Item 1. Business: (continued)
The Company operates in a highly competitive market place. The number and the variety of competitors vary by market. The Company’s principal competition consists of international, national, regional and local food chains, as well as independent food stores. The Company also faces substantial competition from convenience stores, membership warehouse clubs, specialty retailers, supercenters and large-scale drug and pharmaceutical chains. This competition is augmented by the food retail industry’s expansion into the online market in recent years. The Company continues to effectively compete by offering a strong combination of value, quality and service.service, as well as offering Weis 2 Go curbside pickup and delivery; further enhancing service offerings and providing additional convenience to customers.
Human Capital. The Company believes that talent is a business differentiator and is committed to creating a sustainable competitive advantage through the selection, development and promotion of talented, highly motivated people. The Company believes that establishing a learning culture supports its commitment to be an employer of choice and helps drive customer engagement with its associates. Improvements in the Company’s talent management and development will help drive business impact while providing internal career opportunities. The Company continues to grow leaders at every level throughout the organization by creating a culture of mentoring, coaching and leveraging on-the-job assignments for continued development. The Company believes that a strong employment brand is necessary to attract and retain top talent and affects its ability to compete and execute strategic plans. The Company will continue to assess and upgrade underlying technologies to support human capital development as a strategic imperative for future growth.
The Company currently employs approximately 23,00024,000 full-time and part-time associates. Approximately 98% of Weis Markets associates are paid an hourly wage.
Trade Names and Trademarks. The Company has invested significantly in the development and protection of “Weis Markets” both as a trade name and a trademark and considers it to be an important asset. The Company is the exclusive licensee of nearly 100 trademarks registered and/or pending in the United States Patent and Trademark Office from WMK Holdings, Inc., including trademarks for its product lines and promotions such as Weis, Weis 2 Go, Weis Wonder Chicken, Weis Great Meals Start Here, Weis Gas-n-Go and Weis Nutri-Facts. Each trademark registration is for an initial period of 10 years and may be renewed so long as it is in continued use in commerce.
The Company considers its trademarks to be of material importance to its business and actively defends and enforces its rights.
The Company maintains a corporate web site at www.weismarkets.com.www.weismarkets.com/investor-relations. The Company makes available, free of charge, on the “Financial”“Investor Relations” page of the “Corporate Information” section of its web site, its Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after the Company electronically files such material or furnishes it to the U.S. Securities and Exchange Commission (SEC) by clicking on the “SEC Information” link.
The Company’s Corporate Governance materials can be found on the”Governance” page of the “Corporate Information” section of its web site. These materials include the Corporate Governance Guidelines; the Charters of the Audit, Compensation and Disclosure Committees; and both the Code of Business Conduct and Ethics and the Code of Ethics for the CEO and CFO. A copy of the foregoing corporate governance materials is available upon written request to the Company’s principal executive offices.
In addition to risksCompetitive and uncertainties in the ordinary course of business common to all businesses, important factors are listed below specific to the Company and its industry, which could materially impact its future performance.Reputational Risks
The Company’s industry is highly competitive. If the Company is unable to compete effectively, the Company’s financial condition and results of operations could be materially affected.
The retail food industryis intensely price competitive, and the competition the Company encounters may have a negative impact on product retail prices. The operating environment continues to be characterized by aggressive expansion, entry of non-traditional competitors, market consolidation and increasing fragmentation of retail and online formats. The introduction of on-line food retail in recent years has augmented competition in industry. The financial results may be adversely impacted by a competitive environment that could cause the Company to reduce retail prices without a reduction in its product cost to maintain market share; thus reducing sales and gross profit margins.
Item 1a. Risk Factors: (continued)
Food safety issues could result in the loss of consumer confidence in the Company.
Customers count on the Company to provide them with safe and wholesome food products. Concerns regarding the safety of food products sold in its stores could cause shoppers to avoid purchasing certain products from the Company, or to seek alternative sources of supply for all of their food needs, even if the basis for the concern is outside of the Company’s control. A loss in confidence on the part of its customers would be difficult and costly to reestablish. As such, any issue regarding the safety of any food items sold by the Company, regardless of the cause, could have a substantial and adverse effect on operations.
The Company may be unable to retain key management personnel.
The Company's success depends to a significant degree upon the continued contributions of senior management. The loss of any key member of management may prevent the Company from implementing its business plans in a timely manner. In addition, employment conditions specifically may affect the Company’s ability to hire and train qualified associates.
Financial, Investments and Infrastructure Risks
The failure to execute expansion plans could have a material adverse effect on the Company's business and results of its operations.
Circumstances outside the Company’s control could negatively impact anticipated capital investments in store, distribution and manufacturing projects, information technology and equipment. The Company cannot determine with certainty whether its new or acquired stores will meet expected benefits including, among other things, operating efficiencies, procurement savings, innovation, sharing of best practices and increased market share that may allow for future growth. Achieving the anticipated benefits may be subject to a number of significant challenges and uncertainties, including, without limitation, the possibility of imprecise assumptions underlying expectations regarding potential synergies and the integration process, unforeseen expenses and delays diverting management’s time and attention and competitive factors in the marketplace.
The Company’s investment portfolio may suffer losses from changes in market interest rates and changes in market conditions which could adversely affect results of income or liquidity.
The Company’s marketable securities consist of corporate and municipal bonds and equity securities. These investments are subject to general credit, liquidity, market and interest rate risks. As a result, the Company may experience a reduction in value or loss of liquidity from investments, which may have a negative impact on the Company’s results of operations, liquidity and financial condition.
Unexpected factors affecting self-insurance claims and reserve estimates could adversely affect the Company.
The Company uses a combination of insurance and self-insurance to provide for potential liabilities for workers' compensation, general liability, vehicle accident, property and associate medical benefit claims. Management estimates the liabilities associated with the risks retained by the Company, in part, by considering historical claims experience, demographic and severity factors and other actuarial assumptions which, by their nature, are subject to a high degree of variability. Any projection of losses concerning workers’ compensation and general liability is subject to a high degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns.
Information Security, Cybersecurity and Data Privacy Risks
Disruptions or securitycybersecurity breaches in the Company’s information technology systems could adversely affect results.
The Company’s business is highly dependent on complex information technology systems that are vital to its continuing operations. If the Company was to experience difficulties maintaining existing systems or implementing new systems, significant losses could be incurred due to disruptions in its operations. Additionally, these systems contain valuable proprietary data as well as receipt and storage of personal information about its associates and customers, in particular electronic payment data and personal health information that, if breached, would have an adverse effect on the Company. Such an occurrence could adversely affect the Company’s reputation with its customers, associates, and vendors, as well as the Company’s operations, results of operations, financial condition and liquidity, and could result in litigation against the Company or the imposition of penalties.
Item 1a. Risk Factors: (continued)
Supply Chain and Third-Party Risks
The Company is affected by certain operating costs which could increase or fluctuate considerably.
Associate expenses contribute to the majority of the Company’s operating costs. The Company's financial performance is potentially affected by increasing wage and benefit costs, a competitive labor market, regulatory wage increases and the risk of unionized labor disruptions of its non-union workforce. The Company's profit is particularly sensitive to the cost of oil. Oil prices directly affect the Company's product transportation costs, as well as its utility and petroleum-based supply costs. It also affects the costs of its suppliers, which impacts its cost of goods.
Changes in vendor promotions or allowances, including the way vendors target their promotional spending, and the Company's ability to effectively manage these programs could significantly impact margins and profitability.
The Company cooperatively engages in a variety of promotional programs with its vendors. As the parties assess the results of specific promotions and plan for future promotions, the nature of these programs and the allocation of dollars among them changes over time. The Company manages these programs to maintain or improve margins while at the same time increasing sales. A reduction in overall promotional spending or a shift by vendors in promotional spending away from certain types of promotions that the Company and its customers have historically utilized could have a significant impact on profitability.
Legal, Regulatory and Other External Risks
The trade area of the Company is located within a region and is subject to the economic, social and climate variables of that region.
The majority of the Company’s stores are concentrated in central and northeast Pennsylvania, central Maryland, suburban Washington, DC and Baltimore regions and New York’s Southern Tier. Changes in economic and social conditions in the Company’s operating regions, including fluctuations in the inflation rate along with changes in population and employment and job growth rates, affect customer shopping habits. These changes may negatively impact sales and earnings. Business disruptions due to weather and catastrophic events historically have been few. The Company’s geographic regions could receive an extreme variance in the amount of annual snowfall that may materially affect sales and expense results.
Various aspects of the Company’s business are subject to federal, state and local laws and regulations.
The Company is subject to various federal, state and local laws, regulations and administrative practices that affect the Company’s business. The Company must comply with numerous provisions regulating health and sanitation standards, food labeling, equal employment opportunity, minimum wages and licensing for the sale of food, drugs and alcoholic beverages. The Company’s compliance with these regulations may require additional capital expenditures and could adversely affect the Company’s ability to conduct the Company’s business as planned. Management cannot predict either the nature of future laws, regulations, interpretations or applications, or the effect either additional government regulations or administrative orders, when and if promulgated, or disparate federal, state, and local regulatory schemes would have on the Company’s future business. They could, however, require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling and/or scientific substantiation. Any or all of such requirements could have an adverse effect on the Company’s results of operations and financial condition.
4
WEIS MARKETS, INC.
Item 1a. Risk Factors: (continued)
Unexpected factors affecting self-insurance claims and reserve estimates could adversely affect the Company.
The Company uses a combination of insurance and self-insurance to provide for potential liabilities for workers' compensation, general liability, vehicle accident, property and associate medical benefit claims. Management estimates the liabilities associated with the risks retained by the Company, in part, by considering historical claims experience, demographic and severity factors and other actuarial assumptions which, by their nature, are subject to a high degree of variability. Any projection of losses concerning workers’ compensation and general liability is subject to a high degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns.
Changes in tax laws may result in higher income tax.
The Company's future effective tax rate may increase from current rates due to changes in laws and the status of pending items with various taxing authorities. Currently, the Company benefits from a combination of its corporate structure and certain state tax laws.
The Company’s investment portfolio may suffer losses from changes in market interest rates and changes in market conditions which could adversely affect results of income or liquidity.
The Company’s marketable securities consist of municipal bonds and equity securities. The municipal bond investments are subject to general credit, liquidity, market and interest rate risks. Substantially all of these securities are subject to interest rate and credit risk and will decline in value if interest rates increase or one of the issuers’ credit ratings is reduced. As a result, the Company may experience a reduction in value or loss of liquidity from investments, which may have a negative impact on the Company’s results of operations, liquidity and financial condition.
The Company is a controlled Company due to the common stock holdings of the Weis family.
The Weis family’s share ownership represents approximately 65% of the combined voting power of the Company’s common stock as of December 30, 2017.26, 2020. As a result, the Weis family has the power to elect a majority of the Company’s directors and approve any action requiring the approval of the shareholders of the Company, including adopting certain amendments to the Company’s charter and approving mergers or sales of substantially all of the Company’s assets. Currently, one of the Company’s five directors is a member of the Weis family.
Item 1a. Risk Factors: (continued)
The Company’s business and operations, and the Company's ability to effectively manage these programs could significantly impact marginsoperations of the Company’s suppliers, have been, and profitability.may in the future be adversely affected by epidemics or pandemics such as the novel Coronavirus (COVID-19) pandemic outbreak.
The Company cooperatively engages inmay face risks related to health epidemics and pandemics or other outbreaks of communicable diseases. The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption. The Company’s business was deemed essential during the novel coronavirus pandemic and the Company is committed to maintaining a variety of promotional programs with its vendors. As the partiessafe work and shopping environment. Management, at this time, cannot assess the results of specific promotions and plan for future promotions, the nature of these programs and the allocation of dollars among them changes over time. The Company manages these programsultimate economic impact to maintain or improve margins while at the same time increasing sales. A reduction in overall promotional spending or a shift by vendors in promotional spending away from certain types of promotions that the Company, which will be determined by, among other things, the length of time that such circumstances continue, nor can the Company predict the effects of governmental and its customers have historically utilizedpublic responses to changing conditions. The risks and uncertainties surrounding the coronavirus pandemic are broad however below is a list of risks management is monitoring which could have a significantmaterial impact on profitability.the Company’s business:
Employees – Reduced workforces due to the temporary inability to work caused by illness, quarantine, or government mandates.
Supply Chain – Interruption in the Company’s supply chain due to the novel coronavirus.
Lawsuits – Future litigation arising from issues concerning the novel coronavirus.
Future government regulation – Future laws, regulations, interpretations, administrative orders, or applications that may have an adverse impact on the Company’s operations and costs.
Customer trends – Changes in the methods in which customers procure the Company’s products.
Cyber security – Increased cyber-attacks due to “work at home” requirements.
Item 1b.Unresolved Staff Comments:
There are no unresolved staff comments.
5
WEIS MARKETS, INC.
As of December 30, 2017,26, 2020, the Company owned and operated 9497 of its retail food stores and leased and operated 11199 stores under operating leases that expire at various dates through 2033.2036. The Company owns all 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 distribution center in Milton, Pennsylvania of approximately 1.3 million square feet, and one in Northumberland, Pennsylvania totaling approximately 76,00076 thousand square feet. The Company also owns one warehouse complex in Sunbury, Pennsylvania totaling approximately 541,000535 thousand square feet. The Company utilizes 258,000258 thousand square feet of its Sunbury location to operate its ice cream plant, meat processing plant and milk processing plant.
Neither the Company nor any subsidiary is presently a party to, nor is any of their property subject to, any pending legal proceedings, other than routine litigation incidental to the business that would not have a material adverse effect on the financial results. The Company estimates any exposure to these legal proceedings and establishes accruals for the estimated liabilities, where it is reasonably possible to estimate and where an adverse outcome is probable.
Information about the Company’s Executive Officers of the Registrant
The following sets forth the names and ages of the Company’s executive officers as of March 15, 2018,11, 2021, indicating all positions held during the past five years:
Name | Age | Title |
Wayne S. Bailey (a) | 62 | Senior Vice President of Supply Chain and Logistics |
Scott F. Frost (b) | 58 | Senior Vice President, Chief Financial Officer and Treasurer |
Robert G. Gleeson (c) | 55 | Senior Vice President of Merchandising and Marketing |
David W. Gose II (d) | 54 | Senior Vice President of Operations |
Harold G. Graber (e) | 65 | Senior Vice President of Real Estate and Development, Secretary |
Michael T. Lockard (f) | 51 | Senior Vice President |
James E. Marcil (g) | 62 | Senior Vice President of Human Resources |
Kurt A. Schertle (h) | 49 | Chief Operating Officer |
Jonathan H. Weis |
| Chairman of the Board, President and Chief Executive Officer |
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(a)Wayne S. Bailey. Mr. Bailey joined the Company full-time in 1979 and he has held several positions since then, including but not limited to, Grocery Manager, Store Manager, District Manager, Director of Merchandising and Sales and Vice President of Operational Administration. In January 2011, Mr. Bailey became a Regional Vice President and in January 2013 he assumed the role of Vice President of Supply Chain and Logistics. In June 2016, Mr. Bailey was promoted to Senior Vice President of Supply Chain and Logistics.
(b)Scott F. Frost. Mr. Frost joined the Company full-time in 1984 and he has held various positions since then, including but not limited to, Controller, Assistant Secretary, Assistant Treasurer and Acting Chief Financial Officer. The Company appointed Mr. Frost as Vice President, Chief Financial Officer and Treasurer in October 2009. In January 2011, Mr. Frost was promoted to Senior Vice President, Chief Financial Officer and Treasurer.
(c)Robert G. Gleeson. Mr. Gleeson joined the Company in October 2018 and was promoted to Vice President of Fresh Merchandising in July 2019. In March 2021, Mr. Gleeson was promoted to Senior Vice President of Merchandising and Marketing. Prior to joining the Company, Mr. Gleeson held senior level merchandising positions, including Vice President of Center Store for Shoppers and Senior Vice President of Merchandising and Division President for Supervalu.
(d)David W. Gose II. Mr. Gose joined the Company in May 2014 as Senior Vice President of Operations. Prior to joining the Company, Mr. Gose was Senior Director and Regional General Manager of Walmart Ohio, a retail store Supercenter, from February 2010 until May 2014. Walmart Ohio consisted of 92 stores that geographically included all stores south of Toledo, Cleveland, Akron and Youngstown.
(e)Harold G. Graber. Mr. Graber joined the Company in October 1989 as the Director of Real Estate. Mr. Graber, who served the Company as Vice President for Real Estate since 1996, was promoted to Senior Vice President of Real Estate and Development in February 2010. Mr. Graber was elected as Secretary of the Company in February 2014.
(f)Michael T. Lockard. Mr. Lockard joined the Company in January 2021 as Senior Vice President and will be assuming the role of Chief Financial Officer and Treasurer effective March 12, 2021. Prior to joining the Company, Mr. Lockard was Senior Vice President and Chief Financial Officer of K-VA-T Food Stores, Inc. from March 2012 until January 2021. K-VA-T Food Stores, Inc. is a self-distributing regional supermarket chain operating in Virginia, Kentucky, Tennessee and Georgia. Prior to 2012, Mr. Lockard held various financial management positions with Walmart and UPS.
(g)James E. Marcil. Mr. Marcil joined the Company in September 2002 as Vice President of Human Resources. In February 2010, Mr. Marcil was promoted to Senior Vice President of Human Resources. Prior to joining the Company, Mr. Marcil held senior level Human Resources positions with CVS and General Electric.
(h)Kurt A. Schertle. The Company hired Mr. Schertle on March 1, 2009 as its Vice President of Sales and Merchandising, which included the responsibility of overseeing the Marketing Department. In February 2010, Mr. Schertle was promoted to Senior Vice President of Sales and Merchandising. In July 2012, Mr. Schertle was promoted to Executive Vice President of Sales and Merchandising at which time, he assumed the additional responsibility of overseeing the Company’s Supply Chain. In September 2013, Mr. Schertle assumed the additional responsibility of overseeing Store Operations and Mr. Schertle was promoted to Chief Operating Officer in March 2014.
(i)Jonathan H. Weis. The Company has employed Mr. Weis since 1989. Mr. Weis served the Company as Vice President of Property Management and Development from 1996 until April 2002, at which time he was appointed as Vice President and Secretary. In January of 2004, the Board appointed Mr. Weis as Vice Chairman and Secretary. Mr. Weis became the Company's interim President and Chief Executive Officer in September 2013 and was appointed as President and Chief Executive Officer in February 2014. The Board elected Mr. Weis as Chairman of the Board in April 2015.
(j)Richard G. Zeh, Jr. Mr. Zeh joined the Company in September 2016 as Chief Information Officer. In February 2021, Mr. Zeh was promoted to Senior Vice President, Chief Information Officer. Prior to joining the Company, Mr. Zeh was Chief Financial Officer of Mazzone Management Group. During his career, Mr. Zeh has worked in increasingly senior finance and information technology positions in the food retail and service industries including as Vice President and Chief Information Officer at The Golub Corporation/ Price Chopper Supermarkets.
PART II
Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities:
The Company's stock is traded on the New York Stock Exchange (ticker symbol WMK). The approximate number of shareholders, including individual participants in security position listings on March 14, 201811, 2021 was 6,493. High and low stock prices and dividends paid per share for the last two fiscal years were: 10,502.
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| 2017 |
| 2016 | |||||||||||||||
| Stock Price | Dividend |
| Stock Price | Dividend |
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Quarter |
| High |
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| Low |
| Per Share |
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| High |
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| Low |
| Per Share |
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First | $ | 68.88 |
| $ | 55.34 |
| $ | 0.30 |
| $ | 46.64 |
| $ | 37.14 |
| $ | 0.30 |
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Second |
| 62.88 |
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| 46.05 |
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| 0.30 |
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| 53.59 |
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| 42.77 |
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| 0.30 |
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Third |
| 49.44 |
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| 41.30 |
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| 0.30 |
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| 55.49 |
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| 48.01 |
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| 0.30 |
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Fourth |
| 45.68 |
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| 31.26 |
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| 0.30 |
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| 68.40 |
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| 51.56 |
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| 0.30 |
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The following line graph compares the yearly percentage change in the cumulative total shareholder return on the Company’s common stock against the cumulative total return of the S&P Composite-500 Stock Index and the cumulative total return of a publishedCompany-selected group index forthat the Retail Grocery Stores Industry (“PeerCompany deems most properly represents its “Peer Group”), provided by Value Line, Inc., for the period of five years. The Peer group is made up of five retail grocers that the Company feels most closely relate to its size and business profile, and one national grocer the Company believes to be an industry market leader. The companies making up the Peer Group, in no particular order, are, Ingles Markets, Inc; Village Super Market, Inc.; Smart & Final Stores, Inc. (included through June 20, 2019 when it was acquired by Apollo Global Management, LLC); Sprouts Farmers Market, Inc. and The Kroger Company. The graph depicts $100 invested at the close of trading on the last trading day preceding the first day of the fifth preceding year in Weis Markets, Inc. common stock, S&P 500, and the Peer Group. The cumulative total return assumes reinvestment of dividends.
Comparative Five-Year Total Returns
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| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||
Weis Markets, Inc. | 100.00 |
| 136.95 |
| 127.95 |
| 121.81 |
| 188.49 |
| 119.53 |
| 100.00 | 149.22 | 94.69 | 110.04 | 97.16 | 117.96 | ||||||
S&P 500 | 100.00 |
| 132.39 |
| 150.51 |
| 152.60 |
| 170.85 |
| 208.15 |
| 100.00 | 108.87 | 130.01 | 120.87 | 157.55 | 182.26 | ||||||
Peer Group | 100.00 |
| 125.60 |
| 188.67 |
| 223.35 |
| 209.14 |
| 194.77 |
| 100.00 | 92.90 | 80.60 | 76.55 | 85.35 | 84.12 | ||||||
Item 6.Selected Financial Data:
The following selected historicalfive years of financial information has been derived from the Company's audited Consolidated Financial Statements. This information should be read in connection with the Company's Consolidated Financial Statements and the Notes thereto, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in Item 7.
Five Year Review
52 Weeks | 52 Weeks | 52 Weeks | 52 Weeks | 53 Weeks | ||||||||||
Ended | Ended | Ended | Ended | Ended | ||||||||||
(dollars in thousands, except per share amounts) | Dec. 26, 2020 | Dec. 28, 2019 | Dec. 29, 2018 | Dec. 30, 2017 | Dec. 31, 2016 | |||||||||
Net sales | $ | 4,112,601 | $ | 3,543,299 | $ | 3,509,270 | $ | 3,466,807 | (1) | $ | 3,136,720 | |||
Income from operations | 163,178 | 84,639 | 82,671 | 78,519 | 98,922 | |||||||||
Net income | 118,917 | 67,983 | 62,738 | 98,414 | (2) | 87,162 | ||||||||
Cash dividends per share | 1.24 | 1.24 | 1.21 | 1.20 | 1.20 | |||||||||
Basic and diluted earnings per share | 4.42 | 2.53 | 2.33 | 3.66 | 3.24 | |||||||||
Working capital | 279,933 | 216,354 | 201,909 | 208,972 | 207,700 | |||||||||
Total assets | 1,820,421 | 1,675,562 | 1,432,011 | 1,441,739 | 1,431,304 | |||||||||
Inventory | 269,024 | 279,806 | 280,756 | 279,509 | 276,783 | |||||||||
Property and Equipment, net | 924,429 | 886,928 | 887,608 | 886,243 | 878,195 | |||||||||
Shareholders’ equity | 1,146,115 | 1,058,745 | 1,022,899 | 992,844 | 926,722 | |||||||||
Closing share price | 47.43 | 40.12 | 46.85 | 41.39 | 66.84 | |||||||||
(1) In September 2016, the Company began its acquisition of Operations
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| 52 Weeks |
| 53 Weeks |
| 52 Weeks |
| 52 Weeks |
| 52 Weeks | |||||
(dollars in thousands, except shares, | Ended |
| Ended |
| Ended |
| Ended |
| Ended | |||||
per share amounts and store information) | Dec. 30, 2017 |
| Dec. 31, 2016 |
| Dec. 26, 2015 |
| Dec. 27, 2014 |
| Dec. 28, 2013 | |||||
Net sales | $ | 3,466,807 |
| $ | 3,136,720 |
| $ | 2,876,748 |
| $ | 2,776,683 |
| $ | 2,692,588 |
Costs and expenses |
| 3,390,382 |
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| 3,038,395 |
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| 2,785,969 |
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| 2,695,308 |
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| 2,578,916 |
Income from operations |
| 76,425 |
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| 98,325 |
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| 90,779 |
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| 81,375 |
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| 113,672 |
Investment income and interest expense |
| 2,598 |
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| 2,457 |
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| 1,552 |
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| 2,287 |
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| 4,684 |
Gain on bargain purchase |
| 0 |
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| 23,879 |
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| - |
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| - |
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| - |
Income before provision for income taxes |
| 79,023 |
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| 124,661 |
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| 92,331 |
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| 83,662 |
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| 118,356 |
Provision for income taxes |
| (19,391) |
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| 37,499 |
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| 33,001 |
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| 29,281 |
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| 45,170 |
Net income |
| 98,414 |
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| 87,162 |
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| 59,330 |
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| 54,381 |
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| 73,186 |
Retained earnings, beginning of year |
| 1,062,778 |
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| 1,007,894 |
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| 980,842 |
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| 958,739 |
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| 917,831 |
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| 1,161,192 |
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| 1,095,056 |
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| 1,040,172 |
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| 1,013,120 |
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| 991,017 |
Other comprehensive income tax reform adjustment |
| 1,042 |
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| - |
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| - |
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| - |
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| - |
Cash dividends |
| 32,278 |
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| 32,278 |
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| 32,278 |
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| 32,278 |
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| 32,278 |
Retained earnings, end of year | $ | 1,127,872 |
| $ | 1,062,778 |
| $ | 1,007,894 |
| $ | 980,842 |
| $ | 958,739 |
Weighted-average shares outstanding, diluted |
| 26,898,443 |
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| 26,898,443 |
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| 26,898,443 |
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| 26,898,443 |
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| 26,898,443 |
Cash dividends per share | $ | 1.20 |
| $ | 1.20 |
| $ | 1.20 |
| $ | 1.20 |
| $ | 1.20 |
Basic and diluted earnings per share | $ | 3.66 |
| $ | 3.24 |
| $ | 2.21 |
| $ | 2.02 |
| $ | 2.72 |
Working capital | $ | 208,972 |
| $ | 207,700 |
| $ | 232,722 |
| $ | 229,595 |
| $ | 215,802 |
Total assets | $ | 1,441,739 |
| $ | 1,431,304 |
| $ | 1,235,959 |
| $ | 1,191,119 |
| $ | 1,148,242 |
Shareholders’ equity | $ | 992,844 |
| $ | 926,722 |
| $ | 871,747 |
| $ | 844,763 |
| $ | 821,770 |
Number of grocery stores |
| 205 |
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| 204 |
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| 163 |
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| 163 |
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| 165 |
(2) On December 22, 2017, the U.S. Government enacted the Tax Cuts and Jobs Act (the “Tax Reform”). The Tax Reform significantly impacted the Company’s effective income tax rate by reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018.
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations:
Overview
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand Weis Markets, Inc., its operations and its present business environment. The MD&A is provided as a supplement to and should be read in conjunction with the Consolidated Financial Statements and the accompanying notes thereto contained in “Item 8. Financial Statements and Supplementary Data” of this report. The following analysis should also be read in conjunction with the Financial Statements included in the Quarterly Reports on Form 10-Q and the Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, as well as the cautionary statement captioned “Forward-Looking Statements” immediately following this analysis. This overview summarizes the MD&A, which includes the following sections:
• Company Overview - a general description of the Company’s business and strategic imperatives.
• Results of Operations - an analysis of the Company’s consolidated results of operations for the three years presented in the Company’s Consolidated Financial Statements.
• Liquidity and Capital Resources - an analysis of cash flows, aggregate contractual obligations, and off-balance sheet arrangements.
• Critical Accounting Policies and Estimates - a discussion of accounting policies that require critical judgments and estimates.
Company Overview
General
Weis Markets is a conventional supermarket chain that operates 205197 retail stores with over 23,000approximately 24 thousand associates located in Pennsylvania and six surrounding states: Delaware, Maryland, New Jersey, New York, Virginia, and West Virginia. Approximately 98% of Weis Markets associates are paid an hourly wage. Its products sold include groceries, dairy products, frozen foods, meats, seafood, fresh produce, floral, pharmacy services, deli products, prepared foods, bakery products, beer and wine, fuel, and general merchandise items, such as health and beauty care and household products. The store product selection includes national, local and private brands and the Company promotes by using Everyday Lower Price, Low Price Guarantee, Low, Low Price, and Loyalty programs. The Loyalty program includes fuel rewards that may be redeemed at the Company’s fuel stations or one of its third-party fuel station partners. On January 17, 2019 the Company announced a new pricing strategy for its private brand products named Low, Low Price. The move took the Company’s private brand products from a high, low pricing strategy to everyday low price.
Utilizing its own centrally located distribution center and transportation fleet, Weis Markets self distributes approximately 67%68% of product with the remaining being supplied by direct store vendors. In addition, the Company has three manufacturing facilities which process milk, ice cream and fresh meat products. The corporate offices are located in Sunbury, PA where the Company was founded in 1912.
The Company’s operations are reported asCompany continues to innovate and remain relevant to industry trends and offer customer convenience by presenting
programs like “Weis 2 Go Online” and home delivery. In 2020, the Company offered Weis 2 Go Online in 183 of its locations, adding 29 stores since the end of 2019. Weis 2 Go Online allows the customer to order on-line and then pick up their order at a single reportable segment.drive-thru location at the store. The Company began offering home delivery during the third quarter of 2018 and currently offers this convenience to customers in 175 different locations.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Company Overview (continued)
Strategic Imperatives
The following strategic imperatives continue to be focused upon by the Company to attempt to ensure the success of the Company in the coming years:
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Establish a Sales Driven Culture – The Company continues to focus on sales and profits growth, improved operating practices, increased productivity and positive cash flow. The Company believes disciplined growth will increase its market share and operating profits, resulting in enhanced shareholder value. The Company’s method of driving sales includes focused preparation and execution of sales programs, investing in new stores and remodels, and strategic acquisitions. Communicating clear executable standards and aligning performance measures across the organization will help to instill a sales-driven operating environment.
Build and Support Human Capital – The Company believes that talent is a business differentiator and is committed to creating a sustainable competitive advantage through the selection, development and promotion of talented, highly motivated people. The Company believes that establishing a learning culture supports its commitment to be an employer of choice and helps drive customer engagement with its associates. Improvements in the Company’s talent management and development will help drive business impact while providing internal career opportunities. The Company continues to grow leaders at every level throughout the organization by creating a culture of mentoring, coaching and leveraging on-the-job assignments for continued development. The Company believes that a strong employment brand is necessary to attract and retain top talent and affects its ability to compete and execute strategic plans. The Company will continue to assess and upgrade underlying technologies to support human capital development as a strategic imperative for future growth.
Become More Relevant to Consumers – Understanding the consumer is crucial to the Company’s strategic plan. The Company will develop and cultivate a culture where it’s continually “on trend” with its consumers at the current time and where they are going next. The Company researches and studies the wants and needs of core consumers and casual consumers. It measures customer satisfaction and shares insights across the organization to improve communication between management and its consumers. The Company uses consumer data to measure the value of programs offered and support consumer attraction and retention. The Company believes that its private brand products exceed consumer expectations and will continue to focus on the value and attribute messaging to drive organic growth.
Create Meaningful Differentiation – The Company recognizes the need to offer a compelling reason for customers to choose them over other channels. The Company has identified product pricing and promotion, customer shopping experience, and merchandising strategies as critical components of future success. The Company recognizes that the core of the strategy will focus on alignment of merchandising programs that foster customer engagement supported by a shopping experience that surpasses customers’ expectations. As part of this strategy, management is committed to offering its customers a strong combination of quality, service and value.
Develop and Align Organizational Capabilities – The Company will elevate organizational capacity to support decision effectiveness and deliver consistent execution. To support this strategy the Company will assess organizational capacity to support the Company’s strategic direction. The Company will align business functions and processes to enhance key capabilities and to support scalability of operations. Continued investments in information technology systems to improve associate engagement, increase productivity, and provide valuable insight into customer behavior/shopping trends will remain a focus of the Company. The Company believes these systems will continue to play a key role in the measurement of the Company’s strategic decisions and financial returns.
Focus on Sustainability Strategies – The Company strives to be good stewards of the environment and makes this an important part of its overall mission. Its sustainability strategy operates under four key pillars: green design, natural resource conservation, food and agricultural impact and social responsibility. The goal of the sustainability strategy is to reduce the Company’s overall carbon footprint by reducing greenhouse gas emissions and reducing the impact on climate change.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Results of Operations
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Analysis of Consolidated Statements of Income | Analysis of Consolidated Statements of Income | Analysis of Consolidated Statements of Income | ||||||||||||||||||||||||||||||||
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Percentage Changes | ||||||||||||||||||||||||||||||||||
(dollars in thousands except per share amounts) |
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| Percentage Changes | 2020 | 2019 | 2018 | 2020 vs. | 2019 vs. | ||||||||||||||||||
For the Fiscal Years Ended December 30, 2017, | 2017 | 2016 | 2015 | 2017 vs. | 2016 vs. | |||||||||||||||||||||||||||||
December 31, 2016 and December 26, 2015 | (52 Weeks) | (53 Weeks) | (52 Weeks) | 2016 | 2015 | |||||||||||||||||||||||||||||
For the Fiscal Years Ended December 26, 2020, December 28, 2019 and December 29, 2018 | (52 Weeks) | 2019 | 2018 | |||||||||||||||||||||||||||||||
Net sales | $ | 3,466,807 |
| $ | 3,136,720 |
| $ | 2,876,748 |
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| 10.5 | % |
| 9.0 | % | $ | 4,112,601 | $ | 3,543,299 | $ | 3,509,270 | 16.1 | % | 1.0 | % | ||||||||
Cost of sales, including warehousing and distribution expenses |
| 2,540,348 |
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| 2,264,565 |
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| 2,090,016 |
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| 12.2 |
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| 8.4 |
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Cost of sales, including advertising, warehousing and distribution expenses | 3,012,167 | 2,605,105 | 2,574,269 | 15.6 | 1.2 | |||||||||||||||||||||||||||||
Gross profit on sales |
| 926,459 |
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| 872,155 |
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| 786,732 |
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| 6.2 |
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| 10.9 |
| 1,100,434 | 938,194 | 935,001 | 17.3 | 0.3 | |||||||||||||
Gross profit margin |
| 26.7 | % |
| 27.8 | % |
| 27.3 | % |
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| 26.8 | % | 26.5 | % | 26.6 | % | ||||||||||||
Operating, general and administrative expenses |
| 850,034 |
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| 773,830 |
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| 695,953 |
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| 9.8 |
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| 11.2 |
| 937,256 | 853,555 | 852,330 | 9.8 | 0.1 | |||||||||||||
O, G & A, percent of net sales |
| 24.5 | % |
| 24.7 | % |
| 24.2 | % |
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| 22.8 | % | 24.1 | % | 24.3 | % | ||||||||||||
Income from operations |
| 76,425 |
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| 98,325 |
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| 90,779 |
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| (22.3) |
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| 8.3 |
| 163,178 | 84,639 | 82,671 | 92.8 | 2.4 | |||||||||||||
Operating margin |
| 2.2 | % |
| 3.1 | % |
| 3.2 | % |
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| 4.0 | % | 2.4 | % | 2.4 | % | ||||||||||||
Investment income and interest expense |
| 2,598 |
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| 2,457 |
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| 1,552 |
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| 5.7 |
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| 58.3 |
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Investment income and interest expense, percent of net sales |
| 0.1 | % |
| 0.1 | % |
| 0.1 | % |
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Gain on bargain purchase |
| - |
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| 23,879 |
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| 100.0 |
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Gain on bargain purchase, percent of net sales |
| - | % |
| 0.8 | % |
| - | % |
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Investment income (loss) and interest expense | 3,817 | 7,054 | (1,454) | (45.9) | 585.1 | |||||||||||||||||||||||||||||
Investment income (loss) and interest expense, percent of net sales | 0.1 | % | 0.2 | % | 0.0 | % | ||||||||||||||||||||||||||||
Other income (expense) | (3,316) | (3,049) | 919 | 8.8 | 431.8 | |||||||||||||||||||||||||||||
Other income (expense), percent of net sales | (0.1) | % | (0.1) | % | 0.0 | % | ||||||||||||||||||||||||||||
Income before provision for income taxes |
| 79,023 |
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| 124,661 |
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| 92,331 |
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| 35.0 |
| 163,679 | 88,644 | 82,136 | 84.6 | 7.9 | |||||||||||||
Income before provision for income taxes, percent of net sales |
| 2.3 | % |
| 4.0 | % |
| 3.2 | % |
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| 4.0 | % | 2.5 | % | 2.3 | % | ||||||||||||
Provision for income taxes |
| (19,391) |
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| 37,499 |
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| 33,001 |
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| (151.7) |
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| 13.6 |
| 44,762 | 20,661 | 19,398 | 116.6 | 6.5 | |||||||||||||
Effective income tax rate |
| (24.5) | % |
| 30.1 | % |
| 35.7 | % |
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| 27.3 | % | 23.3 | % | 23.6 | % | ||||||||||||
Net income | $ | 98,414 |
| $ | 87,162 |
| $ | 59,330 |
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| 12.9 | % |
| 46.9 | % | $ | 118,917 | $ | 67,983 | $ | 62,738 | 74.9 | % | 8.4 | % | ||||||||
Net income, percent of net sales |
| 2.8 | % |
| 2.8 | % |
| 2.1 | % |
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| 2.9 | % | 1.9 | % | 1.8 | % | ||||||||||||
Basic and diluted earnings per share | $ | 3.66 |
| $ | 3.24 |
| $ | 2.21 |
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| 13.0 | % |
| 46.6 | % | $ | 4.42 | $ | 2.53 | $ | 2.33 | 74.7 | % | 8.6 | % | ||||||||
Net Sales
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(dollars in thousands except per share amounts) |
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For the Fiscal Years Ended December 30, 2017, | Percentage Changes | |||||
December 31, 2016 and December 26, 2015 | 2017 vs 2016 | 2016 vs 2015 | ||||
Net sales |
| 10.5 | % |
| 9.0 | % |
Net sales, excluding fuel sales |
| 10.4 |
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| 9.3 |
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Net sales, adjusted for the additional week in 2016 |
| 12.8 |
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| 6.9 |
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Net sales, adjusted for the additional week in 2016, excluding fuel sales |
| 12.6 |
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| 7.0 |
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Comparable store sales, adjusted for the additional week in 2016 |
| 1.6 |
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| 2.9 |
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Comparable store sales, adjusting for the additional week in 2016, excluding fuel sales |
| 1.2 | % |
| 2.9 | % |
Percentage Changes | ||||||
2020 vs. 2019 | 2019 vs. 2018 | |||||
Net sales | 16.1 | % | 1.0 | % | ||
Net sales, excluding fuel sales | 17.0 | 0.8 | ||||
Comparable store sales | 16.4 | 1.5 | ||||
Comparable store sales excluding fuel sales | 17.5 | % | 1.5 | % | ||
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(1) The 2017 and 2015 years were comprised of 52 weeks where the 2016 year was comprised of 53 weeks. Due to the Company’s 2016 fiscal year being comprised of 53 weeks, the first quarter of 2017 did not include a New Year holiday sales week. Management estimates the incremental holiday sales impact was approximately $3.0 million in 2016. The $3.0 million holiday impact has been removed from the 2016 comparable sales numbers above.
When calculating the percentage change in comparable store sales, the Company defines a new store to be comparable when it has been in operation forafter five full quarters. Relocated stores and stores with expanded square footage are included in comparable store sales since these units are located in existing markets and are open during construction. Planned store dispositions are excluded from the calculation. The Company only includes retail food stores in the calculation.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Results of Operations (continued)
Net Sales (continued)
According to the latest U.S. Bureau of Labor Statistics’ report, the annual Seasonally Adjusted Food-at-Home Consumer Price Index decreasedincreased 0.2% in 2020, 0.9% in 2019 and 1.3%0.7% in 2017 and 2016 respectively but increased 1.1% in 2015.2018. Even though the U.S. Bureau of Labor Statistics’ index rates may be reflective of a trend, it will not necessarily be indicative of the Company’s actual results. According to the U.S. Department of Energy, the 52-week average price of gasoline in the Central Atlantic States increased 13.1%decreased 12.8%, or $0.31$0.36 per gallon, in 20172020 compared to the 53-week52-week average in 2016.2019. The 53-week52-week average price of gasoline in the Central Atlantic States, according to the U.S. Department of Energy, decreased 10.1%5.7%, or $0.26$0.17 per gallon, in 20162019 compared to the 52-week average in 2015.2018.
The Company attributes the increased net sales primarily to the acquisition of 44 locations in the second half of 2016. Comparable store sales increased for all years presented. On a comparable store sales basis all product categories, Center Store, Fresh and Pharmacy Services, with the exception of Fuel, increased in sales. The Company’s 2020 sales were favorably impacted as a result of increased sales demand related to the novel coronavirus pandemic as well as increasing market share. The Company was able to achieve this through targeted, tactical marketing programs in key regional markets along with its chain wide sales-driving promotional programs such as its loyalty card. In conjunction with its marketing initiatives the Company continues to addhas provided additional product offerings and customer conveniences such as “Click and Collect.“Weis 2 Go Online,” “Click and Collect”currently offered at 184 store locations. “Weis 2 Go Online” allows the customer to order on-line and then pickhave their order delivered or pick up their order at a drive thru location at the store. With the aforementioned offerings and programs, the Company was able to offset substantial deflationary pressures in its fresh departments most notably meat and produce. Pharmacy sales volume increased as a result of the Affordable Care Act and increased immunizations. Fuel sales benefited from inflation as comparable fuel sales rose 12.2% during 2017. an expedient store drive-thru.
Although the Company experienced retail inflation and deflation in various commodities for the years presented, management cannot accurately measure the full impact of inflation or deflation on retail pricing due to changes in the types of merchandise sold between periods, shifts in customer buying patterns and the fluctuation of competitive factors. Management remains confident in its ability to generate sales growth in a highly competitive environment, but also understands some competitors have greater financial resources and could use these resources to take measures which could adversely affect the Company's competitive position.
Cost of Sales and Gross Profit
Cost of sales consists of direct product costs (net of discounts and allowances), net advertising costs, distribution center and transportation costs, as well as manufacturing facility operations. Almost all of theIncreased sales volume resulted in an increase in cost of sales in 2017 as compares to 2016 is due to the increased sales volume in 2017.sales. Both direct product cost and distribution cost increase when sales volume increases.
Gross profit rate was 26.7%26.8% in 2017, 27.8%2020, 26.5% in 20162019 and 27.3%26.6% in 2015.2018. The decline in gross profit margin in 2017 can be attributed to lower than average winter sales volume due to lack of winter weather events in the first quarter of 2017. Decreased sales volume negatively impacts the gross profit margin by increasing inventory shrinkage and fixed distribution costs comparative rates. In the third quarter of 2017 retail deflation combined with cost inflation, decreased sales volume, competitive pricing and inventory management challenges in some of the recently acquired stores significantly reduced profits as a percent of sales for the produce, deli/food service, bakery, seafood and floral departments. The 2016 increase in gross profit rate as comparedis attributable to 2015 was driven by a shiftchange in sales mix from fuelalong with increased fresh department sell-through during the novel coronavirus pandemic, reducing the amount of product loss. Pharmacy gross profit margin continues to grocery sales which carry a higher profit margin.be pressured by recent changes in industry practices. The Company cannot predict whether the pharmacy industry practices will change favorably.
The Company experienced favorable non-cash LIFO inventory valuation adjustment income of $1.1adjustments, increasing gross profit by $275 thousand, $5.8 million and $2.2$1.5 million for 20172020, 2019 and 2016, respectively, and adjustment expense of $1.4 million for 2015.2018, respectively.
Although the Company experienced product cost inflation and deflation in various commodities in 2017, 20162020, 2019 and 2015,2018, management cannot accurately measure the full impact of inflation or deflation on retail pricing due to changes in the types of merchandise sold between periods, shifts in customer buying patterns and the fluctuation of competitive factors.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Results of Operations (continued)
Operating, General and Administrative Expenses
The majority of the expenses were driven by increased sales volume.
Employee-related costs such as wages, employer paid taxes, health care benefits and retirement plans, comprise approximately 60%62.7% of the total “Operating, general and administrative expenses.” During the novel coronavirus pandemic, the Company compensated its employees, primarily front-line associates over $32.5 million in various rewards, including an additional $2 per hour for 15 weeks. As a percent of sales, direct store labor decreased 0.2%0.6% in 20172020 compared to 20162019 and increased 0.2%decreased 0.1% in 20162019 compared to 2015. The percent of2018. While direct store labor expenses increased in 2020 compared to 2019, the sales increases have outpaced the labor expense increase in 2016 iscausing the rate to fall, primarily due to the labor involved in opening the 44 acquisition stores in the second halffixed component of 2016. State and local minimum wage laws continue to be a challenge for the Company however, managementstore labor. Management continues to monitor store labor efficiencies and develop labor standards to reduce costs while maintaining the Company’s customer service expectationsexpectations. Currently, the Company is continuing a multi-year initiative to offset their impact. install or upgrade self-checkouts in its stores in response to customer preference and labor rates and supply, including adding convertible dual-use checkout lanes.
The Company’s self-insured health care benefit expenses increased by 4.2%9.8% in 20172020 compared to 20162019 and increased by 15.4%1.0% in 20162019 compared to 2015 and as a percent of sales were 0.9%, 1.0% and 0.9% for 2017, 2016 and 2015, respectively. The increase in 2017 from 2016 is mainly attributed to the increase in participants for a full year from the acquired stores. The increase in 2016 from 2015 is mainly attributed to an increase in participants from the acquired locations as well as overall group health costs. The Company remains concerned about the impact that The Patient Protection and Affordable Care Act (ACA) will have on its future operating expenses.2018.
Depreciation and amortization expense charged to “Operating, general and administrative expenses” was $77.4$90.2 million, or 2.2% of net sales, for 20172020 compared to $69.8$85.2 million, or 2.2%2.4% of net sales, for 20162019 and $63.3$84.4 million, or 2.2%2.4% of net sales, for 2015. The decrease in depreciation2018. Depreciation and amortization expense as a percent of sales decreased 0.2% in 20172020 when compared to 2016 and increase in 20162019, however when 2019 is compared to 20152018 there was the impact of opening the 44 acquisition stores in the second half of 2016.no change. See the Liquidity and Capital Resources section for further information regarding the Company’s capital expansion program.
In 2016,
A breakdown of the material increases (decreases) as a percent of sales in "Operating, general and administrative expenses" is as follows: | ||||
2020 vs. 2019 | ||||
(dollars in thousands) | Increase | Increase (Decrease) | ||
December 26, 2020 | (Decrease) | as a % of sales | ||
Employee expense | $ | 64,241 | (0.5) | % |
Utilities expense | (2,385) | (0.2) | ||
Fixed Expense | 9,462 | (0.4) | ||
2019 vs. 2018 | ||||
(dollars in thousands) | Increase | Increase (Decrease) | ||
December 28, 2019 | (Decrease) | as a % of sales | ||
Utilities expense | $ | (5,655) | (0.2) | % |
Fixed expenses include occupancy costs, depreciation and amortization and insurance expenses. Although fixed expenses have increased from a cost perspective, the Company determined that the asset value of one property was impaired. As a result, the Company recognized a pre-tax impairment loss of $894,000. See Note 1(l) to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information on the Company's impairment charges. The Company recognized pre-tax gains of $751,000 in 2015 from the sale of two properties.
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A breakdown of the material increases (decreases) as a percent of sales in "Operating, general and administrative expenses" is as follows: | ||||
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| 2017 vs. 2016 | |||
| Increase | Increase (Decrease) | ||
(dollars in thousands) | (Decrease) | as a % of sales | ||
Employee-related expenses | $ | 38,808 | (0.3) | % |
Rent expense |
| 7,152 | 0.1 |
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The dollar amount increase in rent is primarily driven by the acquisition of five former Mars Super Market stores, 38 former Food Lion stores andsales has caused a former Nell’s Family Market storedecrease in the second half of 2016. The Company expects the percent of sales to decrease over timerate.
The majority of the operating, general and administrative expenses as it develops the acquisition stores’ sales.
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| 2016 vs. 2015 | |||
| Increase | Increase (Decrease) | ||
(dollars in thousands) | (Decrease) | as a % of sales | ||
Employee-related expenses | $ | 41,174 | 0.1 | % |
Acquisition-related expenses | $ | 14,166 | 0.5 | % |
Employee related expenses increased in 2016a percent of sales presented for the reasons noted above andfiscal year 2020 have benefited in comparison with the 2019 percent of sales due to a 25%the increase in associates relatedsales caused by the acquisitionnovel coronavirus pandemic. Due to the nature of five former Mars stores, 38 former Food Lion storesfixed expenses, management expects less variability when analyzed as a percent of sales, relative to the majority of operating, general and administrative expenses.
All expenses as a former Nell’s Family Market store. This increasepercent of sales presented for the 2019 fiscal year have benefited in associates contributedcomparison with the 2018 percent of sales due to increased wages, benefitsthe closure of unprofitable stores. The Company is benefiting from cost saving initiatives in various areas of its operations and retirement expenses.is saving in utilities with a combination of purchasing, associate sustainability and capital investments such as its LED lighting program.
Acquisition-related expenses, excluding the expenses mentioned above, primarily consisted of store operating expenses, travel expenses and contracted labor for store resets.The Company’s 2019 sustainability report my be found at: https://www.weismarkets.com/sites/default/files/weisbynature_sustainabilityupdate_2019_web_final-s.pdf?330
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Results of Operations (continued)
Provision for Income Taxes
The effective income tax rate was (24.5)%27.3%, 30.1%23.3% and 35.7%23.6% in 2017, 20162020, 2019 and 2015,2018, respectively. On December 22, 2017, the U.S. Government enacted the Tax Cuts and Jobs Act (the ”Tax Reform”). The Tax Reform significantly impacted the Company’s effective income tax rate by reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018 and allowing immediate expensing of qualified assets placed into service after September 27, 2017. Other elements of the Tax Reform have minor impacts, however the above mentioned decreased deferred income tax by $49.3 million. The effective income tax rate decreased in 2016differs from the federal statutory rate of 21% primarily due to state taxes as well as nondeductible employee expenses. Not all the impact ofCompany’s tax credits and state deductions are driven proportionately by taxable income levels, due to these items and the bargain purchase gain onsignificant increase in taxable income from prior years, the 38 locations being included in the overall gain calculation and not inresult was a higher effective income tax expense. The effective tax rate excluding the bargain purchase gain was 37.2%. for 2020.
Liquidity and Capital Resources
The primary sourcessource of cash areis cash flows generated from operations and borrowings underoperations. In addition, the Company has access to a revolving credit agreement the Company entered into on September 1, 2016, and amended on August 21, 2019, with Wells Fargo Bank, NA.NA (the “Credit Agreement”). The Company’sCredit Agreement matures on September 1, 2022 and provides for an unsecured revolving credit agreement has afacility with an aggregate principal amount of $100.0not to exceed $30.0 million with an additional discretionary availabilityamount available of $50.0$70.0 million. As of December 30, 2017,26, 2020, the Company’s unused availability under the revolving credit agreement was $46.8$25.1 million with $35.0 million of borrowings outstanding and $18.2$4.9 million of letters of credit outstanding. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company. The Company does not anticipate drawing on any of them.
The Company’s investment portfolio consists of high grade municipalhigh-grade bonds with maturity dates between one and 10 years and three long-held high yield, large capitalized public company equity securities. The portfolio totaled $63.7$111.9 million as of December 30, 2017.26, 2020. Management anticipates maintaining the investment portfolio, but has the ability to liquidate if needed. See “Item 7a. Quantitative and Qualitative Disclosures about Market Risk” for more details regarding the Company’s market risk.
The Company’s 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 the Company’s distribution facilities and transportation fleet. Management currently plans to invest approximately $85.5$135 million in its capital expansion program in 2018.2021.
The Board of Directors’ 2004 resolution authorizing the repurchase of up to one million shares of the Company’s common stock has a remaining balance of 752,468 shares.
Quarterly Cash Dividends
Total cash dividend payments on common stock, on a per share basis, amounted to $1.20$1.24 in 2017, 20162020, $1.24 in 2019 and 2015.$1.21 in 2018. The Company expects to continue paying regular cash dividends on a quarterly basis. However, the Board of Directors reconsiders the declaration of dividends quarterly. The Company pays these dividends at the discretion of the Board of Directors and the continuation of these payments and the amount of the dividends depends upon the results of operations, the financial condition of the Company and other factors which the Board of Directors deems relevant.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Liquidity and Capital Resources (Continued)
Cash Flow Information
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For the Fiscal Years Ended December 30, 2017, | 2017 | 2016 | 2015 | 2017 vs. | 2016 vs. | |||||||||||||||||||||||||
December 31, 2016 and December 26, 2015 | (52 Weeks) | (53 weeks) | (52 weeks) | 2016 | 2015 | |||||||||||||||||||||||||
For the Fiscal Years Ended December 26, 2020, | 2020 | 2019 | 2018 | 2020 vs. | 2019 vs. | |||||||||||||||||||||||||
December 28, 2019 and December 29, 2018 | (52 Weeks) | (52 weeks) | 2019 | 2018 | ||||||||||||||||||||||||||
Net cash provided by (used in): |
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Operating activities | $ | 165,814 |
| $ | 151,593 |
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| $ | 14,221 |
| $ | 14,860 |
| $ | 277,990 | $ | 171,686 | $ | 150,263 | $ | 106,304 | $ | 21,423 | |||||
Investing activities |
| (97,396) |
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| (186,734) |
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| 89,338 |
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| (76,889) |
| (174,895) | (109,269) | (92,838) | (65,626) | (16,431) | ||||||||||
Financing activities |
| (61,766) |
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| 32,198 |
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| (32,278) |
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| (93,964) |
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| 64,476 |
| (33,354) | (33,354) | (67,534) | - | 34,180 | ||||||||||
Operating
Cash flows from operating activities increased in 20172020 as compared to 20162019 and in 20162019 as compared to 2015 primarily related2018, respectively. Management attributes the majority of the increase in 2020 over 2019 to increased sales volume resulting from the novel coronavirus pandemic and its impact on Net Income. The increase in cash flow from 2018 to 2019 is attributable to improved profits. Decreased inventory levels supporting greater sales volume throughout the supply chain continue to favorably impact cash flow for all years presented. Improved ordering methods for the Company’s distribution center and stores as well as the Company’s most recent store inventory initiative, “Top Stock” have contributed to this improvement. “Top Stock” moves product from the store back room to a top shelf in the aisle, making replenishment and inventory control more efficient while keeping the associates more accessible to the Company’s recent acquisitions. The acquisitions are summarized in Note 9 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. In addition, in 2017 the negative impact of first quarter long-term incentive payments of $11.8 million were offset by a reduction of $17.1 million of cash paid for income taxes during the year. customer.
Investing
Property and equipment purchases totaled $95.9$131.0 million in 2017,2020, compared to $142.1$101.5 million in 20162019 and $90.2$95.6 million in 2015. In the second half of 2016, the Company paid $24.6 million for the purchase of five former Mars Super Market locations in the Baltimore County, MD region; $29.4 million for the purchase of 38 former Food Lion Supermarket locations throughout Virginia, Maryland and Delaware and $9.6 million for the purchase of a former Nell’s Family Market location in East Berlin, PA. The Company paid $7.9 million for the property and equipment related to the purchase of a store in Hanover, PA in the third quarter of 2015.2018. As a percentage of sales, capital expenditures including the 2016 acquisitions, were 2.8%totaled 3.2% in 2017, 7.0%2020, 2.9% in 2016,2019 and 3.1%2.7% in 2015. In 2016, the2018. The Company sold $42.5 million ofsignificantly increased its marketable securities as it prepared to finance future acquisitions.holdings in 2020 by approximately $43 million. In 2017,2021, the Company plans to maintain or further increase its marketable securities portfolio at its current level.portfolio.
Financing
The Company paid dividends of $32.3$33.4 million in 2017, 20162020, $33.4 million in 2019 and 2015.$32.5 million in 2018. The Company increased its quarterly dividend from 30 cents per share to 31 cents per share in the fourth quarter of 2018. In 2017,2018, payments on the revolving credit agreement increased net cash used in financing activities by $29.5$35.0 million. In 2016, the funds provided by the revolving credit agreement increased net cash flow provided by financing activities by $64.5 million. The Company anticipates payments on the revolving credit agreement to continue throughout 2018.
Contractual Obligations
The following table represents scheduled maturities of the Company’s long-term contractual obligations as of December 30, 2017. 26, 2020.
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| 1 year |
| 1-3 years |
| 3-5 years |
| 5 years | Total | 1 year | 1-3 years | 3-5 years | 5 years | |||||
Operating leases | $ | 245,494 | $ | 43,820 | $ | 73,765 | $ | 48,017 | $ | 79,892 | $ | 241,151 | $ | 46,631 | $ | 78,908 | $ | 55,878 | $ | 59,734 |
Long-term Debt |
| 34,988 |
| - |
| 34,988 |
| - |
| - | ||||||||||
Total | $ | 280,482 | $ | 43,820 | $ | 108,753 | $ | 48,017 | $ | 79,892 | $ | 241,151 | $ | 46,631 | $ | 78,908 | $ | 55,878 | $ | 59,734 |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Off-Balance Sheet Arrangements
The Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, results of operations or cash flows, except for the Company's lease commitments to be recognized on the balance sheet related to operating leases for its store facilities and transportation equipment, which will be required for annual periods beginning after December 15, 2018 per the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). See Note 1(v) Summary of Significant Accounting Policies, to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information on ASU 2016-02.flows.
Critical Accounting Policies and Estimates
The Company has chosen accounting policies that it believes are appropriate to accurately and fairly report its operating results and financial position, and the Company applies those accounting policies in a consistent manner. The Significant Accounting Policies are summarized in Note 1 to the Consolidated Financial Statements.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that the Company makes estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. The Company evaluates these estimates and assumptions on an ongoing basis and may retain outside consultants, lawyers and actuaries to assist in its evaluation. The Company believes the following accounting policies are the most critical because they involve the most significant judgments and estimates used in preparation of its Consolidated Financial Statements.
Inventories
Inventories are valued at the lower of cost or net realizable value, using both the last-in, first-out (LIFO) for center store and pharmacy inventoriesretail inventory and average cost methods for fresh inventories. Under the LIFOmethods. The retail inventory method inventory is stated atcommonly used by retail companies to determine cost which is determined byand calculate gross margin based on applying a cost-to-retail ratio to each similar merchandise category’s ending retail value. The Company’s center store and pharmacy inventories are valued using last in, first out (LIFO). The Company’s fresh inventories are valued using average cost. The Company evaluates inventory shortages throughout the year based on actual physical counts in its facilities. Allowances for inventory shortages are recorded based on the results of these counts and to provide for estimated shortages from the last physical count to the financial statement date.
Vendor Allowances
Vendor allowances related to the Company's buying and merchandising activities are recorded as a reduction of cost of sales as they are earned, in accordance with the underlying agreement. Off-invoice and bill-back allowances are used to reduce direct product costs upon the receipt of goods. Promotional rebates and credits are accounted for as a reduction in the cost of inventory and recognized when the related inventory is sold. Volume incentive discounts are realized as a reduction of cost of sales at the time it is deemed probable and reasonably estimableestimatable that the incentive target will be reached. Long-term contract incentives, which require an exclusive vendor relationship, are allocated over the life of the contract. Promotional allowance funds for specific vendor-sponsored programs are recognized as a reduction of cost of sales as the program occurs and the funds are earned per the agreement. Cash discounts for prompt payment of invoices are realized in cost of sales as invoices are paid. Warehouse and back-haul allowances provided by suppliers for distributing their product through the Company’s distribution system are recorded in cost of sales as the required performance is completed. Warehouse rack and slotting allowances are recorded in cost of sales when new items are initially set up in the Company's distribution system, which is when the related expenses are incurred and performance under the agreement is complete. Swell allowances for damaged goods are realized in cost of sales as provided by the supplier, helping to offset product shrink losses also recorded in cost of sales.
Income Taxes
Income taxes are inherently complex and require management’s evaluation and estimates, specifically regarding current and deferred income taxes and uncertain tax positions. The Company reviews the tax positions taken, or expected to be taken, on tax returns to determine whether, and to what extent, a benefit can be recognized in its Consolidated Financial Statements. The assessment of the Company’s tax position relies on the judgment of management to estimate the more likely than not merits associated with the Company’s various tax positions.
Leases
The Company leases approximately 51% of its open store facilities under operating leases that expire at various dates through 2036, with the remaining store facilities being owned. These leases generally provide for fixed annual rentals; however, several provide for minimum annual rentals plus variable lease costs related to real estate taxes and insurance as well as contingent rentals based on a percentage of annual sales or increases periodically based on inflation. These variable lease costs are not included in the measurement of the operating lease right-to-use assets or lease liabilities and are charged to the related expense category included in “Operating, general and administrative expenses.” Most of the leases contain multiple renewal options, under which the Company may extend the lease terms from 5 to 20 years. Additionally, the Company has operating leases for certain transportation and other equipment. The Company leases or subleases space to tenants in owned, vacated and open store facilities. Rental income is recorded when earned as a component of “Operating, general and administrative expenses.”
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Critical Accounting Policies and Estimates (continued)
Self-Insurance
Store Closing Costs
The Company provides for closed store liabilities relating to the estimated post-closing lease liabilities and related other exit costs associated with the store closing commitments. As of December 30, 2017, the remaining closed store has a lease term of approximately eight months, and the liabilities associated with the closed store lease are paid over the term of the lease. Closed store lease liabilities totaled $39,000 and $105,000 as of December 30, 2017 and December 31, 2016, respectively. The Company estimates the lease liabilities, net of estimated sublease income, using the undiscounted rent payments of closed stores. Other exit costs include estimated real estate taxes, common area maintenance, insurance and utility costs to be incurred after the store closes over the remaining lease term. Store closings are generally completed within one year after the decision to close. Adjustments to closed store liabilities and other exit costs primarily relate to changes in sublease income and actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the changes become known. Any excess store closing liability remaining upon settlement of the obligation is reversed to income in the period that such settlement is determined. Store closing liabilities are reviewed quarterly to ensure that any accrued amount that is not a sufficient estimate of future costs, or that is no longer needed for its originally intended purpose, is adjusted to income in the proper period. Inventory write-downs, if any, in connection with store closings, are classified in cost of sales. Costs to transfer inventory and equipment from closed stores are expensed as incurred.
Self-Insurance
The Company is self-insured for a majority of its workers’ compensation, general liability, vehicle accident and associate medical benefit claims. The self-insurance liability for most of the medical benefit claims is determined based on historical data and an estimate of claims incurred but not reported. The other self-insurance liabilities including workers’ compensation are determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported. The Company was liableis self-insured for associate healthcertain healthcare claims up to an annual maximum of $2,000,000 per member prior to March 1, 2014 and an unlimited amount per member as of March 1, 2014. As of March 1, 2014, the Company purchased stop loss insurance which carriesstop-loss coverage is maintained for occurrences exceeding a $500,000$500 thousand specific deductible with a $250,000$450 thousand aggregating deductible. The Company is liable for workers' compensation claims upranging from $1.0 million to $2,000,000$2.0 million per claim. Property and casualty insurance coverage is maintained with outside carriers at deductible or retention levels ranging from $100,000$100 thousand to $1,000,000.$1.0 million. Significant assumptions used in the development of the actuarial estimates include reliance on the Company’s historical claims data including average monthly claims and average lag time between incurrence and reporting of the claim.
Forward-Looking Statements
In addition to historical information, this Annual Report may contain forward-looking statements, which are included pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. 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.
18
WEIS MARKETS, INC.
Item 7a.Quantitative and Qualitative Disclosures about Market Risk:
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(dollars in thousands) | Expected Maturity Dates |
| Fair Value | Expected Maturity Dates | Fair Value | |||||||||||||||||||||||||||||||||||||||||||
December 30, 2017 |
| 2018 |
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| 2019 |
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| 2020 |
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| 2021 |
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| 2022 |
| Thereafter |
| Total |
| Dec. 30, 2017 | ||||||||||||||||||||||||||||
December 26, 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | Dec. 26, 2020 | ||||||||||||||||||||||||||||||||||||||||
Rate sensitive assets: |
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Fixed interest rate securities | $ | 13,341 |
| $ | 5,774 |
| $ | 4,519 |
| $ | 7,475 |
| $ | 6,024 |
| $ | 19,407 |
| $ | 56,540 |
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| $ | 54,833 | $ | 9,715 | $ | 6,815 | $ | 11,535 | $ | 11,060 | $ | 11,665 | $ | 41,669 | $ | 92,459 | $ | 104,445 | ||||||||
Average interest rate |
| 2.04 | % |
| 1.63 | % |
| 2.15 | % |
| 2.09 | % |
| 2.51 | % |
| 2.37 | % |
| 2.16 | % |
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| 1.40 | % | 2.10 | % | 1.96 | % | 2.03 | % | 2.16 | % | 2.03 | % | 1.98 | % | ||||||||||
Other Relevant Market Risks
The Company’s equity securities at December 30, 201726, 2020 had a cost basis of $1,198,000 and a fair value of $8,832,000.$7.4 million. The dividend yield realized on these equity investments was 4.86%6.1% in 2017.2020. By their nature, both the fixed interest rate securities and the equity investments inherently expose the holders to market risk. The extent of the Company’s interest rate and other market risk is not quantifiable or predictable with precision due to the variability of future interest rates and other changes in market conditions. However, the Company believes that its exposure in this area is not material.
The Company’s revolving credit agreement is exposed to interest rate fluctuations to the extent of changes in the LIBOR rate. The Company believes this exposure is not material due to availability of liquid assets to eliminate the outstanding credit facilityfacility.
Item 8.Financial Statements and Supplementary Data:
WEIS MARKETS, INC.
CONSOLIDATED BALANCE SHEETS
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(dollars in thousands) |
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| December 26, 2020 | December 28, 2019 | |||
December 30, 2017 and December 31, 2016 |
| 2017 |
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| 2016 | |||||
Assets |
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Current: |
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Cash and cash equivalents | $ | 21,305 |
| $ | 14,653 | $ | 136,612 | $ | 66,871 | |
Marketable securities |
| 63,665 |
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| 67,171 | 111,855 | 63,538 | |||
SERP investment |
| 14,476 |
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| 11,154 | 22,764 | 18,935 | |||
Accounts receivable, net |
| 82,877 |
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| 96,170 | 56,760 | 55,764 | |||
Inventories |
| 279,509 |
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| 276,783 | 269,024 | 279,806 | |||
Prepaid expenses and other current assets |
| 19,435 |
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| 16,310 | 29,187 | 23,378 | |||
Income taxes recoverable |
| 2,047 |
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| 1,625 | |||||
Total current assets |
| 483,314 |
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| 483,866 | 626,202 | 508,292 | |||
Property and equipment, net |
| 886,243 |
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| 878,195 | 924,429 | 886,928 | |||
Operating lease right-to-use | 199,901 | 210,196 | ||||||||
Goodwill |
| 52,330 |
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| 52,330 | 52,330 | 52,330 | |||
Intangible and other assets, net |
| 19,852 |
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| 16,913 | 17,559 | 17,816 | |||
Total assets | $ | 1,441,739 |
| $ | 1,431,304 | $ | 1,820,421 | $ | 1,675,562 | |
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Liabilities |
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Current: |
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Accounts payable | $ | 216,252 |
| $ | 199,159 | $ | 221,566 | $ | 180,718 | |
Accrued expenses |
| 33,403 |
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| 50,947 | 50,591 | 39,528 | |||
Operating leases | 39,165 | 39,114 | ||||||||
Accrued self-insurance |
| 17,470 |
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| 19,330 | 19,306 | 15,719 | |||
Deferred revenue, net |
| 7,217 |
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| 6,730 | 10,583 | 8,662 | |||
Income taxes payable | 5,058 | 8,197 | ||||||||
Total current liabilities |
| 274,342 |
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| 276,166 | 346,269 | 291,938 | |||
Long-term debt |
| 34,988 |
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| 64,476 | |||||
Postretirement benefit obligations |
| 18,409 |
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| 15,277 | 25,757 | 22,143 | |||
Accrued self-insurance |
| 20,140 |
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| 21,353 | 20,297 | 17,625 | |||
Operating leases | 169,064 | 179,654 | ||||||||
Deferred income taxes |
| 87,422 |
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| 119,445 | 103,404 | 97,041 | |||
Other |
| 13,594 |
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| 7,865 | 9,515 | 8,416 | |||
Total liabilities |
| 448,895 |
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| 504,582 | 674,306 | 616,817 | |||
Shareholders’ Equity |
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Common stock, no par value, 100,800,000 shares authorized, 33,047,807 shares issued, |
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26,898,443 shares outstanding |
| 9,949 |
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| 9,949 | 9,949 | 9,949 | |||
Retained earnings |
| 1,127,872 |
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| 1,062,778 | 1,283,737 | 1,198,173 | |||
Accumulated other comprehensive income, net |
| 5,880 |
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| 4,852 | |||||
Accumulated other comprehensive income | ||||||||||
(Net of deferred taxes of $1,299 in 2020 and $593 in 2019) | 3,286 | 1,480 | ||||||||
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| 1,143,701 |
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| 1,077,579 | 1,296,972 | 1,209,602 | |||
Treasury stock at cost, 6,149,364 shares |
| (150,857) |
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| (150,857) | (150,857) | (150,857) | |||
Total shareholders’ equity |
| 992,844 |
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| 926,722 | 1,146,115 | 1,058,745 | |||
Total liabilities and shareholders’ equity | $ | 1,441,739 |
| $ | 1,431,304 | $ | 1,820,421 | $ | 1,675,562 | |
See accompanying notes to Consolidated Financial Statements.
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF INCOME
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For the Fiscal Years Ended December 30, 2017, | 2017 | 2016 | 2015 | |||||||||||||||
December 31, 2016 and December 26, 2015 | (52 weeks) | (53 weeks) | (52 weeks) | |||||||||||||||
For the Fiscal Years Ended December 26, 2020, | 2020 | 2019 | 2018 | |||||||||||||||
December 28, 2019 and December 29, 2018 | (52 weeks) | (52 weeks) | ||||||||||||||||
Net sales | $ | 3,466,807 |
| $ | 3,136,720 |
| $ | 2,876,748 |
| $ | 4,112,601 | $ | 3,543,299 | $ | 3,509,270 | |||
Cost of sales, including warehousing and distribution expenses |
| 2,540,348 |
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| 2,264,565 |
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| 2,090,016 |
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Cost of sales, including advertising, warehousing and distribution expenses | 3,012,167 | 2,605,105 | 2,574,269 | |||||||||||||||
Gross profit on sales |
| 926,459 |
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| 872,155 |
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| 786,732 |
| 1,100,434 | 938,194 | 935,001 | ||||||
Operating, general and administrative expenses |
| 850,034 |
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| 773,830 |
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| 695,953 |
| 937,256 | 853,555 | 852,330 | ||||||
Income from operations |
| 76,425 |
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| 98,325 |
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| 90,779 |
| 163,178 | 84,639 | 82,671 | ||||||
Investment income and interest expense |
| 2,598 |
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| 2,457 |
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| 1,552 |
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Gain on bargain purchase |
| - |
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| 23,879 |
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| - |
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Investment income (loss) and interest expense | 3,817 | 7,054 | (1,454) | |||||||||||||||
Other income (expense) | (3,316) | (3,049) | 919 | |||||||||||||||
Income before provision for income taxes |
| 79,023 |
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| 124,661 |
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| 92,331 |
| 163,679 | 88,644 | 82,136 | ||||||
Provision for income taxes |
| (19,391) |
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| 37,499 |
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| 33,001 |
| 44,762 | 20,661 | 19,398 | ||||||
Net income | $ | 98,414 |
| $ | 87,162 |
| $ | 59,330 |
| $ | 118,917 | $ | 67,983 | $ | 62,738 | |||
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Weighted-average shares outstanding, basic and diluted |
| 26,898,443 |
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| 26,898,443 |
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| 26,898,443 |
| 26,898,443 | 26,898,443 | 26,898,443 | ||||||
Cash dividends per share | $ | 1.20 |
| $ | 1.20 |
| $ | 1.20 |
| $ | 1.24 | $ | 1.24 | $ | 1.21 | |||
Basic and diluted earnings per share | $ | 3.66 |
| $ | 3.24 |
| $ | 2.21 |
| $ | 4.42 | $ | 2.53 | $ | 2.33 | |||
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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For the Fiscal Years Ended December 30, 2017, | 2017 | 2016 | 2015 | |||||||||||||||
December 31, 2016 and December 26, 2015 | (52 weeks) | (53 weeks) | (52 weeks) | |||||||||||||||
For the Fiscal Years Ended December 26, 2020, | 2020 | 2019 | 2018 | |||||||||||||||
December 28, 2019 and December 29, 2018 | (52 weeks) | (52 weeks) | ||||||||||||||||
Net income | $ | 98,414 |
| $ | 87,162 |
| $ | 59,330 |
| $ | 118,917 | $ | 67,983 | $ | 62,738 | |||
Other comprehensive income (loss) by component, net of tax: |
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(Net of deferred taxes of $19, $239 and $37, respectively) |
| (43) |
|
| 348 |
|
| (52) |
| |||||||||
Accumulated change in effective tax rate |
| 1,042 |
|
| - |
|
| - |
| |||||||||
(Net of deferred taxes of $706, $498 and $62, respectively) | 1,806 | 1,255 | (177) | |||||||||||||||
Reclassification adjustment for (gains) losses included in net income |
|
|
|
|
|
|
|
|
| |||||||||
(Net of deferred taxes of $11, $180 and $11, respectively) |
| 29 |
|
| (257) |
|
| (16) |
| |||||||||
(Net of deferred taxes of $0, $14 and $14, respectively) | - | (37) | 40 | |||||||||||||||
Other comprehensive income (loss), net of tax |
| 1,028 |
|
| 91 |
|
| (68) |
| 1,806 | 1,218 | (137) | ||||||
Comprehensive income, net of tax | $ | 99,442 |
| $ | 87,253 |
| $ | 59,262 |
| $ | 120,723 | $ | 69,201 | $ | 62,601 | |||
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
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| |||||||||||||
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| Accumulated |
|
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|
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| Accumulated | |||||||||||||
(dollars in thousands, except shares) |
|
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|
|
| Other |
|
|
|
| Total | Other | Total | |||||||||||||
For the Fiscal Years Ended December 30, 2017, | Common Stock | Retained | Comprehensive | Treasury Stock | Shareholders’ | |||||||||||||||||||||
December 31, 2016 and December 26, 2015 | Shares | Amount | Earnings | Income (Loss) | Shares | Amount | Equity | |||||||||||||||||||
Balance at December 27, 2014 | 33,047,807 | $ | 9,949 | $ | 980,842 | $ | 4,829 |
| 6,149,364 | $ | (150,857) | $ | 844,763 | |||||||||||||
Net income | — |
| — |
| 59,330 |
| — |
| — |
| — |
| 59,330 | |||||||||||||
Other comprehensive loss, net of |
|
|
|
|
|
|
|
|
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|
|
|
| |||||||||||||
For the Fiscal Years Ended December 26, 2020 | Common Stock | Retained | Comprehensive | Treasury Stock | Shareholders’ | |||||||||||||||||||||
December 28, 2019 and December 29, 2018 | Shares | Amount | Earnings | Income (Loss) | Shares | Amount | Equity | |||||||||||||||||||
Balance at December 30, 2017 | 33,047,807 | $ | 9,949 | $ | 1,127,872 | $ | 5,880 | 6,149,364 | $ | (150,857) | $ | 992,844 | ||||||||||||||
Net Income | — | — | 62,738 | — | — | — | 62,738 | |||||||||||||||||||
Cumulative effect of accounting principal adoption of ASU 2016-01 | — | — | 5,481 | (5,481) | — | — | — | |||||||||||||||||||
Other comprehensive income, net of | ||||||||||||||||||||||||||
reclassification adjustments and tax | — |
| — |
| — |
| (68) |
| — |
| — |
| (68) | — | — | — | (137) | — | — | (137) | ||||||
Dividends paid | — |
| — |
| (32,278) |
| — |
| — |
| — |
| (32,278) | — | — | (32,546) | — | — | — | (32,546) | ||||||
Balance at December 26, 2015 | 33,047,807 |
| 9,949 |
| 1,007,894 |
| 4,761 |
| 6,149,364 |
| (150,857) |
| 871,747 | |||||||||||||
Balance at December 29, 2018 | 33,047,807 | $ | 9,949 | $ | 1,163,545 | $ | 262 | 6,149,364 | $ | (150,857) | $ | 1,022,899 | ||||||||||||||
Net income | — |
| — |
| 87,162 |
| — |
| — |
| — |
| 87,162 | — | — | 67,983 | — | — | — | 67,983 | ||||||
Other comprehensive income, net of |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
reclassification adjustments and tax | — |
| — |
| — |
| 91 |
| — |
| — |
| 91 | — | — | — | 1,218 | — | — | 1,218 | ||||||
Dividends paid | — |
| — |
| (32,278) |
| — |
| — |
| — |
| (32,278) | — | — | (33,354) | — | — | — | (33,354) | ||||||
Balance at December 31, 2016 | 33,047,807 |
| 9,949 |
| 1,062,778 |
| 4,852 |
| 6,149,364 |
| (150,857) |
| 926,722 | |||||||||||||
Balance at December 28, 2019 | 33,047,807 | $ | 9,949 | $ | 1,198,173 | $ | 1,480 | 6,149,364 | $ | (150,857) | $ | 1,058,745 | ||||||||||||||
Net income | — |
| — |
| 98,414 |
| — |
| — |
| — |
| 98,414 | — | — | 118,917 | — | — | — | 118,917 | ||||||
Other comprehensive income, net of |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
reclassification adjustments and tax | — |
| — |
| — |
| (14) |
| — |
| — |
| (14) | — | — | — | 1,806 | — | — | 1,806 | ||||||
Other comprehensive income tax reform adjustment | — |
| — |
| (1,042) |
| 1,042 |
| — |
| — |
| - | |||||||||||||
Dividends paid | — |
| — |
| (32,278) |
| — |
| — |
| — |
| (32,278) | — | — | (33,354) | — | — | — | (33,354) | ||||||
Balance at December 30, 2017 | 33,047,807 | $ | 9,949 | $ | 1,127,872 | $ | 5,880 |
| 6,149,364 | $ | (150,857) | $ | 992,844 | |||||||||||||
Balance at December 26, 2020 | 33,047,807 | $ | 9,949 | $ | 1,283,737 | $ | 3,286 | 6,149,364 | $ | (150,857) | $ | 1,146,115 | ||||||||||||||
See accompanying notes to Consolidated Financial Statements.
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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|
| 52 Weeks Ended | ||||||||
(dollars in thousands) |
|
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|
|
| December 26, 2020 | December 28, 2019 | December 29, 2018 | ||||||
For the Fiscal Years Ended December 30, 2017, | 2017 | 2016 | 2015 | |||||||||||||||
December 31, 2016 and December 26, 2015 | (52 weeks) | (53 weeks) | (52 weeks) | |||||||||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
| |||||||||
Net income | $ | 98,414 |
| $ | 87,162 |
| $ | 59,330 |
| $ | 118,917 | $ | 67,983 | $ | 62,738 | |||
Adjustments to reconcile net income to |
|
|
|
|
|
|
|
|
| |||||||||
net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| |||||||||
Depreciation and amortization |
| 85,415 |
|
| 76,862 |
|
| 70,114 |
| 99,370 | 93,706 | 93,567 | ||||||
(Gain) loss on disposition of fixed assets |
| (700) |
|
| 1,353 |
|
| (54) |
| |||||||||
Loss on disposition of fixed assets | 3,914 | 782 | 1,274 | |||||||||||||||
Impairment of fixed assets |
| - |
|
| 894 |
|
| - |
| 0 | 0 | 1,532 | ||||||
(Gain) loss on sale of marketable securities |
| 40 |
|
| (437) |
|
| (27) |
| |||||||||
Gain on sale of intangible assets |
| - |
|
| (200) |
|
| - |
| |||||||||
Gain on acquisition of business |
| - |
|
| (23,879) |
|
| - |
| |||||||||
(Gain) on sale of marketable securities | 0 | (51) | 54 | |||||||||||||||
Unrealized (gain) loss in value of equity securities | 1,791 | (1,975) | 1,606 | |||||||||||||||
Deferred income taxes |
| (31,993) |
|
| 5,703 |
|
| (212) |
| 5,657 | 5,765 | 3,418 | ||||||
Unrealized (gain) loss in SERP | (2,641) | (135) | 1,883 | |||||||||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| |||||||||
Inventories |
| (2,726) |
|
| (38,102) |
|
| 10,242 |
| 10,782 | 950 | (1,247) | ||||||
Accounts receivable and prepaid expenses |
| 9,598 |
|
| (5,096) |
|
| (17,127) |
| (6,804) | 2,431 | (5,874) | ||||||
Accounts payable and other liabilities |
| 7,742 |
|
| 46,131 |
|
| 14,403 |
| 54,658 | (505) | (18,583) | ||||||
Income taxes |
| (422) |
|
| 41 |
|
| (1,054) |
| (3,139) | 913 | 9,330 | ||||||
Other |
| 446 |
|
| 1,161 |
|
| 1,118 |
| (4,515) | 1,822 | 565 | ||||||
Net cash provided by operating activities |
| 165,814 |
|
| 151,593 |
|
| 136,733 |
| 277,990 | 171,686 | 150,263 | ||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
| |||||||||
Purchase of property and equipment |
| (95,857) |
|
| (142,144) |
|
| (90,210) |
| (130,991) | (101,456) | (95,696) | ||||||
Proceeds from the sale of property and equipment |
| 2,246 |
|
| 442 |
|
| 1,929 |
| 470 | 4,245 | 1,734 | ||||||
Purchase of marketable securities |
| (12,612) |
|
| (40,858) |
|
| (31,329) |
| (50,789) | (13,620) | (5,627) | ||||||
Proceeds from maturities of marketable securities |
| 8,442 |
|
| 1,335 |
|
| 3,201 |
| |||||||||
Proceeds from the sale of marketable securities |
| 7,272 |
|
| 62,566 |
|
| 9,171 |
| |||||||||
Acquisition of business |
| - |
|
| (63,632) |
|
| - |
| |||||||||
Proceeds from the sale and maturities of marketable securities | 7,730 | 7,165 | 12,384 | |||||||||||||||
Purchase of intangible assets |
| (3,565) |
|
| (2,568) |
|
| (2,649) |
| (127) | (1,489) | (3,540) | ||||||
Proceeds from sale of intangible assets |
| - |
|
| 200 |
|
| - |
| |||||||||
Change in SERP investment |
| (3,322) |
|
| (2,075) |
|
| 42 |
| (1,188) | (4,114) | (2,093) | ||||||
Net cash used in investing activities |
| (97,396) |
|
| (186,734) |
|
| (109,845) |
| (174,895) | (109,269) | (92,838) | ||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
| |||||||||
Proceeds from (payments on) long-term debt |
| (29,488) |
|
| 64,476 |
|
| - |
| |||||||||
Payments on long-term debt | 0 | 0 | (34,988) | |||||||||||||||
Dividends paid |
| (32,278) |
|
| (32,278) |
|
| (32,278) |
| (33,354) | (33,354) | (32,546) | ||||||
Net cash (used in) provided by financing activities |
| (61,766) |
|
| 32,198 |
|
| (32,278) |
| |||||||||
Net increase (decrease) in cash and cash equivalents |
| 6,652 |
|
| (2,943) |
|
| (5,390) |
| |||||||||
Net cash used in financing activities | (33,354) | (33,354) | (67,534) | |||||||||||||||
Net increase in cash and cash equivalents | 69,741 | 29,063 | (10,109) | |||||||||||||||
Cash and cash equivalents at beginning of year |
| 14,653 |
|
| 17,596 |
|
| 22,986 |
| 66,871 | 37,808 | 47,917 | ||||||
Cash and cash equivalents at end of year | $ | 21,305 |
| $ | 14,653 |
| $ | 17,596 |
| |||||||||
Cash and cash equivalents at end of period | $ | 136,612 | $ | 66,871 | $ | 37,808 | ||||||||||||
See accompanying notes to Consolidated Financial Statements. Cash paid for income taxes was $13.0$42.3 million, $31.0$14.1 million and $30.2$6.5 million in 2017, 20162020, 2019 and 2015,2018, respectively. Cash paid for interest related to long-term debt was $973,000$34 thousand, $65 thousand and $141,000$383 thousand in 20172020, 2019 and 2016,2018, respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 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’s operations are reported as a single reportable segment. There was no material change in the nature of the Company's business during fiscal 2017.2020.
(b) Definition of Fiscal Year
The Company’s fiscal year ends on the last Saturday in December. Fiscal 2017 was comprised of 52 weeks, ending on December 30, 2017. Fiscal 2016 was comprised of 53 weeks, ending on December 31, 2016. Fiscal 20152020 was comprised of 52 weeks, ending on December 26, 2015.2020. Fiscal 2019 was comprised of 52 weeks, ending on December 28, 2019. Fiscal 2018 was comprised of 52 weeks, ending on December 29, 2018. References to years in this Annual Report relate to fiscal years.
(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) 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 Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.
(e) Cash and Cash Equivalents
The Company maintains its cash balances in the form of core checking accounts and money market accounts. The Company maintains cash deposits with banks that at times exceed applicable insurance limits. The Company reduces its exposure to credit risk by maintaining such deposits with high quality financial institutions that management believes are creditworthy.
The Company considers investments with an original maturity of three months or less to be cash equivalents. Investment amounts classified as cash equivalents as of December 30, 201726, 2020 and December 31, 201628, 2019 totaled $341,000$95.9 million and $714,000$32.9 million, respectively.
Consumer electronic payments accepted at the point of sale, including all credit card, debit card and electronic benefits transfer transactions that process in three days or less are classified as cash equivalents. Consumer electronic payment amounts classified as cash equivalents as of December 26, 2020 and December 28, 2019 totaled $41.7 million and $23.1 million, respectively.
(f) Marketable Securities
Marketable securities consist of corporate and municipal bonds and equity securities. The Company invests primarily in high-grade marketable debt 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 based on national markets. Unrealized holding gains and losses, net of the related tax effect, on corporate and municipal bonds are excluded from earnings and are reported as a separate component of shareholders’ equity until realized. Unrealized holding gains and losses on equity securities are recorded in investment income (loss) and interest expense. A decline in the fair 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 is 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.
Equity securities are measured at fair value and the unrealized holding gains and losses are recorded in investment income (loss) and interest expense. The Company recognized a $1.8 million loss in 2020 and a $2.0 million gain in 2019.
(g) Accounts Receivable
Accounts receivable are stated net of an allowance for uncollectible accounts of $1,946,000$2.4 million and $1,455,000$2.8 million as of December 30, 201726, 2020 and December 31, 2016,28, 2019, respectively. The reserve balance relates to amounts due from pharmacy third party providers, retail customer returned checks, manufacturing customers, vendors and tenants. The Company maintains an allowance for the amount of receivables deemed to be uncollectible and calculates this amount based upon historical collection activity adjusted for current conditions. Customer electronic payments accepted at the point of sale are classified as accounts receivable until collected.
Note 1 Summary of Significant Accounting Policies (continued)
(h) Inventories
Inventories are valued at the lower of cost or net realizable value, using both the last-in, first-out (LIFO)retail inventory and average cost methods. The retail inventory method is commonly used by retail companies to determine cost and calculate gross margin based on applying a cost-to-retail ratio to each similar merchandise category’s ending retail value. The Company’s center store and pharmacy inventories are valued using LIFO. Under this method, inventory is stated at cost, which is determined by applying a cost-to-retail to each similar merchandise category’s ending retail value.last in, first out (LIFO). The Company’s fresh inventories are valued using average cost. The Company evaluates inventory shortages throughout the year based on actual physical counts in its facilities. Allowances for inventory shortages are recorded based on the results of these counts and to provide for estimated shortages from the last physical count to the financial statement date.
(i) Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided on the cost of buildings and improvements and equipment using the straight-line method.
Leasehold improvements are amortized using the straight-line method 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 “Operating, general and administrative expenses.”
(j) Leases
The Company leases approximately 51% of its open store facilities under operating leases that expire at various dates through 2036, with the remaining store facilities being owned. These leases generally provide for fixed annual rentals; however, several provide for minimum annual rentals plus variable lease costs related to real estate taxes and insurance as well as contingent rentals based on a percentage of annual sales or increases periodically based on inflation. These variable lease costs are not included in the measurement of the operating lease right-to-use assets or lease liabilities and are charged to the related expense category included in “Operating, general and administrative expenses.” Most of the leases contain multiple renewal options, under which the Company may extend the lease terms from 5 to 20 years. Additionally, the Company has operating leases for certain transportation and other equipment. The Company leases or subleases space to tenants in owned, vacated and open store facilities. Rental income is recorded when earned as a component of “Operating, general and administrative expenses.”
(k) Goodwill and Intangible Assets
Goodwill is not amortized but tested for impairment on an annual basis and between annual tests when indicators of impairment are identified. Intangible assets with an indefinite useful life are not amortized until their useful life is determined to be no longer indefinite and are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.
The Company’s intangible assets and related accumulated amortization at December 30, 201726, 2020 and December 31, 201628, 2019 consisted of the following:
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| December 30, 2017 |
|
|
|
| December 31, 2016 |
|
| ||
|
|
| Accumulated |
|
|
|
| Accumulated |
|
| ||
(dollars in thousands) |
| Gross | Amortization |
| Net |
| Gross | Amortization |
| Net | ||
Liquor Licenses | $ | 11,121 | $ | - | $ | 11,121 | $ | 8,423 | $ | - | $ | 8,423 |
Lease Acquisitions |
| 10,960 |
| 3,902 |
| 7,058 |
| 10,960 |
| 2,984 |
| 7,976 |
Customer Lists |
| 1,162 |
| 175 |
| 987 |
| 295 |
| 21 |
| 274 |
Total | $ | 23,243 | $ | 4,077 | $ | 19,166 | $ | 19,678 | $ | 3,005 | $ | 16,673 |
December 26, 2020 | December 28, 2019 | |||||||||||
Accumulated | Accumulated | |||||||||||
(dollars in thousands) | Gross | Amortization | Net | Gross | Amortization | Net | ||||||
Liquor licenses | $ | 15,032 | $ | - | $ | 15,032 | $ | 14,905 | $ | - | $ | 14,905 |
Asset acquisitions and other | 5,083 | 3,345 | 1,738 | 5,083 | 2,888 | 2,195 | ||||||
Total | $ | 20,115 | $ | 3,345 | $ | 16,770 | $ | 19,988 | $ | 2,888 | $ | 17,100 |
Intangible assets with a definite useful life are generally amortized on a straight-line basis over periods up to 30 years for lease acquisitions and up to 10 years for customer lists. Estimated amortization expense for the next five fiscal years is approximately $1.0 million in 2018, $1.0 million in 2019, $1.0 million in 2020, $975,000$444 thousand in 2021, $320 thousand in 2022, $310 thousand in 2023, $310 thousand in 2024 and $732,000$147 thousand in 2022.2025. As of December 30, 2017,26, 2020, the Company’s intangible assets with indefinite lives consisted of goodwill and Pennsylvania liquor licenses.
Note 1 Summary of Significant Accounting Policies (continued)
(k)(l) Impairment of Long-Lived Assets
The Company periodically evaluates the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. The Company completes an impairment test annually. The Company also reviews its property and equipment for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount to the net undiscounted cash flows expected to be generated by the asset. An impairment loss would be recorded for the excess of net book value over the fair value of the asset impaired. The fair value is estimated based on current market values or expected discounted future cash flows.
With respect to owned property and equipment associated with closed stores, the value of the property and equipment would be adjusted to reflect recoverable values if current economic conditions and estimated fair values of the property was less than the net book value.
In accordance with Accounting Standards Codification No. 360, Property, Plant and Equipment, the Company recorded a pre-tax charge of $894,000$1.5 million in the fourth quarter of 20162018 for the impairment of long-lived assets, including equipment and leasehold improvements. The charge was a result of management determining that the net book value of athis property was less than the recoverable value. This charge was included as a component of "Operating, general and administrative expenses." Management determined that no assets met the impairment criteria as of December 26, 2020 and December 28, 2019.
The results of impairment tests are subject to management’s estimates and assumptions of projected cash flows and operating results. The Company believes that, based on current conditions, materially different reported results are not likely to result from long-lived asset impairments. However, a change in assumptions or market conditions could result in a change in estimated future cash flows and the likelihood of materially different reported results.
(l) Store Closing Costs
The Company provides for closed store liabilities relating to the estimated post-closing lease liabilities and related other exit costs associated with the store closing commitments. As of December 30, 2017, the remaining closed store has a lease term of approximately eight months, and the liabilities associated with the closed store lease are paid over the term of the lease. Closed store lease liabilities totaled $39,000 and $105,000 as of December 30, 2017 and December 31, 2016, respectively. The Company estimates the lease liabilities, net of estimated sublease income, using the undiscounted rent payments of closed stores. Other exit costs include estimated real estate taxes, common area maintenance, insurance and utility costs to be incurred after the store closes over the remaining lease term. Store closings are generally completed within one year after the decision to close. Adjustments to closed store liabilities and other exit costs primarily relate to changes in sublease income and actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the changes become known. Any excess store closing liability remaining upon settlement of the obligation is reversed to income in the period that such settlement is determined. Store closing liabilities are reviewed quarterly to ensure that any accrued amount that is not a sufficient estimate of future costs, or that is no longer needed for its originally intended purpose, is adjusted to income in the proper period. Inventory write-downs, if any, in connection with store closings are classified in cost of sales. Costs to transfer inventory and equipment from closed stores are expensed as incurred.
The following table summarizes accrual activity for future lease obligations of stores that were closed in the normal course of business:
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27
WEIS MARKETS, INC.
Note 1 Summary of Significant Accounting Policies (continued)
(m) Self-Insurance
The Company is self-insured for a majority of its workers’ compensation, general liability, vehicle accident and associate medical benefit claims. The self-insurance liability for most of the medical benefit claims is determined based on historical data and an estimate of claims incurred but not reported. The other self-insurance liabilities including workers’ compensation are determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported. The Company was liableis self-insured for associate healthcertain healthcare claims up to an annual maximum of $2,000,000 per member prior to March 1, 2014 and an unlimited amount per member as of and after March 1, 2014. As of March 1, 2014, the Company purchased stop loss insurance which carriesstop-loss coverage is maintained for occurrences exceeding a $500,000$500 thousand specific deductible with a $250,000$450 thousand aggregating deductible. The Company is liable for workers' compensation claims upranging from $1.0 million to $2,000,000$2.0 million per claim. Property and casualty insurance coverage is maintained with outside carriers at deductible or retention levels ranging from $100,000$100 thousand to $1,000,000.$1.0 million. Significant assumptions used in the development of the actuarial estimates include reliance on the Company’s historical claims data including average monthly claims and average lag time between incurrence and reporting of the claim.
(n) Income Taxes
The Company recognizes deferred tax assets and liabilities 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. The Company reviews the tax positions taken or expected to be taken on tax returns to determine whether and to what extent a benefit can be recognized in the Consolidated Financial Statements. Refer to Note 89 to the Consolidated Financial Statements for the amount of unrecognized tax benefits and other disclosures related to uncertain tax positions. To the extent interest and penalties would be assessed by taxing authorities on any underpayment of income tax, such amounts are accrued and classified as a component of income tax expense.
Note 1 Summary of Significant Accounting Policies (continued)
(o) Earnings Per Share
Earnings per share are based on the weighted-average number of common shares outstanding.
(p) Revenue Recognition
Revenue from the sale of products to the Company’s customers is recognized at the point of sale. Discounts provided to customers at the point of sale through the Weis Club Preferred Shopper loyalty program are recognized as a reduction in sales as products are sold. Periodically, the Company will run a point basedpoint-based sales incentive program that rewards customers with future sales discounts. The Company makes reasonable and reliable estimates of the amount of future discounts based upon historical experience and its customer data tracking software. Sales are reduced rationally and systematically by these estimates over the life of the program. Discounts to customers at the point of sale provided by vendors, usually in the form of paper coupons, are not recognized as a reduction in sales provided the discounts are redeemable at any retailer that accepts those discounts. The Company records “Deferred revenue” for the sale of gift cards and revenue is recognized in “Net sales” at the time of customer redemption for products. Gift card breakage income is recognized in “Operating, general and administrative expenses” based upon historical redemption patterns and represents the balance of gift cards for which the Company believes the likelihood of redemption by the customer is remote. Sales tax is excluded from “Net sales.” The Company charges sales tax on all taxable customer purchases and remits these taxes monthly to the appropriate taxing jurisdiction. Merchandise return activity is immaterial to revenues due to products being returned quickly and the relatively low unit cost.
(q) Cost of Sales, Including Advertising, Warehousing and Distribution Expenses
“Cost of sales, including advertising, warehousing and distribution expenses” consists of direct product costs (net of discounts and allowances), advertising (net of vendor paid cooperative advertising credits), distribution center and transportation costs, as well as manufacturing facility operations. Advertising costs, net of vendor paid cooperative advertising credits, are expensed as incurred which are primarily funded by vendor cooperative advertising credits and occur in the same period as the product is sold.
(r) Vendor Allowances
Vendor allowances related to the Company's buying and merchandising activities are recorded as a reduction of cost of sales as they are earned, in accordance with the underlying agreement. Off-invoice and bill-back allowances are used to reduce direct product costs upon the receipt of goods. Promotional rebates and credits are accounted for as a reduction in the cost of inventory and recognized when the related inventory is sold. Volume incentive discounts are realized as a reduction of cost of sales at the time it is deemed probable and reasonably estimable that the incentive target will be reached. Long-term contract incentives, which require an exclusive vendor relationship, are allocated over the life of the contract. Promotional allowance funds for specific vendor-sponsored programs are recognized as a reduction of cost of sales as the program occurs and the funds are earned per the agreement. Cash discounts for prompt payment of invoices are realized in cost of sales as invoices are paid. Warehouse and back-haul allowances provided by suppliers for distributing their product through the Company’s distribution system are recorded in cost of sales offsetting costs incurred. Warehouse rack and slotting allowances are recorded in cost of sales when new items are initially set up in the Company's distribution system, which is when the related expenses are incurred and performance under the agreement is complete. Swell allowances for damaged goods are realized in cost of sales as provided by the supplier, helping to offset product shrink losses also recorded in cost of sales.
28
WEIS MARKETS, INC.
Note 1 Summary of Significant Accounting Policies (continued)
(r) Vendor Allowances (continued)
Vendor allowances recorded as credits in cost of sales totaled $114.1$133.5 million in 2017, $123.92020, $130.4 million in 20162019 and $97.0$132.0 million in 2015.2018. Vendor paid cooperative advertising credits totaled $19.2$21.7 million in 2017, $19.12020, $24.8 million in 20162019 and $17.1$19.4 million in 2015.2018. These credits were netted against advertising costs within “Operating, general“Cost of Sales, including Advertising, Warehousing and administrativeDistribution expenses.” The Company had accounts receivable due from vendors of $886 thousand and $1.0 million and $852,000 for earned advertising credits and $13.1$8.6 million and $10.7$9.5 million for earned promotional discounts as of December 30, 201726, 2020 and December 31, 2016,28, 2019, respectively. The Company had $9.8$3.3 million and $4.0$5.4 million in unearned income included in accrued liabilities for unearned vendor programs under long-term contracts for display and shelf space allocation as of December 30, 201726, 2020 and December 31, 2016,28, 2019, respectively.
(s) Operating, General and Administrative Expenses
Business operating costs including expenses generated from administration and purchasing functions, are recorded in “Operating, general and administrative expenses” in the Consolidated Statements of Income. Business operating costs include items such as wages, benefits, utilities, repairs and maintenance, advertising costs and credits, rent, insurance, depreciation, leasehold amortization and costs for outside provided services.
(t) Advertising Costs
The Company expenses advertising costs as incurred. The Company recorded advertising expense, before vendor paid cooperative advertising credits, of $31.0$24.5 million in 2017, $26.32020, $30.3 million in 20162019 and $23.1$30.5 million in 20152018 in “Operating, general“Cost of Sales, including Advertising, Warehousing and administrative expenses.Distribution Expenses.”
Note 1 Summary of Significant Accounting Policies (continued)
(u) Rental and Commission Income
The Company leases or subleases space to tenants in owned, vacated and open store facilities. Rental income is recorded when earned as a component of “Operating, general and administrative expenses.” All leases are operating leases. Refer to Note 5 to the Consolidated Financial Statements for further disclosure on operating leases as disclosed in Note 5.and rental income.
The Company provides a variety of services to its customers, including but not limited to lottery, money orders, third-party gift cards, and third-party bill pay services. Commission income earned from these services are recorded when earned as a component of “Operating, general and administrative expenses.” The Company recorded commission income of $17.7 million in 2020, $18.3 million in 2019 and $17.9 million in 2018.
(v) Current Relevant Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), as amended by several subsequent ASU’s, which establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. In August 2015, the FASB issued a one-year deferral of the effective date of this new guidance resulting in it now being effective for the Company beginning in fiscal year 2018. The Company has evaluated the impact of adoption of the ASU. The Company’s assessment of the new guidance has identified customer loyalty programsregularly monitors recently issued accounting standards and gift cards affected by the new guidance. The effects related to these transactions will not effect the Company’s Consolidated Financial Statements as any effect as a result of the adoption is not material.assesses their applicabilty and impact. The Company has determinedbelieves that the adoption of the ASUthere are no accounting standard updates that have or will not have a material or significant impact on the Company’s point of sale product sales. The Company will adopt the new standard using the modified retrospective method beginning December 31, 2017.accounting policies.
Note 2 Marketable Securities
The Company’s marketable securities are all classified as available-for-sale within “Current Assets” in the Company’s Consolidated Balance Sheets. FASB has established three levels of inputs that may be used to measure fair value:
Level 1 Observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2 Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and
Level 3 Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company’s marketable securities valued using Level 1 inputs include highly liquidthree public company equity securities, for which quoted market prices are available. The Company’s bond portfolio is valued using Level 2 inputs. inputs. The Company’s corporate and municipal bonds are valued using a combination of pricing for similar securities, recently executed transactions, cash flow models with yield curves and other pricing models utilizing observable inputs, which are considered Level 2 inputs.
For Level 2 investment valuation, the Company utilizes standard pricing procedures of its investment advisory firm(s), which include various third partythird-party pricing services. These procedures also require specific price monitoring practices as well as pricing review reports, valuation oversight and pricing challenge procedures to maintain the most accurate representation of investment fair market value.
The Company accrues interest on its bond portfolio throughout the life of each bond held. Dividends from the equity securities are recognized as received. Both interest and dividends are recognized in “Investment income and interest expense” on the Company’s Consolidated Statements of Income. The Company recognized investment income of $536 thousand, $4.1 million and investment loss of $234 thousand which included an unrealized loss in equity securities of $1.8 million, an unrealized gain in equity securities of $2.0 million and an unrealized loss in equity securities of $1.6 million in the fiscal years ended December 26, 2020, December 28, 2019 and December 29, 2018, respectively.
30
WEIS MARKETS, INC.
Note 2 Marketable Securities (continued)
Marketable securities, as of December 30, 201726, 2020 and December 31, 2016,28, 2019, consisted of:
Gross | Gross | ||||||||||
(dollars in thousands) | Amortized | Unrealized | Unrealized | Fair | |||||||
December 26, 2020 | Cost | Holding Gains | Holding Losses | Value | |||||||
Available-for-sale: | |||||||||||
Level 1 | |||||||||||
Equity securities | $ | 7,410 | |||||||||
Level 2 | |||||||||||
Corporate and municipal bonds | $ | 99,861 | $ | 5,723 | $ | (1,139) | 104,445 | ||||
$ | 99,861 | $ | 5,723 | $ | (1,139) | $ | 111,855 | ||||
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(dollars in thousands) | Amortized | Unrealized | Fair | Amortized | Unrealized | Unrealized | Fair | ||||||||||||
December 30, 2017 | Cost | Holding Gains | Holding Losses | Value | |||||||||||||||
December 28, 2019 | Cost | Holding Gains | Holding Losses | Value | |||||||||||||||
Available-for-sale: |
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Equity securities | $ | 1,198 | $ | 7,634 | $ | - | $ | 8,832 | $ | 9,201 | |||||||||
Level 2 |
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Municipal bonds |
| 54,278 |
| 671 |
| (116) |
| 54,833 | |||||||||||
Corporate and municipal bonds | $ | 52,264 | $ | 2,091 | $ | (18) | 54,337 | ||||||||||||
| $ | 55,476 | $ | 8,305 | $ | (116) | $ | 63,665 | $ | 52,264 | $ | 2,091 | $ | (18) | $ | 63,538 | |||
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(dollars in thousands) | Amortized | Unrealized | Unrealized | Fair | ||||
December 31, 2016 | Cost | Holding Gains | Holding Losses | Value | ||||
Available-for-sale: |
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Equity securities | $ | 1,198 | $ | 8,162 | $ | - | $ | 9,360 |
Level 2 |
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Municipal bonds |
| 57,739 |
| 531 |
| (459) |
| 57,811 |
| $ | 58,937 | $ | 8,693 | $ | (459) | $ | 67,171 |
Maturities of marketable securities classified as available-for-sale at December 30, 2017,26, 2020, were as follows:
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| Fair | Amortized | Fair | |||
(dollars in thousands) |
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| Value | Cost | Value | |||
Available-for-sale: |
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Due within one year | $ | 12,535 | $ | 12,585 | $ | 9,146 | $ | 9,233 | |
Due after one year through five years |
| 22,421 |
| 22,655 | 44,030 | 45,788 | |||
Due after five years through ten years |
| 19,322 |
| 19,593 | 46,685 | 49,424 | |||
Equity securities |
| 1,198 |
| 8,832 | |||||
| $ | 55,476 | $ | 63,665 | $ | 99,861 | $ | 104,445 | |
Note 2 Marketable Securities (continued)
SERP Investments
The Company also maintains a non-qualified supplemental executive retirement plan and a non-qualified pharmacist deferred compensation plan for certain of its associates which allows them to defer income to future periods. Participants in the plans earn a return on their deferrals based on mutual fund investments. The Company chooses to invest in the underlying mutual fund investments to offset the liability associated with the non-qualified deferred compensation plans. Such investments are reported on the Company’s Consolidated Balance Sheets as “SERP investment,” are classified as trading securities and are measured at fair value using Level 1 inputs with gains and losses included in “Investment income and interest expense” on the Company’s Consolidated Statements of Income. The Company recognized investment income of $3.3 million, $3.0 million, and investment loss of $931 thousand in fiscal years ended December, 26, 2020, December 28, 20219, and December 29, 2018 The changes in the underlying liability to the associates are recorded in “Operating, general and administrative expenses“Other income (expense).”
31
WEIS MARKETS, INC.
Note 3 Inventories
Merchandise inventories, as of December 30, 201726, 2020 and December 31, 2016,28, 2019, were valued as follows:
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(dollars in thousands) |
| 2017 |
| 2016 | 2020 | 2019 | ||
LIFO | $ | 221,777 | $ | 223,294 | $ | 191,051 | $ | 204,043 |
Average cost |
| 57,732 |
| 53,489 | 77,973 | 75,763 | ||
| $ | 279,509 | $ | 276,783 | $ | 269,024 | $ | 279,806 |
Management believes the use of the LIFO method for valuing certain inventories represents the most appropriate matching of costs and revenues in the Company’s circumstances. If all inventories were valued on the average cost method, which approximates current cost, total inventories would have been $78,005,000$70.4 million and $79,128,000$70.7 million higher than as reported on the above methods as of December 30, 201726, 2020 and December 31, 2016,28, 2019, respectively. During 2020 and 2019, the Company had certain decrements in its LIFO pools, which had an insignificant impact on the cost of sales.
Property and equipment, as of December 30, 201726, 2020 and December 31, 2016,28, 2019, consisted of:
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(dollars in thousands) | (in years) |
| 2017 |
| 2016 | (in years) | 2020 | 2019 | ||
Land |
| $ | 129,878 | $ | 134,813 | $ | 137,890 | $ | 137,977 | |
Buildings and improvements | 10-60 |
| 693,898 |
| 655,487 | 10-60 | 779,927 | 736,812 | ||
Equipment | 3-12 |
| 1,054,986 |
| 1,033,967 | 3-12 | 1,159,084 | 1,096,252 | ||
Leasehold improvements | 5-20 |
| 212,109 |
| 205,506 | 5-20 | 225,393 | 217,664 | ||
Total, at cost |
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| 2,090,871 |
| 2,029,773 | 2,302,294 | 2,188,705 | |||
Less accumulated depreciation and amortization |
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| 1,204,628 |
| 1,151,578 | 1,377,865 | 1,301,777 | |||
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| $ | 886,243 | $ | 878,195 | $ | 924,429 | $ | 886,928 |
AtThe adoption of ASU 2016-02 Leases (Topic 842) had a significant impact on the Company’s Consolidated Balance Sheets, resulting in operating lease right-to-use assets of $202 million and lease liabilities of $211 million as of December 30, 2017,2018. The difference between the Company leased approximately 54% of its open store facilities underoperating lease right-to-use assets and lease liabilities represents prepaid and accrued rents, unfavorable lease obligations, favorable lease assets and deferred tenant allowances associated with operating leases that expire at various dates through 2033. These leases generally provide for fixed annual rentals; however, several provide for minimum annual rentals plus contingent rentals as of December 30, 2018 and reclassified against the operating lease right-to-use asset upon adoption.
The following is 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. Mostschedule of the leases contain multiple renewal options, under whichlease costs included in “Operating, general and administrative expenses” for the Company may extend the lease terms from 5 to 20 years. Rents on operating leases, including agreements with step rents, are charged to expense on a straight-line basis over the minimum lease term. Additionally, the Company has operating leases for certain transportation and other equipment.fiscal year ended December 26, 2020.
Rent expense and income on all leases consisted of:
(dollars in thousands) | 2020 | 2019 | |||
Operating lease cost | $ | 46,283 | $ | 46,063 | |
Variable lease cost | 11,167 | 10,998 | |||
Lease or sublease income | (8,636) | (7,749) | |||
Net lease cost | $ | 48,814 | $ | 49,312 | |
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(dollars in thousands) |
| 2017 |
| 2016 |
| 2015 |
Minimum annual rentals | $ | 46,804 | $ | 38,632 | $ | 34,794 |
Contingent rentals |
| 432 |
| 431 |
| 452 |
Lease or sublease income |
| (7,612) |
| (7,212) |
| (7,069) |
| $ | 39,624 | $ | 31,851 | $ | 28,177 |
The following is a schedule by years of the future minimum rental payments required under operating leases and total minimum sublease and lease rental income to be received that have initial or remaining non-cancelable lease terms in excess of one year as of December 30, 2017.26, 2020.
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(dollars in thousands) |
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| Subleases | Leases | Subleases | |
2018 | $ | 43,820 | $ | (3,278) | |||
2019 |
| 40,665 |
| (3,075) | |||
2020 |
| 33,100 |
| (2,800) | |||
2021 |
| 26,893 |
| (2,397) | $ | 46,631 | (3,683) |
2022 |
| 21,124 |
| (2,054) | 41,800 | (3,126) | |
2023 | 37,108 | (2,462) | |||||
2024 | 31,925 | (1,696) | |||||
2025 | 23,953 | (1,336) | |||||
Thereafter |
| 79,892 |
| (8,693) | 59,734 | (4,846) | |
| $ | 245,494 | $ | (22,297) | |||
Total Lease Payments | $ | 241,151 | (17,149) | ||||
Less: Interest | 32,922 | - | |||||
Present value of lease liabilities | 208,229 | (17,149) | |||||
The Company did not havefollowing is a liability accruedschedule of weighted-average remaining lease terms and weighted-average discount rates as of December 31, 201726, 2020 and asDecember 28, 2019.
Lease Term and Discount Rate | December 26, 2020 | December 28, 2019 | ||
Weighted-average remaining lease term | 4.06 | 4.44 | ||
Weighted-average discount rate | 3.36% | 3.47% |
Prior to the adoption of the ASU, leases generally provide for fixed annual rentals, minimum annual rentals, contingent rentals and sublease income.
Rent expense and income on all leases for the fiscal year ended December 31, 2016, for future minimum rental payments due on previously closed stores, reduced by the estimated sublease income to be received. The future minimum rental payments required under operating leases and estimated sublease income for these locations are included in the above schedule.29, 2018 consisted of:
33
(dollars in thousands) | 2018 | |
Minimum annual rentals | $ | 47,253 |
Contingent rentals | 419 | |
Lease or sublease income | (7,757) | |
$ | 39,915 | |
WEIS MARKETS, INC.
Note 6 Retirement Plans
The Company has a qualified retirement savings plan, the Weis Markets, Inc. Retirement Savings Plan, covering substantially all full-time associates. The plan has a contributory component as well as a noncontributory profit-sharing component for certain associates. The noncontributory component covers eligible associates which included certain salaried associates, store management and administrative support personnel. The Company also has threea non-qualified supplemental retirement plansplan covering highly compensated employees of the Company. The Company’s policy is to fund retirement plan costs as accrued, with the exception of the deferred compensation plan. Employer contributions to the qualified retirement plan are made at the sole discretion of the Company.
Retirement plan costs:
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(dollars in thousands) |
| 2017 |
| 2016 |
| 2015 | 2020 | 2019 | 2018 | |||
Retirement savings plan |
| 3,343 |
| 3,593 |
| 3,161 | 4,949 | 3,434 | 3,525 | |||
Deferred compensation plan |
| 813 |
| 788 |
| (318) | 806 | 801 | 508 | |||
Supplemental executive retirement plan |
| 1,920 |
| 909 |
| 484 | 463 | 498 | 390 | |||
Deferred compensation plan for pharmacists |
| 705 |
| 284 |
| (165) | ||||||
| $ | 6,781 | $ | 5,574 | $ | 3,162 | $ | 6,218 | $ | 4,733 | $ | 4,423 |
The Company maintains a non-qualified deferred compensation plan for the payment of specific amounts of annual retirement benefits to certain officers or their beneficiaries over an actuarially computed normal life expectancy. Currently, there are no active officers in the plan. The expected payments under the plan provisions were determined through actuarial calculations dependent on the age of the recipient, using an assumed discount rate. The plan is unfunded and accounted for on an accrual basis. The recorded liability at December 30, 201726, 2020 is $4,914,000,$4.0 million which is based on expected payments to be made over the remaining lives of the beneficiaries. This amount is included in “Accrued expenses” and “Postretirement benefit obligations” in the Consolidated Balance Sheets. The expected payment amounts are approximately $1,013,000$1.0 million for 20182021 and for the years thereafter dependent on the lives of the beneficiaries.
The Company also maintains a non-qualified supplemental executive retirement plan and a non-qualified pharmacist deferred compensation plan for certain of its associates. These plans areThis plan is designed to provide retirement benefits and salary deferral opportunities because of limitations imposed by the Internal Revenue Code and the Regulations implemented by the Internal Revenue Service. These plans areThis plan is unfunded and accounted for on an accrual basis. Participants in these plansthis plan are excluded from participation in the profit sharing portion of the Weis Markets, Inc. Retirement Savings Plan once their yearly earnings exceed the IRS highly compensated threshold. The Board of Directors annually determines the amount of the allocation to the plans at its sole discretion. The allocation among the various plan participants is made in both flat dollar amounts and in relationship to their compensation. Plan participants are 100% vested in their accounts after sixthree years of service with the Company. Benefits are distributed among participants upon reaching the applicable retirement age.termination or retirement. Substantial risk of benefit forfeiture does exist for participants in these plans.this plan. The present value of accumulated benefits amounted to $14,508,000$22.8 million and $11,176,000$19.0 million at December 30, 201726, 2020 and December 31, 2016,28, 2019, respectively, and is included in “Postretirement benefit obligations” in the Consolidated Balance Sheets.
Note 7 Revenue Recognition
The CompanyChief Operating Officer, the Company’s chief operating decision maker, analyzed store operational revenues by geographical area but each area offers customers similar product, has no other postretirement benefit plans.similar distribution methods, and supported by centralized management processes. The Company’s operations are reported as a single reportable segment.
The following table represents net sales by type of product for years ending December 26, 2020, December 28, 2019 and December 29, 2018.
52 Weeks Ended | |||||||||||||||||
(dollars in thousands) | December 26, 2020 | December 28, 2019 | December 29, 2018 | ||||||||||||||
Grocery | $ | 3,627,898 | 88.2 | % | $ | 3,068,754 | 86.6 | % | $ | 3,063,218 | 87.3 | % | |||||
Pharmacy | 356,630 | 8.7 | 337,233 | 9.5 | 314,584 | 9.0 | |||||||||||
Fuel | 117,800 | 2.9 | 127,828 | 3.6 | 125,993 | 3.6 | |||||||||||
Manufacturing | 10,273 | 0.2 | 9,484 | 0.3 | 5,475 | 0.1 | |||||||||||
Total net sales | $ | 4,112,601 | 100.0 | % | $ | 3,543,299 | 100.0 | % | $ | 3,509,270 | 100.0 | % | |||||
34
Note 78 Accumulated Other Comprehensive Income
All balances in accumulated other comprehensive income are related to available-for-sale marketable securities. The following table sets forth the balance of the Company’s accumulated other comprehensive income, net of tax.
Unrealized Gains | ||
on Available-for-Sale | ||
(dollars in thousands) | Marketable Securities | |
Accumulated other comprehensive income balance as of December 29, 2018 | $ | 262 |
Other comprehensive loss before reclassifications | 1,255 | |
Amounts reclassified from accumulated other comprehensive income | (37) | |
Net current period other comprehensive Income | 1,218 | |
Accumulated other comprehensive income balance as of December 28, 2019 | $ | 1,480 |
Other comprehensive income before reclassifications | 1,806 | |
Amounts reclassified from accumulated other comprehensive income | - | |
Net current period change in other comprehensive income | 1,806 | |
Accumulated other comprehensive income balance as of December 26, | $ | |
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The following table sets forth the effects on net income of the amounts reclassified out of accumulated other comprehensive income for the periods ended December 30, 2017,26, 2020, December 31, 201628, 2019 and December 26, 2015.29, 2018.
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(dollars in thousands) | Location | 2017 | 2016 | 2015 | Location | 2020 | 2019 | 2018 | ||||||
Unrealized gains (losses) on available-for-sale marketable securities | Unrealized gains (losses) on available-for-sale marketable securities |
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| Investment income and interest expense | $ | (40) | $ | 437 | $ | 27 | Investment income (loss) and interest expense | $ | - | $ | (51) | $ | (54) |
| Provision for income taxes |
| 11 |
| (180) |
| (11) | Provision for income taxes | - | 14 | 14 | |||
Total amount reclassified, net of tax |
| $ | (29) | $ | 257 | $ | 16 | Total amount reclassified, net of tax | $ | - | $ | (37) | $ | (40) |
Note 89 Income Taxes
(dollars in thousands) | 2020 | 2019 | 2018 | |||
Current: | ||||||
Federal | $ | 29,121 | $ | 11,779 | $ | 11,385 |
State | 9,984 | 3,117 | 4,594 | |||
Deferred: | ||||||
Federal | 4,090 | 6,636 | 6,059 | |||
State | 1,567 | (871) | (2,640) | |||
$ | 44,762 | $ | 20,661 | $ | 19,398 |
The provision (benefit) for income taxes consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
| 2017 |
| 2016 |
| 2015 |
Current: |
|
|
|
|
|
|
Federal | $ | 10,630 | $ | 25,908 | $ | 29,888 |
State |
| 1,972 |
| 5,888 |
| 3,325 |
Deferred: |
|
|
|
|
|
|
Federal |
| (34,659) |
| 6,020 |
| (188) |
State |
| 2,666 |
| (317) |
| (24) |
| $ | (19,391) | $ | 37,499 | $ | 33,001 |
The reconciliation of income taxes computed at the federal statutory rate 35%of 21% in 2017, 20162020, 2019 and 2015 respectively.
2018. Ending deferred tax liability has been computed at the federal statutory rate of 21% due to the Tax Reform..
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|
|
|
|
|
| ||||||
|
|
|
|
|
|
| ||||||
(dollars in thousands) |
| 2017 |
| 2016 |
| 2015 | 2020 | 2019 | 2018 | |||
Income taxes at federal statutory rate | $ | 27,658 | $ | 43,631 | $ | 32,316 | $ | 34,373 | $ | 18,615 | $ | 17,249 |
State income taxes, net of federal income tax benefit |
| 1,306 |
| 2,413 |
| 1,112 | 7,261 | 1,333 | 639 | |||
Deferred tax on gain on bargain purchase |
| - |
| (8,358) |
| - | ||||||
Nondeductible employee-related expenses |
| 1,828 |
| - |
| - | 2,223 | 1,974 | 768 | |||
2017 tax reform |
| (49,336) |
| - |
| - | - | - | 657 | |||
Other |
| (847) |
| (187) |
| (427) | 905 | (1,261) | 85 | |||
Provision for income taxes (effective tax rate (24.5)%, 30.1% and 35.7%, respectively) | $ | (19,391) | $ | 37,499 | $ | 33,001 | ||||||
Provision for income taxes (effective tax rate 27.3%, 23.3% and 23.6%, respectively) | $ | 44,762 | $ | 20,661 | $ | 19,398 | ||||||
The effective income tax rate was (24.5)%27.3%, 30.1%23.3% and 35.7%23.6% in 2017, 20162020, 2019, and 2015,2018, respectively. On December 22, 2017, the U.S. Government enacted the Tax Cuts and Jobs Act (the ”Tax Reform”). The Tax Reform significantly impacted the Company’s effective income tax rate by reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018 and allowing immediate expensing of qualified assets placed into service after September 27, 2017. Other elements of the Tax Reform have minor impacts, however the above mentioned decreased deferred income tax by $49.3 million. The effective income tax rate decreased in 2016differs from the federal statutory rate of 21% primarily due to state taxes as well as nondeductible employee expenses. Not all the impact ofCompany’s tax credits and state deductions are driven proportionately by taxable income levels, due to these items and the bargain purchase gain onsignificant increase in taxable income from prior years, the 38 locations being included in the overall gain calculation and not inresult was a higher effective income tax expense. The effective tax rate excluding the bargain purchase gain was 37.2%for 2020.
Cash paid for federal income taxes was $12.0$33.5 million, $27.3$11.3 million $4.5 million and $28.0 million in 2017, 20162020, 2019 and 20152018 respectively. Cash paid for state income taxes was $1.0$8.8 million, $3.7$2.8 million and $2.2$2.1 million in 2017, 20162020, 2019 and 20152018 respectively.
Note 9 Income Taxes (continued)
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 30, 201726, 2020 and December 31, 2016,28, 2019, are:
|
|
|
|
| ||||
|
|
|
|
| ||||
(dollars in thousands) |
| 2017 |
| 2016 | 2020 | 2019 | ||
Deferred tax assets: |
|
|
|
| ||||
Accounts receivable | $ | 542 | $ | 586 | $ | 659 | $ | 749 |
Compensated absences |
| 848 |
| 1,076 | ||||
Employment incentives |
| 388 |
| 9,826 | 6,204 | 4,735 | ||
Employee benefit plans |
| 5,581 |
| 9,243 | ||||
General liability insurance |
| 2,991 |
| 4,359 | ||||
Self-insurance liability | 8,515 | 7,344 | ||||||
Postretirement benefit obligations |
| 5,365 |
| 6,484 | 6,527 | 6,054 | ||
Net operating loss carryforwards |
| 7,745 |
| 5,600 | ||||
Net operating loss and credit carryforwards | 7,787 | 9,945 | ||||||
Unrecognized Tax Benefits | 1,751 | 1,389 | ||||||
Other |
| 4,373 |
| 2,224 | 1,407 | 611 | ||
Total deferred tax assets |
| 27,833 |
| 39,398 | 32,850 | 30,827 | ||
Deferred tax liabilities: |
|
|
|
| ||||
Inventories |
| (8,026) |
| (7,619) | (13,407) | (13,072) | ||
Unrealized gains on marketable securities |
| (2,310) |
| (3,382) | (3,059) | (2,851) | ||
Prepaids | (5,993) | (4,883) | ||||||
Nondeductible accruals and other |
| (5,160) |
| (7,517) | (332) | (926) | ||
Depreciation |
| (99,759) |
| (140,325) | (113,463) | (106,136) | ||
Total deferred tax liabilities |
| (115,255) |
| (158,843) | (136,254) | (127,868) | ||
Net deferred tax liability | $ | (87,422) | $ | (119,445) | $ | (103,404) | $ | (97,041) |
36
WEIS MARKETS, INC.
Note 8 Income Taxes (continued)
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
|
|
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|
| ||||
|
|
|
|
| ||||
(dollars in thousands) |
| 2017 |
| 2016 | 2020 | 2019 | ||
Unrecognized tax benefits at beginning of year | $ | 3,124 | $ | 1,264 | $ | 6,612 | $ | 6,405 |
Increases based on tax positions related to the current year |
| 1,567 |
| 1,563 | 1,725 | 1,769 | ||
Additions for tax positions of prior year |
| - |
| 297 | 0 | 0 | ||
Reductions for tax positions of prior years |
| - |
| - | 0 | 0 | ||
Settlements |
| - |
| - | 0 | 0 | ||
Expiration of the statute of limitations for assessment of taxes |
| - |
| - | 0 | (1,562) | ||
Unrecognized tax benefits at end of year | $ | 4,691 | $ | 3,124 | $ | 8,337 | $ | 6,612 |
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $1,567,000$1.7 million in 2017, $1,860,0002020, $1.8 million in 20162019 and $1,264,000$1.7 million in 2015.2018.
The Company’s U.S. Federal income tax filings have been examined by the Internal Revenue Service through 2008. The Company or one of its subsidiaries files tax returns in the United States and various states.state jurisdictions. The tax years subject to examination in the United State and in Pennsylvania, where the majority of the Company's revenues are generated, are 20142016 to 2017. 2020.
The Company has net operating loss carryforwards of $98.1$72 million available for state income tax purposes. The net operating losses will begin to expire starting in 2027. The Company expects to fully utilize these net operating loss carryforwards.