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
2018
.
(b) Definition of Fiscal Year
The Company’s fiscal year ends on the last Saturday in December. Fiscal
2018
was comprised of
52
Weeks
, ending on
December 29, 2018
. Fiscal
2017
was comprised of
52
weeks, ending on
December 30, 2017
. Fiscal
2016
was comprised of
53
weeks, ending on
December 31, 2016
. 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 29, 2018
and
December 30, 2017
totaled
$
5
.4
million
and
$
3
4
1
,000
, respectively.
Consumer electronic payments accepted at the point of sale, including all credit card, debit card and electronic benefits transfer transactions that process in less than seven days are classified as cash equivalents.
(f) Marketable Securities
Marketable securities consist of 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 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.
With the adoption of ASU 2016-01, 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 incurred
a $1.6 million loss in 2018
as a result
.
(g) Accounts Receivable
Accounts receivable are stated net of an allowance for uncollecti
ble accounts of
$
2.1 million
and
$1
.9 million
as of
December 29, 2018
and
December 30, 2017
, 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 curren
t conditions.
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) and average cost methods. 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. 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) 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 29, 2018
and
December 30, 2017
consisted of the following:
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|
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|
December 29, 2018
|
|
|
|
|
December 30, 2017
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
Accumulated
|
|
|
|
(dollars in thousands)
|
|
Gross
|
Amortization
|
|
Net
|
|
Gross
|
Amortization
|
|
Net
|
|
Liquor Licenses
|
$
|
14,226
|
$
|
-
|
$
|
14,226
|
$
|
11,121
|
$
|
-
|
$
|
11,121
|
|
Lease Acquisitions
|
|
10,273
|
|
4,666
|
|
5,607
|
|
10,960
|
|
3,902
|
|
7,058
|
|
Customer Lists
|
|
1,597
|
|
309
|
|
1,288
|
|
1,162
|
|
175
|
|
987
|
|
Total
|
$
|
26,096
|
$
|
4,975
|
$
|
21,121
|
$
|
23,243
|
$
|
4,077
|
$
|
19,166
|
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
$
1,017
,000
in 201
9
,
$
9
79
,000
in 2020
,
$92
1
,000
in 202
1
,
$
673
,000
in 2022
and
$
5
2
6
,000
in 202
3
. As of
December 29, 2018
, the Company’s intangible assets with indefinite lives consisted of goodwill and Pennsylvania liquor licenses.
Note 1
Summary of Significant Accounting Policies
(continued)
(k) 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
$1
.
5
million
in the fourth quarter of 2018 and
$894
,000
in the fourth quarter of 2016 for the impairment of long-lived assets, including equipment and leasehold improvements. The charge
s
w
ere
a result of management determin
ing that the net book value of these
propert
ies
was less than the recoverable value. This charge was included as a component of "Operating, general and administrative expenses."
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 29, 2018
, the
re were
no
closed store
s with post-closing lease liability or other exit costs
.
Closed store
lease liabilit
ies
totaled
$39
,000
as of December 30, 2017.
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.
(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 liable for associate health claims up to an annual maximum of
$2
.0
million
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 carries a
$500
,000
specific deductible with a
$250
,000
aggregating deductible. The Company is liable for workers' compensation claims up to
$2
.0
million
per claim
. Property and casualty insurance coverage is maintained with outside carriers at deductible or retention levels ranging from
$100
,000
to
$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 Financ
ial Statements. Refer to Note 10
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 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 relatively low unit cost.
(q) Cost of Sales, Including
Advertising,
Warehousing and Distribution Expenses
“Cost of sales, including 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.
Vendor allowances recorded as credits in cost of sales totaled
$132
.
0
million in
2018
, $1
31.1
million in
2017
and
$141
.
6
million in
2016
. Vendor paid cooperative advertising credits totaled $19.
4
million in
2018
, $19.
2
million in
2017
and $1
9
.1 million in
2016
. These credits were netted against advertising costs within “
Cost of Sales, including Advertising, Warehousing and Distribution expenses
.” The Company had accounts receivable due from vendors of $1.
6
million and
$1.
0
million
for earned advertising credits and
$12
.
8
million and $1
3
.
1
million for earned promotional discounts as of
December 29, 2018
and
December 30, 2017
, respectively. The Company had
$7.4
million and
$9
.
8
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 29, 2018
and
December 30, 2017
, 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, 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
$3
0
.
5
million in
2018
,
$
31
.
0
million in
2017
and
$
26
.
3
million in
2016
in “
Cost of Sales, including
Advertising,
Warehousing and 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, as disclosed in Note 5.
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.”
(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’s assessment of the new guidance has identified customer loyalty programs and gift cards affected by the new guidance.
The Company adopted the new standard using the modified retrospective method beginning December 31, 2017. The effects related to these transactions did not materially effect the Company’s Consolidated Financial Statements. The Company determined that adoption of the ASU did not have a significant impact on the Company’s point of sale product sales.
In January 2016, the FASB issued ASU 2016-01
Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. ASU 2016-01 generally requires that equity investments (excluding equity method investments) be measured at fair value with changes in fair value recognized in net income.
The adoption of ASU 2016-01 had an impact on the net income reported in the Company’s Consolidated Statements of Income in the amount of a
$1.6
million loss for the year ended December 29, 2018. The ASU was adopted as of December 31, 2017. The cumulative effect of the adoption was made to the balance sheet as of December 31, 2017 and resulted in a reclassification of
$5.5
million of related accumulated unrealized gains, net of applicaple deferred income taxes, that were included in accumulated other comprehensive income to retained earnings, resulting on no impact on the Company’s shareholders’ equity.
In February 2016, the FASB issued ASU 2016-02
Leases
(Topic 842). ASU 2016-02 requires lessees to recognize assets and liabilities for the rights and obligations created by their leases with lease terms more than 12 months. ASU 2016-02 will become effective for annual periods beginning after December 15, 2018 and for interim periods within those fiscal years.
During 2018, the ASU was amended to permit the election of transitional provisions, including the elimination of the requirement to restate reporting periods prior to the date of adoption. The Company also will elect to not reassess the original conclusions reached regarding lease identification, lease classification and initial direct costs.
The Company is currently in the process of evaluating the impact of adoption of the ASU and expects the adoption to have a significant impact on the Company’s Consolidated Balance Sheets.
Based upon the current evaluation of the standard, the adoption will result in the addition of approximately
$2
1
0
mil
l
ion of assets and liabilities to the Company’s Consolidated Balance Sheets, with
no
significant change to the Consolidated Statements of Comprehensive Income or Consolidated Statements of Cash Flows.
In March 2016, the FASB issued ASU 2016-04
Liabilities – Extinguishments of Liabilities
(Subtopic 405-20)
Recognition of Breakage for Certain Prepaid Stored-Value Products
. ASU 2016-04 requires that an entity must disclose the methodology and specific judgements made in applying the breakage recognized. ASU 2016-04 will become effective for the financial statements issued for the fiscal years beginning after December 15, 2017. The Company has evaluated the effect of the adoption of the ASU and determined there
was
not a significant impact on the Company’s Consolidated Financial
Statements. The Company
adopted ASU 2016-04
beginning
December 31, 2017.
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 liquid equity securities, for which quoted
market prices are available
. The Company’s
bond portfolio is valued using Level 2 inputs
.
The Company’s 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 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.
Marketable
securities, as of
December 29, 2018
and
December 30, 2017
, consisted of:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
Gross
|
|
|
|
(dollars in thousands)
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|
December 29, 2018
|
Cost
|
Holding Gains
|
Holding Losses
|
Value
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
1,198
|
$
|
6,028
|
$
|
-
|
$
|
7,226
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
46,699
|
|
426
|
|
(53)
|
|
47,072
|
|
|
$
|
47,897
|
$
|
6,454
|
$
|
(53)
|
$
|
54,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
Gross
|
|
|
|
(dollars in thousands)
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|
December 30, 2017
|
Cost
|
Holding Gains
|
Holding Losses
|
Value
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
1,198
|
$
|
7,634
|
$
|
-
|
$
|
8,832
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
54,278
|
|
671
|
|
(116)
|
|
54,833
|
|
|
$
|
55,476
|
$
|
8,305
|
$
|
(116)
|
$
|
63,665
|
Maturities of marketable securities classified as available-for-sale at
December 29, 2018
, were as follows:
|
|
|
|
|
|
|
|
|
Amortized
|
|
Fair
|
|
(dollars in thousands)
|
|
Cost
|
|
Value
|
|
Available-for-sale:
|
|
|
|
|
|
Due within one year
|
$
|
4,974
|
$
|
4,960
|
|
Due after one year through five years
|
|
23,661
|
|
23,856
|
|
Due after five years through ten years
|
|
18,064
|
|
18,256
|
|
Equity securities
|
|
1,198
|
|
7,226
|
|
|
$
|
47,897
|
$
|
54,298
|
Note 2
Marketable Securities (continued)
SERP Investments
The Company also maintains a non-qualified supplemental executive retirement 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 changes in the underlying liability to the associates are recorded in “Operating, general and administrative expenses
.”
Note 3
Inventories
Merchandise inventories, as of
December 29, 2018
and
December 30, 2017
, were valued as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2018
|
|
2017
|
|
LIFO
|
$
|
211,911
|
$
|
221,777
|
|
Average cost
|
|
68,845
|
|
57,732
|
|
|
$
|
280,756
|
$
|
279,509
|
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
$7
6
,
5
17,000
and
$78
,005,000
higher than as reported on the above methods as of
December 29, 2018
and
December 30, 2017
, respectively.
During 2018, the Company had certain decrements in its LIFO pools, which had an insignificant impact on the cost of sales.
Note 4
Property and Equipment
Property and equipment, as of
December 29, 2018
and
December 30, 2017
, consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
|
|
|
(dollars in thousands)
|
(
in years)
|
|
2018
|
|
2017
|
|
Land
|
|
$
|
133,386
|
$
|
129,878
|
|
Buildings and improvements
|
10-60
|
|
713,128
|
|
693,898
|
|
Equipment
|
3-12
|
|
1,069,616
|
|
1,054,986
|
|
Leasehold improvements
|
5-20
|
|
224,231
|
|
212,109
|
|
Total, at cost
|
|
|
2,140,361
|
|
2,090,871
|
|
Less accumulated depreciation and amortization
|
|
|
1,252,753
|
|
1,204,628
|
|
|
|
$
|
887,608
|
$
|
886,243
|
Note 5
Lease Commitments
At
December 29, 2018
, the Company leased
approximately
5
3
%
of
its open store facilities under 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 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. Most of the leases contain multiple renewal options, under which 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.
Rent expense and income on all leases consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2018
|
|
2017
|
|
2016
|
|
Minimum annual rentals
|
$
|
47,253
|
$
|
46,804
|
$
|
38,632
|
|
Contingent rentals
|
|
419
|
|
432
|
|
431
|
|
Lease or sublease income
|
|
(7,757)
|
|
(7,612)
|
|
(7,212)
|
|
|
$
|
39,915
|
$
|
39,624
|
$
|
31,851
|
The following is a schedule by years of 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 29, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Leases
|
|
Subleases
|
|
2019
|
$
|
43,713
|
$
|
(3,692)
|
|
2020
|
|
40,730
|
|
(3,524)
|
|
2021
|
|
34,556
|
|
(3,025)
|
|
2022
|
|
28,550
|
|
(2,453)
|
|
2023
|
|
24,323
|
|
(2,013)
|
|
Thereafter
|
|
70,412
|
|
(7,845)
|
|
|
$
|
242,284
|
$
|
(22,552)
|
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
two
non-qualified supplemental retirement plans 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2018
|
|
2017
|
|
2016
|
|
Retirement savings plan
|
|
3,525
|
|
3,343
|
|
3,593
|
|
Deferred compensation plan
|
|
508
|
|
813
|
|
788
|
|
Supplemental executive retirement plan
|
|
(529)
|
|
2,625
|
|
1,193
|
|
|
$
|
3,504
|
$
|
6,781
|
$
|
5,574
|
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 ba
sis. The recorded liability at
December 29, 2018
is
$4,
4
09,000
, 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
,
0
13,000
for
2019
and for the years thereafter dependent on the lives of the beneficiaries.
The Company also maintains a non-qualified supplemental executive retirement plan for
certain of its associates. This
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. Th
is
plan
is
unfunded and accounted for on an acc
rual basis. Participants in this 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
six
years of service with the Company. Benefits are distributed among participants upon reaching the applicable retirement age
.
Substantial risk of benefit forfeiture do
es exist for participants in this
plan.
The non-qualified pharmacist deferred compensation plan was consolidated into the non-qualified supplemental executive retirement plan during 2018.
The present value of accumulated benefits amounted to
$14,
7
15,000
and
$14
,
5
08,000
at
December 29, 2018
and
December 30, 2017
, respectively, and is included in “Postretirement benefit obligations” in the Consolidated Balance Sheets.
Note 7
Revenue Recognition
The adoption of ASU 2014-9
Revenue from Contracts with Customers (ASC 606)
did not have a material impact on the Company’s Consolidated Financial Statements. The Chief Operating Officer, the Company’s chief operating decision maker, analyzed store operational revenues by geographical area but each area offers customers similar product, has 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 year
s
ending December 29, 2018
,
December 30, 2017
and December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
(
dollars in thousands
)
|
|
December 29, 2018
|
|
December 30, 2017
|
|
December 31, 2016
|
|
Grocery
|
|
$
|
3,063,218
|
|
87.3
|
%
|
|
$
|
3,041,481
|
|
87.7
|
%
|
|
$
|
2,736,596
|
|
87.3
|
%
|
|
Pharmacy
|
|
|
314,584
|
|
9.0
|
|
|
|
309,079
|
|
8.9
|
|
|
|
298,875
|
|
9.5
|
|
|
Fuel
|
|
|
125,993
|
|
3.6
|
|
|
|
109,467
|
|
3.2
|
|
|
|
94,907
|
|
3.0
|
|
|
Manufacturing
|
|
|
5,475
|
|
0.1
|
|
|
|
6,780
|
|
0.2
|
|
|
|
6,342
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
3,509,270
|
|
100.0
|
%
|
|
$
|
3,466,807
|
|
100.0
|
%
|
|
$
|
3,136,720
|
|
100.0
|
%
|
Note 8
Cash and Cash Equivalents and Advertising Accounting Policies, and
Prior Year Reclassifications
As of December 31, 2017, the Com
pany changed its policy for cash and cash equivalents to include all credit card, debit card, and electronic benefits transfer transactions that process in less than seven days in the amount of
$23.6
million
and
$26.6
million as of December 29, 2018 and December 30, 2017, respectively. Management deems the classification of the amounts due from third-party financial institutions to be more appropriately reported in cash and cash equivalents due to certainty and timely settlements in less than seven days. The amounts have been reclassified from accounts receivable to cash and cash equivalents as of December 30, 2017 in the amount of
$26.6
million to conform the presentation of the Consolidated Balance Sheets as of
December 29, 2018
.
As of December 31, 2017, the Company changed its policy for advertising costs to expense advertising costs as incurred, net of vendor paid cooperative advertising credits, in Cost of sales, in the amount of
$11.1
million,
$13.9
million and
$8.6
million for the years ended December 29, 2018, December 30, 2017 and December 31, 2016, respectively. Management deems that the policy change to record net advertising costs in Cost of sales instead of Operating, general and administrative expenses better represents Cost of sales inclusive of direct product costs (net of discounts and allowances), distribution center and transportation costs, manufacturing facility operations and advertising costs that are primarily funded by vendor cooperative advertising credits and occur in the same period the product is sold. Advertising costs net of vendor cooperative advertising credits have been reclassified to Cost of sales out of Operating, General and Administrative costs for the years ended December 30, 2017 and December 31, 2016 in the amount of
$13.9
million and
$8.6
million, respectively, to conform to the presentation of the Consolidated Statement of Income for the year ended December 29, 2018.
The tables below summarize the effect of the reclassifications of previously reported Consolidated Financial Statements for the fiscal years ended Decembe
r 30, 2017 and December 31
, 201
6
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 30, 2017
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
Consolidated Balance Sheets
(dollars in thousands)
|
|
Reported
|
|
Reclassifications
|
|
As Adjusted
|
|
Cash and cash equivalent
|
|
$
|
21,305
|
|
$
|
26,612
|
|
$
|
47,917
|
|
Accounts receivable, net
|
|
|
82,877
|
|
|
(26,612)
|
|
|
56,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2017
|
|
December 31, 2016
|
|
Consolidated Statements of Income
|
|
As Previously
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Reported
|
|
Reclassifications
|
|
As Adjusted
|
|
Reported
|
|
Reclassifications
|
|
As Adjusted
|
|
Cost of sales, including advertising, warehousing and distribution expenses
|
|
$
|
2,540,348
|
|
$
|
13,936
|
|
$
|
2,554,284
|
|
$
|
2,264,565
|
|
$
|
8,617
|
|
$
|
2,273,182
|
|
Gross profit on sales
|
|
|
926,459
|
|
|
(13,936)
|
|
|
912,523
|
|
|
872,155
|
|
|
(8,617)
|
|
|
863,538
|
|
Operating, general and administrative expenses
|
|
|
850,034
|
|
|
(13,936)
|
|
|
836,098
|
|
|
773,830
|
|
|
(8,617)
|
|
|
765,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
|
December 30, 2017
|
|
Consolidated Statements of Cash Flows
|
|
As Previously
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Reported
|
|
Reclassifications
|
|
As Adjusted
|
|
Accounts receivable and prepaid expenses
|
|
$
|
9,598
|
|
$
|
(5,553)
|
|
$
|
4,045
|
|
Net cash provided by operating activities
|
|
|
165,814
|
|
|
(5,553)
|
|
|
160,261
|
|
Net increase (decreases) in cash and cash equivalents
|
|
|
6,652
|
|
|
(5,553)
|
|
|
1,099
|
|
Cash and cash equivalents at beginning of year
|
|
|
14,653
|
|
|
32,165
|
|
|
46,818
|
|
Cash and cash equivalents at end of period
|
|
$
|
21,305
|
|
$
|
26,612
|
|
$
|
47,917
|
Note 8
Cash and Cash Equivalents and Advertising Accounting Policies, and Prior Year Reclassifications (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53 Weeks Ended
|
|
|
|
December 31, 2016
|
|
Consolidated Statements of Cash Flows
|
|
As Previously
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Reported
|
|
Reclassifications
|
|
As Adjusted
|
|
Accounts receivable and prepaid expenses
|
|
$
|
(5,096)
|
|
$
|
(2,517)
|
|
$
|
(7,613)
|
|
Net cash provided by operating activities
|
|
|
151,593
|
|
|
(2,517)
|
|
|
149,076
|
|
Net increase (decreases) in cash and cash equivalents
|
|
|
(2,943)
|
|
|
(2,517)
|
|
|
(5,460)
|
|
Cash and cash equivalents at beginning of year
|
|
|
17,596
|
|
|
34,682
|
|
|
52,278
|
|
Cash and cash equivalents at end of period
|
|
$
|
14,653
|
|
$
|
32,165
|
|
$
|
46,818
|
Note 9
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 31, 2016
|
$
|
4,852
|
|
|
|
|
|
Other comprehensive loss before reclassifications
|
|
(43)
|
|
Accumulated change in effective tax rate
|
|
1,042
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
29
|
|
Net current period other comprehensive loss
|
|
1,028
|
|
Accumulated other comprehensive income balance as of December 30, 2017
|
$
|
5,880
|
|
|
|
|
|
Amount reclassified to retained earnings for equity unrealized gain (adoption of ASU 2016-01)
|
|
(5,481)
|
|
Other comprehensive loss before reclassifications
|
|
(177)
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
40
|
|
Net current period change in other comprehensive income
|
|
(5,618)
|
|
Accumulated other comprehensive income balance as of December 29, 2018
|
$
|
262
|
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 29, 2018
,
December 30, 2017
and
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Reclassified from
|
|
|
|
Accumulated Other Comprehensive Income to the
|
|
|
|
Consolidated Statements of Income
|
|
(dollars in thousands)
|
Location
|
2018
|
2017
|
2016
|
|
Unrealized gains (losses) on available-for-sale marketable securities
|
|
|
|
|
|
|
|
|
Investment income and interest expense
|
$
|
(54)
|
$
|
(40)
|
$
|
437
|
|
|
Provision for income taxes
|
|
14
|
|
11
|
|
(180)
|
|
Total amount reclassified, net of tax
|
$
|
(40)
|
$
|
(29)
|
$
|
257
|
Note 10
Income Taxes
The provision (benefit) for income taxes consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2018
|
|
2017
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
$
|
11,385
|
$
|
10,630
|
$
|
25,908
|
|
State
|
|
4,594
|
|
1,972
|
|
5,888
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
6,059
|
|
(34,659)
|
|
6,020
|
|
State
|
|
(2,640)
|
|
2,666
|
|
(317)
|
|
|
$
|
19,398
|
$
|
(19,391)
|
$
|
37,499
|
The reconciliation of income taxes computed at the federal statutory rate
of 21% in 2018 and
35%
in
201
7 and 2016
respectively.
Ending deferred tax liability has been computed at the federal statutory rate of
21%
due to the Tax Reform.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2018
|
|
2017
|
|
2016
|
|
Income taxes at federal statutory rate
|
$
|
17,249
|
$
|
27,658
|
$
|
43,631
|
|
State income taxes, net of federal income tax benefit
|
|
639
|
|
1,306
|
|
2,413
|
|
Deferred tax on gain on bargain purchase
|
|
-
|
|
-
|
|
(8,358)
|
|
Nondeductible employee-related expenses
|
|
768
|
|
1,828
|
|
-
|
|
2017 tax reform
|
|
657
|
|
(49,336)
|
|
-
|
|
Other
|
|
85
|
|
(847)
|
|
(187)
|
|
Provision for income taxes (effective tax rate
23.6%
,
(24.5)%
and
30.1%
, respectively)
|
$
|
19,398
|
$
|
(19,391)
|
$
|
37,499
|
The effective income tax rate was
2
3
.
6
%
,
negative
2
4
.
5
%
and
30.1%
in 2018, 2017, and 2016, respectively. The effective income tax rate differs from the federal statutory rate of 21% primarily due Nondeductible employee expenses. 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
$4
9
.
3
million
during 2017
. The effective income tax rate decreased in 2016 due to the impact of the bargain purchase gain on the 38 locations being included in the overall gain calculation and not in income tax expense. The effective tax rate excluding the bargain purchase gain was
37.2%
.
Cash paid for federal income taxes was
$4
.
5
million
,
$12
.
0
million
$27.3
million
and in 2018, 2017and 2016
respectively
.
Cash paid for state income taxes was
$2
.
1
m
illion
,
$1.0
million and
$3.7
million
in 2018, 2017 and 2016
respectively
.
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at
December 29, 2018
and
December 30, 2017
, are:
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2018
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
Accounts receivable
|
$
|
588
|
$
|
542
|
|
Compensated absences
|
|
355
|
|
848
|
|
Employment incentives
|
|
842
|
|
388
|
|
Employee benefit plans
|
|
4,914
|
|
5,581
|
|
General liability insurance
|
|
2,702
|
|
2,991
|
|
Postretirement benefit obligations
|
|
5,272
|
|
5,365
|
|
Net operating loss carryforwards
|
|
8,030
|
|
7,745
|
|
Other
|
|
7,967
|
|
4,373
|
|
Total deferred tax assets
|
|
30,670
|
|
27,833
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Inventories
|
|
(9,828)
|
|
(8,026)
|
|
Unrealized gains on marketable securities
|
|
(1,809)
|
|
(2,310)
|
|
Nondeductible accruals and other
|
|
(5,274)
|
|
(5,160)
|
|
Depreciation
|
|
(104,552)
|
|
(99,759)
|
|
Total deferred tax liabilities
|
|
(121,463)
|
|
(115,255)
|
|
Net deferred tax liability
|
$
|
(90,793)
|
$
|
(87,422)
|
Note 10
Income Taxes (continued)
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
2018
|
|
2017
|
|
Unrecognized tax benefits at beginning of year
|
$
|
4,691
|
$
|
3,124
|
|
Increases based on tax positions related to the current year
|
|
1,714
|
|
1,567
|
|
Additions for tax positions of prior year
|
|
-
|
|
-
|
|
Reductions for tax positions of prior years
|
|
-
|
|
-
|
|
Settlements
|
|
-
|
|
-
|
|
Expiration of the statute of limitations for assessment of taxes
|
|
-
|
|
-
|
|
Unrecognized tax benefits at end of year
|
$
|
6,405
|
$
|
4,691
|
The total amount of unrecognized tax benefits that, if recognized, would affec
t the effective tax rate was
$1
,
7
14,000
in 2018,
$1
,
567
,000
in 2017
and
$1,860,000
in 2016
.
The Company or one of its subsidiaries files tax return
s in the United States and
various 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
201
5
to
201
8
.
The Company has net operating loss carryforwards of
$101
.
8
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 carryforward
s
.
Note 11
Acquisition of Business
Fiscal 2018
Acquisitions
There were no acquisitions for fiscal 201
8
.
Fiscal 2017 Acquisitions
There were no acquisitions for fiscal 2017.
Fiscal 2016 Acquisitions
On August 1, 2016, the Company purchased
five
Mars Super Market stores
located in Maryland. Weis Markets, Inc. acquired these locations and their operations in an effort to expand its presence in the Baltimore County region. The results of operations of the former Mars Super Market acquisition are included in the accompanying Consolidated Financial Statements from the date of acquisition. The five former Mars Super Market stores contributed
$91.7
million,
$91.
5
million and
$38.0
million to sales in
2018,
2017 and 2016, respectively. The cash purchase price paid was
$24.6
million for the property, equipment, inventories, prepaid expenses and goodwill related to this purchase. The Company accounted for this transaction as a business combination in accordance with the acquisition method. The fair value of intangibles was determined based on the discounted cash flow model and property and equipment were determined based on external appraisals. Weis Markets, Inc. assumed
two
lease obligations in the acquisition of the former Mars Super Market stores and entered into
two
new lease agreements. Goodwill of $13.3 million has been recorded, based upon the expected benefits to be derived from new management business strategy and cost synergies. The
$13.3
million of goodwill is deductible for tax purposes. The purchase price has been allocated to the acquired assets as follows.
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. The fair values of the acquired assets and assumed liabilities are reported below.
|
|
|
|
|
|
|
|
5 Mars Super Market Stores
|
|
(dollars in thousands)
|
August 1, 2016
|
|
Inventories
|
$
|
1,267
|
|
Accounts receivable and prepaid expenses
|
|
248
|
|
Property and equipment
|
|
7,305
|
|
Goodwill
|
|
13,255
|
|
Intangibles - favorable leasehold interest, net
|
|
2,495
|
|
Total fair value of assets acquired
|
$
|
24,570
|
Note 11
Acquisition of Business (continued)
Fiscal 2016 Acquisitions (continued)
In September 2016, the Company began its acquisition of
38
former Food Lion, LLC stores. Within eight weeks, ending in October 2016, Weis Markets acquired
21
Maryland,
13
Virginia and
4
Delaware former Food Lion, LLC stores. The results of operations of the 38 former Food Lion, LLC stores are included in the accompanying Consolidated Financial Statements from the date of acquisition. The Company accounted for this transaction as a business combination in accordance with the acquisition method. The fair value of intangibles was determined based on the discounted cash flow model and property and equipment were determined based on external appraisals. The acquired locations were part of a FTC forced diversiture in the approval process of the merger of Ahold and Delhaize Group, which resulted in a below fair value purchase price consideration. The cash purchase price paid was
$29.4
million for the property, equipment, inventories, prepaid expenses and liabilities. Weis Markets, Inc. assumed
thirty
lease obligations and ownership of
eight
locations. The Company recognized a gain of $
23.9
million on the purchase of the 38 former Food Lion, LLC stores. The 38 acquired Food Lion, LLC locations contributed
$346.1
million,
$369.2
million
and
$92.5
million to sales in
2018,
2017 and 2016, respectively.
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. The fair values of the acquired assets and assumed liabilities are reported below.
|
|
|
|
|
|
|
|
|
|
38 Food Lion, LLC Stores
|
|
(dollars in thousands)
|
Sept. 11 - Oct. 30, 2016
|
|
Assets
|
$
|
|
|
Current:
|
|
|
|
Accounts receivable, net
|
|
146
|
|
Inventories
|
|
7,614
|
|
Prepaid expenses and other current assets
|
|
1,044
|
|
Total current assets
|
|
8,804
|
|
Property and equipment, net
|
|
60,735
|
|
Intangibles - favorable leasehold interest
|
|
4,583
|
|
Total assets
|
|
74,122
|
|
|
|
|
|
Liabilities
|
|
|
|
Current:
|
|
|
|
Accrued expenses
|
|
(428)
|
|
Total current liabilities
|
|
(428)
|
|
Other - unfavorable leasehold interest
|
|
(3,738)
|
|
Deferred tax liability
|
|
(16,663)
|
|
Total liabilities
|
|
(20,829)
|
|
|
|
|
|
Total fair value of assets acquired and liabilities assumed
|
$
|
53,293
|
|
|
|
|
|
Gain on bargain purchase
|
$
|
23,879
|
Note 11
Acquisition of Business (continued)
Fiscal 2016 Acquisitions (continued)
On October 30, 2016, Weis Markets acquired
a
former Nell’s Family Market store located in East Berlin, PA from C&S Wholesale Grocers. The results of operations of the former Nell’s Family Market acquisition are included in the accompanying Consolidated Financial Statements from the date of acquisition. The purchase price was
$13.0
million , of which
$3.4
million is payable over a
4
year term for the property, equipment, inventory, prepaid expenses and liabilities. The Company accounted for this transaction as a business combination in accordance with the acquisition method. The fair value of intangibles was determined based on the discounted cash flow model and property and equipment were determined based on external appraisals. The former Nell’s Family Market contributed
$19.7
million,
$17.6
million and
$3.0
million to sales in
2018,
2017 and 2016, respectively. Goodwill of $3.9 million has been recorded, based upon the expected benefits to be derived from new management business strategy and cost synergies. The
$3.9
million of goodwill is deductible for tax purposes.
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. The fair values of the acquired assets and assumed liabilities are reported below.
|
|
|
|
|
|
|
|
|
|
Nell's Family Market Store
|
|
(dollars in thousands)
|
October 30, 2016
|
|
Assets
|
$
|
|
|
Current:
|
|
|
|
Inventories
|
|
401
|
|
Prepaid expenses and other current assets
|
|
39
|
|
Total current assets
|
|
440
|
|
Property and equipment, net
|
|
8,625
|
|
Goodwill
|
|
3,913
|
|
Intangible and other assets, net
|
|
23
|
|
Total assets
|
|
13,001
|
|
|
|
|
|
Liabilities
|
|
|
|
Current:
|
|
|
|
Accrued expenses
|
|
(3)
|
|
Total current liabilities
|
|
(3)
|
|
|
|
|
|
Total fair value of assets acquired and liabilities assumed
|
$
|
12,998
|
The pro forma information includes historical results of operations of the 38 former Food Lion Supermarket and 5 former Mars Super Market stores but does not include efficiencies, cost reductions, synergies or investments in lower prices for the Company’s customers expected to result from the acquisitions. The unaudited pro forma financial information
in the table below
is not necessarily indicative of the results that actually would have occurred had the 38 former Food Lion Supermarket and the 5 former Mars Super Market stores been a
cquired at the beginning of 2016
.
The Company does not have reliable information to provide additional pro forma disclosures.
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 29, 2018,
|
|
2018
|
|
2017
|
|
2016
|
|
December 30, 2017 and December 31, 2016
|
|
(52 weeks)
|
|
(52 weeks)
|
|
(53 weeks)
|
|
Store sales
|
|
$
|
3,503,795
|
|
$
|
3,460,484
|
|
$
|
3,563,145
|
Note 1
2
Summary of Quarterly Results (Unaudited)
Quarterly financial data for
2018
and
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share amounts)
|
|
Thirteen Weeks Ended
|
|
|
|
|
March 31, 2018
|
|
June 30, 2018
|
|
September 29, 2018
|
|
December 29, 2018
|
|
|
Net sales
|
|
$
|
876,106
|
|
$
|
871,100
|
|
$
|
869,076
|
|
$
|
892,988
|
|
|
Gross profit on sales
|
|
|
234,907
|
|
|
240,295
|
|
|
232,340
|
|
|
227,459
|
|
|
Net income
|
|
|
16,191
|
|
|
19,095
|
|
|
14,207
|
|
|
13,245
|
|
|
Basic and diluted earnings per share
|
|
$
|
.60
|
|
$
|
.71
|
|
$
|
.53
|
|
$
|
.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share amounts)
|
|
Thirteen Weeks Ended
|
|
|
|
|
April 1,2017
|
|
July 1, 2017
|
|
September 30, 2017
|
|
December 30, 2017
|
|
|
Net sales
|
|
$
|
852,229
|
|
$
|
876,569
|
|
$
|
854,261
|
|
$
|
883,748
|
|
|
Gross profit on sales
|
|
|
229,036
|
|
|
233,758
|
|
|
219,609
|
|
|
230,120
|
|
|
Net income
|
|
|
11,836
|
|
|
18,475
|
|
|
4,449
|
|
|
63,654
|
*
|
|
Basic and diluted earnings per share
|
|
$
|
.44
|
|
$
|
.69
|
|
$
|
.16
|
|
$
|
2.37
|
|
__________________
*The quarter ended December 30, 2017 includes the tax benefit of
$49.3
million as a result of revaluing the Company’s net deferred tax liability using the enacted Federal tax rate of
21%
under the Tax Reform.
Note 1
3
Fair Value Information
The carrying amounts for cash, accounts receivable and accounts payable approximate fair value because of the short maturities of these instruments. The fair values of the Company’s marketable securities, as disclosed in Note 2, are based on quoted market prices and institutional pricing guidelines for those securities not classified as Level 1 securities. The Company’s SERP investments are classified as trading securities and are carried at f
air value using Level 1 inputs.
Note 1
4
Commitments and Contingencies
The Company is involved in various legal actions arising out of the normal course of business. The Company also accrues for tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated, based on experience. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.
Note 1
5
Long-Term Debt
On September 1, 2016 Weis Markets entered into a revolving credit agreement with Wells Fargo Bank, National Association (the
“
Credit Agreement
”
). The Credit Agreement provides for an unsecured revolving credit facility with an aggregate principal amount not to exceed
$100.0
million with an additional discretionary amount available of
$50.0
mi
llion.
On October 24, 2018, the credit agreement was amended to reduce the available revolving credit amount from $100.0 million to
$50.0
million, with an additional discretionary availability of
$50.0
million. As of December 29, 2018
,
the availability under the revolving credit agreement was
$
87.1
million with
$12
.
9
million of letters of credit outstanding. The revolving credit agreement matures on September 1, 2019. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company.
Interest expense related to long-term debt was
$288
,000
and
$946
,000
for
2018
and
2017
, respectively.
Note 1
6
Related Party Transactions
On January 16, 2018, the Company purchased a parcel of land from Central Properties, Inc., a company in which Jonathan H. Weis and his immediate family members had a material beneficial ownership. Subsequent to the purchase, Central Properties, Inc. was dissolved. The purchase price of $1.1 million was approved by the Company’s Executive Committee in accordance with Company policy and regulatory guidelines, and reviewed and approved by the Board of Directors in accordance with the Company’s Code of Business Conduct and Ethics, the Code of Ethics for CEO and CFO, the Audit Committee Charter and the Company’s Related Party Transaction policy.
Note 17
Subsequent Events
On October 16, 2018, the Company entered into a non-binding purchase agreement for property in Hamlin, PA totaling
$3.9
million. This pur
chase was finalized on January 2
, 2019.