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 September 25, 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 41,690,125 shares
(Outstanding at end of period)
<PAGE>
WEIS MARKETS, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Consolidated Balance Sheets -
September 25, 1999 and December 26, 1998 2
Consolidated Statements of Income -
Nine Months Ended September 25, 1999
and September 26, 1998 3
Consolidated Statements of Cash Flows -
Nine Months Ended September 25, 1999
and September 26, 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 Disclosures about Market Risk 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
1
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PART I - FINANCIAL INFORMATION
WEIS MARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands)
September 25, 1999 December 26, 1998
Assets
Current:
Cash $ 3,285 $ 7,430
Marketable securities 405,239 403,702
Accounts receivable, net 30,507 32,735
Inventories 136,053 158,938
Prepaid expenses 2,111 4,979
Deferred income taxes 5,784 434
_________ _________
Total current assets 582,979 608,218
Property and equipment, net 429,444 398,435
Intangible and other assets, net 20,440 22,549
_________ _________
$ 1,032,863 $ 1,029,202
========= =========
Liabilities
Current:
Accounts payable $ 63,516 $ 74,556
Accrued expenses 14,948 13,876
Accrued self-insurance 14,527 12,814
Payable to employee benefit plans 7,944 8,195
Income taxes payable 3,918 9,302
_________ _________
Total current liabilities 104,853 118,743
Deferred income taxes 18,105 19,818
Shareholders' Equity
Common stock, no par value,
100,800,000 shares authorized, 47,450,979
and 47,449,429 shares issued, respectively 7,511 7,471
Retained earnings 1,031,007 1,003,170
Accumulated other comprehensive income
(Net of deferred taxes of $5,791 in 1999
and $10,238 in 1998) 8,166 14,436
_________ _________
1,046,684 1,025,077
Treasury stock, at cost, 5,760,854 and
5,693,585 shares, respectively (136,779) (134,436)
_________ _________
Total shareholders' equity 909,905 890,641
_________ _________
$ 1,032,863 $ 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 Nine Months Ended
09/25/99 09/26/98 09/25/99 09/26/98
Net sales $ 492,293 $ 463,296 $ 1,478,593 $ 1,375,585
Cost of sales, including
warehousing and
distribution expenses 363,301 345,626 1,099,894 1,028,864
__________ __________ __________ __________
Gross profit on sales 128,992 117,670 378,699 346,721
Operating, general and
administrative expenses 104,673 97,441 305,054 286,367
__________ __________ __________ __________
Income from operations 24,319 20,229 73,645 60,354
Investment income 4,357 4,433 12,395 27,186
Other income 1,819 5,305 6,089 10,556
__________ __________ __________ __________
Income before provision
for income taxes 30,495 29,967 92,129 98,096
Provision for income taxes 11,345 11,531 32,588 36,303
__________ __________ __________ __________
Net income $ 19,150 $ 18,436 $ 59,541 $ 61,793
========== ========== ========== ==========
Weighted average number of
common shares outstanding 41,696,570 41,777,807 41,726,273 41,779,308
========== ========== ========== ==========
Cash dividends per
common share $ 0.26 $ 0.25 $ 0.76 $ 0.73
========== ========== ========== ==========
Basic and diluted
earnings per share $ 0.46 $ 0.44 $ 1.43 $ 1.48
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
3
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WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Nine Months Ended
September 25, 1999 September 26, 1998
Cash flows from operating activities:
Net income $ 59,541 $ 61,793
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 29,904 28,120
Amortization 4,681 6,324
(Gain) loss on sale of fixed assets 307 (148)
Gain on sale of marketable securities (118) (14,210)
Changes in operating assets and liabilities:
Decrease in inventories 22,885 25,280
Decrease in accounts receivable
and prepaid expenses 5,096 4,187
Decrease in accounts payable
and other liabilities (8,506) (12,380)
Increase (decrease) in income taxes payable (5,384) 4,250
Decrease in deferred income taxes (2,616) (1,755)
_______ _______
Net cash provided by operating
activities 105,790 101,461
Cash flows from investing activities:
Purchase of property and equipment (64,285) (55,709)
Proceeds from the sale of property and equipment 493 371
Purchase of marketable securities (63,142) (108,474)
Proceeds from maturities of marketable securities 50,888 76,130
Proceeds from the sale of marketable securities 118 21,871
Increase in intangible assets and other assets --- (2,173)
_______ _______
Net cash used in investing activities (75,928) (67,984)
Cash flows from financing activities:
Proceeds from issuance of common stock 40 26
Dividends paid (31,704) (30,494)
Purchase of treasury stock (2,343) (146)
_______ _______
Net cash used in financing activities (34,007) (30,614)
Net increase (decrease) in cash (4,145) 2,863
Cash at beginning of period 7,430 3,133
_______ _______
Cash at end of period $ 3,285 $ 5,996
======= =======
Cash paid during the period for:
Interest expense $ --- $ ---
======= =======
Income taxes $ 40,588 $ 33,808
======= =======
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 and nine-month periods ended September 25, 1999 and
September 26, 1998 are as follows:
Three Months Ended Nine Months Ended
(dollars in thousands) 09/25/99 09/26/98 09/25/99 09/26/98
Net Income $ 19,150 $ 18,436 $ 59,541 $ 61,793
Unrealized gains/(losses)
on marketable securities (1,429) 2,268 (6,271) 15,089
Less: reclassification
adjustment for gains
included in net income (8,386)
______ ______ ______ ______
Comprehensive income $ 17,721 $ 20,704 $ 53,270 $ 68,496
====== ====== ====== ======
(3) Property and Equipment
Property and equipment, as of September 25, 1999, and December 26,1998,
consisted of :
Useful Life
(dollars in thousands) (in years) 1999 1998
Land $ 63,915 $ 58,151
Buildings and improvements 10-60 301,168 277,694
Equipment 3-12 433,711 413,703
Leasehold improvements 5-20 77,408 67,840
_______ _______
Total, at cost 876,202 817,388
Less accumulated depreciation
and amortization 446,758 418,953
_______ _______
$ 429,444 $ 398,435
======= =======
5
<PAGE>
WEIS MARKETS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
Total sales for the third quarter ended September 25, 1999, increased
6.3% to $492,293,000 compared to $463,296,000 last year. Year-to-date
sales increased 7.5% to $1,478,593,000 compared to $1,375,585,000 in 1998.
Same-store sales increased 2.5% for the quarter and 4.5% year-to-date.
Sales performance from new and remodeled stores remains strong and the
Company continues to be aggressive with its promotional activity.
During the third quarter of 1999, gross profit increased $11,322,000 or
9.6% to $128,992,000 or 26.2% of sales compared to the same quarter last
year. The increase in gross profit dollars is due primarily to increased store
sales during the quarter. In addition, the Company's third quarter gross profit
rate increased .8% compared to the same period a year ago. The increase
in rate for the quarter reflects tighter operational controls implemented to
reduce inventory loss and an increase in promotional income received.
Year-to-date gross profit of $378,699,000 at 25.6% of sales increased
$31,978,000 or 9.2% compared to last year. Gross profit rate increased .4%
for the first three-quarters of the year.
Third quarter operating, general and administrative expenses of
$104,673,000 at 21.3% of sales were $7,232,000 or 7.4% higher than the
same quarter last year. Operating expenses as a percentage of sales
increased .2% during the quarter compared to the third quarter in 1998. The
bulk of the dollar increase in expenses for the quarter is directly related to
and proportional with the higher sales. Increased labor and benefit costs of
$6,739,000 accounted for most of the rise in the Company's operating
expenses in the quarter and year-to-date results. Management expects that
labor and benefit costs will continue to affect net income disproportionately
due to a tight employment market and the need for additional employees in
newer units, which are larger and have more service departments. Fixed
occupancy costs continue to rise as new stores are built and older existing
units are enlarged and/or remodeled under the Company's aggressive
capital improvement plan. Occupancy costs in the quarter were $1,525,000
higher than the same quarter last year.
In the third quarter of 1998, the Company negotiated a settlement
with a guarantor for non-performance by a lessee. Company management
concluded that related intangible assets no longer had value and that
certain other unrelated intangible assets exceeded future benefits. In
accordance with generally accepted accounting principles, management
reduced the carrying amount of these assets by $2,789,000 to their fair
value in the third quarter of last year.
Year-to-date operating, general and administrative expenses of
$305,054,000 at 20.6% of sales compare with $286,367,000 at 20.8% through
the first three quarters of 1998. Discounting the impact of the one time
write-off of noncurrent assets in 1998, operating expenses as a percentage
of sales is the same as last year.
Investment income of $4,357,000 at .9% of sales decreased $76,000 or
1.7% compared to the results in the same quarter last year. As a
percentage of sales, investment income decreased .1% in the third quarter
compared to last year. Year-to-date investment income of $12,395,000
decreased $14,791,000 or 54.4% compared with results in the first three
quarters of 1998. 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 gain of $14,210,000. Discounting
this one-time credit, year-to-date investment income has decreased $581,000 or
4.5% for the year and decreased .1% as a percentage of sales.
Other income for the quarter of $1,819,000 at .4% of sales decreased
$3,486,000 or 65.7% compared to the same quarter last year. As previously
mentioned, the Company negotiated a settlement with a guarantor for
non-performance by a lessee for $2,450,000 in the third quarter of 1998. The
Company also realized a gain on the sale of property of $305,000 during the
third quarter of 1998. Other assets were determined to have a carrying value
in excess of their market value by approximately $400,000 and were written
down appropriately during the current quarter. Year-to-date, other income of
$6,089,000 at .4% of sales decreased $4,467,000 or 42.3% compared to the same
year-to-date period in 1998.
6
<PAGE>
WEIS MARKETS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
OPERATING RESULTS (continued)
The effective tax rate for the third quarter of 1999 was 37.2% compared
with 38.5% in 1998. Year-to-date, the effective tax rate is 35.4% compared to
37.0% last year. Intangible assets written down to fair value during the third
quarter of 1998 were not tax deductible. The higher year-to-date tax rate in
1998 also reflects taxes due on the capital gain realized from the sale of
AquaPenn stock in the first quarter of the same year.
Net earnings for the third quarter of $19,150,000 or 46 cents per diluted
share compared with $18,436,000 or 44 cents per diluted share in 1998.
Year-to-date earnings of $59,541,000 or $1.43 per diluted share, compares
with $61,793,000 or $1.48 per diluted share in 1998. In the first quarter of
1998, the Company's after tax net-income included a one-time gain from the
sale of AquaPenn Spring Water stock of $8.3 million in after tax net-income or
.20 per share. Excluding the impact of this one-time item, Weis Markets 1999
year-to-date diluted earnings per share increased $.15 per share and net
profits increased 11.3%.
During the third quarter, Weis Markets opened two new stores; a
46,500-square-foot unit in Tannersville, PA and a 56,705-square-foot
superstore in Pasadena, MD. The Company also completed the expansion
of an existing unit located in Milton, PA. In the fourth quarter, the
Company plans to open new grocery superstores in Flanders, NJ, Honesdale,
PA, and Allentown, PA. In addition, the Company is currently building five
superstores, three new, and two replacement units that are scheduled to
open in early 2000.
As of September 25, 1999 Weis Markets, Inc. was operating 162 stores in
six states: Pennsylvania, Maryland, New Jersey, New York, Virginia, and
West Virginia. The Company owns SuperPetz II, Inc., a chain of 34 pet
supply stores in eleven states: Alabama, Georgia, Indiana, Kentucky,
Maryland, Michigan, North Carolina, Ohio, Pennsylvania, South Carolina and
Tennessee. The Company also operates Weis Food Service, a restaurant
and institutional food supplier.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $105,790,000 in cash flows from operating
activities for the nine-month period ended September 25, 1999 compared to
$101,461,000 through September 26, 1998. Year-to-date, working capital
has decreased $11,349,000 or 2.3% since the beginning of this fiscal year.
Net cash used in investing activities in the first three-quarters of 1999
amounted to $75,928,000 compared to $67,984,000 in 1998. Year-to-date
capital expenditures for property and equipment total $64,285,000, as
compared to $55,709,000 during the same period in 1998. Proceeds from the
sale of marketable securities during the first quarter of 1998 totaling
$21,871,000 were used to purchase other marketable securities in that same
year.
Net cash used in financing activities during the first three-quarters of
1999 was $34,007,000, compared to $30,614,000 in 1998. Year-to-date cash
dividends paid to holders of common stock amounts to $31,704,000 compared to
$30,494,000 in dividend payments made in the first three-quarters of 1998.
At a regularly scheduled meeting, the Board of Directors declared a 26 cents
per share dividend for holders of record as of November 5, 1999, payable on
November 19, 1999. Treasury stock purchases during the first three-quarters
of this year of $2,343,000, compares to $146,000 in purchases made during the
same period last year. The Board of Directors' 1996 resolution authorizing
the purchase of treasury stock has a remaining balance of 578,653 shares.
7
<PAGE>
WEIS MARKETS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
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, Treasury Stock purchases, and the
continuing expansion program. The corporation has no other commitment of
capital resources as of September 25, 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 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 keep 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
reported in the second quarter of this year that it expected to complete the
software installation in all stores by September 30, 1999. Although the
installation of the software is substantially complete, additional delays
encountered by outside product developers forced the install completion
date to mid-November.
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
8
<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)
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.
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 September 25, 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.
9
<PAGE>
PART II - OTHER INFORMATION
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 September 25, 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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<PERIOD-END> SEP-25-1999
<CASH> 3,285,000
<SECURITIES> 405,239,000
<RECEIVABLES> 30,507,000
<ALLOWANCES> 0
<INVENTORY> 136,053,000
<CURRENT-ASSETS> 582,979,000
<PP&E> 876,202,000
<DEPRECIATION> 446,758,000
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<SALES> 492,293,000
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