See accompanying notes to Consolidated Financial  Statements.

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)





See accompanying notes to Consolidated Financial  Statements.

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)





See accompanying notes to Consolidated Financial  Statements.



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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



See accompanying notes to Consolidated Financial Statements.  There was no cash paid for income taxes in the first quarter of 2017 and $157 thousand paid for income taxes in the first quarter of 2016.  Cash paid for interest related to long-term debt was $258 thousand and $0 in the first quarter of 2017 and 2016, respectively.









Maturities of marketable securities classified as available-for-sale at March 26, 2016,April 1, 2017, were as follows:

(3)  InvestmentsMarketable Securities (continued)

The Company also maintains a non-qualified supplemental executive retirement plan and a non-qualified pharmacist deferred compensation plan for certain of its associates which allows them to defer income to future periods.  Participants in the plans earn a return on their deferrals based on mutual fund investments.  The Company chooses to invest in the underlying mutual fund investments to offset the liability associated with the non-qualified deferred compensation plans.  Such investments are reported on the balance sheetCompany’s Consolidated Balance Sheet as SERP investments,“SERP investment,” are classified as trading securities and are measured at fair value using Level 1 inputs with gains and losses included in investment income.“Investment income and interest expense” on the Company’s Consolidated Statements of Income.  The changes in the underlying liability to the employeeassociates are recorded in operating“Operating, general and administrative expenses.”









(4)  Accumulated Other Comprehensive Income

All balances in accumulated other comprehensive income are related to available-for-sale marketable securities.  The following table sets forth the balance of the Company’s accumulated other comprehensive income, net of tax. 





The following table sets forth the effects on net income of the amounts reclassified out of accumulated other comprehensive income for the periods ended April 1, 2017 and March 26, 2016 and March 28, 2015.2016.









(5) Income TaxesAcquisitions

Cash paid for federal income taxes was $0On August 1, 2016, the Company purchased five Mars Super Market stores located in Maryland.  Weis Markets, Inc. acquired these locations and $4.5their operations in an effort to expand its presence in the Baltimore County region.  The results of operations of the former Mars Super Market acquisition are included in the accompanying Consolidated Financial Statements from the date of acquisition.  The five former Mars Super Market stores contributed $23.2 million to sales in the first quarter of 20162017.  The cash purchase price paid was $24.6 million for the property, equipment, inventories, prepaid expenses and 2015, respectively.goodwill related to this purchase.  The Company accounted for this transaction as a business combination in accordance with the acquisition method.  The fair value of intangibles was determined based on the discounted cash flow model and property and equipment were determined based on external appraisals.  Weis Markets, Inc. assumed two lease obligations in the acquisition of the former Mars Super Market stores and entered into two new lease agreements.  Goodwill of $13.3 million has been recorded, based upon the expected benefits to be derived from new management business strategy and cost synergies.  The goodwill is deductible for tax purposes. 



(6) Basis of Presentation(5) Acquisitions (continued)

In conjunctionSeptember 2016, the Company began its acquisition of 38 former Food Lion, LLC stores.  Within eight weeks, ending in October 2016, Weis Markets acquired 21 Maryland, 13 Virginia and 4 Delaware former Food Lion, LLC stores.  The results of operations of the 38 former Food Lion, LLC stores are included in the accompanying Consolidated Financial Statements from the date of acquisition.  The Company accounted for this transaction as a business combination in accordance with the September 26, 2015 quarterly financial statement closeacquisition method.  The fair value of intangibles was determined based on the discounted cash flow model and property and equipment were determined based on external appraisals.  The acquired locations were part of a FTC forced divestiture in the approval process of the merger of Ahold and while researching alternative methodsDelhaize Group, which resulted in a below fair value purchase price consideration.  The cash purchase price paid was $29.4 million for the property, equipment, inventories, prepaid expenses and liabilities.  Weis Markets, Inc. assumed thirty lease obligations and ownership of eight locations.  The Company recognized a gain of $23.9 million on the purchase of the 38 former Food Lion, LLC stores.  The 38 former Food Lion, LLC stores contributed $93.7 million to calculate retained claim liabilitysales in the first quarter of 2017.

On October 30, 2016, Weis Markets acquired a former Nell’s Family Market store located in East Berlin, Pa from C&S Wholesale Grocers.  The results of operations of the former Nell’s Family Market acquisition are included in the accompanying Consolidated Financial Statements from the date of acquisition.  The purchase price was $13.0 million, of which $3.4 million is payable over a 4 year term for the property, equipment, inventory, prepaid expenses and liabilities.  The Company accounted for this transaction as a business combination in accordance with the acquisition method.  The fair value of intangibles was determined based on the discounted cash flow model and property and equipment were determined based on external appraisals.  The former Nell’s Family Market contributed $4.1 million worth of sales in the first quarter of 2017.  Goodwill of $3.9 million has been recorded, based upon the expected benefits to be derived from new management business strategy and cost synergies.  The goodwill is deductible for tax purposes.

The pro forma information includes historical results of operations of the 38 former Food Lion Supermarket and 5 former Mars Super Market stores but does not include efficiencies, cost reductions, synergies or investments in lower prices for the Company’s self-insured workers compensationcustomers expected to result from the acquisitions.  The unaudited pro forma financial information is not necessarily indicative of the results that actually would have occurred had the 38 former Food Lion Supermarket and general liability insurance programs,the 5 former Mars Super Market stores been acquired at the beginning of 2016.  Pro forma results of sales, assuming the acquisitions had taken place at the beginning of 2016, are included in the following table.  The Company does not have reliable information to provide additional pro forma disclosures.

(6) Long-Term Debt

On September 1, 2016, Weis Markets entered into a revolving credit agreement with Wells Fargo Bank, National Association (the Credit Agreement).  The Credit Agreement provides for an unsecured revolving credit facility with an aggregate principal amount not to exceed $100.0 million with an additional discretionary amount available of $50.0 million.  On March 13, 2017, the unsecured revolving credit facility was increased to $120.0 million.  As of April 1, 2017, $70.9 million of the available $120.0 million was borrowed from the credit facility.  The loan will bear interest on the outstanding principal amount at the one month LIBOR rate plus the applicable margin rate of 0.65% until its maturity on September 1, 2019.  The loan was used to fund the recent acquisitions and the Company’s working capital requirements.  The only financial covenant in the credit facility requires the Company’s minimum EBITDA to be at least $75.0 million.  The Credit Agreement is also being utilized by the Company discovered errors infor letters of credit.   As of April 1, 2017, the applicationCompany had $16.7 million, of the actuarial methods usedavailable $120.0 million from the credit facility, committed to estimateoutstanding letters of credit.  The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the obligationCompany.  The Company does not anticipate drawing on any of future payments resulting from claims due to past events.  These errors primarilythem.

Interest expense related to long-term debt was $273,000 for the Company’s selection of loss development factors and the application of such factors to the population of claims.  The impact of these prior13 week period misstatements to the Company’s Consolidated Financial Statements resulted in the understatement of workers compensation and general liability expense with a corresponding understatement of self-insurance liabilities over multiple fiscal periods through June 27, 2015. Consequently, the Company has restated certain prior period amounts to correct these errors.ending April 1, 2017.

Based on an analysis of quantitative and qualitative factors in accordance with SEC Staff Accounting Bulletins 99 and 108, the Company concluded that these errors were not material to the consolidated financial position, results of operations or cash flows as presented in the Company’s quarterly and annual financial statements that have been previously filed in the Company’s Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.  As a result, amendment of such reports was not required.   In preparing the Company’s Consolidated Financial Statements for the thirteen and thirty-nine weeks ended September 26, 2015 and for each of the three years in the period ended December 26, 2015, the Company made appropriate revisions to its Consolidated Financial Statements for historical periods.  Such changes were reflected in the financial results for the thirteen and thirty-nine weeks ended September 26, 2015 and are also reflected in the historical financial results included in these Consolidated Financial Statements.

The effect of these errors increased net income by $214,000, or $0.01 per share, for the thirteen weeks ended March 28, 2015.  Additional information about these corrections, including a reconciliation of each financial statement line item affected, has been included in Note 7 to the Company’s Consolidated Financial Statements contained in its Quarterly Report on Form 10-Q for the period ended September 26, 2015.



Income is earned by selling merchandise at price levels that produce revenues in excess of cost of merchandise sold and operating and administrative expenses.  Although the Company may experience short term fluctuations in its earnings due to unforeseen short-term operating cost increases, it historically has been able to increase revenues and maintain stable earnings from year to year.



Table of Contents

WEIS MARKETS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Results of Operations (continued)



Net Sales
The Company's revenues are earned and cash is generated as merchandise is sold to customers at the point

Analysis of sale.  Discounts provided to customers by the Company at the point of sale are recognized as a reduction in sales as products are sold or over the life of a promotional program if redeemable in the future.  Discounts provided by vendors, usually in the form of paper coupons, are not recognized as a reduction in sales provided the coupons are redeemable at any retailer that accepts coupons.Sales





When calculating the percentage change in comparable store sales, the Company defines a new store to be comparable when it has been in operation for five full quarters.  Relocated stores and stores with expanded square footage are included in comparable store sales since these units are located in existing markets and are open during construction.  Planned store dispositions are excluded from the calculation.  The Company only includes retail food stores in the calculation.



Comparable store sales increased 3.6% in the first quarter of 2016 compared to the same quarter in 2015.  Excluding fuel sales, comparable store sales increased 3.7% in first quarter of 2016 compared to the same period in 2015.  The Company’s first quarter 2016 sales benefited from the Easter and New Year holiday period,periods, which fell in the first quarter last year.  In 2016, Easter sales week occurred on the last week of the quarter.  Due to the Company’s 2016 fiscal year being comprised of 53 weeks,  the first quarter of 2017 did not include a New Year holiday sales week and Easter fell in the second quarter last year.of 2017.  Management estimates the incremental holiday sales impact was approximately $7.1 million or an increase in comparable store sales of 1.0%.  While the first quarter sales experienced a surge due to the Easter holiday period shift, the second quarter sales will be adversely affected, as there is usually a slump in sales the week following the holiday.

The Company also attributes the increased sales to its continued strategic pricing investments and ongoing improvement of its store assortment by market.  This includes targeted promotional activity in key regional markets and its Everyday Lower Prices (EDLP) and Lowest Price Guarantee promotional programs. Compared to the first quarter of 2015, the Company experienced a  1.1% decrease in average sales per customer transaction in the first quarter of 2016, while identical customer store visits increased by 4.7%.

The Company’s results also benefited from improved store level, supply chain and store support efficiencies to deliver a better customer experience, which increased customer traffic and overall market share.    In addition,  the Weis Preferred Club Shopper program continues to target customer members with personalized offers and digital coupons to help them save money.  As part of this loyalty marketing program, the Company continues to offer its "Gas Rewards" program in most markets.  The "Gas Rewards" program allows Weis Preferred Shoppers club card members to earn gas discounts resulting from their in-store purchases.  Customers can redeem these gas discounts at any of the thirty-one Weis Gas-n-Go locations, as well as participating third-party gas retail locations such as Sheetz convenience stores, which are located in most of the Company’s markets.  

Comparable center store sales increased 1.2% in the first quarter of 2016 compared to the same quarter in 2015.  Within center store sales, comparable frozen department sales increased 2.8% and comparable health and beauty care sales increased 3.0% in the first quarter of 2016 compared to the same quarter in 2015.  Both categories benefited from new promotional programs which began in January 2016.

Comparable fresh sales increased 5.2% in the first quarter of 2016 compared to the same quarter in 2015.  Within fresh sales, comparable produce, food service, bakery and floral department sales increased 6.4%, 11.0%, 13.2% and 29.1%, respectively, in the first quarter of 2016 compared to the same quarter of 2015. These increases are primarily due to the Easter holiday sales shift.   In addition to Easter sales, produce sales increased as a result of inflation during the first quarter of 2016.  Food service sales also increased due to the Company’s expanded lunch options and the rotisserie chicken program. 

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WEIS MARKETS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Results of Operations (continued)

Net Sales (continued)

Comparable pharmacy sales increased 10.0% in the first quarter of 2016 compared to the same period in 2015. The pharmacy sales increase was driven by an increased number of filled prescriptions, primarily due to an increased acceptance of additional preferred third-party insurance plans as well as expanded pharmacy hours.     

Comparable fuel sales decreased 9.1% in the first quarter of 2016 compared to the same quarter in 2015. The fuel sales decrease is mainly due to decreasing retail fuel prices.  According to the U.S. Department of Energy, the thirteen week average price of gasoline in the Central Atlantic States decreased 16.8% or $0.43 per gallon in the first quarter of 2016 compared to the same quarter in 2015. While fuel prices decreased, the impact was minimized as a result of the Company selling additional gallons due to the timing of the current gas rewards redemption period ending.

Management remains confident in its ability to generate sales growth in a highly competitive environment, but also understands some competitors have greater financial resources and could use these resources to take measures which could adversely affect the Company's competitive position.

Cost of Sales and Gross Profit
Cost of sales consists of direct product costs (net of discounts and allowances), distribution center and transportation costs, as well as manufacturing facility operations.  Almost all of the increase in cost of sales in 2016, as compared to 2015 is due to the increased sales volume in 2016.  Both direct product cost and distribution cost increase when sales volume  increases.$10.1 million.



According to the latest U.S. Bureau of Labor Statistics’ report, the annual Seasonally Adjusted Food-at-Home Consumer Price Index increased 0.3%decreased 1.5% compared to an increase of 2.9%0.3% for the same period last year.  Even though the U.S. Bureau of Labor Statistics’ index rates may be reflective of a trend, it will not necessarily be indicative of the Company’s actual results.  Despite the fluctuation of retail and wholesale prices, the Company has achieved a gross profit rate of 28.1% and 27.4% in the first quarter of 2016 and 2015, respectively.    The increase in gross profit rate was driven by a shift in sales mix from fuel to grocery sales which carry a higher profit margin. 

The Company's profitability is impacted by the cost of oil.  Fluctuating fuel prices affect the delivered cost of product and the cost of other petroleum-based supplies.  As a percentage of sales, the cost of diesel fuel used by the Company to deliver goods from its distribution center to its stores decreased 0.06% in the first quarter of 2016 compared to the first quarter of 2015.  Although the Company experienced a decrease in these costs, the decline was minimized due to higher fuel usage resulting from more store deliveries to meet the higher sales demand.  According to the U.S. Department of Energy, the thirteen week average diesel fuel price forof gasoline in the Central Atlantic States increased 22.2% or $0.47 per gallon in the first quarter of 2016 was $2.27 per gallon2017 compared to $3.20 per gallon in the same periodquarter in 2015,2016.

The Company experienced deflation for an average decreasethe first quarter of $0.93 per gallon. Based upon2017 in its core sales compared to the U.S. Energy Information Administration’s current projections, same quarter last year, particularly in its meat, produce, dairy and seafood departments.  It was partially able to offset the Company is expecting dieselimpact of deflation by increasing the number of units sold.  Pharmacy sales increased as script counts grew proportionally.  Fuel sales benefited from inflation as comparable fuel pricessales rose 18.8%.  In addition to remain fairly steady throughoutdeflation, management estimates winter weather events negatively impacted the rest of 2016.sales comparison between quarters by approximately $7 million on a comparable store basis.



Although the Company experienced product costretail inflation and deflation in various commodities for the quarters presented, management cannot accurately measure the full impact of inflation or deflation on retail pricing due to changes in the types of merchandise sold between periods, shifts in customer buying patterns and the fluctuation of competitive factors.  Management remains confident in its ability to generate sales growth in a highly competitive environment, but also understands some competitors have greater financial resources and could use these resources to take measures which could adversely affect the Company's competitive position.



Cost of Sales and Gross Profit

Cost of sales consists of direct product costs (net of discounts and allowances), distribution center and transportation costs, as well as manufacturing facility operations.  Almost all of the increase in cost of sales in 2017 as compared to 2016 is due to the increased sales volume in 2017.  Both direct product cost and distribution cost increase when sales volume increases.

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WEIS MARKETS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Results of Operations (continued)

Cost of Sales and Gross Profit (continued)

The 1.1% decline in gross profit margin from first quarter 2016 to 2017 was attributable to the comparable store sales volume decline described previously.  Decreased sales volume negatively impacts the gross profit margin by increasing inventory shrinkage, increasing fixed distribution costs comparative rate and decreasing the margin between product cost and retail pricing in a deflationary market due to slower inventory turns.  As a percentage of sales, the cost of diesel fuel used by the Company to deliver goods from its distribution center to its stores increased 0.05%, reducing gross margin in the first quarter of 2017 compared to the first quarter of 2016. In addition, the 2016 acquired stores product mix reduced gross profit margin by 0.06%.  Management believes that any distribution synergies gained from the acquired stores will be offset by the increased transportation costs due to the distance of the acquired stores.

Non-cash LIFO inventory valuation adjustments changed from expense of $0.7 million for the first quarter of 2016 to income of $0.1 million during the same quarter in 2017, accounting for 0.1% of the gross margin increase in 2017 versus 2016.

Although the Company experienced product cost inflation and deflation in various commodities for the quarters presented, management cannot accurately measure the full impact of inflation or deflation on costs due to changes in the types of merchandise sold between periods, shifts in customer buying patterns and the fluctuation of competitive factors.

Operating, General and Administrative Expenses
The majority of the increase in operating, general and administrative expenses was driven by increased sales volume.

Employee-related costs such as wages, employer paid taxes, health care benefits and retirement plans, comprise approximately 60% of the total “Operating, general and administrative expenses.”  As a percent of sales, direct store labor increased 0.2%  in the first quarter of 2017 compared to the first quarter of 2016.  Of the total increase of $14.5 million, $14.1 million of the direct store labor increase was attributable to the stores acquired in 2016.  The Company continues to monitor store labor efficiencies and develop labor standards to reduce cost while maintaining the Company’s customer service expectations.

The Company’s self-insured health care benefit expenses decreased $476,000 or 8.4% in the first quarter of 2017 compared to the same quarter last year.  The variance is mainly attributed to a decrease in claims costs.  However, the Company remains concerned about the impact that The Patient Protection and Affordable Care Act (ACA) will have on its future operating expenses. 

Depreciation and amortization expense was $20.9 million, or 2.5% of net sales for the first quarter of 2017 compared to $18.4 million or 2.5% of net sales for the first quarter of 2016.  The increase in depreciation and amortization expense was the result of additional capital expenditures as the Company implements its capital expansion program and the 2016 acquisitions.  See the Liquidity and Capital Resources section for further information regarding the Company’s capital expansion program.

The variance in the percent of sales for the above expense items are primarily driven by the acquisition of five former Mars stores, 38 former Food Lion stores and a former Nell’s Family Market store in the second half of 2016.  The Company expects the percent of sales to decrease over time as it develops the acquisition stores’ sales and implements cost saving strategies.

Table of Contents

WEIS MARKETS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Results of Operations (continued)



Operating, General and Administrative Expenses
Business operating costs including expenses generated from administration and purchasing functions, are recorded in "Operating, general and administrative expenses."  Business operating costs include items such as wages, benefits, utilities, repairs and maintenance, advertising costs and credits, rent, insurance, depreciation, leasehold amortization and costs for outside provided services.  The majority of the increase in operating, general and administrative expenses were driven by increased sales.

The Company may not be able to recover rising expenses through increased prices charged to its customers.  The majority of our associates are paid hourly rates related to federal and state minimum wage laws.  The Company increased the base hourly rate for associates to $9 per hour, as of August 2, 2015, in order to attract and retain talented associates with a goal of delivering best-in-class customer service.  The Company has decided not to increase prices to offset this hourly wage rate increase.  

Employee-related costs such as wages, employer paid taxes, health care benefits and retirement plans, comprise approximately 60% of the total “Operating, general and administrative expenses.”  As a percent of sales, direct store labor increased 0.2% compared to the first quarter of 2015.  The increase in base hourly rate for associates to $9 per hour and related wage compression had an estimated cost of $2.7 million in the first quarter of 2016.  Hourly wages also increased in 2016 due to the additional sales resulting from the Easter holiday shifting into the first quarter.  Increases in the employee related expenses were offset by savings realized from a store labor efficiency project. 

The Company’s self-insured health care benefit expenses decreased $808,000 or 12.5% in the first quarter of 2016 compared to the same quarter last year.  The variance is mainly attributed to a decrease in claims costs.  However, the Company remains concerned about the impact that The Patient Protection and Affordable Care Act(ACA) will have on its future operating expenses.  Based on the ACA definition of full time employment, there is approximately an 18% increase in full time employees, which is currently estimated to cost the Company $1.0 million annually. 

Depreciation and amortization expense was $18.4 million, or 2.5% of net sales for the first quarter of 2016 compared to $17.3 million, or 2.4% of net sales for the first quarter of 2015.  The increase in depreciation and amortization expense was the result of additional capital expenditures as the Company implements its capital expansion program.  See the Liquidity and Capital Resources section for further information regarding the Company’s capital expansion program.

Retail store profitability is sensitive to volatility in utility costs due to the amount of electricity and gas required to operate the Company’s stores and facilities. The Company is responding to this volatility in operating costs by employing conservation technologies, procurement strategies and associate energy awareness programs to manage and reduce consumption.  The Company continues to be a member of the EPA GreenChill program for advancing environmentally beneficial refrigerant management systems and has ten stores registered under this program.  In addition, all Company stores have an assigned Green Leader to promote in-store energy conservation. 

Table of Contents

WEIS MARKETS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Results of Operations (continued)

Operating, General and Administrative Expenses (continued)

Employee-related expenses increased in dollars and as a percent of sales for the reasons noted above, primarily related to increases in the basic hourly rate and increases in sales volume. Hourly employees, particularly part-time employees, are required to work increased hours when there is growth in sales volume. Increases in employee related expenses were offset by savings realized from a store labor efficiency project.

Store advertising expense decreased due to reduced spending on direct mail and weekly ads, as well as advertising fewer grand re-openings in the first quarter of 2016 compared to 2015.

Depreciation and amortization increased in the first quarter of 2016 compared to the same quarter of 2015 as a result of the Company’s store capital expenditure program and technology investments.

Utility expense decreased in the first quarter of 2016 for the reasons noted above related to energy conservation efforts and procurement strategies, along with reduced electricity costs and usage and a reduction in the use of natural gas. 

Store supplies expense decreased in the first quarter of 2016 due to planned purchasing changes which will be shifting store supplies expense from the first quarter of 2016 to future quarters.

General liability insurance expense decreased due to a reduced number of general liability payments in the first quarter of 2016 compared to the first quarter of 2015.

Table of Contents

WEIS MARKETS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Results of Operations (continued)

Investment Income

The Company’s investment portfolio consists of marketable securities, which currently includes municipal bonds and equity securities, as well as the Company’s SERP investment, which is comprised of mutual funds that are maintained within the Company’s non-qualified supplemental executive retirement plan and the non-qualified pharmacist deferred compensation plan.  The Company classifies all of its municipal bonds and equity securities as available-for-sale.  The SERP investments are classified as trading securities.

Bond income increased in the first quarter of of 2016 compared to the first quarter of 2015 as a result of recognizing gains on the sale of municipal bonds in the first quarter of 2016.  

Provision for Income Taxes
The effective income tax rate was 36.9%43.8% and 34.7%36.9% for the first quarter of 20162017 and 2015,2016, respectively.  The increase in the effective income tax rate is due to a discrete item recorded in the first quarter of 2017 and an increase in the state tax expense.  The effect of this increase was partially offset by an increase in tax benefits related to food donations, the Domestic Production Activities Deduction and the Work Opportunity Tax Credit. Historically, the effective income tax rate differed from the federal statutory rate, primarily due to the effect of state taxes, net of permanent differences. 

Liquidity and Capital Resources



DuringThe primary sources of cash are cash flows generated from operations and borrowings under the first quarter2016 revolving credit agreement from Wells Fargo Bank, NA.  The Company’s revolving credit agreement has a principal amount of 2016,$100.0 million with an additional discretionary availability of $50.0 million.  On March 13, 2017, the Company generated $38.1was approved to access $20.0 million in cash flows from operating activities compared to $31.0 million for the same period in 2015.  Cash flows from operating activities increased in the first quarter of 2016 as a result of increased sales, despite a decrease in accounts payable, compared to the first quarter of 2015.  Since the beginning of the fiscal year, working capital decreased 1.4%  indiscretionary amount bringing the first quarterCompany’s immediate borrowing capacity to $120.0 million.  As of 2016  as comparedApril 1, 2017 the Company’s unused availability under the revolving credit agreement was $32.4 million with $70.9 million of borrowings outstanding and $16.7 million of letters of credit outstanding.  The letters of credit are maintained primarily to an increasesupport performance, payment, deposit or surety obligations of 0.2% in the first quarterCompany.  The Company does not anticipate drawing on any of 2015.them.



Net cash used in investing activities was $17.2 million compared to $28.8 million in the first quarter of 2016 and 2015, respectively.  Property and equipment purchases during the first quarter of 2016 totaled $29.9 million compared to $20.6 million in the first quarter of 2015.  The increase was partially attributed to the Company purchasing four properties in the first quarter of 2016.    As a percentage of sales, capital expenditures were 4.1% and 2.9% in the first quarter of 2016 and 2015, respectively. The sale of $15.2 millionCompany’s investment portfolio consists of marketable securities, inwhich currently includes municipal bonds and equity securities.  As of April 1, 2017, the first quarter of 2016 reducedportfolio totaled $64.3 million.  Management anticipates maintaining the Company’s net investing activities, whereasinvestment portfolio, but has the Company purchased $9.9 million of marketable securities in the first quarter of 2015.ability to liquidate if needed.



The Company’s 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 the Company’s distribution facilities and transportation fleet.  Management currently plans to invest approximately $140$90.0 million in its capital expansion program in 2016.2017. 

The Company expects that cash generated from operations and available under the 2016 revolving credit agreement will fund its working capital requirements, debt requirements, capital expansion program, acquisitions and dividends.  The Company has no other commitment of capital resources as of April 1, 2017, other than the lease commitments on its store facilities and transportation equipment under operating leases that expire at various dates through 2033.

The Board of Directors’ 2004 resolution authorizing the repurchase of up to one million shares of the Company’s common stock has a remaining balance of 752,468 shares.

Quarterly Cash Dividends

At its regular meeting held in April, the Board of Directors unanimously approved a quarterly dividend of $.30 per share, payable on May 22, 2017 to shareholders of record on May 8, 2017.  The Company expects to continue paying regular cash dividends on a quarterly basis. However, the Board of Directors reconsiders the declaration of dividends quarterly. The Company pays these dividends at the discretion of the Board of Directors and the continuation of these payments and the amount of the dividends depends upon the results of operations, the financial condition of the Company and other factors which the Board of Directors deems relevant.

Table of Contents

WEIS MARKETS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Liquidity and Capital Resources (continued)Cash Flow Information

Operating

Cash flows from operating activities decreased in the first quarter of 2017 mainly as a result of decreased operating income compared to the first quarter of 2016.  In addition, long-term incentive payments to associates of $11.8 million were issued during the quarter.



Net cash used in financing activities was $8.1Investing

Property and equipment purchases during the first quarter of 2017 totaled $17.1 million compared to $29.9 million in the first quarter of 2016 and 2015, which solely consisted2016.  The decrease of dividend payments$12.9 million was partially attributable to shareholders.  As of March 26, 2016, the Company had a $30 million line of credit, of which $13.3 million was committed to outstanding letters of credit.  The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company.  The Company does not anticipate drawing on any of them.  The Company has a $50 million short-term facility agreement to fund future financing activities.

Total cash dividend payments on common stock, on a per share basis, amounted to $.30purchasing four properties in the first quarter of 2016.  As a percentage of sales, capital expenditures were 2.0% and 4.1% in the first quarter of 2017 and 2016, and 2015.  At its regular meeting held in April,respectively.  In 2016, the BoardCompany sold $15.2 million of Directors unanimously approved a quarterly dividend of $.30 per share, payable on May 16, 2016marketable securities as it prepared to shareholders of record on May 2, 2016.  The Board of Directors’ 2004 resolution authorizing the repurchase of up to one million shares of the Company’s common stock has a remaining balance of 752,468 shares. finance future acquisitions.



Financing

The Company has no other commitmentpaid a dividend of capital resources as$8.1 million for the first quarters of March 26, 2016, other than the lease commitments on its store facilitiesboth 2017 and transportation equipment under operating leases that expire at various dates through 2029. The Company anticipates funding its working capital requirements and its $140.0 million 2016 capital expansion program through cash and investment reserves and future internally generated cash flows2016.  In 2017, proceeds from operations.

The Company’s earnings and cash flows are subject to fluctuations due to changes in interest rates as they relate to available-for-sale securities and any future long-term debt borrowings.  The Company’s marketable securities portfolio currently consists of municipal bonds and equity securities.  Other short-term investments are classified asoffset the dividend thereby reducing cash equivalents on the Consolidated Balance Sheets.used in financing activities by $6.4 million.



Accounting Policies and Estimates



The Company has chosen accounting policies that it believes are appropriate to accurately and fairly report its operating results and financial position, and the Company applies those accounting policies in a consistent manner. The Significant Accounting Policies are summarized in Note 1 to the Consolidated Financial Statements included in the 20152016 Annual Report on  Form 10-K.  There have been no changes to the CriticalSignificant Accounting Policies since the Company filed its Annual Report on Form 10-K for the fiscal year ended December 26, 2015.31, 2016.



Forward-Looking Statements



In addition to historical information, this 10-Q Report may contain forward-looking statements, which are included pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  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.

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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 March 26, 2016.April 1, 2017.  Quantitative information is set forth in Item 7a on the Company’s Annual Report on Form 10-K under the caption “Quantitative and Qualitative Disclosures About Market Risk,” which was filed for the fiscal year ended December 26, 201531, 2016 and is incorporated herein by reference.



Qualitative Disclosure - This information is set forth in the Company's Annual Report on Form 10-K under the caption “Liquidity and Capital Resources,” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which was filed for the fiscal year ended December 26, 201531, 2016 and is incorporated herein by reference.



ITEM 4.  CONTROLS AND PROCEDURES



The Chief Executive Officer and the Chief Financial Officer, together with the Company’s Disclosure Committee, evaluated the Company’s disclosure controls and procedures as of the fiscal quarter ended March 26, 2016.April 1, 2017.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports was accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.



In connection with the evaluation described above, there was no change in the Company’s internal control over financial reporting during the fiscal quarter ended March 26, 2016,April 1, 2017, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. 



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PART II – OTHER INFORMATION

ITEM 6. EXHIBITS



Exhibits
        Exhibit 31.1 Rule 13a-14(a) Certification - CEO
        Exhibit 31.2 Rule 13a-14(a) Certification - CFO
        Exhibit 32 Certification Pursuant to 18 U.S.C. Section 1350



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.