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

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 September  24, 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 Company’s Consolidated Balance SheetsSheet as “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 (loss) and interest expense” on the Company’s Consolidated Statements of Income.  The changes in the underlying liability to the associates are recorded in “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 September  24, 2016April 1, 2017 and SeptemberMarch 26, 2015.2016.





(5) Income Taxes

Cash paid for income taxes was $29.4 million and $24.0 million in the first thirty-nine weeks of 2016 and 2015, respectively.





(6)(5) Acquisitions

On August 1, 2016, the Company purchased five Mars Super Market stores located in Maryland.  Weis Markets, Inc. acquired these locations and their 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 $13.0$23.2 million to sales in the third quarter.first quarter of 2017.  The cash purchase price paid was $24.3$24.6 million for the property, equipment, inventories, prepaid expenses and goodwill related to this purchase.  The Company accounted for this transaction as a business combination in accordance with the acquisition method.  The Company recorded the preliminary fair values of the assets acquired at August 1, 2016.  The fair value of intangibles was determined based on the discounted cash flow model and property and equipment were determined based on external appraisals, which will be finalized in the fourth quarter.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 $13.2$13.3 million has been recorded, based upon the expected benefits to be derived from new management business strategy and cost synergies.  The full $13.2 milliongoodwill is deductible for tax purposes. The purchase price has been preliminarily allocated to the acquired assets as follows:





(5) Acquisitions (continued)

In July 2016, the Company announced it had reached a definitive agreement with Food Lion, LLC to purchase the assets of 38 Food Lion Supermarket locations operating in the states of Maryland, Virginia and Delaware.  The purchase is anticipated to be completed in the fourth quarter of 2016.  With this purchase 21 Maryland stores, 13 Virginia stores, and 4 Delaware stores, will be added to the Company’s store count.  As of September 24, 2016, the Company began operating tenits acquisition of the 38 former Food Lion, LLC locationsstores.  Within eight weeks, ending in Maryland.October 2016, Weis Markets acquired 21 Maryland, 13 Virginia and 4 Delaware former Food Lion, LLC stores.  The results of operations of the ten38 former Food Lion, LLC stores are included in the accompanying Consolidated Financial Statements from the date of eachacquisition.  The Company accounted for this transaction as a business combination in accordance with the acquisition (five storesmethod.  The fair value of intangibles was determined based on September 11, 2016the discounted cash flow model and five storesproperty and equipment were determined based on September 18, 2016).external appraisals.  The acquired locations were part of a FTC forced divestiture in the approval process of the merger of Ahold and Delhaize Group, which resulted in a below fair value purchase price consideration.  The cash purchase price paid to date is  $23.2was $29.4 million including $15.1 million of escrowed payments made towards the remaining twenty-eight stores, for the property, equipment, inventories, prepaid expenses and liabilities.  Weis Markets, Inc. assumed sixthirty lease obligations and ownership of four locations witheight locations.  The Company recognized a gain of $23.9 million on the first ten locations acquired.  The ten acquiredpurchase of the 38 former Food Lion, LLC locationsstores.  The 38 former Food Lion, LLC stores contributed $2.0$93.7 million to sales in the third quarter.  Regarding the remainderfirst quarter of the Food Lion, LLC acquisition the Company expects to assume twenty-four additional lease obligations and own four locations.  The initial accounting for the business acquisition has not been finalized as the transaction has not fully closed.  Twenty-eight additional stores are to be acquired in the fourth quarter and the Company will finalize the purchase price allocation in the fourth quarter upon completion of the transaction and external appraisals of assets acquired.  The table below summarizes the progress of the acquisition and the preliminary allocation of the cash purchase price paid to date.2017.



(6) Acquisitions (continued)

On October 6,30, 2016, the Company announced plans to purchase the location, inventory, property and equipment ofWeis Markets acquired a former Nell’s Family Market store located in East Berlin, PA from C&S Wholesale Grocers.  Exclusive of the inventory, the Company is expecting to pay approximately $8.7 million.  The purchase is planned to be completed in the fourth quarter of 2016 and will increase the Company’s market presence in Adams County, PA. 

Pro forma information for the completed acquisitions is not required, as such information is not material to the Company’s financial statements.

The Company paid $7.9 million for the property and equipment related to the purchase of a store in Hanover, Pennsylvania on August 31, 2015Pa 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 allocated between tangible$13.0 million, of which $3.4 million is payable over a 4 year term for the property, equipment, inventory, prepaid expenses and related intangible assetsliabilities.  The Company accounted for this transaction as a business combination in accordance with our accounting policiesthe 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 business combinations.  No goodwill was recognized.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 customers 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 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.



(7)(6) Long-Term Debt

On September 1, 2016, the CompanyWeis Markets entered into a Revolving Credit Agreementrevolving 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 September 24, 2016, the Company has drawn upon $40.1April 1, 2017, $70.9 million of the available $100.0$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 for letters of credit.   As of September 24, 2016,April 1, 2017, the Company had a $30$16.7 million, line of the available $120.0 million from the credit with Branch Banking and Trust, of which $14.6 million wasfacility, 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 and has committedthem.

Interest expense related to not draw any additional amounts fromlong-term debt was $273,000 for the line of credit.13 week period ending April 1, 2017.





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)



Income is earned by selling merchandise at price levels that produce revenues in excessNet Sales

Analysis 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.Sales



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



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 storeThe Company’s first quarter 2016 sales increased 2.7%benefited from the Easter and New Year holiday periods, which fell in the thirdfirst 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 2016 compared to the same quarter in 2015.  Excluding fuel2017 did not include a New Year holiday sales comparable store sales increased 3.0% in the third quarter of 2016 compared to the same period in 2015.  The Company’s year-to-date comparable store sales increased 2.7% compared to the first thirty-nine weeks of 2015.  Excluding fuel sales, comparable store sales increased 2.9%  compared to the first thirty-nine weeks of 2015.    

The Company attributes the increased sales to its continued strategic pricing investmentsweek 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 third quarter of 2015,  the Company experienced a 3.5 % decrease in the average sales per customer transaction in the third quarter of 2016,  while identical customer store visits increased by 6.1%.  The Company’s year-to-date average sales per customer transaction decreased 2.3%, while the number of identical customer store visits increased 5.1% compared to 2015.

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 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 produce sales increased 6.5% and 5.2% in the third quarter and first thirty-nine weeks of 2016, respectively, compared to the same periods in 2015.  The 2016 produce sales increase can be attributed to expanding the vegetable options and the launch of the new Kid Zone programEaster fell in the second quarter as well as aggressive advertising and well executed training programs.  A strong growing season resulted in consistent crop yields inof 2017.  Management estimates the major growing regions.  In addition, the increase in produceincremental holiday sales is partially due to inflation in the third quarter of 2016. 

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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)impact was approximately $10.1 million.



Net Sales (continued)

Comparable deli and food service sales increased 7.9% inAccording to the third quarterlatest U.S. Bureau of 2016 and 8.7% year-to-date,Labor Statistics’ report, the annual Seasonally Adjusted Food-at-Home Consumer Price Index decreased 1.5% compared to an increase of 0.3% for the same periods in 2015.  Although this category was impacted by deflation,period last year.  Even though the increase was also driven by expanded deli meat and cheese displays, expanded lunch options, the rotisserie chicken program, the Buy More Save more and EDLP programs and continued success in the Food Service Meal Solutions program.

Comparable bakery sales increased 15.5% in the third quarterU.S. Bureau of 2016 and 12.9% in the first thirty-nine weeksLabor Statistics’ index rates may be reflective of 2016, compared to the same periods in 2015.  Bakery sales increased due to the addition of new programs and EDLPs.    

Comparable pharmacy sales increased 6.7% and 8.7% in the third quarter and first thirty-nine weeks of 2016, respectively, compared to the same periods 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 dairy sales decreased 4.0% and 1.9% in the third quarter and the first thirty-nine weeks of 2016 compared to the same periods of 2015.  This decrease is primarily due to deflation in 2016.

Comparable meat sales decreased 0.5% in the first thirty-nine weeks of 2016 compared to the first thirty-nine weeks of 2015.  The 2016 decrease in meat sales cana trend, it will not necessarily be attributed to deflation, which was partially offset by an increase in units sold.

Comparable fuel sales decreased 9.9% and 11.0% in the third quarter and first thirty-nine weeks of 2016, respectively, compared to the same periods in 2015.  Fuel sales decreased as a resultindicative of the decline in retail fuel prices.Company’s actual results.  According to the U.S. Department of Energy, the thirteen week average price of gasoline in the Central Atlantic States decreased 12.6%increased 22.2% or $0.35$0.47 per gallon in the thirdfirst quarter of 2016,2017 compared to the same quarter in 2015.  Year-to-date,2016.

The Company experienced deflation for the average pricefirst quarter of gasoline2017 in the Central Atlantic States decreased 14.1% or $0.38 per gallon,its core sales compared to the first thirty-nine weeks of 2015.  As ansame quarter last year, particularly in its meat, produce, dairy and seafood departments.  It was partially able to offset the year-to-date gallons sold haveimpact of deflation by increasing the number of units sold.  Pharmacy sales increased 2.9%  comparedas script counts grew proportionally.  Fuel sales benefited from inflation as comparable fuel sales rose 18.8%.  In addition to 2015 asdeflation, management estimates winter weather events negatively impacted the sales comparison between quarters by approximately $7 million on a result of a strong gas rewards program.comparable store basis.



Although the Company experienced retail 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 20162017 as compared to 2015 was2016 is due to the increased sales volume in 2016.2017.  Both direct product cost and distribution cost increase when sales volume increases.

According to the latest U.S. Bureau of Labor Statistics’ report, the annual Seasonally Adjusted Food-at-Home Consumer Price Index decreased 0.7% compared to an increase of 2.0% 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.  The Company has achieved a gross profit rate of 27.6% and 27.8% for the quarter and year-to-date, respectively, compared to a gross profit rate of 27.3%  and 27.5%  for the quarter and year-to-date,  respectively, in 2015. The year-to-date increase in gross profit rate was driven by a shift in sales mix from fuel sales to grocery sales which carry a higher profit margin.



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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 Company's profitability is impacted1.1% 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 of oil.  Fluctuating fuel prices affect the delivered cost of product and the cost of other petroleum-based supplies.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 decreased 0.02% in the third quarter and decreased 0.04%increased 0.05%, reducing gross margin in the first thirty-nine weeksquarter of 20162017 compared to the same periods in 2015.  Althoughfirst quarter of 2016. In addition, the Company experienced a decrease in these2016 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 the decline was minimized due to higher fuel usage resultingthe distance of the acquired stores.

Non-cash LIFO inventory valuation adjustments changed from more store deliveries to supply the recently acquired stores and meet the higher sales demand.  According to the U.S. Departmentexpense of Energy, the thirteen week average diesel fuel price$0.7 million for the Central Atlantic States in the thirdfirst quarter of 2016 was $2.48 per gallon compared to $2.86 per gallon inincome of $0.1 million during the same periodquarter in 20152017, accounting for an average decrease0.1% of 13.3% or $0.38 per gallon.  The 2016  thirty-nine week average diesel fuel price for the Central Atlantic States was $2.39 per gallon compared to $3.06 per gallongross margin increase in the same period in 2015 for an average decrease of 22.1% or $0.67 per gallon.  Based upon the U.S. Energy Information Administration’s current projections, the Company is expecting diesel fuel prices to remain fairly steady throughout the fourth quarter of2017 versus 2016.



Although the Company experienced product cost inflation and deflation in various commodities for boththe quarters presented, management cannot accurately measure the full impact of inflation or deflation on retail pricingcosts 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
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 was driven by increased sales.sales volume.

The Company may not be able to recover rising expenses through increased prices charged to its customers.  The majority of our associates were 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%  in the thirdfirst quarter and year-to-date 2016of 2017 compared to the same periods in 2015.  The increase in base hourly rate for associates to $9 per hour and related wage compression had an estimated cost of $1.1 million in the thirdfirst quarter of 2016 and $6.62016.  Of the total increase of $14.5 million, year-to-date.  Increases in employee related expenses were offset by savings realized from a$14.1 million of the direct store labor efficiency project. 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 increased $540,000decreased $476,000 or 9.3% in the third quarter and $869,000 or 4.9%8.4% in the first thirty-nine weeksquarter of 2016,2017 compared to the same periods in 2015.quarter last year.  The year-to-date variance is mainly attributed to an increasea decrease in group healthclaims costs.  TheHowever, 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 $19.2 million, or 2.6% of net sales for the third quarter of 2016, compared to $17.3 million, or 2.4% of net sales for the third quarter of 2015.  Depreciation and amortization expense was $56.2$20.9 million, or 2.5% of net sales for the first thirty-nine weeksquarter of 2016,2017 compared to $52.1$18.4 million or 2.4%2.5% of net sales for the first thirty-nine weeksquarter of 2015.2016.  The increase in depreciation and amortization expense was the result of additional capital expenditures as the Company implements its capital expansion program.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.

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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)



Operating, General and Administrative Expenses (continued)

Employee-related expenses increased $3.6 million during the quarter due to the ten former Food Lion, LLC and five former Mars Super Market stores during the third quarter of 2016.  In addition, the year-to-date increase in employee-related expenses was 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. 

Depreciation and amortization increased in both periods presented as a result of the Company’s store capital expenditure program and technology investments.

General liability insurance expense increased during the quarter due to the development of a few claims. 

Store advertising expense increased $1.0 million during the quarter due to the ten former Food Lion, LLC and five former Mars Super Market stores during the third quarter of 2016.  The additional increase can be attributed to new projects completed in 2016. 

Acquisition-related expenses, excluding the expenses mentioned above, primarily consisted of store operating expenses,  travel expenses and contracted labor for store resets. 

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.

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)

Provision for Income Taxes
The effective income tax rate was 37.2% in43.8% and 36.9% for the first thirty-nine weeksquarter of 2017 and 2016, compared to 34.9% in the first thirty-nine weeks of 2015.respectively.  The increase in the effective income tax rate wasis due to a discrete item recorded in the first quarter of 2017 and an increase in the state tax expense. 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 thirty-nine weeks2016 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 $111.9was approved to access $20.0 million in cash flows from operating activities comparedof the discretionary amount bringing the Company’s immediate borrowing capacity to $100.5$120.0 million.  As of April 1, 2017 the Company’s unused availability under the revolving credit agreement was $32.4 million forwith $70.9 million of borrowings outstanding and $16.7 million of letters of credit outstanding.  The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the same period in 2015.  Working capital decreased 14.3%  in the first thirty-nine weeksCompany.  The Company does not anticipate drawing on any of 2016 compared to an increase of 0.1% in the first thirty-nine weeks of 2015.them.



Net cash used in investing activities was $132.9 million compared to $83.5 million in the first thirty-nine weeks of 2016 and 2015, respectively.  Property and equipment purchases during the first thirty-nine weeks of 2016 totaled $96.7 million compared to $64.9 million in the same period of 2015.  The increase was primarily attributed to the Company purchasing seven properties in 2016.   In addition, the Company invested $47.5 million towards the purchase of five former Mars Super Market stores and ten former Food Lion, LLC stores in the third quarter of 2016.  As a percentage of sales, capital expenditures including the acquisitions were 6.5% and 3.0% in the first thirty-nine weeks of 2016 and 2015, respectively. The Company’s netinvestment portfolio consists of marketable securities, transactions resulted inwhich currently includes municipal bonds and equity securities.  As of April 1, 2017, the sale of $14.1 million inportfolio totaled $64.3 million.  Management anticipates maintaining the first thirty-nine weeks of 2016, which were usedinvestment portfolio, but has the ability to partially finance the recent acquisitions.   The Company’s net marketable securities transactions in the first thirty-nine weeks of 2015 resulted in the use of $17.3 million. liquidate if needed.



The Company’s capital expansion program includes store acquisitions, 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 $175.0$90.0 million in its capital expansion program in 2016.  The Company plans to complete its acquisition of the 38 Food Lion, LLC locations in the fourth quarter of 2016.  In addition, the Company plans to purchase the location and assets of Nell’s Family Market located in East Berlin, PA from C&S Wholesale Grocers in the fourth quarter of 2016.  For further information about these acquisitions please refer to Note (6) to the Consolidated Financial Statements.2017. 



NetThe Company expects that cash generated from financing activities was $15.9 million inoperations and available under the first thirty-nine weeks of 2016.  In September 2016 the Company entered into a revolving credit agreement will fund its working capital requirements, debt requirements, capital expansion program, acquisitions and borrowed $40.1 million of the available $100.0 million from Wells Fargo Bank, National Association, increasing the cash flow from financing activities compared to 2015.dividends.  The Company issued $24.2 millionhas no other commitment of dividend payments to shareholders in 2016capital resources as of April 1, 2017, other than the lease commitments on its store facilities and 2015.  As of September 24, 2016, the Company had a $30 million line of credit with Branch Banking and Trust, of which $14.6 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 and has committed to not draw any additional amounts from the line of credit.  transportation equipment under operating leases that expire at various dates through 2033.



Total cash dividend payments on common stock, on a per share basis, amounted to $.90 in the first thirty-nine weeks of 2016 and 2015.  At its regular meeting held in October, the Board of Directors unanimously approved a quarterly dividend of $0.30 per share payable on November 14, 2016 to shareholders of record on October 31, 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.



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 has no other commitmentexpects to continue paying regular cash dividends on a quarterly basis. However, the Board of capital resources asDirectors reconsiders the declaration of September 24, 2016, other than the lease commitments on its store facilities and transportation equipment under operating leases that expire at various dates through 2033.dividends quarterly. The Company anticipates funding its working capital requirementspays these dividends at the discretion of the Board of Directors and its $175.0 million 2016 capital expansion program through cashthe continuation of these payments and future internally generated cash flows fromthe amount of the dividends depends upon the results of operations, as well as the revolving credit facility agreementfinancial condition of the Company entered into on September 1, 2016 with Wells Fargo Bank, National Association,and other factors which still had a remaining balancethe Board of $59.9 million available as of September 24, 2016. 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.



Investing

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.  The Company’s earningsdecrease of $12.9 million was partially attributable to the Company purchasing four properties in the first quarter of 2016.  As a percentage of sales, capital expenditures were 2.0% and cash flows are subject4.1% in the first quarter of 2017 and 2016, respectively.  In 2016, the Company sold $15.2 million of marketable securities as it prepared to fluctuations due to changes in interest rates as they relate to available-for-sale securitiesfinance future acquisitions.

Financing

The Company paid a dividend of $8.1 million for the first quarters of both 2017 and any future2016.  In 2017, proceeds from 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 Significant 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



Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and a decline in the stock market.  The Company does not enter into derivatives, foreign exchange transactions or other financial instruments for trading or speculative purposes.

The Company is exposed to market risk related to changes in interest rates and market pricing impacting its investment portfolio.  Its current investment policy is to maintain an investment portfolio consisting of municipal bonds, U.S. money market securities, and high-grade corporate securities, directly or through managed funds.  Its cash is deposited in and invested through highly rated financial institutions in North America.  Its marketable securities are subject to interest rate risk and market pricing risk and will fall in value if market interest rates increase or if market pricing decreases.  If market interest rates were to increase and market pricing were to decrease immediately and uniformly by 10% from levels at September 24, 2016, the Company estimates that the fair value of its investment portfolio would decline by an immaterial amount and therefore it would not expect its operating results or cash flows to be affected to any significant degree by the effect of a change in market conditions on the Company’s investments.

In the third quarter of 2016, the Company entered into an unsecured Revolving Credit Agreement with Wells Fargo Bank, National Association that bears interest at a rate based on the one month LIBOR.  See Note (7) to the Consolidated Financial Statements for more information.  As a result of this borrowing activity, the Company is exposed to fluctuations in interest rates. The Credit Agreement, along with cash flow from operations, are used to maintain liquidity and fund business operations.  The nature and amount of the Company’s debt may vary as a result of future business requirements, market conditions and other factors. The definitive extent of the Company’s interest rate risk is not quantifiable or predictable because of the variability of future interest rates and business financing requirements, but the Company does not believe such risk is material. Based on the $40.1 million principal outstanding under the Company’s Revolving Credit Facility as of September 24, 2016, each hundred basis point in the one month LIBOR would result in a change in interest expense by $400,000 annually.

Quantitative Disclosure - There have been no material changes toin the Company's market risk during the three months ended April 1, 2017.  Quantitative information is set forth in Item 7a on the Company’s market risk exposure sinceAnnual 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, 2015.31, 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 31, 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 September  24, 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 September  24, 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.