WEIS MARKETS INC - Annual Report: 2015 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-K

(Mark One)

 [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 26, 2015

OR

 [  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to_________

Commission File Number 1-5039

 

WEIS MARKETS, INC.

(Exact name of registrant as specified in its charter)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [  ]    No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes [  ]    No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]    No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X]    No [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes [  ]  No [X]

 

The aggregate market value of Common Stock held by non-affiliates of the Registrant is approximately $519,000,000 as of June 27, 2015 the last business day of the most recently completed second quarter.

 

Shares of common stock outstanding as of  March 18, 2016 - 26,898,443.

 

DOCUMENTS INCORPORATED BY REFERENCE:  Selected portions of the Weis Markets, Inc. definitive proxy statement dated  March 10, 2016 are incorporated by reference in Part III of this Form 10-K.    

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WEIS MARKETS, INC.

 

TABLE OF CONTENTS

 

 

 

 

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Table of Contents 

PART I

 

Item 1.Business:

 

Weis Markets, Inc. is a Pennsylvania business founded by Harry and Sigmund Weis in 1912 and incorporated in 1924.  The Company is engaged principally in the retail sale of food in Pennsylvania and surrounding states.  There was no material change in the nature of the Company's business during fiscal 2015.  The Company’s stock has been traded on the New York Stock Exchange since 1965 under the symbol “WMK.”  The Weis family currently owns approximately 65% of the outstanding shares.  Jonathan H. Weis serves as Chairman of the Board of Directors, President and Chief Executive Officer. 

 

The Company's retail food stores sell 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 Company advertises its products and promotes its brand through weekly newspaper circulars; radio ads; e-mail blasts; and on-line via its web site, social media and mobile applications.  Printed circulars are used extensively on a weekly basis to advertise featured items.  The Company utilizes a loyalty marketing program, “Weis Club Preferred Shopper,” which enables customers to receive discounts, promotions and fuel rewards.  The Company currently owns and operates 163 retail food stores.  The Company’s operations are reported as a single reportable segment.

 

The following table provides additional detail on the percentage of consolidated net sales contributed by product category for fiscal years 2015, 2014 and 2013, respectively: 

__________

(1) Consists primarily of groceries, dairy products, frozen foods, beer and wine, and general merchandise items, such as health and beauty care and household products.

(2) Consists primarily of meats, seafood, fresh produce, floral, deli products, prepared foods and bakery products.

 

At the end of 2015, Weis Markets, Inc. operated 25 stores in Maryland, 5 stores in New Jersey, 9 stores in New York, 122 stores in Pennsylvania and 2 stores in West Virginia, for a total of 163 retail food stores operating under the Weis Markets trade name. 

 

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Item 1.Business: (continued)

 

All retail food store locations operate as conventional supermarkets.  The retail food stores range in size from 8,000 to 70,000 square feet, with an average size of approximately 50,000 square feet.  The following summarizes the number of stores by size categories as of year-end:

 

 

 

The following schedule shows the changes in the number of retail food stores, total square footage and store additions/remodels as of year-end:

 

____________________

(1)  On June 11, 2012, Weis Markets, Inc. acquired three former Genuardi’s stores located in Conshohocken, Doylestown and Norristown, Pennsylvania from Safeway Inc. 

 

The Company supports its retail operations through a centrally located distribution facility, its own transportation fleet, three manufacturing facilities and its store support center.  The Company is required to use a significant amount of working capital to provide for the necessary amount of inventory to meet demand for its products through efficient use of buying power and effective utilization of space in its distribution facilities.  The manufacturing facilities consist of a meat processing plant, an ice cream plant and a milk processing plant.

 

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.  The Company continues to effectively compete by offering a strong combination of value, quality and service.

 

The Company currently employs approximately 19,000 full-time and part-time associates.

 

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Item 1.   Business: (continued)

 

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 more than 50 other 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, Price Freeze, 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.   The Company makes available, free of charge, on the “Financial” 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.

 

Item 1a.   Risk Factors:

 

In addition to risks 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.

 

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 industry is intensely price competitive, and the competition the Company encounters may have a negative impact on product retail prices.  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.

 

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 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.

 

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.

 

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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 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 stores will be successful.  The failure to expand by successfully opening new stores as planned, or the failure of a significant number of these stores to perform as planned, could have a material adverse effect on the Company’s business and results of its operations.

 

Disruptions or security 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.

 

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. 

 

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.

 

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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.

 

The Company was liable for associate health claims up to an annual maximum of  $1,250,000 per member prior to March 1, 2013, $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 carries a $500,000 specific deductible with a $250,000 aggregating deductible.  The Company is liable for workers' compensation claims up to $2,000,000 per claim.  Property and casualty insurance coverage is maintained with outside carriers at deductible or retention levels ranging from $100,000 to $1,000,000.  The Company, for the benefit of cost savings, has accepted the risk of an unusual amount of independent multiple material claims arising, which could have a significant impact on earnings. 

 

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 operations or liquidity.    

 

As of December 26, 2015, the Company had $17.6 million in cash and cash equivalents, $91.6 million in marketable securities and $9.1 million in SERP (Supplemental Executive Retirement Plan) investments  (level 1 mutual funds).  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 Federal Deposit Insurance Corporation (FDIC) insures amounts up to $250,000 per depositor, per insured bank, for each account ownership category.  The Company has balances in bank accounts that may exceed the insured amount leaving the Company exposed for any amounts over the $250,000 limit.

 

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 26, 2015.  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.

 

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.

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Item 1b.    Unresolved Staff Comments:

 

There are no unresolved staff comments.

 

Item 2.    Properties:

 

As of December 26, 2015, the Company owned and operated  83 of its retail food stores and leased and operated  80 stores under operating leases that expire at various dates through 2029.  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 1.1 million square feet, and one in Northumberland, Pennsylvania totaling approximately 76,000 square feet.  The Company also owns one warehouse complex in Sunbury, Pennsylvania totaling approximately 550,000 square feet.  The Company utilizes 259,000 square feet of its Sunbury location to operate its ice cream plant, meat processing plant and milk processing plant.

 

Item 3.    Legal Proceedings:

 

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. 

 

 

 

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Executive Officers of the Registrant 

 

The following sets forth the names and ages of the Company’s executive officers as of March 18, 2016, indicating all positions held during the past five years:

 

 

 

 

 

 

 

 

 

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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 December 26, 2015 as provided by the Company's transfer agent was 6,002.  High and low stock prices and dividends paid per share for the last two fiscal years were: 

 

 

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 published group index for the Retail Grocery Stores Industry (“Peer Group”), provided by Value Line, Inc., for the period of five years.  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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Item 6.    Selected Financial Data:

 

The following selected historical 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 of Operations

 

 

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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, Inc. was founded in 1912 by Harry and Sigmund Weis in Sunbury, Pennsylvania.  Today, the Company ranks among the top 50 food and drug retailers in the United States in revenues generated.  As of December 26, 2015, the Company operated 163 retail food stores in Pennsylvania and four surrounding states: Maryland, New Jersey, New York and West Virginia.

 

Company revenues are generated in its retail food stores from the sale of a wide variety of consumer products including 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 Company supports its retail operations through a centrally located distribution facility, its own transportation fleet, three manufacturing facilities and its administrative offices.  The Company's operations are reported as a single reportable segment.

 

 

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

 

Company Overview, (continued) 

 

Strategic Imperatives

 

The following strategic imperatives will be focused upon by the Company to attempt to ensure the success of the Company in the coming years:

 

 

 

 

 

 

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

 

Results of Operations

 

Analysis of Consolidated Statements of Income

 

Income is earned by selling merchandise at price levels that produce revenues in excess of cost of merchandise sold and operating and administrative expenses.  Although the Company may experience short term fluctuations in its earnings due to unforeseen short-term operating cost increases, it historically has been able to increase revenues and maintain stable earnings from year to year.

 

Net Sales

 

The Company's revenues are earned and cash is generated as merchandise is sold to customers at the point of sale.  Discounts provided to customers by the Company at the point of sale are recognized as a reduction in sales as products are sold or over the life of a promotional program if redeemable in the future.  Discounts provided by vendors, usually in the form of paper coupons, are not recognized as a reduction in sales provided the coupons are redeemable at any retailer that accepts coupons.

 

Total store sales increased 3.6% in 2015 compared to 2014. Excluding fuel sales, total store sales increased 4.3% in 2015 compared to 2014.  Total store sales increased 3.1% in 2014 compared to 2013.  Excluding fuel sales, total store sales increased 2.8% in 2014 compared to 2013. 

 

When calculating the percentage change in comparable store sales, the Company defines a new store to be comparable when it has been in operation for 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.

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

 

Results of Operations (continued)

 

Net Sales (continued)

 

Comparable store sales increased 3.7% in 2015 compared to 2014.  Excluding fuel sales, comparable store sales increased 4.4% in 2015 compared to 2014.  Comparable store sales increased 2.0% in 2014 compared to 2013.  Excluding fuel sales, comparable store sales increased 1.7% in 2014 compared to 2013. 

 

The Company attributes the increased sales to its continued investments in lower pricing and disciplined sales building programs.  This includes targeted promotional activity in key regional markets and its Everyday Lower Prices (EDLP) and Lowest Price Guarantee promotional programs.  The EDLP program lowered prices on more than 1,000 regularly purchased items.  The Lowest Price Guarantee program offers discounts on four items every week that the Company guarantees to be the lowest compared to local competitors.  Compared to 2014, the Company experienced a 0.2%  decrease in the average sales per customer transaction in 2015, while identical customer store visits increased by  4.1%.  Compared to 2013, the Company generated a 1.5% increase in the average sales per customer transaction in 2014, while identical customer store visits increased by 0.6%. 

 

The Company’s results also benefited from increased store level and supply chain efficiencies and an improved customer experience.  In addition, the Weis Preferred Club Shopper program continues to target customer members with personalized offers and digital coupons to help them save money.  As part of this loyalty marketing program, the Company continues to offer its "Gas Rewards" program in most markets.  The "Gas Rewards" program allows Weis Preferred Shoppers club card members to earn gas discounts resulting from their in-store purchases.  Customers can redeem these gas discounts at any of the thirty-one Weis Gas-n-Go locations, as well as participating third-party gas retail locations such as Sheetz convenience stores, which are located in most of the Company’s markets.  

 

Comparable center store sales increased by 2.4% in 2015 compared to 2014.  Comparable center store sales decreased 0.2% in 2014 compared to 2013.  Comparable fresh sales increased 6.0% in 2015 compared to 2014 and increased 3.0% in 2014 compared to 2013.  Both comparable center store and fresh sales increased for the reasons described above.

 

Comparable health and beauty care sales increased 5.0% in 2015 compared to 2014.  The increase for these items was primarily driven by improved in-stock positions at store level due to the introduction of a computer generated ordering system.  New products coupled with electronic marketing programs and the successful execution of category business plans also aided sales.

 

Comparable meat sales increased 4.3% in 2015 compared to 2014, and increased 3.8% in 2014 compared to 2013.  In addition to increased costs of commodities for the first half of the year which led to retail inflation in 2015, the Company continued to build the meat department’s base business through aggressive ads, the introduction of new programs, expanded variety and display space for All Natural and Organic products.   The Company also maintained a continued focus on superior customer service and fresh cut meat at store level through its “Great Meals Start Here” program, which was introduced in January 2014. Comparable meat sales increased 3.8% in 2014 compared to 2013.  The “Great Meals Start Here” program coupled with price inflation; more aggressive advertising; and a focus on improving store condition and resetting the stores to better serve our customers’ needs contributed to the meat sales increase in 2014.

 

Comparable produce sales increased 5.9% in 2015 compared to 2014.  The 2015 sales increase has been driven by an aggressive advertising and merchandising campaign; larger crops being harvested as compared to estimates, resulting in lower average retail prices but increased unit sales; and an increased variety in key categories of produce. In addition, sales growth in the produce department can be attributed to store remodeling projects, associate training classes and improved execution at the store level.

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

 

Results of Operations (continued)

 

Net Sales (continued)

 

Comparable pharmacy sales increased 7.4% in 2015 compared to 2014.  The pharmacy sales increase was driven by an increased number of filled prescriptions, partially due to an increased acceptance of preferred third-party insurance plans as well as expanded pharmacy hours.  Comparable pharmacy sales increased 8.5% in 2014 compared to 2013.  Pharmacy sales experienced significant price inflation in 2014 but were negatively affected in 2013 due to the conversion of brand to generic drugs.  In additon to the price inflation, the sales increase was also attributed to an increased number of prescriptions being filled, partially due to the Company’s in-store pet medication and medication synchronization programs.  Also contributing to the increase, were expanded pharmacy hours at some stores and more individuals being eligible for healthcare benefits under the Affordable Care Act.

 

Comparable fuel sales decreased 25.4% in 2015 compared to 2014.  Fuel sales decreased as a result of the decline in retail fuel prices from 2014 to 2015.  According to the U.S. Department of Energy, the 52-week average price of gasoline in the Central Atlantic States decreased 27.1%, or $0.98 per gallon, in 2015 compared to 2014.  Comparable fuel sales increased 0.4% in 2014 compared to 2013. 

 

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), distribution center and transportation costs, as well as manufacturing facility operations.    Almost all of the increase in cost of sales in 2015 as compares to 2014 is due to the increased sales volume in 2015.  Both direct product cost and distribution cost increase when sales volume increases.

 

According to the latest U.S. Bureau of Labor Statistics’ report, the annual Seasonally Adjusted Food-at-Home Consumer Price Index increased 1.1% in 2015,  2.4% in 2014 and 0.9% in 2013.  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.  Despite the fluctuation of retail and wholesale prices, the Company has achieved a gross profit rate of 27.3% in 2015, 27.1% in 2014 and 27.7% in 2013.  The increase in gross profit rate was driven by a shift in sales mix from fuel to grocery sales which carry a higher profit margin. The gross profit rate declined in 2014 as a result of the implementation of the Company’s Three Ways to Save sales initiative, which consisted of the EDLP and Lowest Price Guarantee programs throughout the year, the “Price Freeze” program in the first quarter and the “Get Grillin” program in the second quarter.

 

The Company experienced a LIFO charge of $1.4 million for 2015, compared to a charge of $911,000 for 2014 and a charge of $692,000 for 2013.  With the exception of pharmacy, the Company expects wholesale price inflation to increase slightly in 2016. 

 

The Company's profitability is impacted by the cost of oil.  Fluctuating fuel prices affect the delivered cost of product and the cost of other petroleum-based supplies.  As a percentage of sales, the cost of diesel fuel used by the Company to deliver goods from its distribution center to its stores decreased by 0.07% in 2015 compared to 2014 and decreased by 0.02% in 2014 compared to 2013.  Although the Company experienced a decrease in these costs, the decline in expense was minimized due to higher fuel usage resulting from more store deliveries to meet the higher sales demand.  According to the U.S. Department of Energy, the 52-week average diesel fuel price for the Central Atlantic States decreased $1.06 per gallon to $2.94 per gallon as of December 21, 2015, compared to $4.00 per gallon as of December 22, 2014.  Diesel fuel prices for the Central Atlantic States peaked in February 2014 at $4.36 and steadily fell to $2.44 as of December 21, 2015.  Based upon the U.S. Energy Information Administration’s current projections, the Company is expecting diesel fuel prices to remain below $2.50 during 2016.

 

Although the Company experienced product cost inflation and deflation in various commodities in 2015, 2014 and 2013, 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.

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

 

Results of Operations (continued)

 

Operating, General and Administrative Expenses

 

Business operating costs including expenses generated from administration and purchasing functions, are recorded in "Operating, general and administrative expenses."  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.  The majority of the expenses were driven by increased sales.

 

The Company may not be able to recover rising expenses through increased prices charged to its customers.  A majority of our associates are paid hourly rates related to federal and state minimum wage laws. The Company increased the base hourly rate for associates to $9 per hour as of August 2, 2015, in order to attract and retain talented associates with a goal of delivering best-in-class customer service.  The Company has decided not to increase prices to offset this hourly wage rate increase.   

 

Employee-related costs such as wages, employer paid taxes, health care benefits and retirement plans, comprise approximately 60% of the total “Operating, general and administrative expenses.”  As a percent of sales, direct store labor decreased 0.1% in 2015 compared to 2014 and decreased 0.2% in 2014 compared to 2013.  The increase in the base hourly rate for associates to $9 per hour and related wage compression had an estimated cost of $3.2 million in the second half of 2015.  Increases in employee related expenses were offset by savings realized from a store labor efficiency project.  In addition, employee related expenses increased $7.3 million in 2015 compared to 2014 due to anticipated and actual achievement of incentives for various levels of management, which increased 0.2% as a percent of sales. 

 

While the Company’s self-insured health care benefit expenses only increased by 0.4% in 2015 compared to 2014 and decreased by 0.5% in 2014 compared to 2013, the Company remains concerned about the impact that The Patient Protection and Affordable Care Act (ACA) will have on its future operating expenses. Based on the ACA definition of full time employment, there will be approximately an 18% increase in full time employees, which is currently estimated to be a $928,000 increase in costs.

 

On September 21, 2013, the Company entered into a separation agreement with the former President and Chief Executive Officer.  The Company's "Operating, general and administrative expenses" were negatively impacted by the charge of $6.1 million worth of estimated expenses related to the separation agreement.  See Exhibit 10, filed with the quarterly report on Form 10-Q filed on November 7, 2013, for more information pertaining to the separation agreement. 

 

Depreciation and amortization expense was $70.1 million, or 2.4% of net sales, for 2015 compared to $66.9 million, or 2.4% of net sales, for 2014 and $58.3 million, or 2.2% of net sales, for 2013.  The increase in depreciation and amortization expense in 2015 compared to 2014 and in 2014 compared to 2013 was the result of additional capital expenditures as the Company implements its capital expansion program.  See the Liquidity and Capital Resources section for further information regarding the Company’s capital expansion program.

 

The Company recognized pre-tax gains of $751,000, $2.6 million and $2.9 million in 2015, 2014 and 2013, respectively, from the sale of two properties in each year.  In 2013, the Company determined that the asset value of four properties was impaired. As a result, the Company recognized a pre-tax impairment loss of $2.1 million.  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.  Earnings were further impacted in 2013 by a $680,000 adjustment to liabilities for future expenses on closed stores. 

 

Retail store profitability is sensitive to volatility in utility costs due to the amount of electricity and gas required to operate the Company's stores and facilities.  The Company is responding to this volatility in operating costs by employing conservation technologies, procurement strategies and associate energy awareness programs to manage and reduce consumption.  The Company continues to be a member of the EPA GreenChill program for advancing environmentally beneficial refrigerant management systems and has ten stores registered under this program.  In addition, all Company stores have an assigned Green Leader to promote in-store energy conservation.   

 

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

 

Results of Operations (continued)

 

Operating, General and Administrative Expense (continued)

 

 

Employee-related expenses increased in 2015 and 2014 for the reasons noted above, primarily related to increases in the basic hourly rate, management incentives and increases in sales volume. Hourly employees, particularly part time employees, are required to work increased hours when there is growth in sales volume. Increases in employee related expenses were offset by savings realized from a store labor efficiency project in both 2015 and 2014.  

 

Store advertising expense decreased in 2015 due to reduced spending on direct mail and weekly ads.  In 2014, store advertising expenses increased due to the promotion of the Company’s new pricing strategy.

 

Depreciation and amortization increased in 2015 and 2014 as a result of the Company’s store capital expenditure program and technology investments.

 

Utility expense decreased in 2015 for the reasons noted above related to energy conservation efforts and procurement strategies, along with reduced electricity costs and usage and a reduction in the use of natural gas.   The Company’s utility expense increased in 2014 despite the aforementioned initiatives primarily due to higher generation charges and below average temperatures in the Mid-Atlantic States, the Company’s operating region, in the first quarter of 2014.

 

Rent expense decreased in 2015 primarily due to adjustments to accrued closed store liability estimates and purchasing a previously leased location.

 

Repairs/maintenance contracts increased in 2014 primarily due to new maintenance contracts for software and hardware including store front end systems.

 

Landlord common area maintenance expense increased in 2014 due to higher than average snowfall in the Company’s operating region.

 

 

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

 

Results of Operations (continued)

 

Investment Income

 

The Company’s investment portfolio consists of marketable securities, which currently includes municipal bonds and equity securities, as well as the Company’s SERP investment, which is comprised of mutual funds that are maintained within the Company’s non-qualified supplemental executive retirement plan and the non-qualified pharmacist deferred compensation plan.  The Company classifies all of its municipal bonds and equity securities as available-for-sale.  The SERP investments are classified as trading securities. 

 

 

 

Equity income decreased in 2015 as a result of the Company receiving a stock dividend in 2014 which was not repeated in 2015. Equity income decreased in 2014 compared to 2013 due to recognizing gains on the sale of equity securities in 2013.

 

SERP investment was impacted by market adjustments in both 2015 and 2014 and experienced a loss in 2015.

 

Provision for Income Taxes

 

The effective income tax rate was 35.7%, 35.0% and 38.2% in 2015, 2014 and 2013, respectively.  The effective income tax rate rose in 2015 due to an increase in state tax expense.  The effect of this increase was partially offset by an increase in tax benefits related to tax exempt interest, food donations, and the Work Opportunity Tax Credit, resulting in a net increase of 0.7%.  In 2014, pre-tax book income decreased significantly. Tax exempt interest and dividends eligible for a dividends received deduction increased, causing an increase to the net favorable permanent differences. The combination of the decrease to net income before taxes and increase to the net favorable permanent differences resulted in a drop in the effective rate for 2014.  The effective income tax rate differs from the federal statutory rate of 35% primarily due to the effect of state taxes, net of permanent differences.

 

Liquidity and Capital Resources

 

Net cash provided by operating activities was $136.7 million in 2015, compared to $123.1 million in 2014 and $142.6 million in 2013.  Working capital increased 1.4% in 2015, increased 6.4% in 2014 and decreased 8.5% in 2013, in each case compared to the prior year.  The 2014 working capital increase is primarily attributed to the lower investment in the Company’s capital expansion program during 2014 compared to the previous years. Whereas, the 2013 decrease in working capital is primarily due to the utilization of marketable securities to fund the Company’s capital expansion program.

 

Net cash used in investing activities was $109.8 million in 2015 compared to $85.8 million in 2014 and $106.8 million in 2013.  These funds were used primarily to purchase property and equipment in the three fiscal years presented.  Property and equipment purchases totaled $90.2 million in 2015, compared to $79.2 million in 2014 and $128.1 million in 2013.  The Company paid $7.9 million for the property and equipment related to the purchase of a store in Hanover, Pennsylvania in the third quarter of 2015.  As a percentage of sales, capital expenditures were 3.1%, 2.9% and 4.8% in 2015, 2014 and 2013, respectively. 

 

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 $100 million in its capital expansion program in 2016.

 

 

 

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

 

Liquidity and Capital Resources (continued)

 

Net cash used in financing activities was $32.3 million in 2015, 2014 and 2013, which solely consisted of dividend payments to shareholders.  At December 26, 2015, the Company had a $30 million line of credit, of which $16.9 million was committed to outstanding letters of credit.  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 has a $50 million short-term credit facility agreement to fund future financing activities.

 

Total cash dividend payments on common stock, on a per share basis, amounted to $1.20 in 2015, 2014 and 2013.  No treasury stock was purchased in 2015, 2014 or 2013.  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.

 

The Company has no other commitment of capital resources as of December 26, 2015, other than the lease commitments on its store facilities and transportation equipment under operating leases that expire at various dates through 2029.  The Company anticipates funding its working capital requirements and its $100 million 2016 capital expansion program through cash and investment reserves and future internally generated cash flows from operations.

 

The Company’s earnings and cash flows are subject to fluctuations due to changes in interest rates as they relate to available-for-sale securities and any future long-term debt borrowings.  The Company’s marketable securities portfolio currently consists of municipal bonds and equity securities.  Other short-term investments are classified as cash equivalents on the Consolidated Balance Sheets.

 

Under its current policies, the Company invests in high-grade marketable debt securities and does not use interest rate derivative instruments to manage exposure to interest rate fluctuations.  Currently, the Company’s investment strategy of obtaining marketable debt securities with maturity dates between one and ten years helps to minimize market risk and to maintain a balance between risk and return.  The equity securities owned by the Company consist primarily of stock held in large capitalized companies trading on public security exchange markets.  The Company’s management continually monitors the risk associated with its marketable securities.  A quantitative tabular presentation of risk exposure is located in “Item 7a. Quantitative and Qualitative Disclosures about Market Risk” of this report.

 

By their nature, these financial instruments 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 experienced an unrealized holding loss net of deferred taxes of $52,000 in 2015, an unrealized holding gain net of deferred taxes of $927,000 in 2014 and an unrealized holding loss net of deferred taxes of $36,000 in 2013 (see Consolidated Statements of Comprehensive Income).  As of December 26, 2015, the Company had $8.2 million in gross unrealized holding gains and $66,000 in gross unrealized holding losses related to marketable securities.  See Note 2 Investments, of Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information on the Company’s marketable securities.

 

Contractual Obligations

The following table represents scheduled maturities of the Company’s long-term contractual obligations as of December 26, 2015. 

 

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(x) 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.

 

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

 

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.  As a result of implementing Accounting Standards Update ("ASU") 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, the Company reclassified its current deferred income tax liabilities as noncurrent deferred income tax liabilities retrospectively for all periods presented as of the year ended December 26, 2015.  See Note 1(x) to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information on the Company’s accounting policy changes.

 

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 market, using both the last-in, first-out (LIFO) and average cost methods.  The Company’s center store and pharmacy inventories are valued using LIFO and 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.

 

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.”

 

Goodwill and Intangible Assets

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.  Goodwill is not amortized but tested for impairment for each reporting unit on an annual basis and between annual tests in certain circumstances.

 

To derive the fair value of the Company’s sole reporting unit, the Company uses an income approach along with an analysis of its stock value.  Under the income approach, fair value of a reporting unit is determined based on estimated future cash flows discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of the Company.  Estimated future cash flows are based on the Company’s internal projection model.  The stock value evaluation consists of measuring the average market capitalization of the Company against its total asset value of its sole reporting unit.  The Company completes an impairment test annually.  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 of long-lived assets.

 

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

 

Critical Accounting Policies and Estimates (continued)

 

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 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 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 unit cost is relatively low.

 

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 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.

 

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.  Currently, closed stores have remaining lease terms ranging from one to three years, and the liabilities associated with these closed store leases are paid over the terms of the leases.  Closed store lease liabilities totaled $212,000 and $955,000 as of December 26, 2015 and December 27, 2014, 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 liable for associate health claims up to an annual maximum of $1,250,000 per member prior to March 1, 2013, $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 carries a $500,000 specific deductible with a $250,000 aggregating deductible.  The Company is liable for workers' compensation claims up to $2,000,000 per claim.  Property and casualty insurance coverage is maintained with outside carriers at deductible or retention levels ranging from $100,000 to $1,000,000.  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. 

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

 

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.

 

Item 7a.    Quantitative and Qualitative Disclosures about Market Risk: 

 

 

Other Relevant Market Risks

The Company’s equity securities at December 26, 2015 had a cost basis of $1,198,000 and a fair value of $7,880,000.  The dividend yield realized on these equity investments was 5.23% in 2015.  Market risk, as it relates to equities owned by the Company, is discussed within the “Liquidity and Capital Resources” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained within this report.

 

 

 

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Item 8.    Financial Statements and Supplementary Data:

 

WEIS MARKETS, INC.

CONSOLIDATED BALANCE SHEETS

 

See accompanying notes to Consolidated Financial Statements.

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF INCOME

 

 

See accompanying notes to Consolidated Financial Statements.

 

 

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

See accompanying notes to Consolidated Financial Statements.

 

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

 

See accompanying notes to Consolidated Financial Statements.

 

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

See accompanying notes to Consolidated Financial Statements.