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 June 30, 2001 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) (570) 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 27,211,915 shares (Outstanding at end of period)
WEIS MARKETS, INC. INDEX Page No. Part I. Financial Information Item 1. Consolidated Balance Sheets - June 30, 2001 and December 30, 2000 2 Consolidated Statements of Income - Six Months Ended June 30, 2001 and June 24, 2000 3 Consolidated Statements of Cash Flows - Six Months Ended June 30, 2001 and June 24, 2000 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3. Quantitative and Qualitative Disclosures about Market Risk 8 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 9 Item 6. Exhibits and Reports on Form 8-K 10 Signatures 10 1
PART I - FINANCIAL INFORMATION WEIS MARKETS, INC. CONSOLIDATED BALANCE SHEETS (unaudited) (dollars in thousands) June 30, 2001 December 30, 2000 Assets Current: Cash $ 2,875 $ 3,389 Marketable securities 32,555 410,218 Accounts receivable, net 26,297 25,080 Inventories 146,832 168,541 Prepaid expenses 3,620 6,821 Income taxes recoverable 6,734 3,144 ____________ ____________ Total current assets 218,913 617,193 Property and equipment, net 439,490 441,819 Intangible and other assets, net 25,656 26,892 ____________ ____________ $ 684,059 $ 1,085,904 ============ ============ Liabilities Current: Accounts payable $ 74,105 $ 78,162 Accrued expenses 20,513 18,360 Accrued self-insurance 14,847 12,959 Payable to employee benefit plans 8,213 8,663 Deferred income taxes 2,464 2,143 ____________ ____________ Total current liabilities 120,142 120,287 Deferred income taxes 17,033 17,731 Long-term debt 30,000 --- Shareholders' Equity Common stock, no par value, 100,800,000 shares authorized, 32,978,037 and 47,453,979 shares issued, respectively 7,630 7,594 Retained earnings 639,057 1,069,986 Accumulated other comprehensive income (Net of deferred taxes of $5,088 in 2001 and $5,166 in 2000) 7,175 7,284 ____________ ____________ 653,862 1,084,864 Treasury stock, at cost, 5,766,122 and 5,766,122 shares, respectively (136,978) (136,978) ____________ ____________ Total shareholders' equity 516,884 947,886 ____________ ____________ $ 684,059 $ 1,085,904 ============ ============ 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 Six Months Ended 06/30/01 06/24/00 06/30/01 06/24/00 Net sales $ 492,414 $ 508,957 $ 981,509 $ 1,028,707 Cost of sales, including warehousing and distribution expenses 361,219 374,079 720,128 763,766 ____________ ____________ ____________ ____________ Gross profit on sales 131,195 134,878 261,381 264,941 Operating, general and administrative expenses 121,761 113,606 234,054 222,885 ____________ ____________ ____________ ____________ Income from operations 9,434 21,272 27,327 42,056 Investment income 2,643 4,243 9,401 8,718 Other income 2,168 9,387 4,374 12,373 ____________ ____________ ____________ ____________ Income before provision for income taxes 14,245 34,902 41,102 63,147 Provision for income taxes 5,539 13,244 15,202 23,611 ____________ ____________ ____________ ____________ Net income $ 8,706 $ 21,658 $ 25,900 $ 39,536 ============ ============ ============ ============ Weighted-average shares outstanding 33,097,618 41,691,341 37,392,843 41,691,402 ============ ============ ============ ============ Cash dividends per share $ 0.27 $ 0.26 $ 0.54 $ 0.52 ============ ============ ============ ============ Basic and diluted earnings per share $ 0.26 $ 0.52 $ 0.69 $ 0.95 ============ ============ ============ ============ See accompanying notes to consolidated financial statements. 3
WEIS MARKETS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (dollars in thousands) Six Months Ended June 30, 2001 June 24, 2000 Cash flows from operating activities: Net income $ 25,900 $ 39,536 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 21,463 21,442 Amortization 3,409 3,416 (Gain) loss on sale of fixed assets 1,469 (6,063) Gain on sale of marketable securities (568) (658) Changes in operating assets and liabilities: Decrease in inventories 21,709 10,512 Decrease in accounts receivable and prepaid expenses 1,984 14,974 (Increase) decrease in income taxes recoverable (3,590) 399 Decrease in accounts payable and other liabilities (466) (10,328) Increase in income taxes payable --- 3,931 Decrease in deferred income taxes (299) (2,419) ____________ ____________ Net cash provided by operating activities 71,011 74,742 Cash flows from investing activities: Purchase of property and equipment (22,821) (31,576) Proceeds from the sale of property and equipment 45 11,450 Purchase of marketable securities (299,064) (53,359) Proceeds from maturities of marketable securities 553,459 35,706 Proceeds from the sale of marketable securities 123,649 2,756 Increase in intangible assets and other assets --- (13,379) ____________ ____________ Net cash provided by (used in) investing activities 355,268 (48,402) Cash flows from financing activities: Proceeds from long-term debt 30,000 --- Proceeds from issuance of common stock 36 35 Dividends paid (22,512) (21,680) Cancellation of stock (434,317) --- Purchase of treasury stock --- (74) ____________ ____________ Net cash used in financing activities (426,793) (21,719) Net increase (decrease) in cash (514) 4,621 Cash at beginning of period 3,389 4,552 ____________ ____________ Cash at end of period $ 2,875 $ 9,173 ============ ============ 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. (2) Comprehensive Income The components of comprehensive income, net of related tax, for the three-month period ended June 30, 2001 and June 24, 2000 are as follows: Three Months Ended Six Months Ended (dollars in thousands) 06/30/01 06/24/00 06/30/01 06/24/00 Net Income $ 8,706 $ 21,658 $ 25,900 $ 39,536 Unrealized gains (losses) on marketable securities (486) 634 223 (165) Less: reclassification adjustment for gains included in net income (62) (65) (332) (384) __________ __________ __________ __________ Comprehensive income $ 8,158 $ 22,227 $ 25,791 $ 38,987 ========== ========== ========== ========== (3) Property and Equipment Property and equipment, as of June 30, 2001 and December 30, 2000, consisted of: Useful Life (dollars in thousands) (in years) 2001 2000 Land $ 69,426 $ 63,341 Buildings and improvements 10-60 316,546 312,462 Equipment 3-12 464,373 462,079 Leasehold improvements 5-20 96,131 97,310 ____________ ____________ Total, at cost 946,476 935,192 Less accumulated depreciation and amortization 506,986 493,373 ____________ ____________ $ 439,490 $ 441,819 ============ ============ (4) Significant Event On May 7, 2001, the Registrant purchased an aggregate of 14,477,242 shares of its common stock from the family of the late Sigfried Weis. The purchase price was $30.00 per share, for an aggregate purchase price of approximately $434.3 million in cash. The amount of such consideration was determined through negotiations between the Registrant and the sellers of such shares, and was subject to review by a special committee of the Registrant's board of directors formed for the purpose of evaluating the transaction. In determining the amount of such consideration and assessing the fairness thereof, the company received financial advice from Morgan Stanley Dean Witter, and the special committee received financial advice from Dresdner Kleinwort Wasserstein, Inc., both of which firms rendered fairness opinions to the special committee. The selling shareholders are descendants, or family members of descendants, of one of the founders of the Registrant. The selling shareholders include Joseph I. Goldstein, a director of the Registrant who has resigned from the Board of Directors, his wife and certain of his relatives. The sources of the funds used for the Registrant's acquisition of its shares were the Registrant's own cash resources and borrowings from Mellon Bank under a credit agreement entered into in the ordinary course. 5
WEIS MARKETS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OPERATING RESULTS Total company sales for the second quarter ended June 30, 2001 decreased 3.3% to $492,414,000 compared to sales of $508,957,000 generated in the second quarter of 2000. Year-to-date, the company's sales decreased 4.6% to $981,509,000 compared to $1,028,707,000 for the same period in 2000. Year-over- year sales comparisons were affected unfavorably by the sale of the company's food service division last year, a weak economy and competitive activity. In the second quarter of 2000, the company's results included $5,351,000 in revenues from the food service division, which was sold in the same quarter. Total sales through the first half of 2000 included $37,062,000 generated from the food service division. Identical store sales decreased .9% in the recently concluded quarter and .2% through the first half of the year. In the second quarter, the company generated $131,195,000 in gross profit at 26.6% of sales, a decrease of $3,683,000 or 2.7% compared to the same period in 2000. The decrease in gross profit dollars was due to the lower sales volume as the gross profit rate increased .1%. Year-to-date gross profit of $261,381,000 at 26.6% of sales decreased $3,560,000 or 1.3%. As a percentage of sales, the year-to-date gross profit rate increased .9%. The second quarter operating, general and administrative expenses of $121,761,000 at 24.7% of sales, increased $8,155,000 or 7.2% compared to the same quarter in 2000. As a percentage of sales, operating expenses for the quarter were 2.4% higher than the 22.3% rate realized in the second quarter of 2000. Year-to-date operating expenses of $234,054,000 at 23.8% of sales compared to $222,885,000 at 21.7% of sales in the first half of last year. On May 7, 2001, the company repurchased approximately 14.5 million shares of its common stock from the family of the late Sigfried Weis for $434.3 million in cash. The share repurchase was reviewed and unanimously approved, as being in the best interests of the company, by a committee composed of all of the company's non-management independent directors who are not members of the Weis family. The committee received financial advice from Morgan Stanley & Co. and Dresdner Kleinwort Wasserstein, Inc., both of whom rendered fairness opinions in respect of the transaction. Due to this transaction, the company incurred $5,266,000 in non-recurring expenses in the quarter. These expenses accounted for 64.6% of the total increase in operating expenses in the quarter and 47.1% year-to-date compared to the same periods last year. The remaining operating expense increase was primarily due to rising labor and benefit costs, which were up 4.5% in the second quarter and 3.1% year-to-date. In the second quarter, the company's investment income totaled $2,643,000 at .5% of sales, a decrease of $1,600,000 or 37.7% compared to the same period a year ago. During the quarter, the company sold the majority of its investment portfolio at a small gain in order to complete the all cash stock repurchase transaction. Year-to-date, the company's investment income increased $683,000 or 7.8% to $9,401,000 at 1.0% of sales. The year-to-date increase was realized as the company sold its tax-free municipal bonds and reinvested the funds into taxable instruments, resulting in increases in investment income and applicable income taxes. Other income and expenses in the second quarter decreased $7,219,000 or 76.9% to $2,168,000 at .4% of sales compared to the same period in 2000. Early in the second quarter of 2000, the company sold its food service division, realizing a gain of $5,839,000 from the transaction. On May 7, 2001, the company established and borrowed against a bank credit agreement in order to transact the stock repurchase resulting in $247,000 in interest expense during the current quarter. The remaining year-to-year difference is due largely to gains or losses realized on closed store facilities. Year-to-date, the company's other income decreased $7,999,000 or 64.6% to $4,374,000 at .4% of sales. The effective tax rate for the second quarter of 2001 was 38.9% compared with 38.0% in 2000. Year-to-date, the effective tax rate is 37.0% compared to 37.4% in the same period last year. The company anticipates an 6
WEIS MARKETS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) OPERATING RESULTS (continued) increase in the tax rate going forward due to the sale of its primarily tax-free investment portfolio. For the three-month period ending June 30, 2001, the company generated $8,706,000 in net income, a decrease of 59.8% compared to last year. As reported in this filing, several non-recurring items affected the company's net income. The company's second quarter basic and diluted earnings per share totaled $.26 compared to $.52 per share in 2000. Year-to-date earnings were $25,900,000 or $.69 per diluted share, compared to $39,536,000, or $.95 per diluted share in 2000. Second quarter and year-to-date basic and diluted earnings per share are computed using weighted-average shares outstanding. At the end of the second quarter, after the $434.3 million stock repurchase, the company had 27.2 million shares of common stock outstanding, a reduction of 14.5 million shares. The impact from the stock repurchase will be partially realized this year in the company's earnings per share results and fully realized in 2002. As of June 30, 2001, Weis Markets, Inc. was operating 163 retail food stores, with locations in Pennsylvania, Maryland, New Jersey, New York, Virginia and West Virginia. The company was operating three less stores at the end of the second quarter of 2001, compared to the same period a year ago. The company also owns SuperPetz II, Inc., a chain of 33 pet supply stores with locations in Alabama, Georgia, Indiana, Kentucky, Maryland, Michigan, North Carolina, Ohio, Pennsylvania, South Carolina and Tennessee. LIQUIDITY AND CAPITAL RESOURCES During the first six months of 2001, the company generated $71,011,000 in cash flows from operating activities compared to $74,742,000 for the same period in 2000. The gain on the sale of fixed assets in 2000 was primarily due to the sale of the company's food service division. The decrease in inventories in this year is attributable to how the Fourth of July holiday shipping period fell this fiscal year compared to last year. Inventory improvements are also being realized as the new warehouse management system becomes fully functional. Year- to-date, working capital decreased $398,135,000 or 80.1% since the beginning of this fiscal year due to the share repurchase transaction. Net cash used in investing activities in the first half of 2001 amounted to $355,268,000 as compared to cash provided by investing activities of $48,402,000 in 2000. Capital expenditures for the first half of the year totaled $22,821,000 as compared to $44,955,000 in the first half of 2000, which included the acquisition of four stores from Fleming Food Companies, Inc. The capital expansion program includes the construction of new superstores, the expansion and remodeling of existing units, the acquisition of sites for future expansion, new technology purchases and the continued upgrade of company processing and distribution facilities. Net cash used in financing activities during the first half of 2001 was $426,793,000 compared to $21,719,000 in 2000. The company purchased and retired 14,477,242 shares of common stock from the family of the late Sigfried Weis at $30 per share on May 7, 2001. During the second quarter and before consummation of the large stock repurchase transaction, the company made $11,256,000 in dividend payments to shareholders of record at $.27 per share, compared to $.26 per share in 2000. Year-to-date cash dividends paid to shareholders amounts to $22,512,000 compared to $21,680,000 in dividend payments in the first half of 2000. The Board of Directors recently declared a quarterly dividend of $.27 per share payable to shareholders of record as of August 10, 2001, payable August 24, 2001. 7
WEIS MARKETS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) LIQUIDITY AND CAPITAL RESOURCES (continued) In a letter to its shareholders in the 2000 Annual Report, management stated that over the next 18 months, it expects to invest up to $95.2 million for capital expenditures to build six superstores and to remodel or expand 24 others, and for continued technology and infrastructure investments. Management believes that the company's cash flow from operations will be sufficient to finance current operations, dividends, self-insurance programs, capital expenditures and debt obligations. To ensure funds are available for continued strategic growth of the company, management is currently working with its lenders to establish a $100,000,000 3-Year Unsecured Revolving Credit Facility, part of which will replace the current credit facility under which $30,000,000 was borrowed. The company has no other commitment of capital resources as of June 30, 2001. 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative Disclosure - The company divested itself of a significant portion of its investment portfolio in conjunction with the stock repurchase from the family of the late Sigfried Weis. There have been no material changes in the company's market risk on the remainder of the portfolio during the six months ended June 30, 2001. Quantitative information is set forth in Item 7A on the company's Form 10-K under the caption "Quantitative Disclosures About Market Risk", which was filed for the fiscal year ended December 30, 2000 and is incorporated herein by reference. Qualitative Disclosure - This information is set forth on Item 7A of the company's 10-K under the caption "Liquidity and Capital Resources," within "Management's Discussion and Analysis of Financial Condition and Results of Operations", which was filed for the fiscal year ended December 30, 2000 and is incorporated herein by reference. The company entered into a bridge loan agreement during the quarter and borrowed $30,000,000 against that facility. The interest rate on the company's long-term debt is directly tied to the LIBOR rate and thus the company is subject to interest rate risk due to market fluctuations. 8
PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Shareholders of Weis Markets, Inc., was held on Monday, June 25, 2001, at 10:00 a.m., Eastern Standard Time, at Tedd's On The Hill, Routes 11 & 15, Shamokin Dam, Pennsylvania, 17876. (b) Proxies for the meeting were solicited pursuant to Regulation 14 under the Act, there was no solicitation in opposition to the management's nominees as listed in the proxy statement, and all such nominees were elected. (c) The meeting was held for the following purposes: 1. To elect seven directors to serve, subject to provisions of the by-laws, until the next Annual Meeting of shareholders or until their respective successors have qualified. 2. To approve the appointment of independent public accountants for the current fiscal year. 3. To act upon such other business as may properly come before such meeting,or any adjournments or postponements thereof. The official ballot from the meeting submitted to the Secretary by the Judge of Elections disclosed the following tabulation of votes. Proposal #1 For Withhold Robert F. Weis 24,766,974 827,598 Norman S. Rich 24,851,473 743,098 William R. Mills 24,852,656 741,916 Jonathan H. Weis 24,767,626 826,946 Michael M. Apfelbaum 24,875,660 718,912 Richard E. Shulman 24,999,291 595,279 Steven C. Smith 24,987,315 607,256 Proposal #2 For Against Abstain Proposal to approve the appointment of Ernst & Young, LLP, as the independent public accountants of the Corporation. 25,085,225 500,975 8,371 9
PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (b) One Form 8-K was filed on May 7, 2001, announcing an, "Item 2. Acquisition or Disposition of Assets". On May 7, 2001, the Registrant purchased an aggregate of 14,477,242 shares of its common stock from the family of the late Sigfried Weis. The purchase price was $30.00 per share, for an aggregate purchase price of approximately $434.3 million in cash. The amount of such consideration was determined through negotiations between the Registrant and the sellers of such shares, and was subject to review by a special committee of the Registrant's board of directors formed for the purpose of evaluating the transaction. In determining the amount of such consideration and assessing the fairness thereof, the company received financial advice from Morgan Stanley Dean Witter, and the special committee received financial advice from Dresdner Kleinwort Wasserstein, Inc., both of which firms rendered fairness opinions to the special committee. The selling shareholders are descendants, or family members of descendants, of one of the founders of the Registrant. The selling shareholders include Joseph I. Goldstein, a director of the Registrant who has resigned from the Board of Directors, his wife and certain of his relatives. The sources of the funds used for the Registrant's acquisition of its shares were the Registrant's own cash resources and borrowings from Mellon Bank under a credit agreement entered into in the ordinary course. 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 08/14/01 /S/ Robert F. Weis ROBERT F. WEIS Chairman of the Board & Treasurer Date 08/14/01 /S/ William R. Mills WILLIAM R. MILLS Vice President-Finance & Secretary 10