Item 1a. Risk Factors:
Competitive and Reputational Risks
The Company’s industry is highly competitive. If the Company is unable to compete effectively, the Company’s financial condition and results of operations could be materially affected.
The retail food industry is intensely price competitive, and the competition the Company encounters may have a negative impact on product retail prices. The operating environment continues to be characterized by aggressive expansion, entry of non-traditional competitors, market consolidation and increasing fragmentation of retail and online formats. The introduction of on-line food retail in recent years has augmented competition in industry. The financial results may be adversely impacted by a competitive environment that could cause the Company to reduce retail prices without a reduction in its product cost to maintain market share; thus, reducing sales and gross profit margins.
Food safety issues could result in the loss of consumer confidence in the Company.
Customers count on the Company to provide them with safe and wholesome food products. Concerns regarding the safety of food products sold in its stores could cause shoppers to avoid purchasing certain products from the Company, or to seek alternative sources of supply for all of their food needs, even if the basis for the concern is outside of the Company’s control. A loss in confidence on the part of its customers would be difficult and costly to reestablish. As such, any issue regarding the safety of any food items sold by the Company, regardless of the cause, could have a substantial and adverse effect on operations.
The Company may be unable to retain key management personnel.
The Company’s success depends to a significant degree upon the continued contributions of senior management. The loss of any key member of management may prevent the Company from implementing its business plans in a timely manner. In addition, employment conditions specifically may affect the Company’s ability to hire and train qualified associates.
Financial, Investments and Infrastructure Risks
The failure to execute expansion plans could have a material adverse effect on the Company’s business and results of its operations.
Circumstances outside the Company’s control could negatively impact anticipated capital investments in store, distribution and manufacturing projects, information technology and equipment. The Company cannot determine with certainty whether its new or acquired stores will meet expected benefits including, among other things, operating efficiencies, procurement savings, innovation, sharing of best practices and increased market share that may allow for future growth. Achieving the anticipated benefits may be subject to a number of significant challenges and uncertainties, including, without limitation, the possibility of imprecise assumptions underlying expectations regarding potential synergies and the integration process, unforeseen expenses and delays diverting management’s time and attention and competitive factors in the marketplace.
4
Table of Contents
WEIS MARKETS, INC.
Item 1a. Risk Factors: (continued)
The Company’s investment portfolio may suffer losses from changes in market interest rates and changes in market conditions which could adversely affect results of income or liquidity.
The Company’s marketable securities consist of corporate and municipal bonds, commercial paper and equity securities. These investments are subject to general credit, liquidity, market and interest rate risks. As a result, the Company may experience a reduction in value or loss of liquidity from investments, which may have a negative impact on the Company’s results of operations, liquidity and financial condition.
Unexpected factors affecting self-insurance claims and reserve estimates could adversely affect the Company.
The Company uses a combination of insurance and self-insurance to provide for potential liabilities for workers’ compensation, general liability, vehicle accident, property and associate medical benefit claims. Management estimates the liabilities associated with the risks retained by the Company, in part, by considering historical claims experience, demographic and severity factors and other actuarial assumptions which, by their nature, are subject to a high degree of variability. Any projection of losses concerning workers’ compensation and general liability is subject to a high degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns.
Information Security, Cybersecurity and Data Privacy Risks
Disruptions or cybersecurity 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.
Supply Chain and Third-Party Risks
The Company is affected by certain operating costs which could increase or fluctuate considerably.
Associate expenses contribute to the majority of the Company’s operating costs. The Company’s financial performance is potentially affected by increasing wage and benefit costs, a competitive labor market, regulatory wage increases and the risk of unionized labor disruptions of its non-union workforce. The Company’s profit is particularly sensitive to the cost of oil. Oil prices directly affect the Company’s product transportation costs, as well as its utility and petroleum-based supply costs. It also affects the costs of its suppliers, which impacts its cost of goods.
Changes in vendor promotions or allowances, including the way vendors target their promotional spending, and the Company’s ability to effectively manage these programs could significantly impact margins and profitability.
The Company cooperatively engages in a variety of promotional programs with its vendors. As the parties assess the results of specific promotions and plan for future promotions, the nature of these programs and the allocation of dollars among them changes over time. The Company manages these programs to maintain or improve margins while at the same time increasing sales. A reduction in overall promotional spending or a shift by vendors in promotional spending away from certain types of promotions that the Company and its customers have historically utilized could have a significant impact on profitability.
5
Table of Contents
WEIS MARKETS, INC.
Item 1a. Risk Factors: (continued)
Legal, Regulatory and Other External Risks
The trade area of the Company is located within a region and is subject to the economic, social and climate variables of that region.
The majority of the Company’s stores are concentrated in central and northeast Pennsylvania, central Maryland, suburban Washington, DC and Baltimore regions and New York’s Southern Tier. Changes in economic and social conditions in the Company’s operating regions, including fluctuations in the inflation rate along with changes in population and employment and job growth rates, affect customer shopping habits. These changes may negatively impact sales and earnings. Business disruptions due to weather and catastrophic events historically have been few. The Company’s geographic regions could receive an extreme variance in the amount of annual snowfall that may materially affect sales and expense results.
Various aspects of the Company’s business are subject to federal, state and local laws and regulations.
The Company is subject to various federal, state and local laws, regulations and administrative practices that affect the Company’s business. The Company must comply with numerous provisions regulating health and sanitation standards, food labeling, equal employment opportunity, minimum wages and licensing for the sale of food, drugs and alcoholic beverages. The Company’s compliance with these regulations may require additional capital expenditures and could adversely affect the Company’s ability to conduct the Company’s business as planned. Management cannot predict either the nature of future laws, regulations, interpretations or applications, or the effect either additional government regulations or administrative orders, when and if promulgated, or disparate federal, state, and local regulatory schemes would have on the Company’s future business. They could, however, require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling and/or scientific substantiation. Any or all of such requirements could have an adverse effect on the Company’s results of operations and financial condition.
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 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 25, 2021. 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.
6
Table of Contents
WEIS MARKETS, INC.
Item 1a. Risk Factors: (continued)
The Company’s business and operations, and the operations of the Company’s suppliers, have been, and may in the future be adversely affected by epidemics or pandemics such as the novel Coronavirus (COVID-19) pandemic outbreak.
The Company may face risks related to health epidemics and pandemics or other outbreaks of communicable diseases. The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption. The Company’s business was deemed essential during the novel coronavirus pandemic and the Company is committed to maintaining a safe work and shopping environment. Management, at this time, cannot assess the ultimate economic impact to the Company, which will be determined by, among other things, the length of time that such circumstances continue, nor can the Company predict the effects of governmental and public responses to changing conditions. The risks and uncertainties surrounding the coronavirus pandemic are broad however below is a list of risks management is monitoring which could have a material impact on the Company’s business:
● Cyber security – Increased cyber-attacks due to “work at home” requirements.
Item 1b. Unresolved Staff Comments:
There are no unresolved staff comments.
Item 2. Properties:
As of December 25, 2021, the Company owned and operated 99 of its retail food stores and leased and operated 97 stores under operating leases that expire at various dates through 2036. The Company owns all trade fixtures and equipment in its stores and several parcels of vacant land, which are available as locations for possible future stores or other expansion.
The Company owns and operates one distribution center in Milton, Pennsylvania of approximately 1.3 million square feet, and one in Northumberland, Pennsylvania totaling approximately 76 thousand square feet. The Company also owns one warehouse complex in Sunbury, Pennsylvania totaling approximately 535 thousand square feet. The Company utilizes 258 thousand square feet of its Sunbury location to operate its three manufacturing facilities which process milk, ice cream and fresh meat products.
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.
Item 4. Mine Safety Disclosures:
Not Applicable.
7
Table of Contents
WEIS MARKETS, INC.
Information about Our Executive Officers
The following sets forth the names and ages of the Company’s executive officers as of March 10, 2022, indicating all positions held during the past five years:
Name Age Title
Robert G. Gleeson (a) 56 Senior Vice President of Merchandising and Marketing
David W. Gose II (b) 55 Senior Vice President of Operations
James E. Marcil (e) 63 Senior Vice President of Human Resources
Kurt A. Schertle (f) 50 Chief Operating Officer
Richard G. Zeh Jr. (h) 49 Senior Vice President, Chief Information Officer
8
Table of Contents
WEIS MARKETS, INC.
Information about Our Executive Officers (continued)
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities:
The Company’s stock is traded on the New York Stock Exchange (ticker symbol WMK). The approximate number of shareholders, including individual participants in security position listings on March 10, 2022 was 10,694.
9
Table of Contents
WEIS MARKETS, INC.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities: (continued)
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 Company-selected group index that the Company deems most properly represents its “Peer Group”, for the period of five years. The Peer group is made up of five retail grocers that the Company feels most closely relate to its size and business profile, and one national grocer the Company believes to be an industry market leader. The companies making up the Peer Group, in no particular order, are, Ingles Markets, Inc.; Village Super Market, Inc.; Smart & Final Stores, Inc. (included through June 20, 2019 when it was acquired by Apollo Global Management, LLC); Sprouts Farmers Market, Inc. and The Kroger Company. The graph depicts $100 invested at the close of trading on the last trading day preceding the first day of the fifth preceding year in Weis Markets, Inc. common stock, S&P 500, and the Peer Group. The cumulative total return assumes reinvestment of dividends.
Comparative Five-Year Total Returns
Item 6. [Reserved]
10
Table of Contents
WEIS MARKETS, INC.
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
General
Weis Markets is a conventional supermarket chain that operates197retail stores with approximately 24 thousand associates located in Pennsylvania and six surrounding states: Delaware, Maryland, New Jersey, New York, Virginia, and West Virginia. Approximately 97% of Weis Markets associates are paid an hourly wage. Its products sold include groceries, dairy products, frozen foods, meats, seafood, fresh produce, floral, pharmacy services at 132 locations, deli products, prepared foods, bakery products, beer and wine, fuel, and general merchandise items, such as health and beauty care and household products. The store product selection includes national, local and private brands and the Company promotes by using Everyday Lower Price, Low Price Guarantee, Low, Low Price, and Loyalty programs. The Loyalty program includes reward points that may be redeemed for discounts on items in store, at one of the Company’s 54 fuel stations or one of its third-party fuel station partners. On January 17, 2019 the Company announced a new pricing strategy for its private brand products named Low, Low Price. The move took the Company’s private brand products from a high, low pricing strategy to everyday low price.
Utilizing its own strategically located distribution center and transportation fleet, Weis Markets self distributes approximately 67% of product with the remaining being supplied by direct store vendors. In addition, the Company has three manufacturing facilities which process milk, ice cream and fresh meat products. The corporate offices are located in Sunbury, PA where the Company was founded in 1912.
On March 11, 2020, the World Health Organization declared that the novel coronavirus (COVID-19) had become a pandemic, and on March 13, the U.S. President declared a National Emergency concerning the disease. This resulted in government mandated shutdowns, as well as multiple legislative acts to provide emergency economic assistance for individuals, families and businesses affected by the novel coronavirus pandemic. These events were accretive to our sales and gross profits compared to the time periods preceding the impact of the novel coronavirus pandemic. The Company is not able to speculate how the ensuing economy or unknown future related expenses will affect it after the governmental novel coronavirus pandemic measures have ended.
11
Table of Contents
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Company Overview (continued)
The Company continues to innovate and remain relevant to industry trends and offer customer convenience by presenting programs like “Weis 2 Go Online” and home delivery. In 2021, the Company offered Weis 2 Go Online in 187 of its locations, adding 4 stores since the end of 2020. Weis 2 Go Online allows the customer to order on-line and then pick up their order at a drive-thru location at the store. The Company began offering home delivery during the third quarter of 2018 and currently offers this convenience to customers in 182 different locations via Shipt® and DoorDash®.
Strategic Imperatives
The following strategic imperatives continue to be focused upon by the Company to attempt to ensure the success of the Company in the coming years:
12
Table of Contents
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Company Overview (continued)
Results of Operations
Two-Year StackedComparable Store Sales Analysis
Management is providing Comparable Store Sales Two-Year Stacked analysis, a non-GAAP measure, because management believes this metric is useful to investors and analysts. A Comparable Store Sales Two-Year Stacked analysis presents a comparison of results and trends over a longer period of time to demonstrate the effect of the novel coronavirus pandemic on the operating results of the Company. Information presented in the tables below is not intended for use as an alternative to any other measure of performance. It is not recommended that this table be considered a substitute for the Company’s operating results as reported in accordance with GAAP.
Year-over-year and sequential comparisons are the primary calculations used to analyze operating results, however, due to significant fluctuations caused by the novel coronavirus pandemic management believes it is necessary to provide a Two-Year Stacked Comparable Store Sales analysis. The following table provides the two-year stacked comparable store sales, including and excluding fuel, for the fiscal years ended December 25, 2021, and December 26, 2020, as well as fiscal years ended December 26, 2020, and December 28, 2019, respectively.
Percentage Changes
52 Weeks Ended
Comparable store sales (individual year) 1.7 % 16.4 %
Comparable store sales (two-year stacked) 18.1
Comparable store sales, excluding fuel (individual year) 0.2 17.5 %
Comparable store sales, excluding fuel (two-year stacked) 17.7 %
When calculating the percentage change in comparable store sales, the Company defines a new store to be comparable after it has been in operation for five full fiscal 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.
13
Table of Contents
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Results of Operations (continued)
Analysis of Consolidated Statements of Income
Percentage Changes
Gross profit margin 26.4 % 26.8 % 26.5 %
O, G & A, percent of net sales 22.9 % 22.8 % 24.1 %
Operating margin 3.5 % 4.0 % 2.4 %
Effective income tax rate 26.6 % 27.3 % 23.3 %
Net income, percent of net sales 2.6 % 2.9 % 1.9 %
Basic and diluted earnings per share $ 4.05 $ 4.42 $ 2.53 (8.4) % 74.7 %
Net Sales
Individual Year-Over-Year Analysis of Sales
Percentage Changes
Net sales, excluding fuel 1.2 17.0
Comparable store sales 1.7 16.4
Comparable store sales, excluding fuel 0.2 % 17.5 %
When calculating the percentage change in comparable store sales, the Company defines a new store to be comparable when it has been in operation after 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.
14
Table of Contents
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Results of Operations (continued)
Net Sales (continued)
According to the latest U.S. Bureau of Labor Statistics’ report, the annual Seasonally Adjusted Food-at-Home Consumer Price Index increased 3.5% in 2021, 3.5% in 2020 and 0.9% in 2019. Even though the U.S. Bureau of Labor Statistics’ index rates may be reflective of a trend, it will not necessarily be indicative of the Company’s actual results. According to the U.S. Department of Energy, the 52-week average price of gasoline in the Central Atlantic States increased 31.2%, or $0.76 per gallon, in 2021 compared to the 52-week average in 2020. The 52-week average price of gasoline in the Central Atlantic States, according to the U.S. Department of Energy, decreased 12.8%, or $0.36 per gallon, in 2020 compared to the 52-week average in 2019.
Comparable store sales increased for all years presented. On a comparable store sales basis fresh, pharmacy services and fuel increased in sales. The Company’s 2021 sales were favorably impacted as a result of increased pharmacy prescription volume, administering COVID-19 vaccines, and higher fuel sales. Comparable store sales for 2021 compared to 2020 increased 1.7% including fuel and .2% excluding fuel. The Company has provided additional product offerings and customer conveniences such as “Weis 2 Go Online,” currently offered at 187 store locations. “Weis 2 Go Online” allows the customer to order on-line and have their order delivered or pick up their order at an expedient store drive-thru.
The Company has experienced retail inflation and deflation in various commodities for the periods presented. Management cannot accurately measure the full impact of inflation or deflation on retail pricing due to changes in the types of merchandise sold between periods, shifts in customer buying patterns and the fluctuation of competitive factors. In addition, impacts of the novel coronavirus pandemic have caused uncertainty about future economic conditions and may change future product mix. Management remains confident in its ability to generate long-term sales growth in a highly competitive environment, but also understands some competitors have greater financial resources and could use these resources to take measures which could adversely affect the Company’s competitive position.
Cost of Sales and Gross Profit
Cost of sales consists of direct product costs (net of discounts and allowances), net advertising costs, distribution center and transportation costs, as well as manufacturing facility operations. Increased sales volume resulted in an increase in cost of sales. Both direct product cost and distribution cost increase when sales volume increases.
Gross profit rate was 26.4% in 2021, 26.8% in 2020 and 26.5% in 2019. The decrease in gross profit rate is attributable to the increased pharmacy and fuel sales, which have a lower gross profit margin than grocery sales, and higher product and supply chain costs. Pharmacy gross profit margin continues to be pressured by recent changes in industry practices. The Company cannot predict whether the pharmacy industry practices will change favorably.
The Company experienced an unfavorable non-cash LIFO inventory valuation adjustment, decreasing gross profit by $4.0 million in 2021. Favorable non-cash LIFO inventory valuation adjustments increased gross profit by $275 thousand and $5.8 million in 2020 and 2019, respectively.
The Company has experienced retail inflation and deflation in various commodities for the periods presented. Management cannot accurately measure the full impact of inflation or deflation on retail pricing due to changes in the types of merchandise sold between periods, shifts in customer buying patterns and the fluctuation of competitive factors.
15
Table of Contents
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Results of Operations (continued)
Operating, General and Administrative Expenses
The majority of the expenses were driven by increased sales volume.
Employee-related costs such as wages, employer paid taxes, health care benefits and retirement plans, comprise approximately 62.2% of the total “Operating, general and administrative expenses.” As a percent of sales, direct store labor decreased 0.1% in 2021 compared to 2020 and decreased 0.6% in 2020 compared to 2019. While direct store labor expenses increased in 2021 compared to 2020, the sales increases have outpaced the labor expense increase causing the rate to fall, primarily due to the fixed component of store labor. Management continues to monitor store labor efficiencies and develop labor standards to reduce costs while maintaining the Company’s customer service expectations. Currently, the Company is continuing a multi-year initiative to install or upgrade self-checkouts in its stores in response to customer preference and labor supply, including adding convertible dual-use checkout lanes.
The Company’s self-insured health care benefit expenses increased by 0.2% in 2021 compared to 2020 and increased by 9.8% in 2020 compared to 2019.
Depreciation and amortization expense charged to “Operating, general and administrative expenses” was $93.8 million, or 2.2% of net sales, for 2021 compared to $90.2 million, or 2.2% of net sales, for 2020 and $85.2 million, or 2.4% of net sales, for 2019. Depreciation and amortization expense as a percent of sales remained the same in 2021 when compared to 2020 and decreased 0.2% in 2020 when compared to 2019. See the Liquidity and Capital Resources section for further information regarding the Company’s capital expansion program.
A breakdown of the material increases (decreases) as a percent of sales in "Operating, general and administrative expenses" is as follows:
(amounts in thousands) Increase Increase (Decrease)
December 25, 2021 (Decrease) as a % of sales
Employee expense $ 5,517 (0.2) %
Utilities expense 3,819 0.1
Outside service and information technology expense 11,564 0.2
(amounts in thousands) Increase Increase (Decrease)
December 26, 2020 (Decrease) as a % of sales
Employee expense $ 64,241 (0.5) %
Utilities expense (2,385) (0.2)
The Company continues to realize a reduction in workers compensation self-insurance expense as a result a decrease in claims due to improved associate safety programs and claim resolution efforts. The Company is experiencing an increase in subscription and other outside expenses as a result of investing in its information technology.
16
Table of Contents
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Results of Operations (continued)
Provision for Income Taxes
The effective income tax rate was 26.6%, 27.3% and 23.3% in 2021, 2020 and 2019, respectively. The effective income tax rate differs from the federal statutory rate of 21% primarily due to state taxes as well as nondeductible employee expenses. Not all the Company’s tax credits and state deductions are driven proportionately by taxable income levels, due to these items and the significant increase in taxable income from prior years, the result was a higher effective income tax rate for 2020 and 2021 when compared to 2019.
Liquidity and Capital Resources
The primary source of cash is cash flows generated from operations. In addition, the Company has access to a revolving credit agreement entered into on September 1, 2016, and amended on September 29, 2021, with Wells Fargo Bank, NA (the “Credit Agreement”). The Credit Agreement matures on September 1, 2024 and provides for an unsecured revolving credit facility with an aggregate principal amount not to exceed $30.0 million with an additional discretionary amount available of $70.0 million. As of December 25, 2021, the availability under the revolving credit agreement was $25.3 million with $4.7 million of letters of credit outstanding. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company. The Company has not had an obligation on the Credit Agreement since the second fiscal quarter of 2018.
The Company’s investment portfolio consists of high-grade bonds with maturity dates between one and 10 years, high grade commercial papers with maturity dates under one year, and three long-held high yield, large capitalized public company equity securities. The portfolio totaled $205.7 million as of December 25, 2021. Management anticipates maintaining the investment portfolio but has the ability to liquidate if needed. See “Item 7a. Quantitative and Qualitative Disclosures about Market Risk” for more details regarding the Company’s market risk.
The Company’s capital expansion program includes the construction of new superstores, the expansion and remodeling of existing units, the acquisition of sites for future expansion, new technology purchases and the continued upgrade of the Company’s distribution facilities and transportation fleet. Management currently plans to invest approximately $150 million in its capital expansion program in 2022.
The Board of Directors’ 2004 resolution authorizing the repurchase of up to one million shares of the Company’s common stock has a remaining balance of 752,468 shares.
Quarterly Cash Dividends
Total cash dividend payments on common stock, on a per share basis, amounted to $1.25 in 2021, $1.24 in 2020 and $1.24 in 2019. The Company increased its quarterly dividend from 31 cents per share to 32 cents per share in the fourth quarter of 2021. The Company expects to continue paying regular cash dividends on a quarterly basis. However, the Board of Directors reconsiders the declaration of dividends quarterly. The Company pays these dividends at the discretion of the Board of Directors and the continuation of these payments and the amount of the dividends depends upon the results of operations, the financial condition of the Company and other factors which the Board of Directors deems relevant.
17
Table of Contents
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Results of Operations (continued)
Cash Flow Information
(amounts in thousands)
Net cash provided by (used in):
Operating
Cash flows from operating activities decreased in 2021 as compared to 2020 and increased in 2020 as compared to 2019, respectively. The decrease in 2021 from 2020 is due to settling working capital obligations. The majority of the increase in 2020 over 2019 is attributed to increased sales volume resulting from the novel coronavirus pandemic and its impact on Net Income.
Investing
Property and equipment purchases totaled $151.8 million in 2021, compared to $131.0 million in 2020 and $101.5 million in 2019. As a percentage of sales, capital expenditures totaled 3.6% in 2021, 3.2% in 2020 and 2.9% in 2019. The Company significantly increased its marketable securities holdings in 2021 by approximately $96.6 million. In 2022, the Company plans to maintain or further increase its marketable securities portfolio.
Financing
The Company paid dividends of $33.6 million in 2021, $33.4 million in 2020 and $33.4 million in 2019. The Company increased its quarterly dividend from 31 cents per share to 32 cents per share in the fourth quarter of 2021.
Contractual Obligations
The following table represents scheduled maturities of the Company’s long-term contractual obligations as of December 25, 2021.
Payments due by period
Less than More than
(amounts in thousands) Total 1 year 1-3 years 3-5 years 5 years
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.
18
Table of Contents
WEIS MARKETS, INC.
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.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that the Company makes estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. The Company evaluates these estimates and assumptions on an ongoing basis and may retain outside consultants, lawyers and actuaries to assist in its evaluation. The Company believes the following accounting policies are the most critical because they involve the most significant judgments and estimates used in preparation of its Consolidated Financial Statements.
Inventories
Inventories are valued at the lower of cost or net realizable value, using both the retail inventory and average cost methods. The retail inventory method is commonly used by retail companies to determine cost and calculate gross margin based on applying a cost-to-retail ratio to each similar merchandise category’s ending retail value. The Company’s center store and pharmacy inventories are valued using last in, first out (LIFO). The Company’s fresh inventories are valued using average cost. The Company evaluates inventory shortages throughout the year based on actual physical counts in its facilities. Allowances for inventory shortages are recorded based on the results of these counts and to provide for estimated shortages from the last physical count to the financial statement date.
Vendor Allowances
Vendor allowances related to the Company’s buying and merchandising activities are recorded as a reduction of cost of sales as they are earned, in accordance with the underlying agreement. Off-invoice and bill-back allowances are used to reduce direct product costs upon the receipt of goods. Promotional rebates and credits are accounted for as a reduction in the cost of inventory and recognized when the related inventory is sold. Volume incentive discounts are realized as a reduction of cost of sales at the time it is deemed probable and reasonably estimatable 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 slotting allowances are recorded in cost of sales when new items are initially set up in the Company’s distribution system, which is when the related expenses are incurred and performance under the agreement is complete. Swell allowances for damaged goods are realized in cost of sales as provided by the supplier, helping to offset product shrink losses also recorded in cost of sales.
Income Taxes
Income taxes are inherently complex and require management’s evaluation and estimates, specifically regarding current and deferred income taxes and uncertain tax positions. The Company reviews the tax positions taken, or expected to be taken, on tax returns to determine whether, and to what extent, a benefit can be recognized in its Consolidated Financial Statements. The assessment of the Company’s tax position relies on the judgment of management to estimate the more likely than not merits associated with the Company’s various tax positions.
19
Table of Contents
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Critical Accounting Policies and Estimates (continued)
Leases
The Company leases approximately49% of its open store facilities under operating leases that expire at various dates through 2036, with the remaining store facilities being owned. These leases generally provide for fixed annual rentals; however, several provide for minimum annual rentals plus variable lease costs related to real estate taxes and insurance as well as contingent rentals based on a percentage of annual sales or increases periodically based on inflation. These variable lease costs are not included in the measurement of the operating lease right-to-use assets or lease liabilities and are charged to the related expense category included in “Operating, general and administrative expenses.” Most of the leases contain multiple renewal options, under which the Company may extend the lease terms from 5 to 20 years. Additionally, the Company has operating leases for certain transportation and other equipment. The Company leases or subleases space to tenants in owned, vacated and open store facilities. Rental income is recorded when earned as a component of “Operating, general and administrative expenses.”
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 is self-insured for certain healthcare claims and stop-loss coverage is maintained for individual annual claim occurrences exceeding a $500 thousand specific deductible. The Company is liable for workers’ compensation claims ranging from $1.0 million to $2.0 million per claim. Property and casualty insurance coverage is maintained with outside carriers at deductible or retention levels ranging from $100 thousand 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.
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:
(amounts in thousands) Expected Maturity Dates Fair Value
Rate sensitive assets:
20
Table of Contents
WEIS MARKETS, INC.
Other Relevant Market Risks
The Company’s equity securities at December 25, 2021 had a fair value of $6.5 million. The dividend yield realized on these equity investments was 7.0% in 2021. By their nature, both the fixed interest rate securities and the equity investments inherently expose the holders to market risk. The extent of the Company’s interest rate and other market risk is not quantifiable or predictable with precision due to the variability of future interest rates and other changes in market conditions. However, the Company believes that its exposure in this area is not material.
The Company’s revolving credit agreement is exposed to interest rate fluctuations to the extent of changes in the SOFR rate. The Company believes this exposure is not material due to availability of liquid assets to eliminate the outstanding credit facility.
21
Table of Contents
Item 8. Financial Statements and Supplementary Data:
WEIS MARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except shares) December 25, 2021 December 26, 2020
Assets
Current:
Prepaid expenses and other current assets 31,112 29,187
Intangible and other assets, net 17,525 17,559
Liabilities
Current:
Postretirement benefit obligations 29,964 25,757
Shareholders’ Equity
See accompanying notes to Consolidated Financial Statements.
22
Table of Contents
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except shares and per share amounts)
Investment income (loss) and interest expense 5,007 3,817 7,054
Cash dividends per share $ 1.25 $ 1.24 $ 1.24
Basic and diluted earnings per share $ 4.05 $ 4.42 $ 2.53
See accompanying notes to Consolidated Financial Statements.
23
Table of Contents
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in thousands)
Other comprehensive income (loss) by component, net of tax:
Available-for-sale marketable securities
(Net of deferred taxes of $0, $0 and $14, respectively) — — (37)
Other comprehensive income (loss), net of tax (1,599) 1,806 1,218
See accompanying notes to Consolidated Financial Statements.
24
Table of Contents
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Accumulated
(amounts in thousands, except shares) Other Total
Net Income — — 67,983 — — — 67,983
Other comprehensive income, net of
Dividends paid — — (33,354) — — — (33,354)
Dividends paid — — (33,354) — — — (33,354)
Dividends paid — — (33,623) — — — (33,623)
See accompanying notes to Consolidated Financial Statements.
25
Table of Contents
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
52 Weeks Ended
Cash flows from operating activities:
Adjustments to reconcile net income to
net cash provided by operating activities:
(Gain) loss on disposition of fixed assets 1,026 3,914 782
(Gain) on sale of marketable securities — — (51)
Unrealized (gain) loss in SERP (2,309) (2,641) (135)
Changes in operating assets and liabilities:
Accounts receivable and prepaid expenses 2,727 (6,804) 2,431
Accounts payable and other liabilities 174 54,658 (505)
Cash flows from investing activities:
Proceeds from the sale of property and equipment 5,932 470 4,245
Purchase of intangible assets (208) (127) (1,489)
Change in SERP investment (1,986) (1,188) (4,114)
Cash flows from financing activities:
Net cash used in financing activities (33,623) (33,354) (33,354)
See accompanying notes to Consolidated Financial Statements. Cash paid for income taxes was $24.8 million, $42.3 million and $14.1 million in 2021, 2020 and 2019, respectively. Cash paid for interest related to long-term debt was $32thousand, $34 thousand and $65 thousand in 2021, 2020 and 2019, respectively.
26
Table of Contents
WEIS MARKETS, INC.
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 founded in 1912 and incorporated 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 2021.
(b) Definition of Fiscal Year
The Company’s fiscal year ends on the last Saturday in December. Fiscal 2021 was comprised of 52 weeks, ending on December 25, 2021. Fiscal 2020 was comprised of 52 weeks, ending on December 26, 2020. Fiscal 2019 was comprised of 52 weeks, ending on December 28, 2019. 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 25, 2021 and December 26, 2020 totaled $692 thousand and $95.9 million, respectively.
Consumer electronic payments accepted at the point of sale, including all credit card, debit card and electronic benefits transfer transactions that process in three days or less are classified as cash equivalents. Consumer electronic payment amounts classified as cash equivalents as of December 25, 2021 and December 26, 2020 totaled $38.6 million and $41.7 million, respectively.
27
Table of Contents
WEIS MARKETS, INC.
Note 1 Summary of Significant Accounting Policies (continued)
(f) Marketable Securities
Marketable securities consist of corporate and municipal bonds, commercial paper and equity securities. The Company invests primarily in high-grade marketable debt securities. The Company classifies all of its marketable securities as available-for-sale.
Available-for-sale securities are recorded at fair value as determined by quoted market price based on national markets. Unrealized holding gains and losses, net of the related tax effect, on corporate and municipal bonds and commercial paper 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.
Investment amounts classified as marketable securities as of December 25, 2021 and December 26, 2020 totaled $205.7 million and $111.9 million, respectively.
Equity securities are measured at fair value and the unrealized holding gains and losses are recorded in investment income (loss) and interest expense. The Company recognized a $900 thousand loss in 2021 and a $1.8 million loss in 2020.
(g) Accounts Receivable
Accounts receivable are stated net of an allowance for uncollectible accounts of $3.4million and $2.4 million as of December 25, 2021 and December 26, 2020, respectively. The reserve balance relates to amounts due from pharmacy third party providers, retail customer returned checks, manufacturing customers, vendors and tenants. The Company maintains an allowance for the amount of receivables deemed to be uncollectible and calculates this amount based upon historical collection activity adjusted for current conditions.
(h) Inventories
Inventories are valued at the lower of cost or net realizable value, using both the retail inventory and average cost methods. The retail inventory method is commonly used by retail companies to determine cost and calculate gross margin based on applying a cost-to-retail ratio to each similar merchandise category’s ending retail value. The Company’s center store and pharmacy inventories are valued using last in, first out (LIFO). The Company’s fresh inventories are valued using average cost. The Company evaluates inventory shortages throughout the year based on actual physical counts in its facilities. Allowances for inventory shortages are recorded based on the results of these counts and to provide for estimated shortages from the last physical count to the financial statement date.
(i) Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided on the cost of buildings and improvements and equipment using the straight-line method.
Leasehold improvements are amortized using the straight-line method over the terms of the leases or the useful lives of the assets, whichever is shorter.
Maintenance and repairs are expensed and renewals and betterments are capitalized. When assets are retired or otherwise disposed of, the assets and accumulated depreciation are removed from the respective accounts and any profit or loss on the disposition is credited or charged to “Operating, general and administrative expenses.”
28
Table of Contents
WEIS MARKETS, INC.
Note 1 Summary of Significant Accounting Policies (continued)
(j) Leases
The Company leases approximately 49% of its open store facilities under operating leases that expire at various dates through 2036, with the remaining store facilities being owned. These leases generally provide for fixed annual rentals; however, several provide for minimum annual rentals plus variable lease costs related to real estate taxes and insurance as well as contingent rentals based on a percentage of annual sales or increases periodically based on inflation. These variable lease costs are not included in the measurement of the operating lease right-to-use assets or lease liabilities and are charged to the related expense category included in “Operating, general and administrative expenses.” Most of the leases contain multiple renewal options, under which the Company may extend the lease terms from 5 to 20 years. Additionally, the Company has operating leases for certain transportation and other equipment. The Company leases or subleases space to tenants in owned, vacated and open store facilities. Rental income is recorded when earned as a component of “Operating, general and administrative expenses.”
(k) Goodwill and Intangible Assets
Goodwill is not amortized but tested for impairment on an annual basis and between annual tests when indicators of impairment are identified. Intangible assets with an indefinite useful life are not amortized until their useful life is determined to be no longer indefinite and are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.
The Company’s intangible assets and related accumulated amortization at December 25, 2021 and December 26, 2020 consisted of the following:
December 25, 2021 December 26, 2020
Accumulated Accumulated
(amounts in thousands) Gross Amortization Net Gross Amortization Net
Intangible assets with a definite useful life are generally amortized on a straight-line basis over periods up to 10 years for customer lists. Estimated amortization expense for the next five fiscal years is approximately $314 thousand in 2022, $310 thousand in 2023, $310 thousand in 2024, $147 thousand in 2025 and $139 thousand in 2026. As of December 25, 2021, the Company’s intangible assets with indefinite lives consisted of goodwill and liquor licenses.
(l) Impairment of Long-Lived Assets
The Company periodically evaluates the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. The Company completes an impairment test annually. The Company also reviews its property and equipment for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount to the net undiscounted cash flows expected to be generated by the asset. An impairment loss would be recorded for the excess of net book value over the fair value of the asset impaired. The fair value is estimated based on current market values or expected discounted future cash flows.
With respect to owned property and equipment associated with closed stores, the value of the property and equipment would be adjusted to reflect recoverable values if current economic conditions and estimated fair values of the property was less than the net book value.
In accordance with Accounting Standards Codification No. 360, Property, Plant and Equipment,the Company believes that, based on current conditions, materially different reported results are not likely to result from long-lived asset impairments.
29
Table of Contents
WEIS MARKETS, INC.
Note 1 Summary of Significant Accounting Policies (continued)
(l) Impairment of Long-Lived Assets (continued)
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.
(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 is self-insured for certain healthcare claims and stop-loss coverage is maintained for individual annual claim occurrences exceeding a $500 thousand specific deductible. The Company is liable for workers’ compensation claims ranging from $1.0 million to $2.0 million per claim. Property and casualty insurance coverage is maintained with outside carriers at deductible or retention levels ranging from $100 thousand 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 Financial Statements. Refer to Note 9 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.
(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 rationally and systematically by these estimates over the life of the program. Discounts to customers at the point of sale provided by vendors, usually in the form of paper coupons, are not recognized as a reduction in sales provided the discounts are redeemable at any retailer that accepts those discounts. The Company records “Deferred revenue” for the sale of gift cards and revenue is recognized in “Net sales” at the time of customer redemption for products. Gift card breakage income is recognized in “Operating, general and administrative expenses” based upon historical redemption patterns and represents the balance of gift cards for which the Company believes the likelihood of redemption by the customer is remote. Sales tax is excluded from “Net sales.” The Company charges sales tax on all taxable customer purchases and remits these taxes monthly to the appropriate taxing jurisdiction. Merchandise return activity is immaterial to revenues due to products being returned quickly and the relatively low unit cost.
(q) Cost of Sales, Including Advertising, Warehousing and Distribution Expenses
“Cost of sales, including advertising, warehousing and distribution expenses” consists of direct product costs (net of discounts and allowances), advertising (net of vendor paid cooperative advertising credits), distribution center and transportation costs, as well as manufacturing facility operations. Advertising costs, net of vendor paid cooperative advertising credits, are expensed as incurred which are primarily funded by vendor cooperative advertising credits and occur in the same period as the product is sold.
30
Table of Contents
WEIS MARKETS, INC.
Note 1 Summary of Significant Accounting Policies (continued)
(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 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 $100.1 million in 2021, $133.5 million in 2020 and $130.4 million in 2019. Vendor paid cooperative advertising credits totaled $3.4 million in 2021, $21.7 million in 2020 and $24.8 million in 2019. 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 $585 thousand and $886 thousand for earned advertising credits and $3.6 million and $8.6 million for earned promotional discounts as of December 25, 2021 and December 26, 2020, respectively. The Company had $2.5 million and $3.3 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 25, 2021 and December 26, 2020, 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 $24.9 million in 2021, $24.5 million in 2020 and $30.3 million in 2019 in “Cost of Sales, including Advertising, Warehousing and Distribution Expenses.”
(u) Rental and Commission Income
The Company leases or subleases space to tenants in owned, vacated and open store facilities. Rental income is recorded when earned as a component of “Operating, general and administrative expenses.” All leases are operating leases. Refer to Note 5 to the Consolidated Financial Statements for further disclosure on operating leases and rental income.
The Company provides a variety of services to its customers, including but not limited to lottery, money orders, third-party gift cards, and third-party bill pay services. Commission income earned from these services are recorded when earned as a component of “Operating, general and administrative expenses.” The Company recorded commission income of $18.9 million in 2021, $17.7 million in 2020 and $18.3 million in 2019.
(v) Current Relevant Accounting Standards
The Company regularly monitors recently issued accounting standards and assesses their applicability and impact. The Company believes that there are no accounting standard updates that have or will have a material or significant impact on the Company’s accounting policies.
31
Table of Contents
WEIS MARKETS, INC.
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. Financial Accounting Standards Board (FASB) has established three levels of inputs that may be used to measure fair value:
Level 1Observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and
Level 3Unobservable 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 three public company equity securities, for which quoted market prices are available. The Company’s bond and commercial paper portfolio is valued using Level 2 inputs. The Company’s corporate and municipal bonds and commercial paper 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 and commercial paper portfolio throughout the life of each bond and commercial paper held. Dividends from the equity securities are recognized as received. Both interest and dividends are recognized in “Investment income and interest expense” on the Company’s Consolidated Statements of Income. The Company recognized investment income of $1.6 million, $536 thousand and $4.1 million which included an unrealized loss in equity securities of $900 thousand, an unrealized loss in equity securities of $1.8 million and an unrealized gain in equity securities of $2.0 million in the fiscal years ended December 25, 2021, December 26, 2020 and December 28, 2019, respectively.
Marketable securities, as of December 25, 2021 and December 26, 2020, consisted of:
Gross Gross
(amounts in thousands) Amortized Unrealized Unrealized Fair
December 25, 2021 Cost Holding Gains Holding Losses Value
Available-for-sale:
Level 1
Equity securities $ 6,509
Level 2
Gross Gross
(amounts in thousands) Amortized Unrealized Unrealized Fair
December 26, 2020 Cost Holding Gains Holding Losses Value
Available-for-sale:
Level 1
Equity securities $ 7,410
Level 2
32
Table of Contents
WEIS MARKETS, INC.
Note 2 Marketable Securities (continued)
Maturities of marketable securities classified as available-for-sale at December 25, 2021, were as follows:
Amortized Fair
(amounts in thousands) Cost Value
Available-for-sale:
Due after one year through five years 97,438 98,897
Due after five years through ten years 50,844 51,728
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 Company recognized investment income of $3.4 million, $3.3 million, and $3.0 million in fiscal years ended December 25, 2021, December 26, 2020, and December 28, 2019. The changes in the underlying liability to the associates are recorded in “Other income (expense).”
Note 3 Inventories
Merchandise inventories, as of December 25, 2021 and December 26, 2020, were valued as follows:
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 $74.5 million and $70.4 million higher than as reported on the above methods as of December 25, 2021 and December 26, 2020, respectively. During 2021 and 2020, 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 25, 2021 and December 26, 2020, consisted of:
Useful Life
(amounts in thousands) (in years) 2021 2020
Less accumulated depreciation and amortization 1,443,353 1,377,865
33
Table of Contents
WEIS MARKETS, INC.
Note 5 Lease Commitments
The following is a schedule of the lease costs included in “Operating, general and administrative expenses” for the fiscal years ended December 25, 2021, December 26, 2020 and December 28, 2019.
52 Weeks Ended
The following is a schedule by year of the future minimum rental payments required under operating leases and total minimum sublease and lease rental income to be received as of December 25, 2021.
(amounts in thousands) Leases Subleases
Less: Interest 25,462 —
Present value of lease liabilities 201,609 (20,778)
The following is a schedule of weighted-average remaining lease terms and weighted-average discount rates as of December 25, 2021, December 26, 2020, and December 28, 2019.
Weighted-average remaining lease term 4.11 4.06 4.44
Weighted-average discount rate 2.73% 3.36% 3.47%
34
Table of Contents
WEIS MARKETS, INC.
Note 6 Retirement Plans
The Company has a qualified retirement savings plan, the Weis Markets, Inc. Retirement Savings Plan, covering substantially all 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 a non-qualified supplemental retirement plan 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:
Supplemental executive retirement plan 703 463 498
The Company maintains a non-qualified deferred compensation plan for the payment of specific amounts of annual retirement benefits to certain officers or their beneficiaries over an actuarially computed normal life expectancy. Currently, there are no active officers in the plan. The expected payments under the plan provisions were determined through actuarial calculations dependent on the age of the recipient, using an assumed discount rate. The plan is unfunded and accounted for on an accrual basis. The recorded liability at December 25, 2021 is $3.8 million which is based on expected payments to be made over the remaining lives of the beneficiaries. This amount is included in “Accrued expenses” and “Postretirement benefit obligations” in the Consolidated Balance Sheets. The expected payment amounts are approximately $1.0 million for 2022 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. This plan is unfunded and accounted for on an accrual 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 three years of service with the Company. Benefits are distributed among participants upon termination or retirement. Substantial risk of benefit forfeiture does exist for participants in this plan. The present value of accumulated benefits amounted to $27.2 million and $22.8 million at December 25, 2021 and December 26, 2020, respectively, and is included in “Postretirement benefit obligations” in the Consolidated Balance Sheets.
Note 7 Revenue Recognition
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 years ending December 25, 2021, December 26, 2020 and December 28, 2019.
52 Weeks Ended