FORM 10-QSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)of the Securities Exchange Act of 1934
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934 for the quarterly period ended September 28, 2002.Or[ ] Transition Report Pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934 for the transition period from ______to______.
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 incorporation or organization) (I.R.S. Employer Identification No.)
1000 S. Second Street P. O. Box 471 Sunbury, Pennsylvania 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 27,203,362 shares (Outstanding at end of period)
TABLE OF CONTENTS
Table of Contents
WEIS MARKETS, INC.INDEX
Page 1 of 12 (Form 10-Q)
Page 3 of 12 (Form 10-Q)
Page 4 of 12 (Form 10-Q)
WEIS MARKETS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited)
(1) Significant Accounting PoliciesBasis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The operating results for the periods presented are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the company's latest annual report on Form 10-K.
Impact of Recently Issued Accounting Standards: As of December 30, 2001, the company adopted Emerging Issues Task Force Issue Nos. 00-14, "Accounting for Certain Sales Incentives;" 00-22, "Accounting for 'Points' and Certain Other Time-Based or Volume-Based Sales Incentives Offers, and Offers for Free Products or Services to Be Delivered in the Future;" and 00-25, "Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer" (EITF Issues). These EITF Issues establish new rules for accounting for certain sales incentives, loyalty programs and vendor contracts; however, the adoption of these EITF Issues have not had an impact on the company's net income or shareholders' equity. These EITF Issues require certain sales incentives, which prior to adoption were reported as expenses or costs of goods sold, to be classified as a reduction of revenue. Prior year financial statements have been reclassified to conform to the requirements of t hese EITF Issues.
In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations" (Statement No. 141) and No. 142, "Goodwill and Other Intangible Assets" (Statement No. 142) effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subjected to annual impairment tests in accordance with the statements. Other intangible assets continue to be amortized over their useful lives.
The company applied Statement No. 142 in the first quarter of fiscal 2002. Application of the statement is expected to result in an increase in pre-tax net income of approximately $1.6 million for fiscal 2002 due to the elimination of amortization of goodwill. The company has performed the required impairment tests of goodwill and has determined that the company's goodwill is not impaired.
(2) Goodwill and Other Intangible Assets - Adoption of Statement 142The effect of goodwill on net income and earnings per share, for period ended September 28, 2002 and September 29, 2001, is as follows:
Page 5 of 12 (Form 10-Q)
WEIS MARKETS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited)(continued)
(3) Comprehensive IncomeThe components of comprehensive income, net of related tax, for the period ended September 28, 2002 and September 29, 2001 are as follows:
(4) Property and EquipmentProperty and equipment, as of September 28, 2002 and December 29, 2001, consisted of :
Page 6 of 12 (Form 10-Q)
WEIS MARKETS, INC.ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
Total sales for the third quarter ended September 28, 2002 increased .5% to $495.9 million as compared to sales of $493.4 million generated in the third quarter of 2001. For the first three quarters of 2002, the company's sales increased 1.6% to $1.492 billion compared to the previous year's total of $1.468 billion. Identical store sales increased .6% for the quarter and 1.5% year-to-date. The company's third quarter sales results were affected by a softening economy; deflation in key categories, particularly beef, pork and poultry; and intensifying competition throughout its market.
Gross profit of $132.1 million at 26.6% of sales, increased $1.7 million or 1.3% versus the same quarter last year. The increase in gross profit dollars was generated primarily from the higher sales volume, as the gross profit rate increased .2% compared to the third quarter of last year. The year-to-date gross profit of $395.5 million at 26.5% of sales, increased $10.6 million or 2.8%, and increased as a percentage of sales by .3%.
The third quarter operating, general and administrative expenses of $114.6 million increased $1.1 million or 1.0% compared to the same quarter in 2001. As a percentage of sales, third quarter operating expenses remained virtually unchanged at 23.1% of sales versus 23.0% of sales in 2001. Year-to-date operating expenses of $339.1 million at 22.7% of sales compared to $340.7 million at 23.2% 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. Due to this transaction, the company incurred $5.3 million in non-recurring expenses in the second quarter of last year. Without this transaction, the 2001 year-to-date operating expenses as a percent of sales would equal 22.8%.
In the third quarter, the company's investment income totaled $211 thousand compared to $373 thousand a year ago. Year-to-date, the company's investment income decreased $9.1 million or 93.2% to $661 thousand. During the second quarter of 2001, the company sold the majority of its investment portfolio at a small gain in order to complete the all cash stock repurchase transaction.
Other income for the quarter of $6.1 million at 1.2% of sales increased $3.8 million compared to the same quarter last year. The fluctuation between other income for the third quarter 2002 and 2001 is mainly attributable to the sale of two closed store properties, which generated $2.9 million in gains. Year-to-date other income of $11.9 million at .8% of sales has increased $5.2 million versus a year ago. The difference in gains and losses on closed store property disposals was $4.1 million year-to-date.
The effective tax rate for the third quarter of 2002 was 37.6% compared with 40.1% in 2001. Year-to-date, the effective tax rate was 37.3% compared to 38.0% in the same period last year. The company's federal income tax returns for 1997-99 are under audit by the Internal Revenue Service. The Internal Revenue Service has provided the company with a number of preliminary notices of proposed adjustment. The Internal Revenue Service has not completed its audit; however, if it were to propose a deficiency, the amount may be material. The company believes that it has meritorious defenses and would contest these matters vigorously.
For the three month period ending September 28, 2002, the company generated $14.8 million in net income, an increase of 26.9% compared to last year. The company's third quarter basic and diluted earnings per share totaled $.55 compared to $.43 per share in 2001, an increase of 27.9%. Year-to-date earnings were $43.2 million or $1.59 per diluted share, compared to $37.6 million, or $1.11 per diluted share in 2001. The increased year-to-date earnings per share are partially related to the 34.8% reduction in shares after the large stock purchase in the second quarter of last year.
As of September 28, 2002, Weis Markets, Inc. was operating 160 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 2002, 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.
Page 7 of 12 (Form 10-Q)
WEIS MARKETS, INC.ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(continued)
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 2002, the company generated $88.3 million in cash flows from operating activities compared to $100.3 million for the same period in 2001. Working capital increased $4.8 million or 4.7% since the beginning of the year.
Net cash used in investing activities amounted to $40.8 million for the first three quarters of the year as compared to cash provided by investing activities of $348.8 million in 2001. Year-to-date capital expenditures totaled $28.6 million as compared to $34.6 million in the first three quarters of 2001. 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.
For the nine month period, net cash used in financing activities was $47.1 million compared to $449.4 million in 2001. In 2001, 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. Year-to-date cash dividends paid to shareholders amounted to $22.0 million compared to $29.9 million in dividend payments in the first three quarters of 2001. The Board of Directors recently declared a quarterly dividend of $.27 per share payable to shareholders of record as of November 1, 2002, payable November 15, 2002.
In a letter to its shareholders in the 2001 Annual Report, management stated that over the next twelve months, the company expects to invest up to $67.4 million for capital expenditures mostly for the construction of five new stores, including four replacements, and the remodel or expansion of twelve units. 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 has established with its lenders a $100 million three-year unsecured revolving credit facility. The company has no other commitment of capital resources as of September 28, 2002.
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. Read ers should carefully review the risk factors described in other documents the company files periodically with the Securities and Exchange Commission.
Page 8 of 12 (Form 10-Q)
WEIS MARKETS, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative Disclosure - There have been no material changes in the company's market risk during the nine months ended September 28, 2002. 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 29, 2001 and is incorporated herein by reference.
Qualitative Disclosure - This information is set forth in 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 29, 2001 and is incorporated herein by reference.
The company entered into a bridge loan agreement during the second quarter of last 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.
ITEM 4. CONTROLS AND PROCEDURES
The Chief Executive Officer and the Chief Financial Officer of the company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of a date within 90 days prior to the date of the filing of this Report, that the company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the company in such reports is accumulated and communicated to the company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There were no significant changes in the company's internal controls or in other factors that could significantly affect these controls subsequent to the date of such evaluation.
Page 9 of 12 (Form 10-Q)
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 28, 2002.
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.
Date 11/04/2002 /S/ Norman S. Rich NORMAN S. RICH President/CEO
Date 11/04/2002 /S/ William R. Mills WILLIAM R. MILLS Senior Vice President and Treasurer/CFO
Page 10 of 12 (Form 10-Q)
CERTIFICATION - CEO
I, Norman S. Rich, President/CEO of Weis Markets Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Weis Markets Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 04, 2002 /S/ Norman S. Rich Norman S. Rich
President/CEO
Page 11 of 12 (Form 10-Q)
CERTIFICATION- CFO
I, William R. Mills, Senior Vice President and Treasurer/CFO of Weis Markets Inc., certify that:
Date: November 04, 2002 /S/ William R. Mills William R. Mills Senior Vice President and Treasurer/CFO
Page 12 of 12 (Form 10-Q)