UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year ended December 27, 1997 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 (IRS Employee Identification No.) incorporation or organization) 1000 South Second Street, Sunbury, PA 17801 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 717-286-4571 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common stock, no par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of class) 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 The aggregate market value of Common Stock held by non-affiliates of the Registrant is approximately $1,000,109,000. Shares of common stock outstanding as of February 10, 1997 - 41,772,607. The index to Exhibits is located in Part IV, Item 14(c). DOCUMENTS INCORPORATED BY REFERENCE Selected portions of the 1997 Weis Markets, Inc. Annual Report to Shareholders are incorporated by reference in Part II and Part IV of this Form 10-K. Selected portions of the Weis Markets, Inc. definitive proxy statement dated March 3, 1998 are incorporated by reference in Part III of this Form 10-K.
WEIS MARKETS, INC. PART I Item 1. Business: (a) Weis Markets, Inc. is a Pennsylvania business corporation formed in 1924. The Company is engaged principally in the retail sale of food. There was no material change in the nature of the Company's business during fiscal 1997. (b) The principal business activity which the Company has been engaged in for the last five fiscal years is the retail sale of food. (c)(1)(i) The Company operates 129 retail food markets in Pennsylvania, 18 in Maryland, 1 in New Jersey, 3 in New York, 2 in Virginia, and 1 in West Virginia. The stores trade under the name Weis Markets, except for 18 Pennsylvania stores which trade as Mr. Z's Food Mart, 6 Pennsylvania stores which trade as King's Supermarkets, 3 Pennsylvania stores which trade as Scot's Lo Cost, 3 Pennsylvania stores which trade as Save A Lot, and 1 Pennsylvania store which trades as Big Top Market. During the past fiscal year, 4 new stores were opened of which 2 were replacements for older units. Three stores were closed for financial reasons. The Company also owns and operates Weis Food Service, a restaurant and institutional supplier. On December 26, 1993, the Company purchased an 80% interest in SuperPetz, Inc. The investment was used to acquire 2 pet supply stores located in Dayton, Ohio. On August 6, 1994, SuperPetz acquired five pet supply stores in Georgia and South Carolina from Pet Owners Warehouse, Inc. On November 24, 1995 SuperPetz acquired seven stores located in Michigan and Ohio from Pet Food Warehouse, Inc. SuperPetz opened 1 additional store and closed 1 store during the year and as of December 27, 1997, operated 2 stores in Alabama, 1 store in Georgia, 1 store in Indiana, 1 store in Kentucky, 1 store in Maryland, 7 stores in Michigan, 9 stores in Ohio, 7 stores in Pennsylvania, 8 stores in South Carolina, and 6 stores in Tennessee. The Company supplies its retail food stores from distribution centers in Sunbury, Northumberland, and Milton, Pennsylvania. The percentage of net sales contributed by each class of similar products for each of the five fiscal years ended December 27, 1997 was: <TABLE> <CAPTION> Grocery Meat Produce SuperPetz Other <S> <C> <C> <C> <C> <C> 1993 60.74 14.80 11.06 13.40 1994 59.76 14.41 11.06 14.77 1995 58.71 13.82 11.05 2.03 14.39 1996 56.77 13.52 10.80 4.17 14.74 1997 56.00 13.44 11.06 4.43 15.06 </TABLE> (c)(1)(vi) The Company has its own distribution center with warehouses located within a 15 mile radius of its corporate offices in Sunbury, Pennsylvania. The Company is required to use a significant amount of working capital to provide for the required amount of inventory to meet demand for its products through efficient use of buying power and effective utilization of space in the warehouse facilities.
WEIS MARKETS, INC. (c)(1)(x) The business of the Company is highly competitive, and, in the areas served by it, the Company competes based on price and service with national retail food chains, local chains and many independent food stores. The following list includes, but is not limited to, the competitors of the Company: A&P, Acme Markets, Aldi, BiLo, Festival Foods, Giant Eagle, Giant Foods of Carlisle, Giant Foods of Landover, Insalaco, K-Mart, Riverside Markets, Sam's, Shop Rite, Super Rite, Super Valu, and Walmart. On the basis of sales volume, the Company believes it is the leading food retailer in the majority of the areas in which it operates. (c)(1)(xiii) The Company has approximately 18,600 employees. Item 2. Properties: The Company owns and operates 82 of its retail food stores and leases and operates 72 stores under operating leases for varying periods of time up to the year 2025. SuperPetz, leases all 43 of it's retail store locations. The Company owns all of its trade fixtures and equipment in its stores and several parcels of vacant land which are available as locations for possible future stores or other expansion. The Company owns and operates one warehouse in Sunbury, Pennsylvania totaling approximately 551,000 square feet, one in Milton, Pennsylvania of approximately 1,092,000 square feet, and one in Northumberland, Pennsylvania totaling approximately 121,000 square feet. The Company also operates an ice cream plant, meat processing plant and milk processing plant at its Sunbury location. Item 3. Legal Proceedings: Neither the Company nor any subsidiary is presently a party to, nor is any of their property subject to, any material pending legal proceedings, other than routine litigation incidental to the business. Item 4. Submission of Matters to a Vote of Security Holders: There were no matters submitted to a vote of security holders during the fourth quarter of 1997. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters: "Stock Prices and Dividend Information by Quarter" on page 16 and "Stock Traded" on the inside back cover of the 1997 Weis Markets, Inc. Annual Report to Shareholders are incorporated herein by reference.
WEIS MARKETS, INC. The approximate number of shareholders on December 27, 1997 is determined by the Company's transfer agent.. Item 6. Selected Financial Data: "Five-Year Review of Operations" on page 16 of the 1997 Weis Markets, Inc. Annual Report to Shareholders is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 7 of the 1997 Weis Markets, Inc. Annual Report to Shareholders is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data: The following information is incorporated herein by reference from the 1997 Weis Markets, Inc. Annual Report to Shareholders: The consolidated financial statements on pages 8 to 10, the notes to consolidated financial statements on pages 11 to 15, and the independent auditors' report on page 15. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure: None. PART III Item 10. Directors and Executive Officers of the Registrant: "Election of Directors" on pages 4 and 5 of the Weis Markets, Inc. definitive proxy statement dated March 3, 1998 is incorporated herein by reference. Item 11. Executive Compensation: "Board Compensation Committee Report on Executive Compensation," "Summary Compensation Table," "Option/SAR Grants in Last Fiscal Year," "Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values," "Retirement Plans," "Pension Plan Table," "Shareholder Return Performance," "Comparative Five-Year Total Returns," and "Comparative Ten-Year Income Percentages," on pages 6 to 10 of the Weis Markets, Inc. definitive proxy statement dated March 3, 1998 are incorporated herein by reference.
WEIS MARKETS, INC. Item 12. Security Ownership of Certain Beneficial Owners and Management: "Outstanding Voting Securities and Voting Rights" on page 3 of the Weis Markets, Inc. definitive proxy statement dated March 3, 1998 is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions: "Compensation of Directors", "Compensation Committee Interlocks and Insider Participation", "Board Compensation Committee Report on Executive Compensation," "Summary Compensation Table," "Option/SAR Grants in Last Fiscal Year," "Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values," "Retirement Plans," "Pension Plan Table," "Shareholder Return Performance," "Comparative Five-Year Total Returns," and "Comparative Ten-Year Income Percentages," on pages 5 to 10 of the Weis Markets, Inc., definitive proxy statement dated March 3, 1998 are incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K The following information is incorporated herein by reference from the 1997 Weis Markets, Inc. Annual Report to Shareholders: The consolidated financial statements on pages 8 to 10, the notes to consolidated financial statements on pages 11 to 15, and the independent auditors' report on page 15. (a) The financial statement schedules are omitted for the reason that they are either not applicable or not required or because the information required is contained in the financial statements or notes thereto. (b) There were no reports on Form 8-K filed during the quarter ended December 27, 1997.
WEIS MARKETS, INC. (c) A listing of exhibits filed or incorporated by reference is as follows: Exhibit No. 3-A Articles of Incorporation 3-B By-Laws 3-C Amendments to the By-Laws 10-A Profit Sharing Plan 10-B Stock Bonus Plan 10-C Company Appreciation Plan 10-D Stock Option Plan 10-E Supplemental Employee Retirement Plan 10-F Executive Employment Contract 13 Annual Report to Shareholders for the Fiscal Year ended December 27, 1997 21 Subsidiaries of the Registrant 23 Consent of Independent Auditors Exhibits 3-A and 3-B have been filed as exhibits under Part IV, Item 14(c) in Form 10-K for the fiscal year ended December 27, 1980 and are incorporated herein by reference. Exhibit 3-C has been filed as an 8-K on January 27, 1998 and is herein incorporated by reference. Exhibits 10-A through 10-F, have been filed as exhibits under Part IV, Item 14(c) in Form 10-K for the fiscal year ended December 31, 1994 and are incorporated herein by reference. The foregoing exhibits are available upon request from the Secretary of the Company at a fee of $10.00 per copy.
WEIS MARKETS, INC. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 Robert F. Weis Chairman of the Board of Directors, and Treasurer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date Robert F. Weis (Principal Financial Officer) Chairman of the Board of Directors, and Treasurer and Director Date Norman S. Rich (Principal Executive Officer) President and Director Date William R. Mills Vice President Finance, Secretary and Director
EXHIBIT 13 Weis Markets, Inc. (cover page) Meeting Our Customers' (This area contains a picture of a woman serving food to her son.) Changing Needs Weis Weis Markets, Inc. 1997 Annual Report
Shifting Focus Our Customers Are Changing, And So Are We. (This area contains two pictures. An exterior picture of a new Weis Markets store and a new store interior picture of the Delicatessen area) Each week, more than a million customers shop at our stores. Meeting their changing needs is our Company's standard for success. To grow and prosper today, retailers have to understand how their customers are changing and respond accordingly. Life's pace is faster and more demanding as sixty percent of all U.S. households now have two wage earners. Time and money are our customers' most precious commodities. In the 1990s, customers work longer hours and juggle different priorities. Consequently, they have less time to shop. They are also shopping at fewer stores than they were two years ago. Combine this trend with the fact that customers have more options than ever before, and you quickly realize why customers are changing how, when and where they shop. To earn their business, we must be willing to change with them. And Weis Markets is doing just that. (This area contains a picture of a Weis Markets female customer with a full shopping cart of various food products.)
Highlights Financial Highlights of 1997 Net Sales Shareholders' (in millions) Equity (in millions) (This area contains a 5-year bar graph (This area contains a 5-year bar graph of of Net Sales from 1993 through 1997 Shareholders Equity at the end of each year, from 1993 through 1997) 1993 $1,441 1993 $738 1994 $1,557 1994 $762 1995 $1,646 1995 $792 1996 $1,753 1996 $819 1997 $1,818 1997 $847 Number of Number of Employees Stores (in thousands) (This area contains a 5 year bar graph (This area contains a 5 year bar graph of Number of Employees at the end of Grocery Stores in operation at the of of each year, from 1993 through 1997) each year, from 1993 through 1997) 1993 15,000 1993 141 1994 16,500 1994 149 1995 17,800 1995 151 1996 18,400 1996 155 1997 18,600 1997 154 <TABLE> <CAPTION> (dollars in thousands, except per share amounts) For the Fiscal Years Ended December 27, 1997 December 28, 1996, and December 30, 1995 1997 1996 1995 <S> <C> <C> <C> <C> Net sales $ 1,818,816 $ 1,753,246 $ 1,646,435 Income before provision for income taxes 118,582 120,709 121,717 Net income 78,194 78,855 79,420 Cash dividends 39,347 37,199 34,499 Shareholders' equity 847,333 818,527 791,562 Depreciation and amortization 43,503 38,136 33,168 Basic and diluted earnings per share 1.87 1.87 1.84 Cash dividends per share . $ .94 $ .88 $ .80 Shares outstanding 41,772,107 42,040,856 42,533,617 Number of grocery stores 154 155 151 Number of pet supply stores 43 43 35 </TABLE>
EXPANDING NEW MARKETS (There is a picture in this area of Robert F. Weis, Chairman & Treasurer and Norman S. Rich, President) Robert F. Weis (left) and Norman S. Rich (right) Letter To Our Shareholders As we complete our 85th year of operation, we are pleased to report our sales for the 52-week period ending December 27, 1997 increased 3.7 % to $1,818,816,000 compared to $1,753,246,000 in 1996. Our earnings in 1997 totaled $78,194,000, compared to $78,855,000 the previous year. This slight decline is due to our continuing efforts to correct the problems of our SuperPetz subsidiary, in which we hold an 80% interest. Earnings per share were $1.87 in 1997, compared to $1.87 in 1996. In August, Weis Markets' Board of Directors increased the quarterly dividend for the 32nd consecutive year to $.24 or 4.3%. Depreciation and amortization charges increased from $38,136,000 to $43,503,000 due to our expansion program. Return on equity was 8.1% and shareholder equity increased to $847,333,000 compared to $818,527,000 in 1996. In 1997, your company completed the third year of its most aggressive expansion ever. Over the past twelve months, we built superstores in Gap, Pottsville, York, Chambersburg and Brodheadsville. We also completed additions for three stores and the remodel of 13 others. Our retail space, which increased by 127,568 square feet, now exceeds 6.2 million square feet. Since 1995, we have built 25 superstores and expanded or remodeled 38 others - more than one-third of our 154 stores. In 1997, we invested $64,171,000 for new stores, remodels and expansions, and support facilities. We had expected to spend $93,920,000, but we were slowed by a lengthy approval process on several projects. Our continuing expansion program, which is self-financed, has helped increase our sales and market share in areas where we currently operate and in the new markets we enter.
Our expansion has been aided by our new store prototype, which we first introduced three years ago. Since then, we have adapted this design to all of the stores we build, expand or remodel. These stores are larger and contain more service departments than the ones we operated ten years ago. In addition, a strong and varied merchandising program has complemented our expansion. We completed the introduction of our Weis Club Preferred Shopper program in Maryland during the past year. Our Club Card is now in all Weis Markets stores. It has helped us increase our sales and enhanced the value of our offerings to our customers. We also continue to make substantial investments in the technologies that improve the efficiency of our store and warehouse operations. In 1997, we completed the installation of a satellite-based Wide Area Network (WAN) in our stores, which has greatly greatly enhanced our store communication systems. Over the next 18 months, our current plans call for the construction of 11 superstores, the expansion of 11 units and the remodel of seven others. Construction has already begun on a 65,000-square-foot replacement unit in Lancaster, and a number of others are expected to begin in the spring. We also plan to build a 16,500-square-foot trailer salvage center at our Distribution Center complex in Milton, Pennsylvania. It is designed to handle the return of reusable shipping containers and the cleaning of inbound trailers in a more efficient manner. This center will also free up additional dock space in our adjacent 1.1-million square-foot distribution center. As in recent years, we plan to finance all construction and new equipment purchases from internally generated funds and to remain debt free. Over the next eighteen months, we expect to make a $127,500,000 investment in our capital expansion program, which includes all store projects, the salvage center, new equipment and technologies. While we have done much to improve the competitive standing of your company, we know there is more to be done in the coming year. Fortunately, we are aided in our efforts by the 18,600 men and women who work for Weis Markets. With their help, we will move confidently into 1998. Robert F. Weis Norman S. Rich Chairman and Treasurer President
In 1979, Weis Markets opened its first in-store pharmacy. Today, Weis Markets operates pharmacies in 88 stores. Pharmacies are an important part of our one-stop shopping convenience strategy and continue to be a key part of our new store designs. Our new pharmacy design includes a larger consultation area, which allows our pharmacists to offer a variety of counseling and screening services. (A picture of a Pharmacy department in a new Weis Markets store is located in this area.) SHIFTING FOCUS Shifting Our Focus To Meet The Changing Needs Of Our Customers To succeed in today's changing marketplace, a supermarket needs to offer convenience, quality service and value. Customers are better informed and more careful about their purchases than ever before. That's why our Weis Club Preferred Shopper's Card is so popular. Each week, our Weis Club Card offers extensive savings on a wide range of products in our stores. Over a million of our customers have Weis Club Cards-and the number grows every month. Of course, price is only part of the equation. Convenient store locations are also important. Twenty-five percent of a store's business is based on the accessibility of its location. At Weis Markets, one of our top priorities is finding good store sites. We want our stores to be near customers' rooftops. Next we give our customers choices. In today's supermarket business, one size does not fit all. Many customers have little time to cook and want meals to go. Others shop for a week's worth of groceries. Options are important-pharmacies with consultation areas and in-store bank (A picture of a Weis Club Preferred Shoppers Card is located in this area.)
branches add to our one-stop shopping convenience. Customer lifestyles have changed, too; they are traveling more and living healthier lives. That's why our stores now offer more specialty foods and larger produce departments. Knowing when our customers shop is also important. Since they work longer hours, customers shop more frequently at night and on weekends. Compared to two years ago, 28% more customers now shop on Sundays and 37% more shop on Saturdays. During the week, the busiest time in our stores is after 5:00 p.m. (A picture of a woman with her son sitting at the dinner table is located in this area.) (A picture of the Produce department in a new Weis Markets store is located in this area.)
Today, Weis Markets' produce departments offer 390 products, up significantly over the past decade and still growing. Weis Markets' new superstores and remodeled stores have larger produce departments that include an expanded fresh-cut fruit and salad bar. Our produce departments also have a wide selection of pre-cut vegetables, fruits and greens--one of the fastest growing categories in the produce business. Whenever they shop, our customers' shopping experiences must be quick, convenient and hassle-free. For this reason, we are investing in new technologies at the store level. Take debit and credit transactions. Since 1990, the number of debit and credit transactions in Weis Markets stores has more than tripled. In 1997, we completed the installation of a state-of-the-art satellite dish system capable of handling our increasing number of transactions with a three-second approval time. These technology investments will help us increase the value of our products and services. And while our customers may not be aware of these technologies, they do recognize the increased service, better values and added convenience. Our technology investments will be matched by our commitment to our employees. As our Company grows, we will continue to provide intensive training programs for our employees. In addition, we will continue to expand our management training program, which has produced many of our management personnel. Both our customers and our Company will benefit from a well-trained work force that is ready to meet the challenges of a changing market place.
Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Sales for the fiscal year ended December 28, 1997 increased $65,570,000 to $1,818,816,000, up 3.7% over sales of $1,753,246,000 in 1996. Company sales in 1996 were 6.5% higher than in 1995. The same store sales in 1997, 1996 and 1995 increased by 1.3% , 3.0% and 2.3% (1994 sales adjusted to 52-weeks for comparison) respectively. The Company's sales increased despite minimal inflation, pockets of deflation, a soft sales environment and intense competition in its core markets in Pennsylvania and Maryland. Management attributes the sales increases over the last three years primarily to its aggressive expansion program, which includes the construction of twenty-five new superstores and the expansion and/or remodel of thirty-eight existing units. Gross profit for 1997 of $462,991,000, increased $12,959,000 or 2.9%, compared to $450,032,000, in the prior year. Gross profit as a percentage of sales has remained consistent over the last three years at 25.5%, 25.7% and 25.4% in 1997, 1996 and 1995, respectively. Earnings were charged $27,000 for the LIFO adjustment in 1997, compared with a credit of $336,000 in 1996, and a charge of $1,899,000 in 1995. Operating, general and administrative expenses as a percentage of sales increased .3% to 20.8% in 1997, compared with 20.5% in 1996 and 20.2% in 1995. Depreciation and amortization expense, which are the result of the Company's aggressive capital expenditure program, increased .2% as a percentage of sales over the prior year in both 1997 and 1996. During 1997, the Company expensed $3,312,000 for an unrealizable asset relating to SuperPetz and $3,937,000 related to the termination of the Weis Markets, Inc. Pension Plan. In 1997, the Company's investment income increased by 12.2% to $22,014,000, or 1.2% of sales, compared to $19,617,000, or 1.1% of sales, in 1996. The Company sold securities in 1997 at a gain of $5,068,000. Interest and dividend income related to investments declined in 1997 due to the reduction in the Company's marketable security holdings and a decline in yield on municipal bond purchases in recent years. The reduction in the marketable security holdings over the past three years is primarily due to the Company's expansion, the stock repurchase program, and increased dividend payments. The Company's investment portfolio consists of Pennsylvania tax-free state and municipal bonds, U.S. Treasury securities, equity securities and other short-term investments. It is management's intent to maintain a liquid portfolio to take advantage of acquisition and other investment opportunities. Therefore, all securities are classified as available-for-sale on the consolidated balance sheets. Other income of $11,438,000, at .6% of sales increased $972,000 in 1997 compared to 1996. Other income is primarily generated from rental income, coupon handling fees, cardboard salvage and gains on the sales of fixed assets. The effective tax rate was 34.1% in 1997, 34.7% in 1996, and 34.8% in 1995. Net Income in 1997 was $78,194,000, or 4.3% of sales, compared with $78,855,000, or 4.5% of sales in 1996, and $79,420,000, or 4.8% of sales in 1995. The after-tax loss at SuperPetz in 1997 amounted to $6,939,000 as compared with an after-tax loss of $3,485,000 in 1996. Net income per common share, assuming dilution, remained at $1.87 in 1997, the same as in 1996. As of the end of the fiscal year, Weis Markets, Inc. was operating 154 retail food stores, 43 SuperPetz pet supply stores and Weis Food Service, a restaurant and institutional supplier. The Company currently operates supermarkets in Pennsylvania, Maryland, New Jersey, New York, Virginia and West Virginia. SuperPetz operates stores in Alabama, Georgia, Indiana, Kentucky, Maryland, Michigan, North Carolina, Ohio, Pennsylvania, South Carolina and Tennessee. Liquidity and Capital Resources Net cash provided by operating activities for the current year was $95,470,000, compared to $103,666,000 in 1996, and $96,927,000 in 1995. Inventories increased $2,478,000 in 1997 and $27,620,000 in 1996, due to the addition of new stores and the expansion of several existing units. Accounts payable and other liabilities decreased $23,080,000 in 1997 and increased $15,173,000 in 1996, due primarily to the timing of normal vendor payment terms. Working capital increased 1.8% in 1997, decreased 5.7% in 1996 and decreased 2.8% in 1995. Net cash used in investing activities during 1997 was $47,672,000, compared to $51,808,000 in 1996 and $37,600,000 in 1995. Property and equipment purchases during fiscal 1997 totaled $64,171,000, compared to $95,289,000 in 1996 and $72,759,000 in 1995. In 1997, proceeds from the maturity of marketable securites were $135,394,000. These proceeds were used for the purchase of $127,925,000 in new securities and, to a lesser degree, the purchase of property and equipment. Management anticipates the continued use of the Company's cash for acquisitions, the construction of new superstores, the expansion and remodeling of existing stores, the securing of sites for future expansion, and the upgrading of its processing and distribution facilities. Net cash used in financing activities during 1997 was $47,543,000, compared to $52,265,000 in 1996 and $60,053,000 in 1995. Treasury stock purchases amounted to $8,236,000 in 1997, compared to $15,066,000 in 1996 and $25,554,000 in 1995. The Board of Directors' 1996 resolution authorizing the purchase of treasury stock has a remaining balance of 664,185 shares. Total cash dividend payments on common stock amounted to $.94 per share in 1997, compared to $.88 in 1996 and $.80 in 1995. The Company has completed an assessment of its key financial, informational and operational systems. As a result, it will continue to take appropriate action to insure that the Year 2000 programming issue is addressed in a timely and cost-effective manner. Management does not anticipate that the Company will encounter significant operational issues related to the Year 2000. The Company will use both internal and external resources to reprogram, or replace, and test software and hardware for Year 2000 modifications. The financial impact of implementing the required systems changes is not expected to be material to the Company's consolidated financial position, results of operations or cash flows. The Company funded its 1997 working capital requirements through internally generated cash flows from operations, as it has done in prior years. It is estimated that the Company's current development plans will require an investment of approximately $127,500,000 over the next eighteen months. The Company continues to actively seek acquisitions and investment opportunities to enhance future performance. The financial and liquidity position of the Company, combined with its historical insurance loss experience rates, has allowed it to carry higher deductible and retention levels on its employee and business insurance coverage. The Company plans to maintain these higher exposure levels, thus benefiting from reduced premium expenses. In view of the Company's significant liquid assets, lack of debt financing, and its ability to generate working capital internally, it is not expected that any type of external financing will be needed.
<TABLE> Consolidated Balance Sheets <CAPTION> (dollars in thousands) December 27, 1997 and December 28, 1996 1997 1996 __________________________________________________________________________ <S> <C> <C> Assets Current: Cash $ 3,133 $ 2,878 Marketable securities 374,117 387,794 Accounts receivable, net 32,609 32,439 Inventories 161,825 159,347 Prepaid expenses 4,149 8,186 __________________________________________________________________________ Total current assets 575,833 590,644 __________________________________________________________________________ Property and equipment, net 365,197 343,900 Intangible and other assets, net 30,722 31,768 __________________________________________________________________________ $ 971,752 $ 966,312 ========================================================================== Liabilities Current: Accounts payable $ 68,788 $ 88,057 Accrued expenses 9,257 12,221 Accrued self-insurance 11,911 13,320 Payable to employee benefit plans 8,134 7,572 Income taxes payable 3,969 1,656 Deferred income taxes 2,212 4,563 __________________________________________________________________________ Total current liabilities 104,271 127,389 __________________________________________________________________________ Deferred income taxes 20,148 20,396 __________________________________________________________________________ Shareholders' Equity Common stock, no par value, 100,800,000 shares authorized, 47,447,429 shares issued and 47,445,929 shares issued, respectively 7,420 7,380 Retained earnings 960,419 921,572 Unrealized gain on marketable securities (Net of deferred taxes of $9,417 in 1997 and $10,726 in 1996.) 13,278 15,123 __________________________________________________________________________ 981,117 944,075 Treasury stock at cost - 5,675,322 and 5,405,073 shares, respectively (133,784) (125,548) __________________________________________________________________________ Total shareholders' equity 847,333 818,527 __________________________________________________________________________ $ 971,752 $ 966,312 ========================================================================== <FN> See accompanying notes to consolidated financial statements. </TABLE>
<TABLE> Consolidated Statements of Income <CAPTION> (dollars in thousands, except per share amounts) For the Fiscal Years Ended December 27, 1997, December 28, 1996, and December 30, 1995 1997 1996 1995 _______________________________________________________________________________ <S> <C> <C> <C> Net sales $ 1,818,816 $ 1,753,246 $ 1,646,435 Cost of sales, including warehousing and distribution expenses 1,355,825 1,303,214 1,228,178 _______________________________________________________________________________ Gross profit on sales 462,991 450,032 418,257 Operating, general and administrative expenses 377,861 359,406 332,060 _______________________________________________________________________________ Income from operations 85,130 90,626 86,197 Investment income 22,014 19,617 21,383 Other income 11,438 10,466 14,137 _______________________________________________________________________________ Income before provision for income taxes 118,582 120,709 121,717 Provision for income taxes 40,388 41,854 42,297 _______________________________________________________________________________ Net income $ 78,194 $ 78,855 $ 79,420 =============================================================================== Weighted average shares outstanding 41,842,583 42,280,352 43,083,449 Cash dividends per share $ .94 $ .88 $ .80 Basic and diluted earnings per share $ 1.87 $ 1.87 $ 1.84 _______________________________________________________________________________ See accompanying notes to consolidated financial statements. </TABLE> <TABLE> Consolidated Statements of Shareholders' Equity <CAPTION> (dollars in thousands) For the Fiscal Years Ended December 27, 1997 December 28, 1996 and December 30, 1995 Gain(Loss) on Total Common Retained Marketable Treasury Shareholders' Stock Earnings Securities Stock Equity ________________________________________________________________________________ <S> <C> <C> <C> <C> <C> Balance at December 31, 1994 $ 7,380 $ 834,995 $ 4,933 $ (84,928) $ 762,380 Treasury stock purchased (949,924 shares) - - - (25,554) (25,554) Dividends paid - (34,499) - - (34,499) Net unrealized gain on marketable securities - - 9,815 - 9,815 Net income - 79,420 - - 79,420 ________________________________________________________________________________ Balance at December 30, 1995 7,380 879,916 14,748 (110,482) 791,562 Treasury stock purchased (492,761 shares) - - - (15,066) (15,066) Dividends paid - (37,199) - - (37,199) Net unrealized gain on marketable securities - - 375 - 375 Net income - 78,855 - - 78,855 ________________________________________________________________________________ Balance at December 28, 1996 7,380 921,572 15,123 (125,548) 818,527 Shares issued for options 40 - - - 40 Treasury stock purchased (270,249 shares) - - - (8,236) (8,236) Dividends paid - (39,347) - - (39,347) Net unrealized gain (loss) on marketable securities - - (1,845) - (1,845) Net income - 78,194 - - 78,194 ________________________________________________________________________________ Balance at December 27, 1997 $ 7,420 $ 960,419 $ 13,278 $ (133,784) $ 847,333 ================================================================================ <FN> See accompanying notes to consolidated financial statements. </TABLE>
<TABLE> Consolidated Statements of Cash Flows <CAPTION> (dollars in thousands) For the Fiscal Years Ended December 27, 1997, December 28, 1996, and December 30, 1995 1997 1996 1995 Cash flows from operating activities: _______________________________________________________________________________ <S> <C> <C> <C> Net income $ 78,194 $ 78,855 $ 79,420 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 43,503 38,136 33,168 (Gain) Loss on sale of fixed assets (491) 19 (582) Gain on sale of marketable securities (5,068) (40) (86) Changes in operating assets and liabilities: Increase in inventories (2,478) (27,620) (1,708) (Increase) decrease in accounts receivable and prepaid expenses 3,867 (1,344) (10,920) Increase (decrease) in accounts payable and other liabilities (23,080) 15,173 (3,217) Increase (decrease) in income taxes payable 2,313 (2,421) 988 Increase (decrease) in deferred income taxes (1,290) 2,908 (136) ________________________________________________________________________________ Net cash provided by operating activities 95,470 103,666 96,927 ________________________________________________________________________________ Cash flows from investing activities: Purchase of property and equipment (64,171) (95,289) (72,759) Proceeds from the sale of property and equipment 1,433 255 1,107 Purchase of marketable securities (127,925) (81,567) (94,007) Proceeds from maturities of marketable securities 135,394 126,571 125,435 Proceeds from sale of marketable securities 8,122 57 6,086 Increase in intangible and other assets (525) (1,835) (3,462) _______________________________________________________________________________ Net cash used in investing activities (47,672) (51,808) (37,600) _______________________________________________________________________________ Cash flows from financing activities: Proceeds from issuance of common stock 40 - - Dividends paid (39,347) (37,199) (34,499) Purchase of treasury stock (8,236) (15,066) (25,554) _______________________________________________________________________________ Net cash used in financing activities (47,543) (52,265) (60,053) _______________________________________________________________________________ Net increase (decrease) in cash 255 (407) (726) Cash at beginning of year 2,878 3,285 4,011 _______________________________________________________________________________ Cash at end of year $ 3,133 $ 2,878 $ 3,285 =============================================================================== <FN> See accompanying notes to consolidated financial statements. </TABLE>
Notes to Consolidated Financial Statements (1) Summary of Significant Accounting Policies The following is a summary of the significant accounting policies utilized in preparing the Company's consolidated financial statements: (a) Description of Business Weis Markets, Inc. is a Pennsylvania business corporation formed in 1924. The Company is engaged principally in the retail sale of food in Pennsylvania and surrounding states. The Company is also engaged in the sale of pet supplies through its 80% owned subsidiary, SuperPetz, Inc. There was no material change in the nature of the Company's business during fiscal 1997. (b) Definition of Fiscal Year The Company's fiscal year ends on the last Saturday in December. Fiscal 1997, 1996, and 1995 were each comprised of 52 weeks. (c) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. (d) Intangible Assets Intangible assets are generally amortized over periods ranging from 3 to 40 years. A portion of the excess of cost of investments over net assets acquired prior to November 1, 1970, ($2,322,000) is not being amortized because, in the opinion of management, there has been no decrease in value. (e) Inventories Inventories are valued at the lower of cost or market, using both the last-in, first-out (LIFO) and average cost methods. (f) Marketable Securities Marketable securities consist of Pennsylvania tax-free state and municipal bonds, U.S. Treasury securities, equity securities, and other short-term investments. By policy, the Company invests primarily in high-grade marketable securities. The Company classifies all of its marketable securities as available-for-sale. Available-for-sale securities are recorded at fair value as determined by quoted market price. Unrealized holding gains and losses, net of the related tax effect, are excluded from earnings and are reported as a separate component of shareholders' equity until realized. A decline in the market value below cost that is deemed other than temporary results in a charge to earnings and the establishment of a new cost basis for the security. Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities. (g) Property and Equipment Property and equipment are carried at cost. Depreciation is provided on the cost of buildings and improvements and equipment principally using accelerated methods. Leasehold improvements are amortized over the terms of the leases or the useful lives of the assets, whichever is shorter. Maintenance and repairs are expensed, and renewals and betterments are capitalized. When assets are retired or otherwise disposed of, the assets and accumulated depreciation are removed from the respective accounts and any profit or loss on the disposition is credited or charged to income. (h) Insurance Programs The Company maintains self-insurance programs for the majority of its employee health care benefits and worker's compensation claims. Self-insurance costs are accrued based upon the aggregate of the liability for reported claims and an estimated liability for claims incurred but not reported. The Company is liable for employee health claims up to a life-time aggregate of $1,000,000 per member and for workers compensation claims up to $1,000,000 per claim. Property and casualty insurance coverages are maintained with outside carriers at deductible or retention levels ranging from $0 to $250,000. (i) Income Taxes Under the asset and liability method of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109), deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. (j) Earnings Per Share In 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share" (Statement 128). Statement 128 replaced the calculation primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Basic and diluted earnings per share are the same amounts for all periods presented, and dual presentation is accomplished in one line on the income statements. (k) Pre-Opening Costs Pre-opening costs of retail stores are charged against earnings as incurred. (l) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (m) Reclassifications Certain amounts in the 1996 and 1995 financial statements have been reclassified to conform with the current year presentation.
(2) Income Taxes The provision for income taxes consists of: <TABLE> <CAPTION> (dollars in thousands) 1997 1996 1995 _______________________________________________________________________________ <S> <C> <C> <C> Currently payable: Federal $ 30,817 $ 29,013 $ 32,450 State 10,861 9,580 9,983 Deferred (1,290) 3,261 (136) _______________________________________________________________________________ $ 40,388 $ 41,854 $ 42,297 =============================================================================== </TABLE> The following is a reconciliation between the applicable income tax expense and the amount of income taxes which would have been provided at the Federal statutory rate. The statutory rate was 35% in 1997, 1996, and 1995. <TABLE> <CAPTION> (dollars in thousands) 1997 1996 1995 _______________________________________________________________________________ <S> <C> <C> <C> Tax at statutory rate $ 41,504 $ 42,248 $ 42,601 State income taxes, net of federal income tax benefit 7,059 6,227 6,029 Other - principally tax-exempt investment income (8,175) (6,621) (6,333) _______________________________________________________________________________ Actual provision (effective tax rate 34.1%, 34.7% and 34.8%, respectively) $ 40,388 $ 41,854 $ 42,297 =============================================================================== </TABLE> Cash paid for income taxes was $37,281,000, $41,772,000, and $41,688,000 in 1997, 1996 and 1995, respectively. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 27, 1997, and December 28, 1996, are presented below: <TABLE> <CAPTION> (dollars in thousands) 1997 1996 ______________________________________________________________________________ <S> <C> <C> Deferred tax assets: Accounts receivable $ 457 $ 372 Inventories 1,673 1,577 Compensated absences 580 549 Employee benefit plans 3,412 1,801 General liability insurance 2,299 2,390 ______________________________________________________________________________ Total deferred tax assets 8,421 6,689 ______________________________________________________________________________ Deferred tax liabilities: Unrealized gain on marketable securities (9,417) (10,726) Depreciation (20,148) (20,396) Other (1,216) (526) ______________________________________________________________________________ Total deferred tax liabilities (30,781) (31,648) ______________________________________________________________________________ Net deferred tax liability $ (22,360) $ (24,959) ______________________________________________________________________________ Current deferred liability - net $ (2,212) $ (4,563) Noncurrent deferred liability - net (20,148) (20,396) ______________________________________________________________________________ Net deferred tax liability $ (22,360) $ (24,959) ============================================================================== </TABLE> (3) Inventories Merchandise inventories, as of December 27, 1997 and December 28, 1996, were valued as follows: <TABLE> <CAPTION> (dollars in thousands) 1997 1996 ______________________________________________________________________________ <S> <C> <C> LIFO $ 115,338 $ 109,965 Average cost 46,487 49,382 ______________________________________________________________________________ $ 161,825 $ 159,347 ============================================================================== </TABLE> If all inventories were valued on the average cost method, which approximates current cost, total inventories would have been $44,027,000 and $44,000,000 higher than as reported on the above methods as of December 27, 1997, and December 28, 1996, respectively. Although management believes the use of the LIFO method for valuing certain inventories (as set forth above) represents the most appropriate matching of costs and revenues in the Company's circumstances, the following summary of net income and per share amounts based on the use of the average cost method for valuing all inventories is presented for comparative purposes. <TABLE> <CAPTION> (dollars in thousands except per share amounts) 1997 1996 1995 _______________________________________________________________________________ <S> <C> <C> <C> Net income $ 78,208 $ 78,658 $ 80,531 Net income per share $ 1.87 $ 1.86 $ 1.87 =============================================================================== </TABLE> (4) Property and Equipment Property and equipment, as of December 27, 1997, and December 28, 1996, consisted of: <TABLE> <CAPTION> Useful Life (dollars in thousands) (in years) 1997 1996 ______________________________________________________________________________ <S> <C> <C> <C> Land $ 52,612 $ 44,770 Buildings and improvements 10-60 253,543 235,973 Equipment 3-12 378,400 363,331 Leasehold improvements 5-20 63,814 51,288 ______________________________________________________________________________ Total, at cost 748,369 695,362 Less accumulated depreciation and amortization 383,172 351,462 ______________________________________________________________________________ $ 365,197 $ 343,900 ============================================================================== </TABLE>
(5) Marketable Securities Marketable securities, as of December 27, 1997, and December 28, 1996, consisted of: <TABLE> <CAPTION> Gross Gross Unrealized Unrealized December 27, 1997 Amortized Holding Holding Fair (dollars in thousands) Cost Gains Losses Value ________________________________________________________________________________ <S> <C> <C> <C> <C> Available-for-sale: Pennsylvania state and municipal bonds $ 329,043 $ 2,674 $ 92 $ 331,625 U.S. Treasury securities 10,418 12 1 10,429 Equity Securities 9,058 20,102 - 29,160 Other short-term investments 2,903 - - 2,903 ________________________________________________________________________________ $ 351,422 $ 22,788 $ 93 $ 374,117 ================================================================================ </TABLE> <TABLE> <CAPTION> Gross Gross Unrealized Unrealized December 28, 1996 Amortized Holding Holding Fair (dollars in thousands) Cost Gains Losses Value ________________________________________________________________________________ <S> <C> <C> <C> <C> Available-for-sale: Pennsylvania state and municipal bonds $ 330,080 $ 2,853 $ 857 $ 332,076 U.S. Treasury securities 10,425 214 - 10,639 Equity Securities 12,071 23,639 - 35,710 Other short-term investments 9,369 - - 9,369 ________________________________________________________________________________ $ 361,945 $ 26,706 $ 857 $ 387,794 ================================================================================ </TABLE> Maturities of marketable securities classified as available-for-sale at December 27, 1997, were as follows: <TABLE> <CAPTION> Amortized Fair (dollars in thousands) Cost Value ________________________________________________________________________________ <S> <C> <C> Available-for-sale: Due within one year $ 97,917 $ 98,394 Due after one year through five years 243,447 245,563 Due after five years through ten years 1,000 1,000 Equity securities 9,058 29,160 ________________________________________________________________________________ $ 351,422 $ 374,117 ================================================================================ </TABLE> (6) Retirement Plans The Company has a noncontributory defined benefit pension plan and a contributory retirement savings plan (401(k)) covering substantially all full-time employees, a noncontributory profit-sharing plan covering eligible employees, and a supplemental retirement plan covering certain officers of the Company. An eligible employee as defined in the Profit Sharing Plan includes salaried employees, store management, and administrative support personnel. The Company's policy is to fund pension, 401(k) and profit-sharing cost accrued, but not supplemental retirement costs. Contributions to the defined benefit pension plan are based on guidelines of the Employee Retirement Income Security Act of 1974, whereas contributions to the profit-sharing plan and the 401(k) plan are made at the sole discretion of the Company. The Company's supplemental retirement plan provides for the payment of specific amounts of annual retirement benefits to the officers or to their beneficiaries over an actuarially computed normal life expectancy. The actuarial present value of accumulated benefits amounted to $5,746,000 and $5,808,000 at December 27, 1997, and December 28, 1996, respectively. Plan costs are based upon the deferral of retirement rather than upon future service and all benefits are fully vested. Retirement plan costs amounted to: <TABLE> <CAPTION> (dollars in thousands) 1997 1996 1995 ________________________________________________________________________________ <S> <C> <C> <C> Pension plan $ 3,937 $ (883) $ (444) Retirement savings plan 401(k) 842 831 727 Profit sharing plan 815 814 815 Supplemental retirement plan 605 417 403 ________________________________________________________________________________ $ 6,199 $ 1,179 $ 1,501 ================================================================================ </TABLE> <TABLE> The net periodic defined benefit pension expense (credit) is computed as follows: <CAPTION> (dollars in thousands) 1997 1996 1995 ________________________________________________________________________________ <S> <C> <C> <C> Service cost $ - $ - $ - Interest cost 2,305 1,855 1,835 Actual return on plan assets (2,356) (4,121) (4,798) Partial settlement (1,584) - - Net amortization and deferral 5,572 1,403 2,519 ________________________________________________________________________________ Net pension expense (credit) $ 3,937 $ (883) $ (444) ================================================================================ </TABLE> The funded status of the Company's pension plan at December 31, 1997, and September 30, 1996 (the measurement dates) is as follows: <TABLE> <CAPTION> (dollars in thousands) 1997 1996 ________________________________________________________________________________ <S> <C> <C> Actuarial present value of benefit obligations: Vested benefit obligation $ (6,277) $ (28,978) ================================================================================ Accumulated benefit obligation $ (6,277) $ (28,978) ================================================================================ Projected benefit obligation $ (6,277) $ (28,978) Plan assets at fair value 6,277 31,448 ________________________________________________________________________________ Plan assets in excess of projected benefit obligation - 2,470 Unrecognized net (gain) or loss (29) 3,215 Unrecognized transition asset (300) (2,076) ________________________________________________________________________________ Prepaid (accrued) pension cost $ (329) $ 3,609 ================================================================================ </TABLE>
On February 1, 1994, the Board of Directors of the Company voted to freeze the Pension Plan. Effective March 15, 1994, the Plan was frozen and all participants became fully vested. On April 30, 1997 the Company amended the Plan to state that as of the date of termination, lump sum benefit payments would not be less than the amount that would have been payable on March 15, 1994. This amendment resulted in an increase of $5,901,000 in the projected benefit obligation. Benefit obligation of $30,250,000 were settled prior to the end of the plan year to the majority of plan participants, resulting in the recognition of a partial settlement gain of $1,584,000. Plan assets consist primarily of common stocks, bonds, and U.S. government obligations. The assumed long-term rate of return on pension plan assets used to determine pension costs was 7.5% for fiscal 1997 and 8.5% for fiscal 1996 and 1995. Pension benefit obligations were determined using an assumed discount rate of 7.0% for fiscal 1997 and 1996. The Company has no other post-retirement benefit plans. (7) Incentive Plans The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. The effect of applying Statement No. 123's fair value method to the Company's stock-based awards results in proforma net income and earnings per share that are not materially different from amounts reported. (a) Stock Option Plan The Company has an incentive stock option plan for officers and other key employees under which 287,500 shares of common stock are reserved for issuance at December 27, 1997. Under the terms of the plan, option prices are 100% of the "fair market value" of the shares on the date granted. Options granted are immediately exercisable and expire ten years after date of grant. Changes during the three years ended December 27, 1997, in options outstanding under the plan were as follows: <TABLE> <CAPTION> Option Prices Shares Per Share Under Option <S> <C> <C> Balance, December 31, 1994 $16.28 to $26.88 16,070 Issued $28.00 to $28.00 7,140 Expired $16.28 to $16.28 (820) Balance, December 30, 1995 $24.25 to $28.00 22,390 Issued $31.50 to $31.50 12,500 Expired $26.50 to $26.50 (300) Balance, December 28, 1996 $25.25 to $31.50 34,590 Issued $32.88 to $32.88 13,500 Exercised $26.75 to $26.88 (1,500) Balance, December 27, 1997 $25.25 to $32.88 46,590 <FN> At December 27, 1997, all options were exercisable. </TABLE> (b) Company Appreciation Plan Under a Company Appreciation Plan, officers and other employees are awarded rights equivalent to shares of Company common stock. At the maturity date, usually one year after the date of award, the value of any appreciation from the original date of issue is paid in cash to the participants. During 1997, 1996, and 1995, 39,150, 28,200, and 26,050 rights, respectively, were awarded under the program. In 1997, 1996, and 1995, $39,000, $96,000, and $64,000, respectively, were charged to earnings. (8) Lease Commitments At December 27, 1997, the Company leased approximately 58% of its facilities under operating leases which expire at various dates up to 2025. These leases generally provide for fixed annual rentals; however, several provide for minimum annual rentals plus contingent rentals as a percentage of annual sales, and a number of leases require the Company to pay for all or a portion of insurance, real estate taxes, water and sewer rentals and repairs, the cost of which is charged to the related expense category rather than being accounted for as rent expense. Most of the leases contain multiple renewal options, under which the Company may extend the lease terms from 5 to 20 years. Rent expense on all leases consisted of: <TABLE> (dollars in thousands) 1997 1996 1995 ________________________________________________________________________________ <S> <C> <C> <C> Minimum annual rentals $ 22,899 $ 20,536 $ 16,949 Contingent rentals 252 169 452 ________________________________________________________________________________ $ 23,151 $ 20,705 $ 17,401 ================================================================================ </TABLE> The following is a schedule by year of future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 27, 1997. <TABLE> <CAPTION> (dollars in thousands) ________________________________________________________________________________ <S> <C> 1998 $ 23,603 1999 23,932 2000 22,431 2001 20,827 2002 19,314 Thereafter 141,354 ________________________________________________________________________________ $ 251,461 ================================================================================ </TABLE> As of December 27, 1997, the future minimum rentals to be received under noncancelable leases and subleases were $10,715,000.
(9) Fair Value Information The carrying amounts for cash, trade receivables, and trade payables approximate fair value because of the short maturities of these instruments. The fair values of the Company's marketable securities are based on quoted market prices (See note 5). (10) Acquisitions On December 31, 1995, SuperPetz acquired one store located in Michigan from Pet Food Warehouse, Inc. On November 24, 1995, SuperPetz acquired seven stores located in Michigan and Ohio from Pet Food Warehouse, Inc. These cash only transactions were made from loans by Weis Markets, Inc. and were accounted for by the purchase method. Goodwill arising from these transactions, which was not material, is being amortized over a 15-year period on a straight-line basis. (11) Summary of Quarterly Results (Unaudited) Quarterly financial data for 1997 and 1996 are as follows: <TABLE> <CAPTION> (dollars in thousands, except per share amounts) Thirteen Weeks Ended ________________________________________________________________________________ Mar. 29, '97 June 28, '97 Sep. 27, '97 Dec. 27, '97 ________________________________________________________________________________ <S> <C> <C> <C> <C> Net sales $ 456,786 $ 446,945 $ 444,743 $ 470,342 Gross profit on sales 112,932 114,521 114,896 120,642 Net income 18,238 18,792 19,145 22,019 Basic and diluted earnings per share .43 .45 .46 .53 </TABLE> <TABLE> <CAPTION> Thirteen Weeks Ended ________________________________________________________________________________ Mar. 30, '96 June 29, '96 Sep. 28, '96 Dec. 28, '96 ________________________________________________________________________________ <S> <C> <C> <C> <C> Net sales $ 433,199 $ 432,584 $ 424,747 $ 462,716 Gross profit on sales 109,851 111,145 112,795 116,241 Net income 19,699 19,401 19,615 20,140 Basic and diluted earnings per share .46 .46 .47 .48 </TABLE> The 1996 and 1997 earnings per share amounts have been restated to comply with Statement of Financial Accounting Standards No. 128, "Earnings per Share." Net income for the period ended June 28, 1997, has been adjusted to reflect the tax effected impact on pension cost associated with a retroactive pension plan amendment, and the gain on a sale of an investment asset. (12) Contingencies The Company is involved in various legal actions arising out of the normal course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. (13) Subsequent Event The Company sold 1,859,000 shares of AquaPenn Spring Water, Co.'s common stock in conjunction with AquaPenn's initial public offering on January 30, 1998. The Company realized $14,358,000 in pre-tax profit from this sale transaction in the first quarter of 1998. Report of Independent Auditors The Board of Directors Weis Markets, Inc. Sunbury, Pennsylvania We have audited the accompanying consolidated balance sheets of Weis Markets, Inc. as of December 27, 1997, and December 28, 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of Weis Markets, Inc. for the year ended December 30, 1995, were audited by other independent auditors whose report, dated January 26, 1996, expressed an unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 1997 and 1996 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Weis Markets, Inc. at December 27, 1997, and December 28, 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Harrisburg, PA Ernst & Young LLP January 30, 1998
<TABLE> Weis Markets, Inc. Five Year Review of Operations (dollars in thousands, except per share amounts) <CAPTION> 52 Weeks 52 Weeks 52 Weeks 53 Weeks 52 Weeks Ended Ended Ended Ended Ended Dec. 27, Dec. 28, Dec. 30, Dec. 31, Dec. 25, 1997 1996 1995 1994 1993 ________________________________________________________________________________ <S> <C> <C> <C> <C> <C> <C> Net sales $1,818,816 $1,753,246 $1,646,435 $1,556,663 $1,441,090 Costs and expenses 1,733,686 1,662,620 1,560,238 1,476,661 1,361,420 ________________________________________________________________________________ Income from operations 85,130 90,626 86,197 80,002 79,670 Other income, net 33,452 30,083 35,520 37,191 33,984 ________________________________________________________________________________ Income before provision for income taxes 118,582 120,709 121,717 117,193 113,654 Provision for income taxes 40,388 41,854 42,297 40,944 40,701 ________________________________________________________________________________ Net income 78,194 78,855 79,420 76,249 72,953 Retained earnings, beginning of year 921,572 879,916 834,995 791,072 748,796 ________________________________________________________________________________ 999,766 958,771 914,415 867,321 821,749 Cash dividends 39,347 37,199 34,499 32,326 30,677 Retained earnings, end of year $ 960,419 $ 921,572 $ 879,916 $ 834,995 $ 791,072 ________________________________________________________________________________ Weighted average shares outstanding 41,842,583 42,280,352 43,083,449 43,662,031 43,827,168 ________________________________________________________________________________ Cash dividends per share $ .94 $ .88 $ .80 $ .74 $ .70 Basic and diluted earnings per share $ 1.87 $ 1.87 $ 1.84 $ 1.75 $ 1.66 ________________________________________________________________________________ Working capital $ 471,562 $ 463,255 $ 491,135 $ 505,449 $ 513,184 Total assets $ 971,752 $ 966,312 $ 923,421 $ 892,093 $ 844,490 Shareholders' equity $ 847,333 $ 818,527 $ 791,562 $ 762,380 $ 738,115 Number of grocery stores 154 155 151 149 141 Number of pet supply stores 43 43 35 14 - </TABLE> Stock Prices and Dividend Information by Quarter The approximate number of shareholders on December 27, 1997 was 8,089. <TABLE> <CAPTION> 1997 1996 ________________________________________________________________________________ 4th 3rd 2nd 1st 4th 3rd 2nd 1st ________________________________________________________________________________ <S> <C> <C> <C> <C> <C> <C> <C> <C> Stock Prices High 36 1/4 34 7/8 29 7/8 32 1/4 34 3/8 34 7/8 32 3/4 30 3/8 Low 33 3/8 28 3/4 26 7/8 28 3/8 29 5/8 30 3/4 28 7/8 27 3/4 Dividends Per Share .24 .24 .23 .23 .23 .23 .21 .21 </TABLE>
The Board of Directors (This area contains a pictures of the Board of Directors above their respective names.) Robert F. Weis Chairman and Treasurer Norman S. Rich William R. Mills President Vice President Finance and Secretary Jonathan H. Weis Richard E. Shulman Vice President President, Industry Systems Property Management and Development Development Corporation Joseph I. Goldstein Michael M. Apfelbaum Partner, Crowell & Moring Partner, Apfelbaum, Apfelbaum Attorneys at Law & Apfelbaum Attorneys at Law Officers Robert F. Weis Harold G. Graber Chairman Vice President and Treasurer Real Estate Norman S. Rich Leslie H. Knox President Vice President Merchandising William R. Mills Richard L. Kunkle Vice President Finance Vice President and Secretary Pharmacy Alan L. Barrick Edward W. Rakoskie Vice President Vice President Engineering and Store Operations Manufacturing Stephen J. Bowers Jonathan H. Weis Vice President Vice President Weis Food Service Property Management and Development Walter B. Bruce Vice President Private Label Annual Meeting The annual meeting of the shareholders of the Company will be held at 10 a.m. on Tuesday, April 7, 1998, at the Corporate offices, 1000 South Second Street, Sunbury, PA 17801. Registrar and Transfer Agent American Stock Transfer & Trust Company 40 Wall Street, 46th floor, New York, NY 10005 (718) 921-8210 Auditors Ernst & Young LLP Commerce Court, Suite 200 2601 Market Place Harrisburg, PA 17110-9359 Stock Traded New York Stock Exchange
(This area contains a picture of various Weis Quality private label Health and Beauty Care products.) Weis Markets has one of the best-developed private label programs in the nation. Started in 1912, the Weis Markets private label program offers brand name quality at unbeatable prices. Pictured are Weis private label Health and Beauty Care products, which were recently repackaged to include the new Weis logo. Weis Weis Markets, Inc. 1000 S. Second Street Sunbury, PA 17801
<TABLE> EXHIBIT 21 WEIS MARKETS, INC. SUBSIDIARIES OF THE REGISTRANT <CAPTION> Percent State of Owned by Incorporation Registrant <S> <C> <C> Albany Public Markets, Inc. New York 100% Dutch Valley Food Company, Inc. Pennsylvania 100% King's Supermarkets, Inc. Pennsylvania 100% Martin's Farm Market, Inc. Pennsylvania 100% Shamrock Wholesale Distributors, Inc. Pennsylvania 100% SuperPetz, Inc. Pennsylvania 80% </TABLE> The consolidated financial statements include the accounts of the Company and its subsidiaries.
EXHIBIT 23 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report on (Form 10-K) of Weis Markets, Inc. of our report dated January 30, 1998 included in the 1997 Annual Report to Shareholders of Weis Markets, Inc. (Signed Ernst & Young LLP) Harrisburg, Pennsylvania January 30, 1998
EXHIBIT 99 Independent Auditors' Report The Board of Directors Weis Markets, Inc. Sunbury, Pennsylvania We have audited the accompanying consolidated statements of income, shareholders' equity, and cash flows of Weis Markets, Inc. and subsidiaries for the year ended December 30, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Weis Markets, Inc. and subsidaries for the years ended December 30, 1995 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Harrisburg, PA January 26, 1996 Note: Not included in the Annual Report