease in deferred income taxes (1,873) (985)
_______ _______
Net cash provided by operating
activities 68,517 69,975
Cash flows from investing activities:
Purchase of property and equipment (45,277) (28,200)
Proceeds from the sale of property and equipment 470 31
Purchase of marketable securities (26,309) (79,971)
Proceeds from maturities of marketable securities 23,541 42,045
Proceeds from the sale of marketable securities --- 21,871
(Increase) decrease in intangible assets
and other assets 400 (2,175)
_______ _______
Net cash used in investing activities (47,175) (46,399)
Cash flows from financing activities:
Proceeds from issuance of common stock 11 13
Dividends paid (20,863) (20,051)
Purchase of treasury stock (2,343) (40)
_______ _______
Net cash used in financing activities (23,195) (20,078)
Net increase (decrease) in cash (1,853) 3,498
Cash at beginning of period 7,430 3,133
_______ _______
Cash at end of period $ 5,577 $ 6,631
======= =======
Cash paid during the period for:
Interest expense $ --- $ ---
======= =======
Income taxes $ 31,935 $ 24,000
======= =======
See accompanying notes to consolidated financial statements.
4
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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 and six-month periods ended June 26, 1999 and June 27, 1998
are as follows:
Three Months Ended Six Months Ended
(dollars in thousands) 06/26/99 06/27/98 06/26/99 06/27/98
================================================================================
Net Income $ 19,200 $ 16,738 $ 40,391 $ 43,356
Unrealized gains/(losses) on
marketable securities (2,879) 1,832 (4,842) 12,821
Less: reclassification adjustment
for gains included in net income (8,386)
_________ _________ _________ _________
Comprehensive income $ 16,321 $ 18,570 $ 35,549 $ 47,791
========= ========= ========= =========
(3) Property and Equipment
Property and equipment, as of June 26, 1999 , and December 26, 1998,
consisted of :
Useful Life
(dollars in thousands) (in years) 1999 1998
=========================================================================
Land $ 63,839 $ 58,151
Buildings and improvements 10-60 291,331 277,694
Equipment 3-12 429,237 413,703
Leasehold improvements 5-20 73,628 67,840
_______ _______
Total, at cost 858,035 817,388
Less accumulated
depreciation and amortization 435,673 418,953
_______ _______
$ 422,362 $ 398,435
======= =======
5
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WEIS MARKETS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
Total sales for the second quarter ended June 26, 1999 increased 7.1%
to $490,019,000 as compared to sales of $457,466,000 generated in the
second quarter of 1998. Sales for the first half of this year increased 8.1% to
$986,300,000 compared to $912,289,000 in 1998. Identical store sales
increased 4.4% for the quarter as compared to a 1.6% increase in the second
quarter of 1998. Through the first half of the year, the Company has
experienced an increase in identical store sales of 5.6% as compared to a
.1% increase during this same period last year. Sales performance from new
and remodeled stores remains strong and the Company continues to be
aggressive with its promotional activity.
Gross profit of $124,516,000 at 25.4% of sales, increased $9,631,000 or
8.4% compared to the second quarter results last year. The increase in
gross profit dollars was due primarily to higher sales volume as the gross
profit rate increased by only .3%. Year-to-date gross profit of $249,707,000 at
25.3% of sales, increased $20,656,000 or 9.0%. As a percentage of sales, the
year-to-date gross profit rate increased .2%. Tighter operational controls of
store inventory shrink accounted for .2% of the gross profit rate improvement
in both the quarter and year-to-date results.
In the second quarter of 1999, operating, general and administrative
expenses were $101,123,000 or 20.6% of sales. These costs increased
$5,075,000 or 5.3% compared to the same quarter in 1998. The increase in
operating expenses is directly attributable to the Company's higher sales
volume. Year-to-date, operating expenses were $200,380,000 at 20.3% of
sales compared to $188,927,000 at 20.7% of sales in the first half of last year.
As a percentage of sales, total-operating expenses for the quarter and the
first half of 1999 decreased .4% due to the Company's higher sales volume.
Investment income during the quarter of $4,015,000 at .8% of sales,
decreased $379,000, or 8.6% compared to last year. As a percentage of
sales, the Company's investment income decreased .2%. Year-to-date
investment income of $8,037,000 at .8% of sales, decreased $14,716,000 or
64.7% compared to the first half of last year. In the first quarter of 1998,
the Company sold its interest in AquaPenn Spring Water Co., Inc. during that
company's initial public offering on the NYSE (NYSE: APN) at a pretax profit
of $14,210,000.
Other income for the quarter of $2,062,000 at .4% of sales decreased
$531,000, or 20.5% compared to the second quarter last year. Year-to-date,
other income of $4,270,000 at .4% of sales decreased $981,000 or 18.7%
versus a year ago.
The effective tax rate for the second quarter of 1999 was 34.8% compared
with 35.2% in 1998. Year-to- date, the effective tax rate is 34.5% compared to
36.4% last year. The higher tax rate in 1998 reflects taxes due on the capital
gain realized from the sale of AquaPenn stock in the first quarter of the same
year.
Net income after tax for the second quarter increased 14.7% to
$19,200,000, or $.46 per diluted share, compared to net income of
$16,738,000, or $.40 per diluted share, in 1998. Year-to-date earnings were
$40,391,000 or $.97 per diluted share, compared to $43,356,000, or $1.04 per
diluted share in 1998. The Company's sale of its AquaPenn stock in the first
quarter of 1998 contributed $0.20 to basic and diluted earnings per share.
When this one-time investment gain is factored out of 1998's first half
earnings, 1999 diluted earnings per share increased $.13 per share and
net-profits increased 15.5%.
As of June 26, 1999 Weis Markets, Inc., was operating 160 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 also
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.
6
<PAGE>
WEIS MARKETS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1999, the Company generated $68,517,000 in
cash flows from operating activities compared to $69,975,000 for the same
period in 1998. It is important to note that 1998's net cash provided by
operating activities includes $14,210,000 from the sale of its AquaPenn stock.
Year-to-date, working capital has decreased $11,448,000 or 2.3% since the
beginning of this fiscal year. A significant part of this decrease stems from
the payment of income taxes related to one-time gains in 1998 from the sale of
securities held by the Company.
Net cash used in investing activities in the first half of 1999 amounted to
$47,175,000 compared to $46,399,000 in 1998. Capital expenditures for the
first half of the year totaled $45,277,000, as compared to $28,200,000 in the
first half of 1998. At the annual shareholder meeting held in April, the
Company announced plans to invest $173,615,000 in capital improvements over an
18-month period. The capital expansion program includes the construction of
new superstores, the expansion and remodeling of existing units, the
acquisition of sites for future expansion, new technology purchases and the
continued upgrade of company processing and distribution facilities.
Net cash used in financing activities during the first half of 1999 was
$23,195,000, compared to $20,078,000 in 1998. Treasury stock purchases
during the first half amounted to $2,343,000, compared to $40,000 in
purchases made in the first half of last year. The Board of Directors' 1996
resolution authorizing the purchase of treasury stock has a remaining balance
of 578,653 shares. Cash dividend payments of $10,424,000 were made
during the quarter to common stock shareholders at $.25 per share, as
compared to $.24 per share in 1998. Year-to-date cash dividends paid to
holders of common stock amounts to $20,863,000 compared to $20,051,000 in
dividend payments in the first half of 1998. The Board of Directors recently
declared a 4.0% increase in the quarterly dividend up from $.25 per share to
$.26 cents per share. This marks the 34th consecutive year of dividend
increases by the Company. The dividend will be payable to holders of
record as of August 9, 1999, payable August 23, 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, announced at the Company's annual shareholders meeting in April, will
require an investment of approximately $173,615,000 over an eighteen-month
period through mid-year 2000. The Company also continues to pursue
acquisitions and investment opportunities to enhance future financial
performance. Management believes that the Company's cash and short-term
investments, plus cash flow from operations, will be sufficient to finance
current operations, cover dividend requirements, self-insurance programs,
possible acquisitions, the purchase of Treasury Stock, and the continuing
expansion program. The corporation has no other commitment of capital
resources as of June 26, 1999.
READINESS FOR THE YEAR 2000
The Year 2000-issue (Y2K) is the result of computer programs written
using two digits rather than four to define the applicable year within its
calculations. Consequently, date sensitive calculations within computer
programs or hardware with embedded chip technology may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or a program miscalculation that may cause a business
interruption.
In 1995, the Company began evaluating its information technology systems
and various other systems in order to identify and adjust date sensitive
systems for Y2K compliance. In 1996, a project group comprised of
management from various areas within the organization was established to
coordinate the Company's Y2K compliance efforts. This project group is also
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)
working with the Company's various suppliers and contractors to determine their
Y2K compliance status and to monitor their compliance progress. Bi-weekly
updates and periodic status reports from the project group keeps executive
management informed of the team's progress.
The Company's Y2K-project group completed its assessment of all
systems potentially affected by the Y2K problem in 1998. Outside consultants
were hired to perform some of the planning and remediation work and
several business critical applications were sent to outside resources for
independent certification. As of June 30, 1999, the Company completed
remediation and testing on all software applications and hardware systems
initially identified during the assessment phase of this project. The Company
has completed Y2K implementation on all significant applications and
hardware systems except point-of-sale software. The point-of-sale software
was fully tested in both internal and external lab environments by June 30,
1999. However, problems encountered during earlier testing phases
delayed the software installation. The Company expects to complete the
software installation in all stores by September 30, 1999.
The Company does not believe that the Y2K 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 Y2K
remediation expenditures will cost $2.5 million. Consequently, the Y2K issue
should not have a material impact on the operational results, liquidity, and
capital resources of the Company. Normal maintenance and modification
costs are being expensed as incurred. The acquisition cost of new software
and hardware has been capitalized and will be written off over the expected
useful life of the assets.
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. Management believes its Y2K efforts to
date will be effective in preventing potential business interruptions. As a
precaution, the Company has developed contingency plans for critical
business applications and processes. These contingency plans involve
manual workarounds and increasing both store and warehouse inventories.
The Y2K-project group will continue to monitor, review, and test the systems
throughout the remainder of the year. It will also continue to review and
update its contingency plans as may be required. The contingency plans
provide viable alternatives to ensure that the Company's core business
operations will continue in the event of a Y2K related system failure.
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 Company 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 Company files
periodically with the Securities and Exchange Commission.
8
<PAGE>
WEIS MARKETS, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Quantitative Disclosure - There have been no material changes in the
Company's market risk during the three months ended June 26, 1999.
However, the Company is unsure as to the value of one investment totaling
$4.2 million. The Company is monitoring this situation closely. 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.
9
<PAGE>
PART II - OTHER INFORMATION
(continued)
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 June 26, 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> JUN-26-1999
<CASH> 5,577,000
<SECURITIES> 398,194,000
<RECEIVABLES> 30,996,000
<ALLOWANCES> 0
<INVENTORY> 138,934,000
<CURRENT-ASSETS> 581,984,000
<PP&E> 858,035,000
<DEPRECIATION> 435,673,000
<TOTAL-ASSETS> 1,025,614,000
<CURRENT-LIABILITIES> 103,957,000
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<COMMON> 7,482,000
0
0
<OTHER-SE> 895,513,000
<TOTAL-LIABILITY-AND-EQUITY> 1,025,614,000
<SALES> 490,019,000
<TOTAL-REVENUES> 490,019,000
<CGS> 365,503,000
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<INCOME-PRETAX> 29,470,000
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