WEIS MARKETS, INC.

TABLE OF CONTENTS


FORM 10-Q	Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets	1
Consolidated Statements of Income	2
Consolidated Statements of Comprehensive Income	3
Consolidated Statements of Shareholders’ Equity	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	1211
Item 3. Quantitative and Qualitative Disclosures about Market Risk	18
Item 4. Controls and Procedures	18
Part II. Other Information
Item ~~6. Exhibits~~1a. Risk Factors	19
~~Signatures~~Item 6. Exhibits	1920
Signatures	21
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

WEIS MARKETS, INC.

PART I – FINANCIAL INFORMATION

ITEM I – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(unaudited)


(dollars in thousands)	June 29, 2019		December 29, 2018		June 27, 2020		December 28, 2019
Assets
Current:
Cash and cash equivalents	$	51,646	$	37,808	$	108,660	$	66,871
Marketable securities		57,376		54,298		97,256		63,538
SERP investment		18,162		14,686		19,230		18,935
Accounts receivable, net		54,373		57,285		48,541		55,764
Inventories		266,343		280,756		278,456		279,806
Prepaid expenses and other current assets		16,439		24,289		26,236		23,378
Total current assets		464,339		469,122		578,379		508,292
Property and equipment, net		877,212		887,608		887,285		886,928
Operating lease right-to-use		189,953		-		202,840		210,196
Goodwill		52,330		52,330		52,330		52,330
Intangible and other assets, net		18,079		22,951		18,296		17,816
Total assets	$	1,601,913	$	1,432,011	$	1,739,130	$	1,675,562

Liabilities
Current:
Accounts payable	$	168,070	$	191,099	$	181,088	$	180,718
Accrued expenses		24,880		45,354		35,778		39,528
Operating leases		37,624		-		38,048		39,114
Accrued self-insurance		15,005		15,516		17,282		15,719
Deferred revenue, net		5,783		7,961		6,244		8,662
Income taxes payable		9,430		7,283		32,878		8,197
Total current liabilities		260,792		267,213		311,318		291,938
Postretirement benefit obligations		20,973		18,110		21,822		22,143
Accrued self-insurance		17,787		17,795		17,616		17,625
Operating leases		161,387		-		172,970		179,654
Deferred income taxes		90,735		90,793		96,416		97,041
Other		8,163		15,201		7,641		8,416
Total liabilities		559,837		409,112		627,783		616,817
Shareholders’ Equity
Common stock, no par value, 100,800,000 shares authorized, 33,047,807 shares issued,
26,898,443 shares outstanding		9,949		9,949		9,949		9,949
Retained earnings		1,181,647		1,163,545		1,249,657		1,198,173
Accumulated other comprehensive income
(Net of deferred taxes of $533 in 2019 and $110 in 2018)		1,337		262
(Net of deferred taxes of $1,026 in 2020 and $593 in 2019)						2,598		1,480
		1,192,933		1,173,756		1,262,204		1,209,602
Treasury stock at cost, 6,149,364 shares		(150,857)		(150,857)		(150,857)		(150,857)
Total shareholders’ equity		1,042,076		1,022,899		1,111,347		1,058,745
Total liabilities and shareholders’ equity	$	1,601,913	$	1,432,011	$	1,739,130	$	1,675,562

See accompanying notes to Consolidated Financial Statements.

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)



	13 Weeks Ended				26 Weeks Ended				13 Weeks Ended				26 Weeks Ended
(dollars in thousands, except shares and per share amounts)	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Net sales	$	887,967	$	871,100	$	1,764,686	$	1,747,206	$	1,098,704	$	887,967	$	2,084,524	$	1,764,686
Cost of sales, including advertising, warehousing and distribution expenses		651,297		630,805		1,298,463		1,272,004		805,816		651,297		1,527,489		1,298,463
Gross profit on sales		236,670		240,295		466,223		475,202		292,888		236,670		557,035		466,223
Operating, general and administrative expenses		210,801		214,258		424,375		426,326		236,886		210,373		463,605		422,105
Income from operations		25,869		26,037		41,848		48,876		56,002		26,297		93,430		44,118
Investment income and interest expense		1,079		105		3,975		(427)
Investment income (loss) and interest expense										3,066		1,079		(953)		3,975
Other income (expense)										(2,618)		(428)		58		(2,270)
Income before provision for income taxes		26,948		26,142		45,823		48,449		56,450		26,948		92,535		45,823
Provision for income taxes		6,473		7,047		11,043		13,163		14,978		6,473		24,374		11,043
Net income	$	20,475	$	19,095	$	34,780	$	35,286	$	41,472	$	20,475	$	68,161	$	34,780

Weighted-average shares outstanding, basic and diluted		26,898,443		26,898,443		26,898,443		26,898,443		26,898,443		26,898,443		26,898,443		26,898,443
Cash dividends per share	$	0.31	$	0.30	$	0.62	$	0.60	$	0.31	$	0.31	$	0.62	$	0.62
Basic and diluted earnings per share	$	0.76	$	0.71	$	1.29	$	1.31	$	1.54	$	0.76	$	2.53	$	1.29

See accompanying notes to Consolidated Financial Statements.
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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)



	13 Weeks Ended				26 Weeks Ended				13 Weeks Ended				26 Weeks Ended
(dollars in thousands)	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Net income	$	20,475	$	19,095	$	34,780	$	35,286	$	41,472	$	20,475	$	68,161	$	34,780
Other comprehensive income (loss) by component, net of tax:
Available-for-sale marketable securities
Unrealized holding gains (losses) arising during period
(Net of deferred taxes of $(179) and $14, respectively for the thirteen Weeks Ended and $(423) and $172, respectively for the twenty-six Weeks Ended)		454		(42)		1,075		(445)
Reclassification adjustment for losses included in net income
(Net of deferred taxes of $0 and $15, respectively for the twenty-six Weeks Ended)		-		-		-		39
(Net of deferred taxes of $396 and $179, respectively for the thirteen weeks ended and $433 and $423, respectively for the twenty-six weeks ended)										1,023		454		1,118		1,075
Reclassification adjustment for (gains) losses included in net income
(Net of deferred taxes of $2 and $0, respectively for the thirteen weeks ended and $0 and $0, respectively for the twenty-six weeks ended)										6		-		-		-
Other comprehensive income gain (loss), net of tax		454		(42)		1,075		(406)		1,029		454		1,118		1,075
Comprehensive income, net of tax	$	20,929	$	19,053	$	35,855	$	34,880	$	42,501	$	20,929	$	69,279	$	35,855

See accompanying notes to Consolidated Financial Statements.

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited)



						Accumulated													Accumulated
(dollars in thousands, except shares)						Other						Total							Other						Total
For Thirteen Weeks Ended June 29, 2019	Common Stock			Retained		Comprehensive		Treasury Stock				Shareholders’
and June 30, 2018	Shares	Amount		Earnings		Income (Loss)		Shares		Amount		Equity
Balance at March 30, 2019	33,047,807	$	9,949	$	1,169,510	$	883		6,149,364	$	(150,857)	$	1,029,485
Net income	—		—		20,475		—		—		—		20,475
Other comprehensive loss, net of
reclassification adjustments and tax	—		—		—		454		—		—		454
Dividends paid	—		—		(8,339)		—		—		—		(8,339)
Balance at June 29, 2019	33,047,807	$	9,949	$	1,181,647	$	1,337		6,149,364	$	(150,857)	$	1,042,076


Balance at March 31, 2018	33,047,807	$	9,949	$	1,141,474	$	34		6,149,364	$	(150,857)	$	1,000,600
For Thirteen Weeks Ended														Common Stock			Retained		Comprehensive		Treasury Stock				Shareholders’
June 27, 2020 and June 29, 2019														Shares	Amount		Earnings		Income (Loss)		Shares		Amount		Equity
Balance at March 28, 2020														33,047,807	$	9,949	$	1,216,524	$	1,569		6,149,364	$	(150,857)	$	1,077,185
Net Income	—		—		19,095		—		—		—		19,095	—		—		41,472		—		—		—		41,472
Other comprehensive income, net of
reclassification adjustments and tax	—		—		—		(42)		—		—		(42)	—		—		—		1,029		—		—		1,029
Dividends paid	—		—		(8,069)		—		—		—		(8,069)	—		—		(8,339)		—		—		—		(8,339)
Balance at June 30, 2018	33,047,807	$	9,949	$	1,152,499	$	(8)		6,149,364	$	(150,857)	$	1,011,583
Balance at June 27, 2020														33,047,807	$	9,949	$	1,249,657	$	2,598		6,149,364	$	(150,857)	$	1,111,347

Balance at March 30, 2019														33,047,807	$	9,949	$	1,169,510	$	883		6,149,364	$	(150,857)	$	1,029,485
Net income														—		—		20,475		—		—		—		20,475
Other comprehensive income, net of
reclassification adjustments and tax														—		—		—		454		—		—		454
Dividends paid														—		—		(8,339)		—		—		—		(8,339)
Balance at June 29, 2019														33,047,807	$	9,949	$	1,181,647	$	1,337		6,149,364	$	(150,857)	$	1,042,076



						Accumulated													Accumulated
(dollars in thousands, except shares)						Other						Total							Other						Total
For Twenty-Six Weeks Ended June 29, 2019	Common Stock			Retained		Comprehensive		Treasury Stock				Shareholders’
and June 30, 2018	Shares	Amount		Earnings		Income (Loss)		Shares		Amount		Equity
For the Twenty-Six weeks Ended														Common Stock			Retained		Comprehensive		Treasury Stock				Shareholders’
June 27, 2020 and June 29, 2019														Shares	Amount		Earnings		Income (Loss)		Shares		Amount		Equity
Balance at December 28, 2019														33,047,807	$	9,949	$	1,198,173	$	1,480		6,149,364	$	(150,857)	$	1,058,745
Net Income														—		—		68,161		—		—		—		68,161
Other comprehensive income, net of
reclassification adjustments and tax														—		—		—		1,118		—		—		1,118
Dividends paid														—		—		(16,677)		—		—		—		(16,677)
Balance at June 27, 2020														33,047,807	$	9,949	$	1,249,657	$	2,598		6,149,364	$	(150,857)	$	1,111,347

Balance at December 29, 2018	33,047,807	$	9,949	$	1,163,545	$	262		6,149,364	$	(150,857)	$	1,022,899	33,047,807	$	9,949	$	1,163,545	$	262		6,149,364	$	(150,857)	$	1,022,899
Net income	—		—		34,780		—		—		—		34,780	—		—		34,780		—		—		—		34,780
Other comprehensive loss, net of
Other comprehensive income, net of
reclassification adjustments and tax	—		—		—		1,075		—		—		1,075	—		—		—		1,075		—		—		1,075
Dividends paid	—		—		(16,677)		—		—		—		(16,677)	—		—		(16,677)		—		—		—		(16,677)
Balance at June 29, 2019	33,047,807	$	9,949	$	1,181,647	$	1,337		6,149,364	$	(150,857)	$	1,042,076	33,047,807	$	9,949	$	1,181,647	$	1,337		6,149,364	$	(150,857)	$	1,042,076


Balance at December 30, 2017	33,047,807	$	9,949	$	1,127,872	$	5,880		6,149,364	$	(150,857)	$	992,844
Net Income	—		—		35,286		—		—		—		35,286
Cumulative effect of accounting principle adoption of ASU 2016-01	—		—		5,481		(5,481)		—		—		—
Other comprehensive income, net of
reclassification adjustments and tax	—		—		—		(406)		—		—		(406)
Dividends paid	—		—		(16,139)		—		—		—		(16,139)
Balance at June 30, 2018	33,047,807	$	9,949	$	1,152,499	$	(8)		6,149,364	$	(150,857)	$	1,011,583

See accompanying notes to Consolidated Financial Statements.

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WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Significant Accounting Policies

Basis of Presentation: The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States 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 deferrals and 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. The Company has evaluated subsequent events for disclosure through the date of issuance of the accompanying unaudited consolidated interim financial statements and there were no material subsequent events which require additional disclosure. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company's latest Annual Report on Form 10-K.

(2) Current Relevant Accounting Standards

The Company ~~adopted ASU 2016-02 Leases (Topic 842) effective December 30, 2018. The ASU requires lessees to recognize assets~~regularly monitors recently issued accounting standards and ~~liabilities for the rights~~assesses their applicability and obligations created by their leases with lease terms more than 12 months. During 2018, the ASU was amended to permit the election of transitional provisions, including the elimination of the requirement to restate reporting periods prior to the date of adoption.impact. The Company ~~has adopted the~~believes that there are no accounting standard using transitional provisions and has elected practical expedients to not reassess the original conclusions reached regarding lease identification, lease classification and initial direct costs. The adoption hadupdates that have or will have a material or significant impact on the Company’s Consolidated Balance Sheets, resulting in $202 million and $211 million of the operating lease right-to-use assets and lease liabilities, respectively. There are no significant changes to the Consolidated Statements of Comprehensive Income or Consolidated Statements of Cash Flows. See Note 7 for additional disclosures on the adoption.Company's accounting policies.

(3) Marketable Securities

The Company’s marketable securities are all classified as available-for-sale within “Current Assets” in the Company’s Consolidated Balance Sheets. FASB has established three levels of inputs that may be used to measure fair value:

Level 1 Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2 Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and

Level 3 Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company’s marketable securities valued using Level 1 inputs include highly liquid equity securities, for which quoted market prices are available. The Company’s municipal bond portfolio is valued using Level 2 inputs. The Company’s municipal bonds are valued using a combination of pricing for similar securities, recently executed transactions, cash flow models with yield curves and other pricing models utilizing observable inputs, which are considered Level 2 inputs.

For Level 2 investment valuation, the Company utilizes standard pricing procedures of its investment advisory firm which includes various third party pricing services. These procedures also require specific price monitoring practices as well as pricing review reports, valuation oversight and pricing challenge procedures to maintain the most accurate representation of investment fair market value.

The Company accrues interest on its bond portfolio throughout the life of each bond held. Dividends from the equity securities are recognized as received. Interest, dividends and unrealized gains and losses on equity securities are recognized in “Investment income and interest expense” on the Company’s Consolidated Statements of Income. The Company recognized investment income of ~~$1.1~~$3.1 million in the second quarter of ~~2019,~~2020, which included an unrealized ~~gain~~loss in equity securities of $91 thousand. In the thirteen weeks ending June 29, 2019, the Company recognized investment income of $1.1 million, which included unrealized gains in equity securities of $223 thousand. In the twenty-six weeks ending June 27, 2020, the Company recognized investment losses of $934 thousand, which included unrealized losses in equity securities of $2 million. In the twenty-six weeks ending June 29, 2019, the Company recognized investment income of $4 million, which included unrealized gains in equity securities of $848 thousand. ~~Investment income of $178 thousand and investment loss of $187 thousand were recognized in the second quarter of 2018 and twenty-six weeks ended June 30, 2018, respectively~~.

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WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(3) Marketable Securities (continued)

Marketable securities, as of June ~~29, 2019~~27, 2020 and December ~~29, 2018,~~28, 2019, consisted of:



			Gross								Gross
(dollars in thousands)	Amortized		Unrealized				Fair		Amortized		Unrealized				Fair
June 29, 2019	Cost		Holding Gains		Holding Losses		Value
June 27, 2020									Cost		Holding Gains		Holding Losses		Value
Available-for-sale:
Level 1
Equity securities							$	8,074							$	7,188
Level 2
Municipal bonds	$	47,433	$	1,874	$	(3)		49,304	$	86,445	$	4,535	$	(912)		90,068
	$	47,433	$	1,874	$	(3)	$	57,376	$	86,445	$	4,535	$	(912)	$	97,256



			Gross								Gross
(dollars in thousands)	Amortized		Unrealized				Fair		Amortized		Unrealized				Fair
December 29, 2018	Cost		Holding Gains		Holding Losses		Value
December 28, 2019									Cost		Holding Gains		Holding Losses		Value
Available-for-sale:
Level 1
Equity securities							$	7,226							$	9,201
Level 2
Municipal bonds	$	46,699	$	426	$	(53)		47,072	$	52,264	$	2,091	$	(18)		54,337
	$	46,699	$	426	$	(53)	$	54,298	$	52,264	$	2,091	$	(18)	$	63,538

Maturities of marketable securities classified as available-for-sale at June ~~29, 2019,~~27, 2020, were as follows:
‎


		Amortized		Fair		Amortized		Fair
(dollars in thousands)		Cost		Value		Cost		Value
Available-for-sale:
Due within one year	$	3,899	$	3,907	$	8,072	$	8,108
Due after one year through five years		23,677		24,288		33,173		34,491
Due after five years through ten years		18,857		20,104		45,200		47,469
Due after ten years		1,000		1,005
	$	47,433	$	49,304	$	86,445	$	90,068

The Company also maintains a non-qualified supplemental executive retirement 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 Sheets 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 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.~~“Other income (expense).”

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WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(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.



		Unrealized Gains
		on Available-for-Sale
(dollars in thousands)		Marketable Securities
Accumulated other comprehensive income balance as of December ~~29, 2018~~28, 2019	$	~~262~~
		1,480

Other comprehensive income before reclassifications		~~1,075~~ 1,118
Amounts reclassified from accumulated other comprehensive income		-
Net current period change in other comprehensive income		~~1,075~~ 1,118
Accumulated other comprehensive income balance as of June ~~29, 2019~~27, 2020	$	~~1,337~~ 2,598

The following table sets forth the effects on net income of the amounts reclassified out of accumulated other comprehensive income for the periods ended June ~~29, 2019~~27, 2020 and June ~~30, 2018.~~29, 2019.



		Amounts Reclassified from
		Accumulated Other Comprehensive Income to the
		Consolidated Statements of Income
		13 Weeks Ended				26 Weeks Ended
(dollars in thousands)	Location	June 27, 2020		June 29, 2019		June ~~30, 2018~~27, 2020		June 29, 2019		~~June 30, 2018~~
Unrealized gains (losses) on available-for-sale marketable securities
	Investment income (loss) and interest expense	$	-8	$	-	$	-	$	54 -
	Provision for income taxes		-(2)		-		-		~~(15)~~ -
Total amount reclassified, net of tax		$	-6	$	-	$	-	$	39 -

(5) Long-Term Debt

On September 1, 2016 Weis Markets entered into a revolving credit agreement with Wells Fargo Bank, National Association (the “Credit Agreement”)., which was amended on August 21, 2019 and matures on September 1, 2022. The Credit Agreement provides for an unsecured revolving credit facility with an aggregate principal amount not to exceed ~~$50.0~~$30.0 million with an additional discretionary amount available of ~~$50.0~~$70.0 million. As of June ~~29, 2019,~~27, 2020, the availability under the revolving credit agreement was ~~$88.5~~$24.0 million, net of ~~$11.5~~$6.0 million letters of credit. ~~The revolving credit agreement matures on September 1, 2019.~~ The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company.

Interest expense related to long-term debt was ~~$14~~$10 thousand and ~~$73~~$14 thousand in the thirteen weeks ended June ~~29, 2019~~27, 2020 and June ~~30, 2018,~~29, 2019, respectively. In the first ~~half~~twenty-six weeks of ~~2019~~2020 and ~~2018,~~2019, interest expense related to long-term debt totaled $18 thousand and $33 thousand, ~~and $240 thousand,~~ respectively.

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WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(6) Revenue Recognition

The Chief Operating Officer, the Company’s chief operating decision maker, analyzes store operational revenues by geographical area but each area offers customers similar product, has similar distribution methods, and is supported by centralized management processes. The Company’s operations are reported as a single reportable segment.

The following table represents net sales by type of product for the thirteen and twenty-six week periods ending June ~~29, 2019~~27, 2020 and June ~~30, 2018:~~29, 2019:


	13 Weeks Ended								13 Weeks Ended
(dollars in thousands)	June 29, 2019				June 30, 2018				June 27, 2020				June 29, 2019
Grocery	$	767,886	86.6	%	$	757,894	87.0	%	$	987,502	89.9	%	$	767,886	86.6	%
Pharmacy		84,682	9.5			78,271	9.0			85,808	7.8			84,682	9.5
Fuel		33,271	3.7			33,439	3.8			23,129	2.1			33,271	3.7
Manufacturing		2,128	0.2			1,496	0.2			2,265	0.2			2,128	0.2

Total net sales	$	887,967	100.0	%	$	871,100	100.0	%	$	1,098,704	100.0	%	$	887,967	100.0	%


	26 Weeks Ended
(dollars in thousands)	June 27, 2020				June 29, 2019
Grocery	$	1,851,249	88.9	%	$	1,534,787	87.0	%
Pharmacy		175,142	8.4			166,463	9.4
Fuel		53,096	2.5			59,736	3.4
Manufacturing		5,037	0.2			3,700	0.2

Total net sales	$	2,084,524	100.0	%	$	1,764,686	100.0	%

26 Weeks Ended
(dollars in thousands)

June 29, 2019

June 30, 2018
Grocery

$
1,534,787

87.0
%

$
1,525,912

87.3
%
Pharmacy

166,463

9.4

156,211

8.9

Fuel

59,736

3.4

62,084

3.6

Manufacturing

3,700

0.2

2,999

0.2

Total net sales

$
1,764,686

100.0
%

$
1,747,206

100.0
%

~~Table of Contents~~

~~WEIS MARKETS, INC.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

(7) Leases

The adoption of ASU 2016-02 Leases (Topic 842) had a significant impact on the Company’s Consolidated Balance Sheets, resulting in operating lease right-to-use assets of $202 million and lease liabilities of $211 million. The difference between the operating lease right-to-use assets and lease liabilities represents prepaid and accrued rents, unfavorable lease obligations, favorable lease assets and deferred tenant allowances associated with operating leases as of December 30, 2018 and reclassified against the operating lease right-to-use asset upon adoption.

As of ~~December 30, 2018,~~June 27, 2020, the Company leased approximately ~~53%~~51% of its open store facilities under operating leases that expire at various dates through ~~2033,~~2035, with the remaining store facilities being owned. These leases generally provide for fixed annual rentals; however, several provide for minimum annual rentals plus variable lease costs related to real estate taxes and insurance as well as contingent rentals based on a percentage of annual sales or increases periodically based on inflation. These variable lease costs are not included in the measurement of the operating lease right-to-use assets or lease liabilities and are charged to the related expense category included in “Operating, general and administrative expenses.” Most of the leases contain multiple renewal options, under which the Company may extend the lease terms from 5 to 20 years. Additionally, the Company has operating leases for certain transportation and other equipment.

The Company leases or subleases space to tenants in owned, vacated and open store facilities. Rental income is recorded when earned as a component of “Operating, general and administrative expenses.”

The following is a schedule of the lease costs included in “Operating, general and administrative expenses” for the thirteen and twenty-six weeks ended June 27, 2020 and June 29, 2019.


					13 weeks ended				26 weeks ended
(dollars in thousands)	13 Weeks Ended		26 Weeks Ended		June 27, 2020		June 29, 2019			June 27, 2020	June 29, 2019
Operating lease cost	$	11,415	$	23,056	$	11,546	$	11,415		23,050	$	23,056
Variable lease cost		2,911		5,554		2,867		2,911		5,534		5,554
Lease or sublease income		(1,976)		(3,850)		(2,133)		(1,976)		(4,170)		(3,850)
Net lease cost	$	12,350	$	24,760	$	12,280	$	12,350	$	24,414	$	24,760

‎

Table of Contents

WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of Weis Markets, Inc.’s (the “Company”) financial condition and results of operations should be read in conjunction with the unaudited Consolidated Financial Statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q, the Company’s audited Consolidated Financial Statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December ~~29, 2018,~~28, 2019, filed with the U.S. Securities and Exchange Commission, as well as the cautionary statement captioned "Forward-Looking Statements" immediately following this analysis.

Company Summary

Weis Markets is a conventional supermarket chain that operates ~~200~~197 retail stores with ~~nearly 23,000~~over 24,500 associates located in Pennsylvania and six surrounding states: Delaware, Maryland, New Jersey, New York, Virginia and West Virginia. Its products include groceries, dairy products, frozen foods, meats, seafood, fresh produce, floral, pharmacy services, deli products, prepared foods, bakery products, beer and wine, fuel and general merchandise items, such as health and beauty care and household products. The store product selection includes national, local and private brands and the Company promotes by using Everyday Lower ~~Price,~~Price; Low Price ~~Guarantee,~~Guarantee; Low, Low Price; and Loyalty programs. The Loyalty program includes fuel rewards that may be redeemed at the Company’s fuel stations or one of its third-party fuel station partners.

On ~~January 17, 2019~~March 11, 2020, the World Health Organization declared that the novel coronavirus (COVID-19) had become a pandemic, and on March 13, the U.S. President declared a National Emergency concerning the disease. Additionally, in March 2020, state governments in the Company’s geographic operating area began instituting preventative shut down measures in order to combat the novel coronavirus pandemic. The Company’s business was deemed essential and thus its stores have remained open during this time period, and sales, costs and profits have increased. Although the Company ~~announced a~~sees similar sales and profit results extending into the beginning of the next quarter, the Company is not able to speculate how the ensuing economy or unknown future related expenses will affect it after the governmental novel coronavirus pandemic measures have ended. The closure of other food sources and government stimulus payments to affected individuals have been accretive to our sales; however, the Company also faces new ~~pricing strategy for~~and increased risks concerning its ~~private brand products named Low, Low Price. The move takes the Company’s private brand products from a high, low pricing strategy to everyday low cost.~~employees, government regulation and supply chain (see Forward-Looking Statements, below).

The Company advertises its products and promotes its brand through ~~weekly newspaper circulars;~~ radio ads; e-mail blasts; and on-line via its web site, social media and mobile applications. Printed circulars ~~are~~have been used extensively on a weekly basis to advertise featured items. The Company promotes by using Everyday Lower Price, Low Price Guarantee, Low, Low Price and utilizes a loyalty marketing program, “Weis Club Preferred Shopper,” which enables customers to receive discounts, promotions and in-store and fuel rewards. During the current novel coronavirus pandemic, the Company has reduced its use of weekly newspaper circulars which resulted in a cost savings. At this point the Company has not determined if its use of printed circulars will be increased after the end of the pandemic.

Utilizing its own centrally located distribution center and transportation fleet, Weis Markets self distributes approximately ~~65%~~67% of product with the remaining being supplied by direct store vendors. In addition, the Company has three manufacturing facilities which process milk, ice cream and fresh meat products primarily for the Company’s stores but serve other companies as well. The corporate offices are located in Sunbury, PA where the Company was founded in 1912.

In 2016, Weis Markets acquired five Mars Super Market locations in Baltimore County, MD, 38 Food Lion stores throughout Maryland, Virginia and Delaware, and a Nell's Family Market in East Berlin, PA. The completion of these individual acquisitions expanded the Company's footprint into Virginia and Delaware, and increased its store count by 25 percent. To date the acquired store group is providing a positive cash flow for the Company at a greater return on the fair value investment than if stores had been organically established. As the acquired stores assimilate, management anticipates the adverse impact of these stores on Company margins to lessen. In the first quarter of 2019, the Company closed two stores from the acquired store group. The Company ~~continues~~has implemented current CDC guidelines to ~~actively investigate acquisition opportunities as well as grow~~attempt to ensure the continuity of its ~~existing store base organically.~~distribution center and fleet.

The Company continues to innovate and remain relevant to industry trends and offering customer convenience by presenting

programs like “Weis 2 Go Online” ordering with curbside pickup and home delivery. In the ~~first twenty-six weeks~~second quarter of ~~2019,~~2020, the Company offered Weis 2 Go Online curbside pickup in ~~150~~177 of its locations ~~adding 61 stores since the end of 2018. Weis 2 Go Online allows the customer to order on-line and then pick up their order at a drive-thru location at the store.~~as well as home delivery with Shipt in 175 different locations. During the ~~third quarter~~first 26 weeks of ~~2018~~2020, ecommerce sales have increased 141% when compared to the ~~Company began offering home delivery, and currently offers this convenience to customers~~same period in ~~177 different locations.~~2019.

‎

Table of Contents

WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

Results of Operations



Analysis of Consolidated Statements of Income	Analysis of Consolidated Statements of Income																		Analysis of Consolidated Statements of Income
													Percentage Changes																		Percentage Changes
	13 Weeks Ended						26 Weeks Ended						2019 vs. 2018			2019 vs. 2018			13 Weeks Ended						26 Weeks Ended						2020 vs. 2019			2020 vs. 2019
(dollars in thousands except per share amounts)	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018			13 Weeks Ended			26 Weeks Ended			June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019			13 Weeks Ended			26 Weeks Ended
Net sales	$	887,967		$	871,100		$	1,764,686		$	1,747,206			1.9	%		1.0	%	$	1,098,704		$	887,967		$	2,084,524		$	1,764,686			23.7	%		18.1	%
Cost of sales, including advertising, warehousing and distribution expenses		651,297			630,805			1,298,463			1,272,004			3.2			2.1			805,816			651,297			1,527,489			1,298,463			23.7			17.6
Gross profit on sales		236,670			240,295			466,223			475,202			(1.5)			(1.9)			292,888			236,670			557,035			466,223			23.8			19.5
Gross profit margin		26.7	%		27.6	%		26.4	%		27.2	%								26.7	%		26.7	%		26.7	%		26.4	%
Operating, general and administrative expenses		210,801			214,258			424,375			426,326			(1.6)			(0.5)			236,886			210,373			463,605			422,105			12.6			9.8
O, G & A, percent of net sales		23.7	%		24.6	%		24.0	%		24.4	%								21.6	%		23.7	%		22.2	%		23.9	%
Income from operations		25,869			26,037			41,848			48,876			(0.6)			(14.4)			56,002			26,297			93,430			44,118			113.0			111.8
Operating margin		2.9	%		3.0	%		2.4	%		2.8	%								5.1	%		3.0	%		4.5	%		2.5	%
Investment income and interest expense		1,079			105			3,975			(427)			927.6			1,030.9			3,066			1,079			(953)			3,975			184.2			(124.0)
Investment income and interest expense, percent of net sales		0.1	%		0.0	%		0.2	%		(0.0)	%								0.3	%		0.1	%		(0.0)	%		0.2	%
Other income (expense)																				(2,618)			(428)			58			(2,270)			(511.7)			102.6
Other income (expense), percent of net sales																				(0.2)	%		-	%		-	%		(0.1)	%
Income before provision for income taxes		26,948			26,142			45,823			48,449			3.1			(5.4)			56,450			26,948			92,535			45,823			109.5			101.9
Income before provision for income taxes, percent of net sales		3.0	%		3.0	%		2.6	%		2.8	%								5.1	%		3.0	%		4.4	%		2.6	%
Provision for income taxes		6,473			7,047			11,043			13,163			(8.1)			(16.1)			14,978			6,473			24,374			11,043			131.4			120.7
Effective income tax rate		24.0	%		27.0	%		24.1	%		27.2	%								26.5	%		24.0	%		26.3	%		24.1	%
Net income	$	20,475		$	19,095		$	34,780		$	35,286			7.2	%		(1.4)	%	$	41,472		$	20,475		$	68,161		$	34,780			102.5	%		96.0	%
Net income, percent of net sales		2.3	%		2.2	%		2.0	%		2.0	%								3.8	%		2.3	%		3.3	%		2.0	%
Basic and diluted earnings per share	$	0.76		$	0.71		$	1.29		$	1.31			7.0	%		(1.5)	%	$	1.54		$	0.76		$	2.53		$	1.29			102.6	%		96.1	%

Net Sales

Analysis of Sales

Percentage Changes

2019 vs. 2018
June 29, 2019
13 Weeks Ended
26 Weeks Ended
Net sales

1.9
%

1.0
%
Net sales, excluding fuel sales

2.0

1.1

Comparable store sales, adjusted for holiday impact

1.4

1.4

Comparable store sales, adjusted for holiday impact, excluding fuel sales

1.5
%

1.6
%


	Percentage Changes
	2020 vs. 2019
June 27, 2020	13 Weeks Ended			26 Weeks Ended
Net sales		23.7	%		18.1	%
Net sales, excluding fuel sales		25.8			19.1
Comparable store sales		24.1			18.5
Comparable store sales, excluding fuel sales		26.4	%		19.7	%

When calculating the percentage change in comparable store sales, the Company defines a new store to be comparable after 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.

‎

The Company’s 2019 second quarter sales benefited from the Easter holiday shift, since the Easter selling period occurred in the last week of the first quarter in 2018 while the slow selling post-Easter week fell in the second quarter a year ago. In 2019, both weeks fell in the second quarter. Management estimates the incremental holiday sales impact in 2019 for comparative purposes was approximately $9.7 million which has been excluded from the Company’s 2019 comparable store sales total.

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 (continued)

Analysis of Sales (continued)

According to the latest U.S. Bureau of Labor Statistics’ report, the annual Seasonally Adjusted Food-at-Home Consumer Price Index increased ~~0.9%~~4.3% compared to ~~an increase~~a decrease of ~~0.5%~~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. According to the U.S. Department of Energy, the thirteen-week average price of gasoline in the Central Atlantic States ~~increased 2.6%~~decreased 24.6% or ~~$0.08~~$0.72 per gallon in the second quarter of ~~2019~~2020 compared to the same quarter in ~~2018.~~2019. The year to date average ~~remains~~decreased 12.2% or $0.34 per gallon in the ~~same in 2019~~first twenty-six weeks of 2020 when compared to ~~2018.~~the same period in 2019.

Comparable store sales for the second quarter of ~~2019 remained~~2020 is positive compared to the same period a year ago, ~~adjusted for the holiday week,~~ with increases of ~~1.4%~~24.1% with fuel and ~~1.5%, with and~~26.4% without ~~fuel, respectively.~~fuel. Year to date, comparable store sales for ~~2019~~2020 also remained positive when compared to the same period in ~~2018,~~2019, with increases of ~~1.4%~~18.5% and ~~1.6%~~19.7% with and without fuel, respectively. ~~Customer acceptance~~The Company’s first and second quarter sales were favorably impacted as a result of increased sales demand related to the ~~new Low, Low Price private brand program,~~novel coronavirus pandemic as well as ~~additional product offerings and customer conveniences such as “Weis 2 Go Online,”~~ ~~currently~~ ~~offered in 150 store locations for both pickup and delivery and additional 27 for delivery only.~~increasing market share.

Although the Company experienced retail inflation and deflation in various commodities for the ~~years~~periods presented, ~~management~~the recent novel coronavirus pandemic has caused uncertainty about future economic conditions and may change future product mix. 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), net advertising costs, distribution center and transportation costs, as well as manufacturing facility operations. Increased sales volume resulted in an increase in cost of sales. Both direct product cost and distribution cost increase when sales volume increases.

Gross profit ~~margin decreased 0.9% in~~on sales for the second quarter of ~~2019 and year to date gross profit margin decreased 0.8%~~2020 remained the same when compared to the same ~~periods~~period in ~~2018. Year-to-date declining retails and costs in fuel, fruits, vegetables and eggs had a negative impact on~~2019. Year to date, 2020 gross profit ~~rates, while pharmacy gross profits are being pressured by recent changes~~on sales is positive when compared to the same period in ~~industry practices. While the various commodities’ retails and costs are cyclical~~2019, with an increase of 0.3%. The increase in ~~nature, the Company cannot predict whether the pharmacy industry practices will change favorably. Additionally, rainy weather in the Company’s operating area depressed high~~ gross profit ~~margin seasonal general merchandise~~rate is attributable to a change in sales inmix along with increased fresh department sell through, which reduced the ~~second quarter~~amount of ~~2019 while fuel, fruits and vegetables returned to more normal retails and costs.~~product loss.

Non-cash LIFO inventory valuation adjustments ~~was an~~represent expense of ~~$400 thousand~~$3.3 million in the first twenty-six weeks of ~~2019,~~2020, compared to an expense of ~~$1.4 million~~$400 thousand in ~~2018.~~ ~~The Company anticipates product costs to remain stagnant.~~

2019. Although the Company experienced ~~product~~ cost inflation and deflation in various commodities for the ~~quarters~~periods presented, the recent novel coronavirus pandemic has caused uncertainty about future economic conditions. Due to this uncertainty, management ~~cannot accurately measure the full impact of inflation or deflation on costs~~has estimated a greater annual increase in LIFO expense than it has in previous years due to ~~changes in the types of merchandise sold between periods, shifts in customer buying patterns and the fluctuation of competitive factors.~~expected product cost inflation by year end.

‎

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

The majority of the operating, general and administrative expenses are driven by sales volume.

Employee-related costs such as wages, employer paid taxes, health care benefits and retirement plans, comprise approximately ~~61%~~63% of the total “Operating, general and administrative expenses.” As a percent of sales, direct store labor decreased 0.2% in the second quarter of ~~2019~~2020 when compared to the same period in ~~2018, but remained the same~~2019, and decreased 0.5% when comparing the first ~~half~~twenty-six weeks of ~~2019~~2020 with the same period in ~~2018. The Company continues~~2019. Due to ~~monitor store labor efficiencies and develop labor standards to reduce cost while maintaining~~the novel coronavirus pandemic, the Company’s ~~customer service expectations. Currently, the Company is undergoing an initiative installing or upgrading self-checkouts in its stores~~hiring rate has increased approximately 300% in response to ~~customer preference~~the increase in demand in stores, as well as distribution needs. The Company also issued a temporary pay increase for essential employees in stores and ~~labor rates and supply.~~distribution; hourly store associates are receiving $2 per hour additional wages.

Depreciation and amortization expense charged to “Operating, general and administrative expenses” was $21.7 million, or 2.0% of net sales during the second quarter of 2020 compared to $21.4 million, or 2.4% of net sales during the second quarter of ~~2019 compared to $21.2 million, or 2.4% of net sales during second quarter of 2018.~~2019. During the first ~~half~~twenty-six weeks of ~~2019~~2020 and ~~2018,~~2019, depreciation and amortization expense charged to “Operating, general and administrative expenses” was ~~$42.3~~$43.4 million, or ~~2.4%~~2.1% of net sales and ~~$41.7~~$42.3 million, or 2.4% of net sales, respectively. See the Liquidity and Capital Resources section for further information regarding the Company’s capital expansion program.

A breakdown of the material increases (decreases) as a percent of sales in "Operating, general and administrative expenses" is as follows:

13 Weeks Ended

(dollars in thousands)
Increase
Increase (Decrease)

June 29, 2019
(Decrease)
as a % of sales

Direct store labor
$
(124) (0.2)
%
Associate benefits, payroll taxes and incentives

(1,331) (0.2)

Store operational expenses & supplies

(1,280) (0.2)

Utilities expense

(920) (0.1)

Lease expense

(776) (0.1)


A breakdown of the material increases (decreases) as a percent of sales in "Operating, general and administrative expenses" is as follows:

	13 Weeks Ended
(dollars in thousands)	Increase		Increase (Decrease)
June 27, 2020	(Decrease)		as a % of sales
Wages expense		18,232	(0.7)	%
Fixed expense		1,597	(0.8)
Utilities expense		(1,114)	(0.3)

26 Weeks Ended

(dollars in thousands)
Increase
Increase (Decrease)

June 29, 2019
(Decrease)
as a % of sales

Associate benefits, payroll taxes and incentives
$
(2,227) (0.2)
%
Supplemental executive retirement plan expense

2,269 0.1

Store operational expenses & supplies

(1,280) (0.2)

Utilities expense

(2,742) (0.2)

Lease expense

(1,116) (0.1)


	26 Weeks Ended
(dollars in thousands)	Increase		Increase (Decrease)
June 27, 2020	(Decrease)		as a % of sales
Wages expense	$	24,067	(0.7)	%
Utilities expense		(1,370)	(0.2)
Depreciation		1,218	(0.3)

~~All~~Fixed expenses include occupancy costs, depreciation and amortization and insurance expenses. Although fixed expenses have remained stable from a cost perspective, the increase in sales has caused a decrease in the percent of sales rate.

The majority of the operating, general and administrative expenses as a percent of sales presented for the second quarter and first twenty-six weeks of ~~2019~~2020 have benefited in comparison with the ~~2018~~2019 percent of sales due to the ~~Easter holiday shift and~~increase in sales caused by the ~~closure of unprofitable stores. In the first quarter of 2019 the Company recorded gains in investment income after income from operations due~~novel coronavirus pandemic. Due to the ~~SERP retirement plan market gains in~~nature of fixed expenses, management expects less variability when analyzed as a percent of sales, relative to the ~~first quarter~~majority of ~~2019 that have a corresponding expense recorded in “Operating,~~operating, general and administrative expenses.” The Company is also benefiting from cost saving initiatives in various area of its operations and is saving in utilities with a combination of purchasing, associate sustainability and capital investments such as it LED lighting program.

‎

~~The Company’s 2018 sustainability report may be found at: https://www.weismarkets.com/sites/default/files/documents/weis_2018_9_ada.pdf?27~~

Table of Contents

WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Provision for Income Taxes

The effective income tax rate was ~~24.0%~~26.3% and ~~27.0% for the second quarter of 2019 and 2018, respectively. The effective income tax rate was~~ 24.1% ~~and 27.2%~~ for the first ~~half~~twenty-six weeks of ~~2019~~2020 and ~~2018,~~2019, respectively. 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

The primary ~~sources~~source of cash ~~are~~is cash flows generated from ~~operations and borrowings under~~operations. In addition, the Company has access to a revolving credit agreement ~~the Company~~ entered into on September 1, 2016, and amended on August 21, 2019, with Wells Fargo Bank, NA (the “Credit Agreement”). The Credit Agreement matures on September 1, 2022 and provides for an unsecured revolving credit facility with an aggregate principal amount not to exceed ~~$50.0~~$30.0 million with an additional discretionary amount available of ~~$50.0~~$70.0 million. As of June ~~29, 2019,~~27, 2020, the availability under the revolving credit agreement was ~~$88.5~~$24.0 million with ~~$11.5~~$6.0 million of letters of credit outstanding. ~~The Company anticipates amending and extending the Credit Agreement, which matures on September 1, 2019.~~ The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company.

The Company’s investment portfolio consists of ~~high grade municipal~~high-grade bonds with maturity dates ~~generally~~ between one and 10 years and three long-held high yield, large capitalized public company equity securities. The portfolio totaled ~~$56.7~~$97.3 million as of June ~~29, 2019.~~27, 2020. Management anticipates maintaining the investment portfolio but has the 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 $86 million in its capital expansion program in ~~2019.~~ 2020. However, management’s ability to complete its current plans will depend upon the governmental jurisdictions in which the Company operates and preventative shut down mandates by such jurisdictions regarding the novel coronavirus pandemic.

The Company expects that cash generated from operations and cash available under the Credit Agreement ~~(and future amendment)~~ 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 June ~~29, 2019,~~27, 2020, other than the lease commitments on its store facilities and transportation equipment under operating leases that expire at various dates through ~~2033.~~2035.

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. The Company has recently entered into a brokerage agreement with Wells Fargo Securities, LLC to facilitate possible share repurchases.

Quarterly Cash Dividends

At its regular meeting held in July, the Board of Directors unanimously approved a quarterly dividend of $0.31per share, payable on August ~~12, 2019~~10, 2020 to shareholders of record on July ~~29, 2019.~~27, 2020. 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


	26 Weeks Ended						26 Weeks Ended
(dollars in thousands)	June 29, 2019		June 30, 2018		2019 vs. 2018		June 27, 2020		June 29, 2019		2020 vs. 2019
Net cash provided by (used in):
Operating activities	$	78,966	$	84,227	$	(5,261)	$	139,075	$	77,606	$	61,469
Investing activities		(48,451)		(46,394)		(2,057)		(80,609)		(47,091)		(33,518)
Financing activities		(16,677)		(51,127)		34,450		(16,677)		(16,677)		-

Operating

Cash flows from operating activities ~~decreased $5.2~~increased $61.5 million in the first twenty-six weeks of ~~2019~~2020 compared to the first twenty-six weeks of ~~2018. The decrease~~2019. Management attributes this increase to increased sales volume resulting from the novel coronavirus pandemic. Income taxes payable increased $25.3 million due to increases in ~~cash from Operating activities is attributable to~~taxable income and extended payment timelines for income taxes as a ~~$9.1 million first quarter payment increase~~result of the novel coronavirus pandemic. Sales and profit increased substantially over the same period last year, while inventory levels have decreased in ~~associate incentives, as well as other changes in accounts payable.~~both the stores and distribution center.

Investing

Property and equipment purchases during the first twenty-six weeks of ~~2019~~2020 totaled ~~$44.3~~$49.7 million compared to ~~$46.4~~$44.3 million in the first twenty-six weeks of ~~2018.~~2019. As a percentage of sales, capital expenditures were 2.4% in the first twenty-six weeks of 2020 and 2.5% in the first twenty-six weeks of ~~2019 compared to 2.6% in~~2019. The Company increased its marketable securities portfolio during the first twenty-six weeks of ~~2018. In 2019, the Company~~2020 and plans to maintain or increase ~~its marketable securities portfolio.~~the portfolio through the remainder of the year.

Financing

The Company paid dividends of ~~$8.3 million and~~ $16.7 million in both the ~~second quarter and~~ first twenty-six weeks of ~~2019, respectively;~~2020 and ~~$8.1 million and $16.1 million in~~ the ~~second quarter and~~ first twenty-six weeks of ~~2018, respectively.~~2019. The Company has not had an obligation on the Credit Agreement since the second quarter of 2018. ~~As such, the Company had no payments on long-term debt in the first twenty-six weeks of 2019 compared to $35million paid in the first twenty-six weeks of 2018.~~

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 ~~2018~~2019 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 ~~29, 2018, except for the adoption~~28, 2019.

‎

Table of ~~ASU 2016-02, Leases (Topic 842) as discussed in Notes 2 and 7 of the Notes to the Consolidated Financial Statements.~~Contents

WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

In addition to historical information, this Form 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.

On March 11, 2020, the World Health Organization declared that the novel coronavirus (COVID-19) had become a pandemic, and on March 13, the U.S. President declared a National Emergency concerning the disease. Additionally, in March 2020, state governments in the Company’s geographic operating area began instituting preventative shut down measures in order to combat the novel coronavirus pandemic. Management, at this time, cannot assess the ultimate economic impact to the Company, which will be determined by, among other things, the length of time that such circumstances continue, nor can the Company predict the effects of governmental and public responses to changing conditions. Below is a list of risks that management is monitoring:

Employees - Reduced workforces due to the temporary inability to work caused by illness, quarantine, or government mandates.

Supply Chain – Interruption in the Company’s supply chain due to having to suspend operations at its centrally located distribution center or vendors not being able to supply the Company because of their own suspended operations.

Lawsuits – Future litigation arising from issues concerning the novel coronavirus.

Future government regulation - Future laws, regulations, interpretations, administrative orders, or applications that may have an adverse impact on the Company’s operations and costs.

Customer trends – Changes in the methods in which customers procure the Company’s products.

Cyber security – Increased Cyber-attacks due to “work at home” requirements.

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WEIS MARKETS, INC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative Disclosure - There have been no material changes in the Company's market risk during the fiscal quarter ended June ~~29, 2019.~~27, 2020. 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 ~~29, 2018~~28, 2019 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 ~~29, 2018~~28, 2019 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 June ~~29, 2019.~~27, 2020. 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 June ~~29, 2019,~~27, 2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company implemented additional internal controls to ensure proper assessment and accounting for the impact of the new accounting standard relating to leases on the financial statements, which became effective on December 30, 2018.

‎

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WEIS MARKETS, INC.

PART II – OTHER INFORMATION

ITEM 1a. RISK FACTORS

In addition to risks and uncertainties in the ordinary course of business common to all businesses, an important update to the risk factors previously disclosed in Item 1a of Part I of our Annual Report on Form 10-K for the year ended December 28, 2019 is listed below, which could materially impact the Company’s future performance. The risk factor below and the risk factors included in our Annual Report on Form 10-K may be important to understanding statements in this Form 10-Q and should be read in conjunction with the unaudited consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.

Our business and operations, and the operations of our suppliers, have been, and may in the future be adversely affected by epidemics or pandemics such as the novel coronavirus (COVID-19) pandemic outbreak.

We may face risks related to health epidemics and pandemics or other outbreaks of communicable diseases. The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption. The Company’s business was deemed essential during the novel coronavirus pandemic and the Company is committed to maintaining a safe work and shopping environment. Management, at this time, cannot assess the ultimate economic impact to the Company, which will be determined by, among other things, the length of time that such circumstances continue, nor can the Company predict the effects of governmental and public responses to changing conditions. The risks and uncertainties surrounding the coronavirus pandemic are broad however below is a list of risks management is monitoring which could have a material impact on the Company’s business:

Employees - Reduced workforces due to the temporary inability to work caused by illness, quarantine, or government mandates.

Lawsuits – Future litigation arising from issues concerning the novel coronavirus.

Future government regulation - Future laws, regulations, interpretations, administrative orders, or applications that may have an adverse impact on the Company’s operations and costs.

Customer trends – Changes in the methods in which customers procure the Company’s products.

Cyber security – Increased Cyber-attacks due to “work at home” requirements.

‎

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WEIS MARKETS, INC.

ITEM 6. EXHIBITS

Exhibits
        ~~Exhibit 31.1 Rule a-14(a) Certification - CEO~~
        ~~Exhibit 31.2 Rule 13a-14(a) Certification - CFO~~


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

‎

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WEIS MARKETS, INC.

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.
		(Registrant)

Date:	8/~~6/2019~~5/2020	/S/Jonathan H. Weis
		Jonathan H. Weis
		Chairman,
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	8/~~6/2019~~5/2020	/S/Scott F. Frost
		Scott F. Frost
		Senior Vice President, Chief Financial Officer
		and Treasurer
		(Principal Financial Officer)


[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June ~~29, 2019~~27, 2020
	or
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________to_________
	Commission File Number 1-5039


Large accelerated filer [ ]		Accelerated filer [X]
Non-accelerated filer [ ]		Smaller reporting company [ ]
		Emerging growth company [ ]


Title of each class	Trading symbol	Name of exchange on which registered
Common stock, no par value	WMK	New York Stock Exchange


	26 Weeks Ended				26 Weeks Ended
(dollars in thousands)	June 29, 2019		June 30, 2018			June 27, 2020		June 29, 2019
Cash flows from operating activities:
Net income	$	34,780	$	35,286	$	68,161	$	34,780
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization		46,324		46,137		47,794		46,324
Loss on disposition of fixed assets		806		157		1,858		806
Loss on sale of marketable securities		-		54
Unrealized (gain) loss in value of equity securities		(848)		1,238		2,013		(848)
Deferred income taxes		(482)		1,379		(1,057)		(482)
Unrealized (gain) loss in SERP						383		(1,360)
Changes in operating assets and liabilities:
Inventories		14,413		6,093		1,351		14,413
Accounts receivable and prepaid expenses		10,762		5,436		4,365		10,762
Accounts payable and other liabilities		(29,423)		(20,538)		(6,302)		(29,423)
Income taxes		2,147		8,429		24,682		2,147
Other		487		556		(4,173)		487
Net cash provided by operating activities		78,966		84,227		139,075		77,606
Cash flows from investing activities:
Purchase of property and equipment		(44,335)		(46,367)		(49,731)		(44,335)
Proceeds from the sale of property and equipment		1,320		321		277		1,320
Purchase of marketable securities		(4,205)		(586)		(33,194)		(4,205)
Proceeds from maturities of marketable securities		2,785		2,800
Proceeds from the sale of marketable securities		-		514
Proceeds from the sale and maturities of marketable securities						2,675		2,785
Purchase of intangible assets		(540)		(1,662)		41		(540)
Change in SERP investment		(3,476)		(1,414)		(677)		(2,116)
Net cash used in investing activities		(48,451)		(46,394)		(80,609)		(47,091)
Cash flows from financing activities:
Payments on long-term debt		-		(34,988)
Dividends paid		(16,677)		(16,139)		(16,677)		(16,677)
Net cash used in financing activities		(16,677)		(51,127)		(16,677)		(16,677)
Net increase (decrease) in cash and cash equivalents		13,838		(13,294)		41,789		13,838
Cash and cash equivalents at beginning of year		37,808		47,917		66,871		37,808
Cash and cash equivalents at end of period	$	51,646	$	34,623	$	108,660	$	51,646


(dollars in thousands)		Leases	Subleases
2019	$	45,526	(3,818)
2020		40,582	(3,558)
2021		33,586	(2,998)
2022		27,358	(2,541)
2023		23,718	(2,035)
Thereafter		64,026	(8,164)
Total Lease Payments	$	234,795	(23,114)
Less: Interest		35,784	-
Present value of lease liabilities		199,011	(23,114)


Registrant's telephone number, including area code: (570) 286-4571	Registrant's web address: www.weismarkets.com


Lease Term and Discount Rate	June 29, 2019	December 30, 2018
Weighted-average remaining lease term	4.27	4.69
Weighted-average discount rate	3.57%	3.84%