FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 26, 1998
Commission File Number 1-5039
WEIS MARKETS, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 24-0755415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 S. Second Street
P. O. Box 471
Sunbury, PA 17801-0471
(Address of principal executive offices) (Zip Code)
(717) 286-4571
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, No Par Value 41,769,046 shares
(Outstanding at end of period)
WEIS MARKETS, INC.
INDEX
Page No.
Part I - Financial Information
Consolidated Balance Sheets -
September 26, 1998 and December 27, 1997 2
Consolidated Statements of Income
Nine Months Ended September 26, 1998
and September 27, 1997 3
Consolidated Statements of Cash Flows -
Nine Months Ended September 26, 1998
and September 27, 1997 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis
of Financial Condition and Results of Operations 6
Part II - Other Information
Other Information and Signatures 10
1
PART I - FINANCIAL INFORMATION
WEIS MARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 26, 1998 December 27, 1997
(unaudited) (unaudited)
Assets
Current:
Cash $ 5,996 $ 3,133
Marketable securities 417,916 374,117
Accounts receivable, net 29,732 32,609
Inventories 136,545 161,825
Prepaid expenses 2,839 4,149
_________ _________
Total current assets 593,028 575,833
Property and equipment, net 390,003 365,197
Intangible and other assets, net 21,472 30,722
_________ _________
$ 1,004,503 $ 971,752
========= =========
Liabilities
Current:
Accounts payable $ 54,708 $ 68,788
Accrued expenses 9,422 9,257
Accrued self-insurance 13,641 11,911
Payable to employee benefit plans 7,939 8,134
Income taxes payable 8,219 3,969
Deferred income taxes 6,157 2,212
_________ _________
Total current liabilities 100,086 104,271
Deferred income taxes 19,202 20,148
Shareholders' Equity
Common stock, no par value,
100,800,000 shares authorized,
47,448,429 and 47,447,429 shares
issued, respectively 7,446 7,420
Retained earnings 991,718 960,419
Accumulated other
comprehensive income
(Net of deferred taxes
of $14,171 in 1998 and
$9,417 in 1997) 19,981 13,278
_________ _________
1,019,145 981,117
Treasury stock, at cost,
5,679,383 and 5,675,322
shares, respectively (133,930) (133,784)
_________ _________
Total shareholders' equity 885,215 847,333
_________ _________
$ 1,004,503 $ 971,752
========= =========
<FN>
See accompanying notes to consolidated financial statements.
2
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands except per share amounts)
Three months ended Nine months ended
Sept. 26, 1998 Sept. 27, 1997 Sept. 26, 1998 Sept. 27, 1997
Net sales $ 463,296 $ 444,743 $ 1,375,585 $ 1,348,474
Cost of sales,
including warehousing
and distribution
expenses 345,626 329,847 1,028,864 1,006,124
_________ _________ _________ _________
Gross profit
on sales 117,670 114,896 346,721 342,350
Operating, general and
administrative
expenses 97,441 92,195 286,367 282,527
_________ _________ _________ _________
Income from
operations 20,229 22,701 60,354 59,823
Investment income 4,433 4,356 27,186 17,804
Other income 5,305 2,933 10,556 10,071
_________ _________ _________ _________
Income before
provision for
income taxes 29,967 29,990 98,096 87,698
Provision for
income taxes 11,531 10,845 36,303 31,523
_________ _________ _________ _________
Net income $ 18,436 $ 19,145 $ 61,793 $ 56,175
========= ========= ========= =========
Weighted average
number of common
shares
outstanding 41,777,807 41,789,510 41,779,308 41,864,063
========= ========= ========= =========
Cash dividends
per common share $ 0.25 $ 0.24 $ 0.73 $ 0.70
========= ========= ========= =========
Basic and diluted
earnings per
share $ 0.44 $ 0.46 $ 1.48 $ 1.34
========= ========= ========= =========
<FN>
See accompanying notes to consolidated financial statements.
3
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Nine Months Ended
Sept. 26, 1998 Sept. 27, 1997
Cash flows from operating activities:
Net income $ 61,793 $ 56,175
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 28,120 28,898
Amortization 6,324 3,267
(Gain) loss on sale of fixed assets (148) 135
Gain on sale of marketable securities --- (5,068)
Gain on sale of AquaPenn stock (14,210) ---
Changes in operating assets and liabilities:
Decrease in inventories 25,280 7,253
Decrease in accounts receivable
and prepaid expenses 4,187 3,286
Decrease in accounts payable
and other liabilities (12,380) (11,431)
Increase in income taxes payable 4,250 4,537
Decrease in deferred income taxes (1,755) (1,015)
________ ________
Net cash provided by operating
activities 101,461 86,037
Cash flows from investing activities:
Purchase of property and equipment (55,709) (45,117)
Proceeds from the sale of
property and equipment 371 19
Purchase of marketable securities (108,474) (102,024)
Proceeds from maturities of
marketable securities 76,130 100,494
Proceeds from sale of marketable securities --- 8,122
Proceeds from the sale of AquaPenn stock 21,871 ---
Increase in intangible assets and
other assets (2,173) (1,905)
________ ________
Net cash used in investing activities (67,984) (40,411)
Cash flows from financing activities:
Proceeds from issuance of common stock 26 ---
Dividends paid (30,494) (29,322)
Purchase of treasury stock (146) (8,235)
________ ________
Net cash used in financing activities (30,614) (37,557)
Net increase in cash 2,863 8,069
Cash at beginning of period 3,133 2,878
________ ________
Cash at end of period $ 5,996 $ 10,947
======== ========
Cash paid during the period for:
Interest expense $ 0 $ 0
======== ========
Income taxes $ 33,808 $ 28,001
======== ========
<FN>
See accompanying notes to consolidated financial statements.
4
WEIS MARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Significant Accounting Policies
Basis of Presentation: The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions for Form
10-Q and Article 10 of Regulation S-X. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The operating results for the periods
presented are not necessarily indicative of the results to be expected for
the full year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's latest annual report
on Form 10-K.
Impact of Recently Issued Accounting Standards: As of December 28, 1997, the
Company adopted Statement 130, Reporting Comprehensive Income. Statement 130
establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this Statement had no impact on the
Company's net income or shareholders' equity. Statement 130 requires unrealized
gains or losses on the Company's available-for-sale securities, which prior to
adoption were reported separately in shareholder's equity, to be included in
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130.
Restatements: Certain amounts in the 1997 financial statements have been
reclassified to conform with current year presentation. Year-to-date net income
for the period ended September 27, 1997, has been adjusted to reflect the tax
effected impact on pension cost associated with a retroactive pension plan
amendment (increasing the operating, general and administrative expenses by
$5,737,000), and the gain on sale of an investment asset (increasing investment
income by $5,068,000). The net effect on provision for income taxes and net
income was a decrease of $278,000 and $391,000 respectively.
(2) Comprehensive Income
The components of comprehensive income, net of related tax, for the three-month
and nine-month periods ended September 26, 1998 and September 27, 1997 are as
follows:
Three Months Ended Nine Months Ended
(dollars in thousands) 09/26/98 09/27/97 09/26/98 09/27/97
Net Income $ 18,436 $ 19,145 $ 61,793 $ 56,175
Unrealized gains (losses)
on marketable securities 2,268 33 6,703 (120)
Less: reclassification
adjustment for gains
included in net income 0 0 0 (2,965)
_______ _______ _______ _______
Comprehensive income $ 20,704 $ 19,178 $ 68,496 $ 53,090
======= ======= ======= =======
(3) Property and Equipment
Property and equipment, as of September 26, 1998, and December 27, 1997,
consisted of:
Useful Life
(dollars in thousands) (in years) 1998 1997
Land $ 58,295 $ 52,612
Buildings and improvements 10-60 278,164 253,543
Equipment 3-12 399,357 378,400
Leasehold improvements 5-20 67,239 63,814
_______ _______
Total, at cost 803,055 748,369
Less accumulated depreciation
and amortization 413,052 383,172
_______ _______
$ 390,003 $ 365,197
======= =======
5
WEIS MARKETS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
Total sales for the third quarter ended September 26, 1998, increased
4.2% to $463,296,000 compared to $444,743,000 last year. Year-to-date sales
increased 2.0% to $1,375,585,000 compared to $1,348,474,000 in 1997.
Same-store sales increased 3.3% for the quarter and 1.1% year-to-date. The
Company has increased its promotional spending in order to increase sales in
a period of deflation in the grocery food sector. Management does not
anticipate significant changes in food inflation or the competitive
environment in the fourth quarter of this year.
Gross profit of $117,670,000 at 25.4% of sales increased $2,774,000,
or 2.4% versus the same quarter last year. The increase in gross profit
dollars were generated primarily from the higher sales volume, as the gross
profit rate decreased .4% compared to the third quarter of last year.
Year-to-date gross profit of $346,721,000 at 25.2% increased $4,371,000 or
1.3% compared to last year. Gross profit as a percentage of sales decreased
.2% for the first three quarters of the year.
Third quarter operating, general and administrative expenses of
$97,441,000 at 21.0% of sales were $5,246,000 or 5.7% higher than the same
quarter last year. As a percentage of sales, operating expenses increased
.3%. During the current quarter, the Company negotiated a settlement with
a guarantor for non-performance by a lessee. Company management concluded
that related intangible assets no longer had value. Management further
determined that certain other unrelated intangible assets exceeded future
benefits. In accordance with generally accepted accounting principles,
management reduced the carrying amount of these assets by $2,789,000 to their
fair value in the third quarter.
Increased labor, benefits and occupancy costs contributed to the rise
in the Company's third quarter operating expenses. Labor and benefit costs
continued to affect net income in the third quarter due to a tight employment
market and the need for additional employees in newer units, which are larger
and have more service departments. Fixed occupancy costs have also increased
as new stores have been built and older existing stores enlarged and/or
remodeled under the Company's aggressive capital improvement plan. As a
percentage of sales, the Company has invested 4.4%, 5.4%, and 3.5% in capital
improvements in 1995, 1996 and 1997 respectively. Published results show
the grocery industry on average spent less than 3.0% in each of these same
three years. Through three quarters of this year, the Company has invested in
capital improvements at the rate of 4.0% of sales.
Year-to-date operating, general and administrative expenses of
$286,367,000 at 20.8% of sales compare with $282,527,000 at 21.0% through the
first three quarters of 1997. Second quarter 1997 earnings reflect a one-time
charge of $5,737,000 for pension cost associated with a retroactive pension plan
amendment. Discounting the impact of the pension charge in 1997 and the
write-off of noncurrent assets in 1998, operating expenses increased by
$6,788,000 or 2.5% compared to last year. The increased year-to-date operating
expenses are primarily attributable to higher labor, benefits and occupancy
costs as other operating expense increases were directly related to and
proportional with the sales increase.
Investment income of $4,433,000 at 1.0% of sales decreased $77,000, or
1.8%, versus the same quarter last year. As a percentage of sales, interest
and dividend income remained constant in the third quarter compared to last
year. Year-to-date interest and dividend income of $27,186,000 increased
$9,382,000 or 52.7% versus the first three quarters of 1997. The second
quarter 1997 investment income reflects a $5,068,000 pretax gain on the sale of
an investment asset. In the first quarter of 1998, the Company sold its
interest in AquaPenn Spring Water Co., Inc. during that company's initial public
offering on the NYSE(NYSE: APN) at a pretax gain of $14,210,000. Discounting
these one-time credits, year-to-date investment income has increased $240,000 or
1.9% for the year and is equal to last year as a percentage of sales.
6
WEIS MARKETS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
OPERATING RESULTS (continued)
Other income for the quarter of $5,305,000 at 1.1% of sales increased
$2,372,000, or 80.9% compared to the same quarter last year. As previously
mentioned, the Company negotiated a settlement with a guarantor for
non-performance by a lessee for $2,450,000. A gain on the sale of property of
$305,000 was also realized during the third quarter. The 1997 results for
the quarter included a minority interest credit related to SuperPetz, Inc. of
$394,000. Year-to-date, other income of $10,556,000 at .8% of sales increased
$485,000 or 4.8% compared to the same period in 1997. In the first three
quarters of 1997, the Company increased pretax earnings by $1,647,000 for
the 20% minority interest portion of the SuperPetz net losses. The Company
now records 100% of the associated subsidiary losses on its consolidated
financial statements as it has completed the merger of the 80% held
SuperPetz, Inc. into its 100% held SuperPetz II, Inc. subsidiary.
The effective tax rate for the third quarter of 1998 was 38.5% compared
with 36.2% in 1997. Year-to-date, the effective tax rate is 37.0% compared
to 35.9% last year. Intangible assets written down to fair value during the
third quarter of 1998 are not tax deductible. The effective tax rate also
continues to rise as the tax-free municipal bond portfolio declines due to
the Company's aggressive capital expenditure program.
Net earnings for the third quarter of $18,436,000, or 44 cents per share,
compared with $19,145,000, or 46 cents per share, in 1997. Year-to-date
earnings of $61,793,000 or $1.48 per share compare with $56,175,000 or $1.34
per share in 1997.
During the third quarter the Company acquired an independent supermarket
located in Shippensburg, PA, replaced a small grocery store in Lancaster, PA
with a new superstore and opened a new superstore in Glen Burnie, MD. In
addition, the Company completed the expansion of units in Lansdale, PA, Manheim,
PA, Westminster, MD, and Perry Hall, MD, and a remodel in Martinsburg, WV. Weis
Markets, Inc. is currently finishing the construction of new superstores in
Selinsgrove, PA and Franklin, NJ, which are expected to open in the fourth
quarter of this year.
Weis Markets, Inc. currently operates 157 stores in six states:
Pennsylvania, Maryland, New Jersey, New York, Virginia and West Virginia. It
also owns Weis Food Service, an institutional food service company and
SuperPetz, a pet-supply superstore chain with 42 units in eleven states.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $101,461,000 in cash flows from operating activities
for the nine-month period ended September 26, 1998 compared to $86,037,000
through September 27, 1997. Working capital has increased $21,380,000 or
4.5% since the beginning of this year. Inventory has been reduced $25,280,000
compared to the beginning of this year.
Net cash used in investing activities in the first three quarters of 1998
amounted to $67,984,000 compared to $40,411,000 in 1997. Year-to-date capital
expenditures totaled $55,709,000, as compared to $45,117,000 during the same
period in 1997. Proceeds from the sale of AquaPenn stock during the first
quarter of this year totaling $21,871,000 were used to purchase other
marketable securities. Year-to-date treasury stock purchases totaling
$146,000 compares with $8,235,000 in purchases made through the third quarter of
1997. The Board of Directors' 1996 resolution authorizing the purchase of
treasury stock has a remaining balance of 660,124 shares.
7
WEIS MARKETS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
Cash dividends of $10,443,000 were paid during the quarter to holders of
common stock at a rate of 25 cents per share, an increase of 4.2% per share.
Year-to-date cash dividends paid to holders of common stock amounts to
$30,494,000 compared with $29,322,000 in 1997. At a regularly scheduled
meeting, the Board of Directors declared a normal 25 cents per share dividend
for holders of record as of November 6, 1998, payable on November 20, 1998.
On May 19, 1998, Giant Food Inc. (AMEX: GFSa) announced that it had
accepted an offer from Koninklijke Ahold N.V. (NYSE: AHO) to purchase all of
the outstanding shares of Class A Common Stock for USD $43.50 per share in
cash. Weis Markets, Inc. tendered all 513,400 of its common shares to The
Bank of New York, as depository for the offer. Completion of the tender offer
was concluded on October 28, 1998, after the end of the Company's third
quarter. The Company received the funds on November 2, 1998 and will realize a
pretax gain of $16,062,000 on the sale of this stock in the fourth quarter of
1998.
Management believes the Company's cash and short-term investments, plus
cash flow from operations, will be sufficient to finance current operations,
dividend requirements, self-insurance programs, possible acquisitions,
the purchase of treasury stock, and the continuing expansion program. The
Company has no other commitment of capital resources as of September 26,
1998.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year within its calculations.
In 1995, the Company began evaluating its information technology systems and
various other systems in order to identify and adjust date sensitive systems for
Year 2000 compliance. In 1996, a project group comprised of management from
various areas within the organization was established to coordinate the
Company's Year 2000 compliance efforts. The project group is also working
with the Company's various suppliers and contractors to determine their Year
2000 compliance status and to monitor their compliance progress. Bi-weekly
updates and periodic status reports from the project group keep executive
management informed of the team's progress.
The Company's Year 2000 project group has completed its assessment of all
systems that could be significantly affected by the Year 2000. Approximately
80% of the remediation, testing and implementation has been completed on both
software and hardware systems used within the Company. Outside consultants are
being utilized as needed.
All software and hardware reprogramming, replacement, testing and
implementation are scheduled for completion by June 30, 1999. Management
believes a critical area affected by this problem is the Company's central
merchandise buying system, which is being replaced. The replacement buying
applications have been installed and tested. User training and integration
with other core business applications is currently in progress. Utilization
of the new buying system is scheduled to begin in February of 1999.
The Company does not believe that the Year 2000 presents a material
exposure as it relates to the Company's operations and feels its own efforts
will result in full compliance. Management has estimated that total Year
2000 remediation expenditures will cost $2.0-2.5 million and therefore, should
not have a material impact on the results of operations or on the liquidity
and capital resources of the Company. Normal maintenance and modification
costs are being expensed as incurred and acquisition cost of new software or
hardware is being capitalized and written off over the expected useful life
of the asset.
8
WEIS MARKETS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
YEAR 2000 COMPLIANCE (continued)
Management believes it has an effective program in place to resolve its
Year 2000 issue in a timely manner. The Year 2000 project group is in the
process of establishing a contingency plan to provide for viable alternatives
to ensure that the Company's core business operations are able to continue in
the event of a Year 2000 related systems failure. The impact on business
operations from failure by the Company to achieve compliance or failure by
external entities that the Company does not control could potentially have a
material adverse effect on the Company's future results of operations.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this 10-Q Report may contain
forward-looking statements. Any forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected. For example, risks and uncertainties
can arise with changes in: general economic conditions, including their impact
on capital expenditures; business conditions in the retail industry; the
regulatory environment; rapidly changing technology and competitive factors,
including increased competition with regional and national retailers; and
price pressures. Readers are cautioned not to place undue reliance on
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly revise or update
these forward-looking statements to reflect events or circumstances that arise
after the date hereof. Readers should carefully review the risk factors
described in other documents the Company files periodically with the Securities
and Exchange Commission.
9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K -- There were no reports on Form 8-K filed for the
three months ended September 26, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEIS MARKETS, INC.
Date
ROBERT F. WEIS
Chairman of the Board & Treasurer
Date
WILLIAM R. MILLS
Vice President-Finance & Secretary
10