FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended September 29, 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 27,203,207 shares (Outstanding at end of period)
WEIS MARKETS, INC. INDEX Page No. Part I. Financial Information Item 1. Consolidated Balance Sheets - September 29, 2001 and December 30, 2000 2 Consolidated Statements of Income - Nine Months Ended September 29, 2001 and September 23, 2000 3 Consolidated Statements of Cash Flows - Nine Months Ended September 29, 2001 and September 23, 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 6. Exhibits and Reports on Form 8-K 9 Signatures 9 1
PART I - FINANCIAL INFORMATION WEIS MARKETS, INC. CONSOLIDATED BALANCE SHEETS (unaudited) (dollars in thousands) September 29, 2001 December 30, 2000 Assets Current: Cash $ 3,021 $ 3,389 Marketable securities 27,753 410,218 Accounts receivable, net 24,245 25,080 Inventories 156,582 168,541 Prepaid expenses 4,507 6,821 Income taxes recoverable 2,183 3,144 ____________ ____________ Total current assets 218,291 617,193 Property and equipment, net 439,103 441,819 Intangible and other assets, net 25,059 26,892 ____________ ____________ $ 682,453 $ 1,085,904 ============ ============ Liabilities Current: Accounts payable $ 88,447 $ 78,162 Accrued expenses 15,136 18,360 Accrued self-insurance 15,298 12,959 Payable to employee benefit plans 8,673 8,663 Deferred income taxes 2,364 2,143 ____________ ____________ Total current liabilities 129,918 120,287 Deferred income taxes 16,273 17,731 Long-term debt 15,000 --- 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 643,415 1,069,986 Accumulated other comprehensive income (Net of deferred taxes of $5,289 in 2001 and $5,166 in 2000) 7,484 7,284 ____________ ____________ 658,529 1,084,864 Treasury stock, at cost, 5,774,830 and 5,766,122 shares, respectively (137,267) (136,978) ____________ ____________ Total shareholders' equity 521,262 947,886 ____________ ____________ $ 682,453 $ 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 Nine Months Ended 09/29/01 09/23/00 09/29/01 09/23/00 Net sales $ 498,832 $ 485,875 $ 1,480,341 $ 1,514,582 Cost of sales, including warehousing and distribution expenses 362,978 352,549 1,083,106 1,116,315 ____________ ____________ ____________ ____________ Gross profit on sales 135,854 133,326 397,235 398,267 Operating, general and administrative expenses 119,013 112,117 353,067 335,002 ____________ ____________ ____________ ____________ Income from operations 16,841 21,209 44,168 63,265 Investment income 373 5,065 9,774 13,783 Other income 2,308 3,112 6,682 15,485 ____________ ____________ ____________ ____________ Income before provision for income taxes 19,522 29,386 60,624 92,533 Provision for income taxes 7,819 10,283 23,021 33,894 ____________ ____________ ____________ ____________ Net income $ 11,703 $ 19,103 $ 37,603 $ 58,639 ============ ============ ============ ============ Weighted-average shares outstanding 27,205,892 41,689,421 33,997,192 41,695,640 ============ ============ ============ ============ Cash dividends per share $ 0.27 $ 0.27 $ 0.81 $ 0.79 ============ ============ ============ ============ Basic and diluted earnings per share $ 0.43 $ 0.46 $ 1.11 $ 1.41 ============ ============ ============ ============ See accompanying notes to consolidated financial statements. 3
WEIS MARKETS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (dollars in thousands) Nine Months Ended 09/29/01 09/23/00 Cash flows from operating activities: Net income $ 37,603 $ 58,639 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 32,492 32,569 Amortization 5,143 5,035 (Gain) loss on sale of fixed assets 1,477 (6,022) Gain on sale of marketable securities (570) (1,100) Changes in operating assets and liabilities: Decrease in inventories 11,959 26,810 Decrease in accounts receivable and prepaid expenses 3,149 15,827 Decrease in income taxes recoverable 961 399 Increase (decrease) in accounts payable and other liabilities 9,410 (24,414) Increase in income taxes payable --- 7,793 Decrease in deferred income taxes (1,360) (2,946) ____________ ____________ Net cash provided by operating activities 100,264 112,590 Cash flows from investing activities: Purchase of property and equipment (34,599) (42,078) Proceeds from the sale of property and equipment 55 11,534 Purchase of marketable securities (299,064) (171,595) Proceeds from maturities of marketable securities 558,771 67,525 Proceeds from the sale of marketable securities 123,651 67,344 Increase in intangible assets and other assets (19) (13,379) ____________ ____________ Net cash provided by (used in) investing activities 348,795 (80,649) Cash flows from financing activities: Proceeds from long-term debt 15,000 --- Proceeds from issuance of common stock 36 35 Dividends paid (29,857) (32,936) Cancellation of stock (434,317) --- Purchase of treasury stock (289) (199) ____________ ____________ Net cash used in financing activities (449,427) (33,100) Net decrease in cash (368) (1,159) Cash at beginning of period 3,389 4,552 ____________ ____________ Cash at end of period $ 3,021 $ 3,393 ============ ============ 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 September 29, 2001 and September 23, 2000 are as follows: Three Months Ended Nine Months Ended (dollars in thousands) 09/29/01 09/23/00 09/29/01 09/23/00 Net Income $ 11,703 $ 19,103 $ 37,603 $ 58,639 Unrealized gains (losses) on marketable securities 309 (76) 532 (241) Less: reclassification adjustment for gains included in net income --- (259) (332) (643) __________ __________ __________ __________ Comprehensive income $ 12,012 $ 18,768 $ 37,803 $ 57,755 ========== ========== ========== ========== (3) Property and Equipment Property and equipment, as of September 29, 2001 and December 30, 2000, consisted of: Useful Life (dollars in thousands) (in years) 2001 2000 Land $ 69,425 $ 63,341 Buildings 10-60 320,444 312,462 Equipment 3-12 468,310 462,079 Leasehold 5-20 99,119 97,310 ____________ ____________ Total, at cost 957,298 935,192 Less accumulated depreciation and amortization 518,195 493,373 ____________ ____________ $ 439,103 $ 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 sales generated for the third quarter ended September 29, 2001 increased 2.7% to $498,832,000 compared to $485,875,000 for the same period in 2000. Year-to-date, sales have decreased 2.3% to $1,480,341,000 compared to $1,514,582,000 in 2000. Year-over-year sales comparisons were affected unfavorably by the sale of the company's food service division in 2000, a weak economy and increasing competitive activity. Excluding fiscal 2000 food service sales of $37,062,000 from the year-over-year comparisons, the company's sales have increased .13%. Identical store sales increased 3.2% for the quarter and .6% year-to-date. During the third quarter of 2001, gross profit increased $2,528,000 or 1.9%, to $135,854,000 or 27.2% of sales compared to the same period last year. The higher gross profit dollars were a result of the sales increase, as the gross profit rate decreased .2% because of higher promotional spending. Year-to-date gross profit of $397,235,000 at 26.8% of sales decreased $1,032,000 or .3%. As a percentage of sales, the company's year- to-date gross profit rate increased .5%, which partially reflected the impact of lower gross profit margins realized from the food service division in the prior year. The third quarter operating, general and administrative expenses of $119,013,000 at 23.9% of sales, increased $6,896,000 or 6.2% compared to the same quarter in 2000. As a percentage of sales, operating expenses for the quarter were .8% higher than the 23.1% rate realized in the third quarter of 2000. The majority of the increase in expense for the quarter is directly related to higher sales with labor and benefit costs accounting for 60.8% of the total increase. In addition, management increased advertising and promotional spending this quarter as the company began a new advertising campaign. The increased advertising and promotional spending accounted for 38.2% of the total increase in expenses. Year-to-date operating, general and administrative expenses of $353,067,000 at 23.9% of sales, compared to $335,002,000 at 22.1% of sales in the first three quarters 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 company incurred $5,331,000 in non-recurring expenses associated with this transaction, accounting for 29.5% of the total increase in operating expenses this year. The remaining year-to-date increase in operating expenses was primarily attributable to rising labor and benefit costs. The company's third quarter investment income of $373,000 at .1% of sales, decreased $4,692,000 or 92.6% compared to the same period a year ago. During the second 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 decreased $4,009,000 or 29.1% to $9,774,000 at .7% of sales. Other income and expenses in the third quarter decreased $804,000 or 25.8%, to $2,308,000 at .5% of sales compared to the same period in 2000. On May 7, 2001, the company established and borrowed against a bank credit agreement in order to transact the stock repurchase resulting in $360,000 in interest expense during the current quarter. Year-to-date, the company's other income decreased $8,803,000 or 56.8% to $6,682,000 at .5% of sales. Early in the second quarter of 2000, the company sold its food service division, realizing a gain of $5,839,000 from the transaction. The remaining year-to-year difference is due largely to gains or losses realized on closed store facilities. The effective tax rate for the third quarter of 2001 was 40.1% compared with 35.0% in 2000. Year-to-date, the effective tax rate is 38.0% compared to 36.6% in the same period last year. The investment portfolio sold in order to finance the stock repurchase in May of this year consisted primarily of Pennsylvania tax-free municipal bonds, which lowered the effective tax rate in prior years. 6
WEIS MARKETS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) OPERATING RESULTS (continued) For the three-month period ending September 29, 2001, the company generated $11,703,000 in net income, a decrease of 38.7% compared to last year. As reported in this filing and previous filings, several non- recurring items have affected the company's net income in both fiscal years. The company's third quarter basic and diluted earnings per share totaled $.43 compared to $.46 per share in 2000. Year-to-date earnings were $37,603,000 or $1.11 per diluted share, compared to $58,639,000, or $1.41 per diluted share in 2000. Third quarter and year-to-date basic and diluted earnings per share are computed using weighted-average shares outstanding. At the end of the third quarter, the company had 27.2 million shares of common stock outstanding, a reduction of 14.5 million shares compared to last year. 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 September 29, 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 third 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 nine months of 2001, the company generated $100,264,000 in cash flows from operating activities compared to $112,590,000 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. Year-to-date, working capital decreased $408,533,000 or 82.2% since the beginning of this fiscal year due to the share repurchase transaction. Net cash provided by investing activities in the first three quarters of 2001 amounted to $348,795,000 as compared to cash used in investing activities of $80,649,000 in 2000. Capital expenditures for the first three quarters of the year totaled $34,599,000 as compared to $42,078,000 in the first three quarters 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 three quarters of 2001 was $449,427,000 compared to $33,100,000 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, taking on $30,000,000 in long-term debt to complete the transaction. The company reduced its long-term debt obligation by $15,000,000 in the third quarter, but anticipates increasing the debt load during the fourth quarter in order to meet operating cash flow needs as inventories are increased for the holiday selling season. The company paid shareholders $7,345,000 in dividends during the current quarter at $.27 per share. Year-to-date cash dividends of $29,857,000 compares to $32,936,000 in dividend payments made through the first three quarters of 2000. The Board of Directors recently declared a quarterly dividend of $.27 per share payable to shareholders of record as of November 2, 2001, payable November 16, 2001. Treasury stock purchases during the first three quarters of this year amounted to $289,000, compared to $199,000 in purchases made in the first nine months of last year. The Board of Directors' 1996 resolution authorizing the purchase of treasury stock has a remaining balance of 564,677 shares. 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 and the existing line of credit will be sufficient to meet its normal operating requirements. Management continues to work with its lenders to establish a $100,000,000 Three-Year Unsecured Revolving Credit Facility, part of which will replace the current credit facility, to ensure funds are available for continued strategic growth. The company has no other commitment of capital resources as of September 29, 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 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 nine months ended September 29, 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 second quarter of this year. 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 6. Exhibits and Reports on Form 8-K (b) Reports on Form 8-K -- There were no reports on Form 8-K filed for the three months ended September 29, 2001. 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 11/09/01 /S/ Robert F. Weis ROBERT F. WEIS Chairman of the Board & Treasurer Date 11/09/01 /S/ William R. Mills WILLIAM R. MILLS Vice President-Finance & Secretary 9