Form 10-K WEIS MARKETS INC For: Dec 27
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 2014
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to_________
Commission File Number 1-5039
WEIS MARKETS, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA
1000 S. Second Street |
24-0755415 |
Sunbury, Pennsylvania Registrant's telephone number, including area code: (570) 286-4571
|
17801-0471 Registrant's web address: www.weismarkets.com |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Common stock, no par value Securities registered pursuant to Section 12(g) of the Act: None |
Name of each exchange on which registered New York Stock Exchange
|
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] |
Accelerated filer [X] |
||
Non-accelerated filer [ ] |
(Do not check if a smaller reporting company) |
Smaller reporting company [ ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of Common Stock held by non-affiliates of the Registrant is approximately $545,000,000 as of June 28, 2014 the last business day of the most recently completed second quarter.
Shares of common stock outstanding as of March 12, 2015 - 26,898,443.
DOCUMENTS INCORPORATED BY REFERENCE: Selected portions of the Weis Markets, Inc. definitive proxy statement dated March 12, 2015 are incorporated by reference in Part III of this Form 10-K.
WEIS MARKETS, INC.
WEIS MARKETS, INC.
Weis Markets, Inc. is a Pennsylvania business founded by Harry and Sigmund Weis in 1912 and incorporated in 1924. The Company is engaged principally in the retail sale of food in Pennsylvania and surrounding states. There was no material change in the nature of the Company's business during fiscal 2014. The Company’s stock has been traded on the New York Stock Exchange since 1965 under the symbol “WMK.” The Weis family currently owns approximately 65% of the outstanding shares. Robert F. Weis serves as Chairman of the Board of Directors, and Jonathan H. Weis, son of Robert F. Weis, serves as Vice Chairman, President and Chief Executive Officer.
The Company's retail food stores sell groceries, dairy products, frozen foods, meats, seafood, fresh produce, floral, pharmacy services, deli products, prepared foods, bakery products, beer and wine, fuel and general merchandise items, such as health and beauty care and household products. The Company advertises its products and promotes its brand through weekly newspaper circulars; radio and television ads; e-mail blasts; and on-line via its website, social media and mobile applications. Printed circulars are used extensively on a weekly basis to advertise featured items. The Company utilizes a loyalty marketing program, “Weis Club Preferred Shopper,” which enables customers to receive discounts, promotions and fuel rewards. The Company currently owns and operates 163 retail food stores. The Company’s operations are reported as a single reportable segment.
The following table provides additional detail on the percentage of consolidated net sales contributed by product category for fiscal years 2014, 2013 and 2012, respectively:
2014 |
2013 |
2012 |
||||
Center Store (1) |
57.9 |
% |
59.0 |
% |
59.5 |
% |
Fresh (2) |
29.0 | 28.7 | 28.1 | |||
Pharmacy Services |
9.0 | 8.6 | 8.7 | |||
Fuel |
3.9 | 3.5 | 3.5 | |||
Other |
0.2 | 0.2 | 0.2 | |||
Consolidated net sales |
100.0 |
% |
100.0 |
% |
100.0 |
% |
__________
(1) Consists primarily of groceries, dairy products, frozen foods, beer and wine, and general merchandise items, such as health and beauty care and household products.
(2) Consists primarily of meats, seafood, fresh produce, floral, deli products, prepared foods and bakery products.
At the end of 2014, Weis Markets, Inc. operated 25 stores in Maryland, 5 stores in New Jersey, 9 stores in New York, 122 stores in Pennsylvania and 2 stores in West Virginia, for a total of 163 retail food stores operating under the Weis Markets trade name.
1
WEIS MARKETS, INC.
Item 1.Business: (continued)
All retail food store locations operate as conventional supermarkets. The retail food stores range in size from 8,000 to 70,000 square feet, with an average size of approximately 50,000 square feet. The following summarizes the number of stores by size categories as of year-end:
2014 |
2014 |
2013 |
2013 |
|||||
Square feet |
Number of stores |
% of Total |
Number of stores |
% of Total |
||||
55,000 to 70,000 |
56 | 34% | 53 | 32% | ||||
45,000 to 54,999 |
70 | 43% | 72 | 44% | ||||
35,000 to 44,999 |
22 | 13% | 22 | 13% | ||||
25,000 to 34,999 |
9 | 6% | 12 | 7% | ||||
Under 25,000 |
6 | 4% | 6 | 4% | ||||
Total |
163 | 100% | 165 | 100% |
The following schedule shows the changes in the number of retail food stores, total square footage and store additions/remodels as of year-end:
2014 |
2013 |
2012 |
2011 |
2010 |
||||||
Beginning store count |
165 | 163 | 161 | 164 | 164 | |||||
New stores (1) |
1 | 4 | 4 | 1 |
--- |
|||||
Opened relocated stores |
1 |
--- |
1 | 1 |
--- |
|||||
Closed stores |
(3) | (2) | (2) | (4) |
--- |
|||||
Closed relocated stores |
(1) |
--- |
(1) | (1) |
--- |
|||||
Ending store count |
163 | 165 | 163 | 161 | 164 | |||||
Total square feet (000’s), at year-end |
8,202 | 8,211 | 8,054 | 7,877 | 7,887 | |||||
Additions/major remodels |
8 | 12 | 13 | 9 | 4 |
____________________
(1) On June 11, 2012, Weis Markets, Inc. acquired three former Genuardi’s stores located in Conshohocken, Doylestown and Norristown, Pennsylvania from Safeway Inc.
The Company supports its retail operations through a centrally located distribution facility, its own transportation fleet, three manufacturing facilities and its store support center. The Company is required to use a significant amount of working capital to provide for the necessary amount of inventory to meet demand for its products through efficient use of buying power and effective utilization of space in its distribution facilities. The manufacturing facilities consist of a meat processing plant, an ice cream plant and a milk processing plant.
The Company operates in a highly competitive market place. The number and the variety of competitors vary by market. The Company’s principal competition consists of international, national, regional and local food chains, as well as independent food stores. The Company also faces substantial competition from convenience stores, membership warehouse clubs, specialty retailers, supercenters and large-scale drug and pharmaceutical chains. The Company continues to effectively compete by offering a strong combination of value, quality and service.
The Company currently employs approximately 18,200 full-time and part-time associates.
2
WEIS MARKETS, INC.
Item 1. Business: (continued)
Trade Names and Trademarks. The Company has invested significantly in the development and protection of “Weis Markets” both as a trade name and a trademark and considers it to be an important asset. The Company is the exclusive licensee of more than 60 other trademarks registered and/or pending in the United States Patent and Trademark Office from WMK Holdings, Inc., including trademarks for its product lines and promotions such as Weis, Weis 2 Go, Weis Wonder Chicken, Price Freeze, Weis Gas-n-Go and Weis Nutri-Facts. Each trademark registration is for an initial period of 10 years and may be renewed so long as it is in continued use in commerce.
The Company considers its trademarks to be of material importance to its business and actively defends and enforces its rights.
The Company maintains a corporate web site at www.weismarkets.com. The Company makes available, free of charge, on the “Corporate Information” section of its web site, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after the Company electronically files such material or furnishes it to the U.S. Securities and Exchange Commission (SEC) by clicking on the “SEC Information” link.
The Company’s Corporate Governance materials can be found in the “Corporate Information” section of the Company’s web site. These materials include the corporate governance guidelines; the charters of the Audit, Compensation and Disclosure Committees; and both the Code of Business Conduct and Ethics and the Code of Ethics for the CEO and CFO. A copy of the foregoing corporate governance materials is available upon written request to the Company’s principal executive offices.
In addition to risks and uncertainties in the ordinary course of business common to all businesses, important factors are listed below specific to the Company and its industry, which could materially impact its future performance.
The Company’s industry is highly competitive. If the Company is unable to compete effectively, the Company’s financial condition and results of operations could be materially affected.
The retail food industry is intensely price competitive, and the competition the Company encounters may have a negative impact on product retail prices. The financial results may be adversely impacted by a competitive environment that could cause the Company to reduce retail prices without a reduction in its product cost to maintain market share; thus reducing sales and gross profit margins.
The trade area of the Company is located within a region and is subject to the economic, social and climate variables of that region.
The majority of the Company’s stores are concentrated in central and northeast Pennsylvania, central Maryland, suburban Baltimore regions and New York’s Southern Tier. Changes in economic and social conditions in the Company’s operating regions, including fluctuations in the inflation rate along with changes in population and employment and job growth rates, affect customer shopping habits. These changes may negatively impact sales and earnings. Business disruptions due to weather and catastrophic events historically have been few. The Company’s geographic regions could receive an extreme variance in the amount of annual snowfall that may materially affect sales and expense results.
The Company may be unable to retain key management personnel.
The Company's success depends to a significant degree upon the continued contributions of senior management. The loss of any key member of management may prevent the Company from implementing its business plans in a timely manner. In addition, employment conditions specifically may affect the Company’s ability to hire and train qualified associates.
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WEIS MARKETS, INC.
Item 1a. Risk Factors: (continued)
Food safety issues could result in the loss of consumer confidence in the Company.
Customers count on the Company to provide them with safe and wholesome food products. Concerns regarding the safety of food products sold in its stores could cause shoppers to avoid purchasing certain products from the Company, or to seek alternative sources of supply for all of their food needs, even if the basis for the concern is outside of the Company’s control. A loss in confidence on the part of its customers would be difficult and costly to reestablish. As such, any issue regarding the safety of any food items sold by the Company, regardless of the cause, could have a substantial and adverse effect on operations.
The failure to execute expansion plans could have a material adverse effect on the Company's business and results of its operations.
Circumstances outside the Company’s control could negatively impact anticipated capital investments in store, distribution and manufacturing projects, information technology and equipment. The Company cannot determine with certainty whether its new stores will be successful. The failure to expand by successfully opening new stores as planned, or the failure of a significant number of these stores to perform as planned, could have a material adverse effect on the Company’s business and results of its operations.
Disruptions or security breaches in the Company’s information technology systems could adversely affect results.
The Company’s business is highly dependent on complex information technology systems that are vital to its continuing operations. If the Company was to experience difficulties maintaining existing systems or implementing new systems, significant losses could be incurred due to disruptions in its operations. Additionally, these systems contain valuable proprietary data as well as receipt and storage of personal information about its associates and customers, in particular electronic payment data and personal health information that, if breached, would have an adverse effect on the Company. Such an occurrence could adversely affect the Company’s reputation with its customers, associates, and vendors, as well as the Company’s operations, results of operations, financial condition and liquidity, and could result in litigation against the Company or the imposition of penalties. Moreover, a security breach could require the expenditure of significant additional resources to further upgrade the security measures that the Company employs to guard such important personal information against cyberattacks and other attempts to access such information and could result in a disruption of operations.
The Company is affected by certain operating costs which could increase or fluctuate considerably.
Associate expenses contribute to the majority of the Company’s operating costs. The Company's financial performance is potentially affected by increasing wage and benefit costs, a competitive labor market, regulatory wage increases and the risk of unionized labor disruptions of its non-union workforce. The Company's profit is particularly sensitive to the cost of oil. Oil prices directly affect the Company's product transportation costs, as well as its utility and petroleum-based supply costs. It also affects the costs of its suppliers, which impacts its cost of goods.
Various aspects of the Company’s business are subject to federal, state and local laws and regulations.
The Company is subject to various federal, state and local laws, regulations and administrative practices that affect the Company’s business. The Company must comply with numerous provisions regulating health and sanitation standards, food labeling, equal employment opportunity, minimum wages and licensing for the sale of food, drugs and alcoholic beverages. The Company’s compliance with these regulations may require additional capital expenditures and could adversely affect the Company’s ability to conduct the Company’s business as planned. Management cannot predict either the nature of future laws, regulations, interpretations or applications, or the effect either additional government regulations or administrative orders, when and if promulgated, or disparate federal, state, and local regulatory schemes would have on the Company’s future business. They could, however, require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling and/or scientific substantiation. Any or all of such requirements could have an adverse effect on the Company’s results of operations and financial condition.
4
WEIS MARKETS, INC.
Item 1a. Risk Factors: (continued)
Unexpected factors affecting self-insurance claims and reserve estimates could adversely affect the Company.
The Company uses a combination of insurance and self-insurance to provide for potential liabilities for workers' compensation, general liability, vehicle accident, property and associate medical benefit claims. Management estimates the liabilities associated with the risks retained by the Company, in part, by considering historical claims experience, demographic and severity factors and other actuarial assumptions which, by their nature, are subject to a high degree of variability. Any projection of losses concerning workers’ compensation and general liability is subject to a high degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns.
The Company was liable for associate health claims up to an annual maximum of $750,000 per member prior to March 1, 2012, $1,250,000 per member prior to March 1, 2013, $2,000,000 per member prior to March 1, 2014 and an unlimited amount per member as of March 1, 2014. As of March 1, 2014, the Company purchased stop loss insurance which carries a $500,000 specific deductible with a $250,000 aggregating deductible. The Company is liable for workers' compensation claims up to $2,000,000 per claim. Property and casualty insurance coverage is maintained with outside carriers at deductible or retention levels ranging from $100,000 to $1,000,000. The Company, for the benefit of cost savings, has accepted the risk of an unusual amount of independent multiple material claims arising, which could have a significant impact on earnings.
Changes in tax laws may result in higher income tax.
The Company's future effective tax rate may increase from current rates due to changes in laws and the status of pending items with various taxing authorities. Currently, the Company benefits from a combination of its corporate structure and certain state tax laws.
The Company’s investment portfolio may suffer losses from changes in market interest rates and changes in market conditions which could adversely affect results of operations or liquidity.
As of December 27, 2014, the Company had $23.0 million in cash and cash equivalents, $74.0 million in marketable securities and $9.1 million in SERP (Supplemental Executive Retirement Plan) investment (level 1 mutual funds). The Company’s marketable securities consist of municipal bonds and equity securities. These investments are subject to general credit, liquidity, market and interest rate risks. Substantially all of these securities are subject to interest rate and credit risk and will decline in value if interest rates increase or one of the issuers’ credit ratings is reduced. As a result, the Company may experience a reduction in value or loss of liquidity from investments, which may have a negative impact on the Company’s results of operations, liquidity and financial condition. The Federal Deposit Insurance Corporation (FDIC) insures amounts up to $250,000 per depositor, per insured bank, for each account ownership category. The Company has balances in bank accounts that may exceed the insured amount leaving the Company exposed for any amounts over the $250,000 limit.
The Company is a controlled Company due to the common stock holdings of the Weis family.
The Weis family’s share ownership represents approximately 65% of the combined voting power of the Company’s common stock as of December 27, 2014. 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, two of the Company’s six directors are members of the Weis family.
Changes in vendor promotions or allowances, including the way vendors target their promotional spending, and the Company's ability to effectively manage these programs could significantly impact margins and profitability.
The Company cooperatively engages in a variety of promotional programs with its vendors. As the parties assess the results of specific promotions and plan for future promotions, the nature of these programs and the allocation of dollars among them changes over time. The Company manages these programs to maintain or improve margins while at the same time increasing sales. A reduction in overall promotional spending or a shift by vendors in promotional spending away from certain types of promotions that the Company and its customers have historically utilized could have a significant impact on profitability.
5
WEIS MARKETS, INC.
Item 1b. Unresolved Staff Comments:
There are no unresolved staff comments.
As of December 27, 2014, the Company owned and operated 82 of its retail food stores, and leased and operated 81 stores under operating leases that expire at various dates through 2029. The Company owns all trade fixtures and equipment in its stores and several parcels of vacant land, which are available as locations for possible future stores or other expansion.
The Company owns and operates one distribution center in Milton, Pennsylvania of approximately 1.1 million square feet, and one in Northumberland, Pennsylvania totaling approximately 76,000 square feet. The Company also owns one warehouse complex in Sunbury, Pennsylvania totaling approximately 551,000 square feet. The Company utilizes 259,000 square feet of its Sunbury location to operate its ice cream plant, meat processing plant and milk processing plant.
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.
6
WEIS MARKETS, INC.
Executive Officers of the Registrant
The following sets forth the names and ages of the Company’s executive officers as of March 12, 2015, indicating all positions held during the past five years:
Name |
Age |
Title |
||
Robert F. Weis (a) |
95 |
Chairman of the Board |
||
Jonathan H. Weis (b) |
47 |
Vice Chairman, President and Chief Executive Officer |
||
Kurt A. Schertle (c) |
43 |
Chief Operating Officer |
||
Scott F. Frost (d) |
52 |
Senior Vice President, Chief Financial Officer and Treasurer |
||
David W. Gose II (e) |
48 |
Senior Vice President of Operations |
||
Harold G. Graber (f) |
59 |
Senior Vice President of Real Estate and Development and Secretary |
||
James E. Marcil (g) |
56 |
Senior Vice President of Human Resources |
(a) |
Robert F. Weis. The Company has employed Mr. Weis since 1946. Mr. Weis served as Chairman and Treasurer from 1995 until April 2002, at which time he was appointed Chairman of the Board. |
(b) |
Jonathan H. Weis. The Company has employed Mr. Weis since 1989. Mr. Weis served the Company as Vice President of Property Management and Development from 1996 until April 2002, at which time he was appointed as Vice President and Secretary. In January of 2004, the Board appointed Mr. Weis as Vice Chairman and Secretary. Mr. Weis became the Company's interim President and Chief Executive Officer in September 2013 and was appointed as President and Chief Executive Officer in February 2014. |
(c) |
Kurt A. Schertle. The Company hired Mr. Schertle on March 1, 2009 as its Vice President of Sales and Merchandising, which included the responsibility of overseeing the Marketing Department. In February 2010, Mr. Schertle was promoted to Senior Vice President of Sales and Merchandising. In July 2012, Mr. Schertle was promoted to Executive Vice President of Sales and Merchandising at which time, he assumed the additional responsibility of overseeing the Company’s Supply Chain. In September 2013, Mr. Schertle assumed the additional responsibility of overseeing Store Operations and Mr. Schertle was promoted to Chief Operating Officer in March 2014. |
(d) |
Scott F. Frost. Mr. Frost joined the Company full-time in 1984 and he has held various positions since then, including but not limited to, Controller, Assistant Treasurer and Acting Chief Financial Officer. The Company appointed Mr. Frost as Vice President, Chief Financial Officer and Treasurer in October 2009. In January 2011, Mr. Frost was promoted to Senior Vice President, Chief Financial Officer and Treasurer. Mr. Frost also served as Assistant Secretary of the Company during the past five years. |
(e) |
David W. Gose II. Mr. Gose joined the Company in May 2014 as Senior Vice President of Operations. Prior to joining the Company, Mr. Gose was Senior Director and Regional General Manager of Walmart Ohio, a retail store SuperCenter, from February 2010 until May 2014. Walmart Ohio consisted of 92 stores that geographically included all stores South of Toledo, Cleveland, Akron and Youngstown. |
(f) |
Harold G. Graber. Mr. Graber joined the Company in October 1989 as the Director of Real Estate. Mr. Graber, who served the Company as Vice President for Real Estate since 1996, was promoted to Senior Vice President of Real Estate and Development in February 2010. Mr. Graber was appointed as Secretary of the Company in February 2014. |
(g) |
James E. Marcil. Mr. Marcil joined the Company in September 2002 as Vice President of Human Resources. In February 2010, Mr. Marcil was promoted to Senior Vice President of Human Resources. |
7
WEIS MARKETS, INC.
Table of Contents
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities:
The Company's stock is traded on the New York Stock Exchange (ticker symbol WMK). The approximate number of shareholders, including individual participants in security position listings on December 27, 2014 as provided by the Company's transfer agent was 5,364. High and low stock prices and dividends paid per share for the last two fiscal years were:
2014 |
2013 |
|||||||||||||||||
Stock Price |
Dividend |
Stock Price |
Dividend |
|||||||||||||||
Quarter |
High |
Low |
Per Share |
High |
Low |
Per Share |
||||||||||||
First |
$ |
52.82 |
$ |
46.12 |
$ |
0.30 |
$ |
41.98 |
$ |
37.90 |
$ |
0.30 | ||||||
Second |
50.56 | 42.54 | 0.30 | 47.92 | 39.34 | 0.30 | ||||||||||||
Third |
46.97 | 39.09 | 0.30 | 51.92 | 45.12 | 0.30 | ||||||||||||
Fourth |
48.00 | 38.23 | 0.30 | 54.13 | 46.15 | 0.30 |
The following line graph compares the yearly percentage change in the cumulative total shareholder return on the Company’s common stock against the cumulative total return of the S&P Composite-500 Stock Index and the cumulative total return of a published group index for the Retail Grocery Stores Industry (“Peer Group”), provided by Value Line, Inc., for the period of five years. The graph depicts $100 invested at the close of trading on the last trading day preceding the first day of the fifth preceding year in Weis Markets, Inc. common stock, S&P 500, and the Peer Group. The cumulative total return assumes reinvestment of dividends.
Comparative Five-Year Total Returns
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
|||||||
Weis Markets, Inc. |
100.00 | 114.55 | 119.79 | 120.79 | 165.42 | 154.54 | ||||||
S&P 500 |
100.00 | 115.06 | 117.49 | 136.29 | 180.43 | 205.13 | ||||||
Peer Group |
100.00 | 117.87 | 134.54 | 155.75 | 210.72 | 280.61 |
8
WEIS MARKETS, INC.
Item 6. Selected Financial Data:
The following selected historical financial information has been derived from the Company's audited consolidated financial statements. This information should be read in connection with the Company's Consolidated Financial Statements and the Notes thereto, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in Item 7.
Five Year Review of Operations
52 Weeks |
52 Weeks |
52 Weeks |
53 Weeks |
52 Weeks |
||||||||||
(dollars in thousands, except shares, |
Ended |
Ended |
Ended |
Ended |
Ended |
|||||||||
per share amounts and store information) |
Dec. 27, 2014 |
Dec. 28, 2013 |
Dec. 29, 2012 |
Dec. 31, 2011 |
Dec. 25, 2010 |
|||||||||
Net sales |
$ |
2,776,683 |
$ |
2,692,588 |
$ |
2,701,405 |
$ |
2,752,504 |
$ |
2,620,378 | ||||
Costs and expenses |
2,693,972 | 2,581,406 | 2,574,373 | 2,638,224 | 2,515,062 | |||||||||
Income from operations |
82,711 | 111,182 | 127,032 | 114,280 | 105,316 | |||||||||
Investment and other income |
2,287 | 4,684 | 3,882 | 3,326 | 2,069 | |||||||||
Income before provision for income taxes |
84,998 | 115,866 | 130,914 | 117,606 | 107,385 | |||||||||
Provision for income taxes |
29,831 | 44,145 | 48,403 | 42,022 | 39,094 | |||||||||
Net income |
55,167 | 71,721 | 82,511 | 75,584 | 68,291 | |||||||||
Retained earnings, beginning of year |
971,022 | 931,579 | 881,346 | 864,132 | 827,042 | |||||||||
1,026,189 | 1,003,300 | 963,857 | 939,716 | 895,333 | ||||||||||
Cash dividends |
32,278 | 32,278 | 32,278 | 58,370 | 31,201 | |||||||||
Retained earnings, end of year |
$ |
993,911 |
$ |
971,022 |
$ |
931,579 |
$ |
881,346 |
$ |
864,132 | ||||
Weighted-average shares outstanding, diluted |
26,898,443 | 26,898,443 | 26,898,443 | 26,898,443 | 26,898,443 | |||||||||
Cash dividends per share |
$ |
1.20 |
$ |
1.20 |
$ |
1.20 |
$ |
2.17 |
$ |
1.16 | ||||
Basic and diluted earnings per share |
$ |
2.05 |
$ |
2.67 |
$ |
3.07 |
$ |
2.81 |
$ |
2.54 | ||||
Working capital |
$ |
223,776 |
$ |
211,528 |
$ |
229,748 |
$ |
223,742 |
$ |
234,889 | ||||
Total assets |
$ |
1,191,119 |
$ |
1,148,242 |
$ |
1,090,440 |
$ |
1,029,004 |
$ |
992,081 | ||||
Shareholders’ equity |
$ |
857,832 |
$ |
834,053 |
$ |
795,690 |
$ |
745,886 |
$ |
728,127 | ||||
Number of grocery stores |
163 | 165 | 163 | 161 | 164 |
9
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 - a general description of the Company’s business and strategic imperatives.
• Results of Operations - an analysis of the Company’s consolidated results of operations for the three years presented in the Company’s consolidated financial statements.
• Liquidity and Capital Resources - an analysis of cash flows, aggregate contractual obligations, and off-balance sheet
arrangements.
• Critical Accounting Policies and Estimates - a discussion of accounting policies that require critical judgments and estimates.
Company Overview
General
Weis Markets, Inc. was founded in 1912 by Harry and Sigmund Weis in Sunbury, Pennsylvania. Today, the Company ranks among the top 50 food and drug retailers in the United States in revenues generated. As of December 27, 2014, the Company operated 163 retail food stores in Pennsylvania and four surrounding states: Maryland, New Jersey, New York and West Virginia.
Company revenues are generated in its retail food stores from the sale of a wide variety of consumer products including groceries, dairy products, frozen foods, meats, seafood, fresh produce, floral, pharmacy services, deli products, prepared foods, bakery products, beer and wine, fuel, and general merchandise items, such as health and beauty care and household products. The Company supports its retail operations through a centrally located distribution facility, its own transportation fleet, three manufacturing facilities and its administrative offices. The Company's operations are reported as a single reportable segment.
10
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Company Overview, (continued)
Strategic Imperatives
The following strategic imperatives will be focused upon by the Company to attempt to ensure the success of the Company in the coming years:
· |
Establish a Sales Driven Culture – The Company continues to focus on sales and profits growth, improved operating practices, increased productivity and positive cash flow. The Company believes disciplined growth will increase its market share and operating profits, resulting in enhanced shareholder value. The Company’s method of driving sales includes focused preparation and execution of sales programs, investing in new stores and remodels, and strategic acquisitions. Communicating clear executable standards and aligning performance measures across the organization will help to instill a sales-driven operating environment. |
· |
Continuously Upgrade Organizational Talent Pool – In support of the Company’s growth and sales building strategies, the Company is committed to growing leaders at every level throughout the organization through enhanced leadership development programs, succession planning, and establishing rewarding career paths. The Company believes that improved associate talent directly impacts the ability to execute strategic plans and views this as a strategic imperative for future growth. |
· |
Become More Relevant to Consumers – Understanding the consumer is crucial to the Company’s strategic plan. Research can be done by studying the wants and needs of core consumers and casual consumers. Measuring customer satisfaction and sharing insights across the organization will help communication between management and its consumers. The Company strives to build customer loyalty by purchasing produce from local growers and supporting organizations within the communities it serves. It will continue to invest in new stores, remodels and additions and strategic acquisitions, to help retain and attract new consumers. |
· |
Create Meaningful Differentiation – The Company has identified product pricing, locally focused store assortments, shopping experience, overall convenience and customer service as critical components of future success. The strategy includes developing improved customer service training and setting customer service measurements and goals. As part of this strategy, management is committed to offering its customers a strong combination of quality, service and value. It will continue to offer competitive prices on name brand and private brand products to exceed customers’ expectations. |
· |
Significantly Improve Decision Support and Measurement – The Company will continue to make investments in its information technology systems and distribution network. This will help improve associate productivity, store conditions and the overall customer experience with user-friendly, support driven systems. These systems will also continue to play a key role in the measurement of the Company’s strategic decisions and provide valuable insight into customer behavior, shopping trends, and financial returns. Management will continue to streamline its supply chain by focusing on improving inventory turns, cost per case, in-stock position and overall service levels, which will help to improve in-store conditions and result in increased sales and profits. |
· |
Focus on Sustainability Strategies – The Company views being good stewards in the communities in which we operate as an important component of overall success. The Company’s sustainability program operates under a structure of four key pillars: green design, natural resource conservation, food and agricultural impact and social responsibility. The goal of the sustainability strategy is to reduce the Company’s overall carbon footprint by reducing greenhouse gas emissions and reducing the impact on climate change. The Company is seeking to reduce its carbon footprint by 20% by the year 2020. To accomplish this, the Company intends to institute new sustainability programs and to improve existing sustainability programs. Since 2008, the Company has been measuring the carbon footprint of the entire enterprise and has reduced the carbon emissions by a total of 14.8%. |
11
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Results of Operations
Analysis of Consolidated Statements of Income
(dollars in thousands except per share amounts) |
Percent Changes |
||||||||||||||
For the Fiscal Years Ended December 27, 2014, |
2014 |
2013 |
2012 |
2014 vs. |
2013 vs. |
||||||||||
December 28, 2013 and December 29, 2012 |
(52 weeks) |
(52 weeks) |
(52 weeks) |
2013 |
2012 |
||||||||||
Net sales |
$ |
2,776,683 |
$ |
2,692,588 |
$ |
2,701,405 | 3.1 |
% |
(0.3) |
% |
|||||
Cost of sales, including warehousing and distribution expenses |
2,023,721 | 1,947,120 | 1,958,852 | 3.9 | (0.6) | ||||||||||
Gross profit on sales |
752,962 | 745,468 | 742,553 | 1.0 | 0.4 | ||||||||||
Gross profit margin |
27.1 |
% |
27.7 |
% |
27.5 |
% |
|||||||||
Operating, general and administratives expenses |
670,251 | 634,286 | 615,521 | 5.7 | 3.0 | ||||||||||
O, G & A, percent of net sales |
24.1 |
% |
23.6 |
% |
22.8 |
% |
|||||||||
Income from operations |
82,711 | 111,182 | 127,032 | (25.6) | (12.5) | ||||||||||
Operating margin |
3.0 |
% |
4.1 |
% |
4.7 |
% |
|||||||||
Investment income |
2,287 | 4,684 | 3,468 | (51.2) | 35.1 | ||||||||||
Investment income, percent of net sales |
0.1 |
% |
0.2 |
% |
0.1 |
% |
|||||||||
Other income |
- |
- |
414 |
- |
(100.0) | ||||||||||
Other income, percent of net sales |
- |
% |
- |
% |
0.0 |
% |
|||||||||
Income before provision for income taxes |
84,998 | 115,866 | 130,914 | (26.6) | (11.5) | ||||||||||
Provision for income taxes |
29,831 | 44,145 | 48,403 | (32.4) | (8.8) | ||||||||||
Effective tax rate |
35.1 |
% |
38.1 |
% |
37.0 |
% |
|||||||||
Net income |
$ |
55,167 |
$ |
71,721 |
$ |
82,511 | (23.1) |
% |
(13.1) |
% |
|||||
Net income, percent of net sales |
2.0 |
% |
2.7 |
% |
3.1 |
% |
|||||||||
Basic and diluted earnings per share |
$ |
2.05 |
$ |
2.67 |
$ |
3.07 | (23.2) |
% |
(13.0) |
% |
|||||
Income is earned by selling merchandise at price levels that produce revenues in excess of cost of merchandise sold and operating and administrative expenses. Although the Company may experience short term fluctuations in its earnings due to unforeseen short-term operating cost increases, it historically has been able to increase revenues and maintain stable earnings from year to year.
Net Sales
The Company's revenues are earned and cash is generated as merchandise is sold to customers at the point of sale. Discounts provided to customers by the Company at the point of sale are recognized as a reduction in sales as products are sold or over the life of a promotional program if redeemable in the future. Discounts provided by vendors, usually in the form of paper coupons, are not recognized as a reduction in sales provided the coupons are redeemable at any retailer that accepts coupons.
Total store sales increased 3.1% in 2014 compared to 2013. Excluding fuel sales, total store sales increased 2.8%. Total store sales decreased 0.3% in 2013 compared to 2012. Excluding fuel sales, total store sales decreased 0.4% in 2013 compared to 2012.
When calculating the percentage change in comparable store sales, the Company defines a new store to be comparable when it has been in operation for five full quarters. Relocated stores and stores with expanded square footage are included in comparable store sales since these units are located in existing markets and are open during construction. Planned store dispositions are excluded from the calculation. The Company only includes retail food stores in the calculation.
12
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Results of Operations (continued)
Comparable store sales increased 2.0% in 2014 compared to 2013. Excluding fuel sales, comparable store sales increased 1.7%. The 2014 sales increase is attributed to the Company’s current pricing initiatives and sales building programs. Comparable store sales decreased 2.6% in 2013 compared to 2012. Excluding fuel sales, comparable store sales decreased 2.7% in 2013 compared to 2012. The 2013 sales decline is attributed to increased competition, cycling the 2012 sales impact of Hurricane Sandy and a decline in food stamp/SNAP (the United States Department of Agriculture’s Supplemental Nutrition Assistance Program) spending in its stores, which accelerated in the fourth quarter of 2013 with the reduction in SNAP benefits that went into effect on November 1, 2013.
The Company continues to make progress in a market impacted by a slowly recovering economy. It attributes the 2014 sales increase to its continued investments in lower pricing and disciplined sales building programs. In addition to targeted promotional activity in key regional markets, the Company started an aggressive sales building program in 2014, notably its “Three Ways to Save” sales initiative, which included the seasonal “Price Freeze” or “Get Grillin’” promotional program, Everyday Lower Prices (EDLP) and Lowest Price Guarantee program. On December 29, 2013, the Company launched a twelfth round of its "Price Freeze" program. This program froze prices on more than 2,000 products for a thirteen-week period. On March 30, 2014, the Company entered into another "Get Grillin'" promotional program. The "Get Grillin'" promotional program was a fifteen-week reduced pricing program on top items throughout the store that our customers found to be the most seasonally relevant. This program lowered prices on approximately 1,200 items. The EDLP program lowered prices on more than 1,000 regularly purchased items. The Lowest Price Guarantee program offers discounts on four items every week that the Company guarantees to be the lowest compared to local competitors. Compared to 2013, the Company generated a 1.5% increase in average sales per customer transaction in 2014, while identical customer store visits increased by 0.6%. Compared to 2012, the Company generated a 0.7% increase in average sales per customer transaction in 2013, while the number of identical customer store visits declined by 3.3%.
The Company’s results also benefited from increased operational efficiencies and improved in-stock conditions at store level. In addition, the Company’s Gold Card program, an extension of its existing Preferred Club Shopper program, continues to target the Company’s best shoppers with personalized offers and strong values to help them save money. The Company also continues to offer its "Gas Rewards" program in most markets. The "Gas Rewards" program allows Weis Preferred Shoppers club card members to earn gas discounts resulting from their in-store purchases. Customers can redeem these gas discounts at Sheetz convenience stores, located in most of the Company's markets, at Manley's Mighty Mart Valero locations, in the Binghamton, NY market or at any of the twenty-seven Weis Gas-n-Go locations.
Comparable center store sales decreased by 0.2% in 2014 compared to 2013. Comparable center store sales decreased 3.4% in 2013 compared to 2012. Center store was impacted by stagnant sales performance in key center store categories, increased competition and a decline in food stamp/SNAP spending in its stores, which accelerated in the fourth quarter of 2013 with the reduction in SNAP benefits that went into effect on November 1, 2013.
Comparable dairy sales increased 3.4% in 2014 compared to 2013. These increases are mainly attributed to commodity price inflation throughout the dairy category, with milk, cheese and butter seeing the largest increases. Despite the significant commodity price inflation, the Company was able to grow unit sales ahead of remaining market in 2014 as compared to 2013, through the continual promotion of dairy products in the EDLP and Lowest Price Guarantee programs.
Comparable fresh sales increased 3.0% in 2014 compared to 2013. This increase was primarily driven by the meat, seafood, deli and food service departments.
Comparable meat sales increased 3.8% in 2014 compared to 2013. In January 2014, the Company introduced the “Great Meals Start Here” program, which focuses on superior customer service along with educating our customers about our quality and our ability to cut fresh meat within the stores. This program coupled with price inflation; more strategic meat advertising; and a focus on improving store conditions and resetting the stores to better serve our customers’ needs has contributed to the increase in meat sales. Comparable meat sales decreased 2.5% in 2013 compared to 2012. With the cost of meat rising, the Company made the strategic decision to reduce retail prices in order to encourage meat sales. The Company sold 256,084 more pounds of meat in 2013, compared to 2012. Although total tonnage of meat sold increased, comparable meat sales decreased over the previous fiscal year due to the retail price reduction strategy.
Comparable seafood sales increased 5.1% in 2014 compared to 2013. The increase is credited to the Company’s renewed attention to promoting fresh seafood items, enhancing product variety and the Company’s ongoing commitment to the EDLP program.
13
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Results of Operations (continued)
Comparable deli sales increased 2.8% in 2014 compared to 2013. The sales increase is attributed to the EDLP program, particularly in slicing meats and cheeses, an increased focus on customer service and an expanded variety in the dips and spreads category. Comparable deli sales decreased 4.6% in 2013 compared to 2012. Sales declined in 2013 as a result of emergency sales surges in October 2012, which was caused by flooding due to Hurricane Sandy, which impacted regions of Pennsylvania and southern New York, where the majority of the Company's stores are located. Customers were unable to prepare meals at home for extended periods of time in 2012, resulting in increased deli sales. Additionally, 2013 sales were negatively affected by deli salad recalls occurring in September and which continued to impact the fourth quarter of 2013, due to a disruption in supply.
Comparable food service sales increased 6.6% in 2014 compared to 2013. This increase is due to increased promotional activity on key items within the department, partially through the EDLP program; an emphasis on delivering consistent product quality; the successful launch of new items within the department; and the conversion to “fresh” fried chicken in 48 stores.
Comparable pharmacy sales increased 8.5% in 2014 compared to 2013. Pharmacy sales experienced significant price inflation in 2014 but were negatively affected in 2013 due to the conversion of brand to generic drugs. In addition to price inflation, the sales increase is also attributable to an increased number of prescriptions being filled, partially due to the Company’s in-store pet medication and medication synchronization programs. Also contributing to the increase, are some of the Company’s stores having expanded pharmacy hours and more individuals are eligible for healthcare benefits under the Affordable Care Act. Comparable pharmacy sales decreased 2.2% in 2013 compared to 2012. Pharmacy sales were impacted by a $15.3 million and a $10.4 million decline in 2013 and 2012, respectively, due to the conversion of brand drugs to generic. Generics are sold at lower retail prices, decreasing total pharmacy sales. While sales dropped significantly in dollars because of the increased utilization of generic pharmaceuticals, the number of units sold in comparable stores also decreased 0.4% in 2013 compared to 2012. As part of management's strategy to offset this decline, the Company emphasized a continued focus on immunization while implementing in-store pet medications and a medication synchronization program.
Comparable fuel sales increased 0.4% in 2014 compared to 2013. Comparable fuel sales declined 8.3% in 2013 compared to 2012. Sales were affected by fuel price deflation in 2013, which resulted in lower retail gas sales.
Management remains confident in its ability to generate sales growth in a highly competitive environment, but also understands some competitors have greater financial resources and could use these resources to take measures which could adversely affect the Company's competitive position.
Cost of Sales and Gross Profit
Cost of sales consists of direct product costs (net of discounts and allowances), distribution center and transportation costs, as well as manufacturing facility operations.
According to the latest U.S. Bureau of Labor Statistics’ report, the annual Seasonally Adjusted Food-at-Home Consumer Price Index increased 2.4% in 2014, 0.9% in 2013 and 2.4% in 2012. Even though the U.S. Bureau of Labor Statistics’ index rates may be reflective of a trend, it will not necessarily be indicative of the Company’s actual results. Despite the fluctuation of retail and wholesale prices, the Company maintained a gross profit rate of 27.1% in 2014, 27.7% in 2013 and 27.5% in 2012. The gross profit rate declined in 2014 as a result of the implementation of the Company’s Three Ways to Save sales initiative, which consisted of the EDLP and Lowest Price Guarantee programs throughout the year, the “Price Freeze” program in the first quarter and the “Get Grillin’” program in the second quarter.
The Company experienced a LIFO charge of $911,000 for 2014, compared to a charge of $692,000 for 2013 and a charge of $1.2 million for 2012. With the exception of pharmacy, the Company expects wholesale price inflation to increase slightly in 2015.
The Company's profitability is impacted by the cost of oil. Fluctuating fuel prices affect the delivered cost of product and the cost of other petroleum-based supplies. As a percentage of sales, the cost of diesel fuel used by the Company to deliver goods from its distribution center to its stores decreased by 0.02% in 2014 compared to 2013 and remained unchanged in 2013 compared to 2012. According to the U.S. Department of Energy, the 52-week average diesel fuel price for the Central Atlantic States decreased $0.01 per gallon to $4.00 per gallon as of December 22, 2014, compared to $4.01 per gallon as of December 23, 2013. Diesel fuel prices for the Central Atlantic States peaked in February 2014 at $4.36 and steadily fell to $3.39 as of December 22, 2014. Based upon the U.S. Energy Information Administration’s current projections, the Company is expecting diesel fuel prices to remain below $3.00 during 2015.
14
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Results of Operations (continued)
Although the Company experienced product cost inflation and deflation in various commodities in 2014, 2013 and 2012, 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.
Operating, General and Administrative Expenses
Business operating costs including expenses generated from administration and purchasing functions, are recorded in "Operating, general and administrative expenses." Business operating costs include items such as wages, benefits, utilities, repairs and maintenance, advertising costs and credits, rent, insurance, equipment depreciation, leasehold amortization and costs for outside provided services.
The Company may not be able to recover rising expenses through increased prices charged to its customers. Any delay in the Company's response to unforeseen cost increases or competitive pressures that prevent its ability to raise prices may cause earnings to suffer. A majority of our associates are paid hourly rates related to federal and state minimum wage laws. Although we have and will continue to attempt to pass along any increased labor costs through food price increases, there can be no assurance that all such increased labor costs can be reflected in our prices or that increased prices will be absorbed by consumers without diminishing consumer spending to some degree. However, to date, we have not experienced a significant reduction in profit margins as a result of changes in such laws, and management does not anticipate any significant related future reductions in gross profit margins.
Employee-related costs such as wages, employer paid taxes, health care benefits and retirement plans, comprise approximately 60% of the total “Operating, general and administrative expenses.” Employee-related costs increased $7.7 million or 2.0% in 2014 compared to 2013 and increased $4.6 million or 1.2% in 2013 compared to 2012. As a percent of sales, employee-related costs decreased 0.2% in 2014 compared to 2013 but increased 0.2% in 2013 compared to 2012. As a percent of sales, direct store labor decreased 0.2% in 2014 compared to 2013 but increased 0.3% in 2013 compared to 2012.
The Company expensed $1.1 million, $2.0 million and $1.1 million in 2014, 2013 and 2012, respectively, due to adjustments made to the non-qualified supplemental executive retirement plan resulting from a rise in the equity market. See Note 6 Retirement Plans, of Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information on the Company’s retirement plans.
The Company’s self-insured health care benefit expenses decreased 0.5% in 2014 compared to 2013 and decreased 14.9% in 2013 compared to 2012. During 2013, the Company incurred less expensive health care claims, compared to 2012. The Company remains concerned about the potential impact that The Patient Protection and Affordable Care Act will have on its future operating expenses.
On September 21, 2013, the Company entered into a separation agreement with the former President and Chief Executive Officer. The Company's "Operating, general and administrative expenses" were negatively impacted by the charge of $6.1 million worth of estimated expenses related to the separation agreement. See Exhibit 10, filed with the quarterly report on Form 10-Q filed on November 7, 2013, for more information pertaining to the separation agreement.
Depreciation and amortization expense was $66.9 million, or 2.4% of net sales, for 2014 compared to $58.3 million, or 2.2% of net sales, for 2013 and $50.7 million, or 1.9% of net sales, for 2012. The increase in depreciation and amortization expense in 2014 compared to 2013 and in 2013 compared to 2012 was the result of additional capital expenditures as the Company implements its capital expansion program. In the first quarter of 2012, the Company changed its accounting policy for property and equipment and switched the depreciation method for this group of assets from accelerated methods to straight-line. See Note 1 (j) to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information on the Company’s change in accounting estimate related to depreciation expense. See the Liquidity and Capital Resources section for further information regarding the Company’s capital expansion program.
15
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Results of Operations (continued)
The Company recognized pre-tax gains of $2.6 million, $2.9 million and $1.7 million in 2014, 2013 and 2012, respectively, from the sale of two properties in 2014 and 2013 and one property in 2012. In 2013, the Company determined that the asset value of four properties was impaired. As a result, the Company recognized a pre-tax impairment loss of $2.1 million. See Note 1(l) to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information on the Company's impairment charges. Earnings were further impacted in 2013 by a $680,000 adjustment to liabilities for future expenses on closed stores.
Retail store profitability is sensitive to volatility in utility costs due to the amount of electricity and gas required to operate the Company's stores and facilities. The Company is responding to this volatility in operating costs by employing conservation technologies, procurement strategies and associate energy awareness programs to manage and reduce consumption. The Company continues to be a member of the EPA GreenChill program for advancing environmentally beneficial refrigerant management systems. The Company was awarded the GreenChill Distinguished Partner Award for leadership in refrigerant management due to the demonstrated extraordinary leadership and initiative in achieving GreenChill’s mission in 2013. This past year, the Company received three additional Gold Level Certified Stores. In total, the Company has twelve stores registered under the EPA GreenChill program. In 2012, the Company replaced its existing lighting system at its 1.1 million square-foot distribution center with low watt fluorescent and LED lighting, reducing energy consumption by 80% and operating costs by 30%. Its new store prototypes contain skylights that harvest natural daylight to reduce lighting costs, LED lighting and motion sensors in its frozen departments and energy management systems. All Company stores have an assigned Green Leader to promote in-store energy conservation. Despite these initiatives, the Company’s utility expense increased by $2.1 million or 5.3% in 2014 compared to 2013. The increase is primarily due to higher capacity charges and below average temperatures in the Mid-Atlantic States, the Company’s operating region, in the first quarter of 2014. However, the Company’s utility expense decreased by $1.0 million or 2.6% in 2013 compared to 2012, through the aforementioned initiatives, with the added benefit of clement weather and a declining market in electricity costs.
Investment Income
The Company’s investment portfolio consists of marketable securities, which currently includes municipal bonds and equity securities, as well as the Company’s SERP investment, which is comprised of mutual funds that are maintained within the Company’s non-qualified supplemental executive retirement plan and the non-qualified pharmacist deferred compensation plan. The Company classifies all of its municipal bonds and equity securities as available-for-sale. Investment income declined $2.4 million in 2014 compared to 2013. This decrease is primarily attributed to fewer sales of equity securities and a decline in the Company’s SERP investment. The Company experienced a $1.4 million decrease in gains recognized on the sale of equity securities in 2014 compared to 2013 and the Company’s SERP investment decreased by $797,000 in 2014 compared to 2013. Investment income increased by $1.2 million in 2013 compared to 2012, primarily resulting from the $868,000 increase in gains recognized on the sale of equity securities in 2013 compared to 2012.
Other Income
Upon completion, the Company recognized a gain of $414,000 on the bargain purchase of three former Genuardi locations in the Delaware Valley region of Pennsylvania, from Safeway Inc., in the second quarter of 2012.
Provision for Income Taxes
The effective income tax rate was 35.1%, 38.1% and 37.0% in 2014, 2013 and 2012, respectively. In 2014, pre-tax book income decreased significantly. Tax exempt interest and dividends eligible for a dividends received deduction increased, causing an increase to the net favorable permanent differences. The combination of the decrease to net income before taxes and increase to the net favorable permanent differences resulted in a drop in the effective rate for 2014. The rate increased starting in 2012 due to the decrease in the domestic production deduction also referred to as the Section 199 deduction. The qualifying manufacturing sales decreased during 2012 resulting in a sizeable provision to return adjustment which results in a higher effective tax rate. The effective income tax rate differs from the federal statutory rate of 35% primarily due to the effect of state taxes, net of permanent differences.
16
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Liquidity and Capital Resources
Net cash provided by operating activities was $123.1 million in 2014, compared to $142.6 million in 2013 and $124.0 million in 2012. In 2013, management implemented new inventory control buying procedures that increased distribution center efficiencies. Under these new buying procedures, the distribution center inventory level decreased an average of $9.8 million per period during 2014 compared to 2013 and $7.0 million during the last nine fiscal months of 2013 compared to the same period in 2012. The Company's overall inventory level only decreased by $811,000 in 2014 compared to 2013 and $4.8 million in 2013 compared to 2012 as a result of holding more inventory at year end for the holidays and the addition of larger stores during each year. Working capital increased 5.8% in 2014, decreased 7.9% in 2013 and increased 2.7% in 2012, in each case compared to the prior year. The 2014 working capital increase is primarily attributed to the lower investment in the Company’s capital expansion program during 2014 compared to the previous years. Whereas, the 2013 decrease in working capital is primarily due to the utilization of marketable securities to fund the Company’s capital expansion program.
Net cash used in investing activities was $85.8 million in 2014 compared to $106.8 million in 2013 and $107.8 million in 2012. These funds were used primarily to purchase marketable securities and property and equipment in the three fiscal years presented. While the Company purchased marketable securities in all three years presented, the Company’s net marketable securities transactions resulted in the purchase of $8.4 million in 2014, compared to the disposal of $18.7 million in 2013 and the sale of $6.2 million in 2012. Property and equipment purchases totaled $79.2 million in 2014, compared to $128.1 million in 2013 and $115.9 million in 2012, which included the acquisition of a business in 2012. The Company acquired three former Genuardi stores for $6.1 million in 2012. As a percentage of sales, capital expenditures including the acquisition were 2.9%, 4.8% and 4.3% in 2014, 2013 and 2012, respectively. Proceeds from the sale of property and equipment decreased $837,000 in 2014 compared to 2013 despite the sale of properties in each of the first and third quarters of 2014 for a total of $2.8 million. Proceeds from the sale of property and equipment increased $1.9 million in 2013 compared to 2012, primarily due to the sale of two properties for $3.2 million in the second quarter of 2013.
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 estimates that its current development plans will require an investment of approximately $91.8 million in 2015.
Net cash used in financing activities was $32.3 million in 2014, 2013 and 2012, which solely consisted of dividend payments to shareholders. At December 27, 2014, the Company had outstanding letters of credit of $19.9 million. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company. The Company does not anticipate drawing on any of them.
Total cash dividend payments on common stock, on a per share basis, amounted to $1.20 in 2014, 2013 and 2012. No treasury stock was purchased in 2014, 2013 or 2012. The Board of Directors’ 2004 resolution authorizing the repurchase of up to one million shares of the Company’s common stock has a remaining balance of 752,468 shares.
The Company has no other commitment of capital resources as of December 27, 2014, other than the lease commitments on its store facilities under operating leases that expire at various dates through 2029. The Company anticipates funding its working capital requirements and its $91.8 million capital expansion program through cash and investment reserves and future internally generated cash flows from operations.
17
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Liquidity and Capital Resources (continued)
The Company’s earnings and cash flows are subject to fluctuations due to changes in interest rates as they relate to available-for-sale securities and any future long-term debt borrowings. The Company’s marketable securities portfolio currently consists of municipal bonds and equity securities. Other short-term investments are classified as cash equivalents on the Consolidated Balance Sheets.
Under its current policies, the Company invests in high-grade marketable debt securities and does not use interest rate derivative instruments to manage exposure to interest rate fluctuations. Currently, the Company’s investment strategy of obtaining marketable debt securities with maturity dates between one and ten years helps to minimize market risk and to maintain a balance between risk and return. The equity securities owned by the Company consist primarily of stock held in large capitalized companies trading on public security exchange markets. The Company’s management continually monitors the risk associated with its marketable securities. A quantitative tabular presentation of risk exposure is located in “Item 7a. Quantitative and Qualitative Disclosures about Market Risk” of this report.
By their nature, these financial instruments inherently expose the holders to market risk. The extent of the Company’s interest rate and other market risk is not quantifiable or predictable with precision due to the variability of future interest rates and other changes in market conditions. However, the Company believes that its exposure in this area is not material.
The Company experienced an unrealized holding gain net of deferred taxes of $927,000 in 2014 and unrealized holding losses net of deferred taxes of $36,000 in 2013 and $9,000 in 2012 (see Consolidated Statements of Comprehensive Income). As of December 27, 2014, the Company had $8.3 million in gross unrealized holding gains and $96,000 in gross unrealized holding losses related to marketable securities. See Note 2 Marketable Securities, of Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information on the Company’s marketable securities.
Contractual Obligations
The following table represents scheduled maturities of the Company’s long-term contractual obligations as of December 27, 2014.
Payments due by period |
||||||||||
Less than |
More than |
|||||||||
(dollars in thousands) |
Total |
1 year |
1-3 years |
3-5 years |
5 years |
|||||
Operating leases |
$ |
199,974 |
$ |
32,826 |
$ |
58,593 |
$ |
43,258 |
$ |
65,297 |
Total |
$ |
199,974 |
$ |
32,826 |
$ |
58,593 |
$ |
43,258 |
$ |
65,297 |
Off-Balance Sheet Arrangements
The Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, results of operations or cash flows, except for the possibility that the Financial Accounting Standards Board could require the Company's store leases to be recognized on the balance sheet.
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. In the first quarter of 2012, the Company changed its accounting policy for the depreciation of property and equipment. See Note 1 (j) to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information on the Company’s change in accounting estimate related to depreciation expense.
18
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Critical Accounting Policies and Estimates (continued)
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that the Company makes estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. The Company evaluates these estimates and assumptions on an ongoing basis and may retain outside consultants, lawyers and actuaries to assist in its evaluation. The Company believes the following accounting policies are the most critical because they involve the most significant judgments and estimates used in preparation of its consolidated financial statements.
Inventories
Inventories are valued at the lower of cost or market, using both the last-in, first-out (LIFO) and average cost methods. The Company’s center store and pharmacy inventories are valued using LIFO and the Company’s fresh inventories are valued using average cost. The Company evaluates inventory shortages throughout the year based on actual physical counts in its facilities. Allowances for inventory shortages are recorded based on the results of these counts and to provide for estimated shortages from the last physical count to the financial statement date.
Property and Equipment
In the first quarter of 2012, the Company changed its accounting policy for property and equipment. Property and equipment continue to be recorded at cost. Prior to January 1, 2012, the Company provided for depreciation of buildings and improvements and equipment using accelerated methods. Effective January 1, 2012, the Company changed its method of depreciation for this group of assets from the accelerated methods to straight-line. Management deemed the change preferable because the straight-line method will more accurately reflect the pattern of usage and the expected benefits of such assets. Management also considered that the change will provide greater consistency with the depreciation methods used by other companies in the Company's industry. The change was accounted for as a change in accounting estimate effected by a change in accounting principle. The net book value of assets acquired prior to January 1, 2012 with useful lives remaining will be depreciated using the straight-line method prospectively. If the Company had continued using accelerated methods, depreciation expense would have been $11.5 million greater in 2012. Had accelerated methods continued to be used, after considering the impact of income taxes, the effect would decrease net income by $6.8 million or $.25 per share in 2012.
Leasehold improvements are unaffected by the change noted above. Leasehold improvements continue to be amortized using the straight line method over the terms of the leases or the useful lives of the assets, whichever is shorter.
Maintenance and repairs are expensed and renewals and betterments are capitalized. When assets are retired or otherwise disposed of, the assets and accumulated depreciation are removed from the respective accounts and any profit or loss on the disposition is credited or charged to “Operating, general and administrative expenses.”
Goodwill and Intangible Assets
Intangible assets with an indefinite useful life are not amortized until their useful life is determined to be no longer indefinite and are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill is not amortized but tested for impairment for each reporting unit on an annual basis and between annual tests in certain circumstances.
To derive the fair value of the Company’s sole reporting unit, the Company uses an income approach along with an analysis of its stock value. Under the income approach, fair value of a reporting unit is determined based on estimated future cash flows discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of the Company. Estimated future cash flows are based on the Company’s internal projection model. The stock value evaluation consists of measuring the average market capitalization of the Company against its total asset value of its sole reporting unit. The Company completes an impairment test annually. See Note 1(l) to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information on the Company’s impairment of long-lived assets.
19
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Critical Accounting Policies and Estimates (continued)
Revenue Recognition
Revenue from the sale of products to the Company’s customers is recognized at the point of sale. Discounts provided to customers at the point of sale through the Weis Club Preferred Shopper loyalty program are recognized as a reduction in sales as products are sold. Periodically, the Company will run a point based sales incentive program that rewards customers with future sales discounts. The Company makes reasonable and reliable estimates of the amount of future discounts based upon historical experience and its customer data tracking software. Sales are reduced by these estimates over the life of the program. Discounts to customers at the point of sale provided by vendors, usually in the form of paper coupons, are not recognized as a reduction in sales provided the discounts are redeemable at any retailer that accepts those discounts. The Company records “Deferred revenue” for the sale of gift cards and revenue is recognized in “Net sales” at the time of customer redemption for products. Gift card breakage income is recognized in “Operating, general and administrative expenses” based upon historical redemption patterns and represents the balance of gift cards for which the Company believes the likelihood of redemption by the customer is remote. Sales tax is excluded from “Net sales.” The Company charges sales tax on all taxable customer purchases and remits these taxes monthly to the appropriate taxing jurisdiction. Merchandise return activity is immaterial to revenues due to products being returned quickly and the unit cost is relatively low.
Vendor Allowances
Vendor allowances related to the Company's buying and merchandising activities are recorded as a reduction of cost of sales as they are earned, in accordance with the underlying agreement. Off-invoice and bill-back allowances are used to reduce direct product costs upon the receipt of goods. Promotional rebates and credits are accounted for as a reduction in the cost of inventory and recognized when the related inventory is sold. Volume incentive discounts are realized as a reduction of cost of sales at the time it is deemed probable and reasonably estimable that the incentive target will be reached. Long-term contract incentives, which require an exclusive vendor relationship, are allocated over the life of the contract. Promotional allowance funds for specific vendor-sponsored programs are recognized as a reduction of cost of sales as the program occurs and the funds are earned per the agreement. Cash discounts for prompt payment of invoices are realized in cost of sales as invoices are paid. Warehouse and back-haul allowances provided by suppliers for distributing their product through the Company’s distribution system are recorded in cost of sales as the required performance is completed. Warehouse rack and slotting allowances are recorded in cost of sales when new items are initially set up in the Company's distribution system, which is when the related expenses are incurred and performance under the agreement is complete. Swell allowances for damaged goods are realized in cost of sales as provided by the supplier, helping to offset product shrink losses also recorded in cost of sales.
Store Closing Costs
The Company provides for closed store liabilities relating to the estimated post-closing lease liabilities and related other exit costs associated with the store closing commitments. The closed store liabilities are usually paid over the lease terms associated with the closed stores having remaining terms ranging from one to four years. At December 27, 2014, closed store lease liabilities totaled $955,000. 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 subtenants and actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which 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. 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. Store closing liabilities are reviewed quarterly to ensure that any accrued amount that is no longer needed for its originally intended purpose is reversed to income in the proper period.
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 workers’ compensation claims is determined based on historical data and an estimate of claims incurred but not reported. The other self-insurance liabilities 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 $750,000 per member prior to March 1, 2012, $1,250,000 per member prior to March 1, 2013, $2,000,000 per member prior to March 1, 2014 and an unlimited amount per member as of March 1, 2014. As of March 1, 2014, the Company purchased stop loss insurance which carries a $500,000 specific deductible with a $250,000 aggregating deductible. The Company is liable for workers' compensation claims up to $2,000,000 per claim. Property and casualty insurance coverage is maintained with outside carriers at deductible or retention levels ranging from $100,000 to $1,000,000. Significant assumptions used in the development of the actuarial estimates include reliance on the Company’s historical claims data including average monthly claims and average lag time between incurrence and reporting of the claim.
20
WEIS MARKETS, INC.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)
Forward-Looking Statements
In addition to historical information, this Annual Report may contain forward-looking statements, which are included pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. For example, risks and uncertainties can arise with changes in: general economic conditions, including their impact on capital expenditures; business conditions in the retail industry; the regulatory environment; rapidly changing technology and competitive factors, including increased competition with regional and national retailers; and price pressures. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents the Company files periodically with the Securities and Exchange Commission.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk:
(dollars in thousands) |
Expected Maturity Dates |
Fair Value |
|||||||||||||||||||||
December 27, 2014 |
2015 |
2016 |
2017 |
2018 | 2019 |
Thereafter |
Total |
Dec. 27, 2014 |
|||||||||||||||
Rate sensitive assets: |
|||||||||||||||||||||||
Fixed interest rate securities |
$ |
5,200 |
$ |
14,625 |
$ |
12,535 |
$ |
9,450 |
$ |
4,275 |
$ |
13,565 |
$ |
59,650 |
$ |
66,078 | |||||||
Average interest rate |
3.17 |
% |
1.24 |
% |
1.64 |
% |
2.54 |
% |
1.84 |
% |
2.71 |
% |
2.15 |
% |
Other Relevant Market Risks
The Company’s equity securities at December 27, 2014 had a cost basis of $1,198,000 and a fair value of $7,881,000. The dividend yield realized on these equity investments was 8.43% in 2014. Market risk, as it relates to equities owned by the Company, is discussed within the “Liquidity and Capital Resources” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained within this report.
21
Item 8. Financial Statements and Supplementary Data:
WEIS MARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands) |
|||||
December 27, 2014 and December 28, 2013 |
2014 |
2013 |
|||
Assets |
|||||
Current: |
|||||
Cash and cash equivalents |
$ |
22,986 |
$ |
17,965 | |
Marketable securities |
73,959 | 63,093 | |||
SERP investment |
9,121 | 8,752 | |||
Accounts receivable, net |
70,642 | 57,193 | |||
Inventories |
239,641 | 240,452 | |||
Prepaid expenses and other current assets |
17,432 | 17,293 | |||
Income taxes recoverable |
612 |
- |
|||
Total current assets |
434,393 | 404,748 | |||
Property and equipment, net |
716,860 | 704,985 | |||
Goodwill |
35,162 | 35,162 | |||
Intangible and other assets, net |
4,704 | 3,347 | |||
Total assets |
$ |
1,191,119 |
$ |
1,148,242 | |
Liabilities |
|||||
Current: |
|||||
Accounts payable |
$ |
144,812 |
$ |
133,568 | |
Accrued expenses |
34,590 | 27,416 | |||
Accrued self-insurance |
18,695 | 19,333 | |||
Deferred revenue, net |
6,720 | 7,056 | |||
Income taxes payable |
- |
1,628 | |||
Deferred income taxes |
5,800 | 4,219 | |||
Total current liabilities |
210,617 | 193,220 | |||
Postretirement benefit obligations |
18,672 | 17,101 | |||
Deferred income taxes |
100,756 | 97,934 | |||
Other |
3,242 | 5,934 | |||
Total liabilities |
333,287 | 314,189 | |||
Shareholders’ Equity |
|||||
Common stock, no par value, 100,800,000 shares authorized, 33,047,807 shares issued, |
|||||
26,898,443 shares outstanding |
9,949 | 9,949 | |||
Retained earnings |
993,911 | 971,022 | |||
Accumulated other comprehensive income, net |
4,829 | 3,939 | |||
1,008,689 | 984,910 | ||||
Treasury stock at cost, 6,149,364 shares |
(150,857) | (150,857) | |||
Total shareholders’ equity |
857,832 | 834,053 | |||
Total liabilities and shareholders’ equity |
$ |
1,191,119 |
$ |
1,148,242 |
See accompanying notes to consolidated financial statements.
22
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except shares and per share amounts) |
||||||||
For the Fiscal Years Ended December 27, 2014, |
2014 |
2013 |
2012 |
|||||
December 28, 2013 and December 29, 2012 |
(52 weeks) |
(52 weeks) |
(52 weeks) |
|||||
Net sales |
$ |
2,776,683 |
$ |
2,692,588 |
$ |
2,701,405 | ||
Cost of sales, including warehousing and distribution expenses |
2,023,721 | 1,947,120 | 1,958,852 | |||||
Gross profit on sales |
752,962 | 745,468 | 742,553 | |||||
Operating, general and administrative expenses |
670,251 | 634,286 | 615,521 | |||||
Income from operations |
82,711 | 111,182 | 127,032 | |||||
Investment income |
2,287 | 4,684 | 3,468 | |||||
Other income |
- |
- |
414 | |||||
Income before provision for income taxes |
84,998 | 115,866 | 130,914 | |||||
Provision for income taxes |
29,831 | 44,145 | 48,403 | |||||
Net income |
$ |
55,167 |
$ |
71,721 |
$ |
82,511 | ||
Weighted-average shares outstanding, basic and diluted |
26,898,443 | 26,898,443 | 26,898,443 | |||||
Cash dividends per share |
$ |
1.20 |
$ |
1.20 |
$ |
1.20 | ||
Basic and diluted earnings per share |
$ |
2.05 |
$ |
2.67 |
$ |
3.07 |
See accompanying notes to consolidated financial statements.
23
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands) |
||||||||
For the Fiscal Years Ended December 27, 2014, |
2014 |
2013 |
2012 |
|||||
December 28, 2013 and December 29, 2012 |
(52 weeks) |
(52 weeks) |
(52 weeks) |
|||||
Net income |
$ |
55,167 |
$ |
71,721 |
$ |
82,511 | ||
Other comprehensive income (loss) by component, net of tax: |
||||||||
Available-for-sale marketable securities |
||||||||
Unrealized holding gains (losses) arising during period |
||||||||
(Net of deferred taxes of $644, $23 and $0, respectively) |
927 | (36) | (9) | |||||
Reclassification adjustment for gains included in net income |
||||||||
(Net of deferred taxes of $26, $730 and $293, respectively) |
(37) | (1,044) | (420) | |||||
Other comprehensive income (loss), net of tax |
890 | (1,080) | (429) | |||||
Comprehensive income, net of tax |
$ |
56,057 |
$ |
70,641 |
$ |
82,082 |
See accompanying notes to consolidated financial statements.
24
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Accumulated |
|||||||||||||
(dollars in thousands, except shares) |
Other |
Total |
|||||||||||
For the Fiscal Years Ended December 27, 2014, |
Common Stock |
Retained |
Comprehensive |
Treasury Stock |
Shareholders’ |
||||||||
December 28, 2013 and December 29, 2012 |
Shares |
Amount |
Earnings |
Income (Loss) |
Shares |
Amount |
Equity |
||||||
Balance at December 31, 2011 |
33,047,807 |
$ |
9,949 |
$ |
881,346 |
$ |
5,448 | 6,149,364 |
$ |
(150,857) |
$ |
745,886 | |
Net income |
— |
— |
82,511 |
— |
— |
— |
82,511 | ||||||
Other comprehensive loss, net of |
|||||||||||||
reclassification adjustments and tax |
— |
— |
— |
(429) |
— |
— |
(429) | ||||||
Dividends paid |
— |
— |
(32,278) |
— |
— |
— |
(32,278) | ||||||
Balance at December 29, 2012 |
33,047,807 | 9,949 | 931,579 | 5,019 | 6,149,364 | (150,857) | 795,690 | ||||||
Net income |
— |
— |
71,721 |
— |
— |
— |
71,721 | ||||||
Other comprehensive loss, net of |
|||||||||||||
reclassification adjustments and tax |
— |
— |
— |
(1,080) |
— |
— |
(1,080) | ||||||
Dividends paid |
— |
— |
(32,278) |
— |
— |
— |
(32,278) | ||||||
Balance at December 28, 2013 |
33,047,807 | 9,949 | 971,022 | 3,939 | 6,149,364 | (150,857) | 834,053 | ||||||
Net income |
— |
— |
55,167 |
— |
— |
— |
55,167 | ||||||
Other comprehensive income, net of |
|||||||||||||
reclassification adjustments and tax |
— |
— |
— |
890 |
— |
— |
890 | ||||||
Dividends paid |
— |
— |
(32,278) |
— |
— |
— |
(32,278) | ||||||
Balance at December 27, 2014 |
33,047,807 |
$ |
9,949 |
$ |
993,911 |
$ |
4,829 | 6,149,364 |
$ |
(150,857) |
$ |
857,832 |
See accompanying notes to consolidated financial statements.
25
WEIS MARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands) |
||||||
For the Fiscal Years Ended December 27, 2014, |
2014 |
2013 |
2012 |
|||
December 28, 2013 and December 29, 2012 |
(52 weeks) |
(52 weeks) |
(52 weeks) |
|||
Cash flows from operating activities: |
||||||
Net income |
$ |
55,167 |
$ |
71,721 |
$ |
82,511 |
Adjustments to reconcile net income to |
||||||
net cash provided by operating activities: |
||||||
Depreciation |
59,004 | 51,068 | 44,153 | |||
Amortization |
7,865 | 7,207 | 6,498 | |||
Gain on disposition of fixed assets |
(2,630) | (2,033) | (1,407) | |||
Impairment of fixed assets |
- |
2,088 |
- |
|||
Gain on sale of marketable securities |
(63) | (1,775) | (713) | |||
Gain on sale intangible assets |
- |
(780) |
- |
|||
Gain on acquisition of business |
- |
- |
(414) | |||
Deferred income taxes |
3,785 | 10,377 | 15,611 | |||
Changes in operating assets and liabilities: |
||||||
Inventories |
811 | 4,791 | (17,936) | |||
Accounts receivable, prepaid expenses and other current assets |
(13,588) | (10,512) | (2,569) | |||
Income taxes recoverable |
(612) |
- |
1,226 | |||
Accounts payable and other liabilities |
15,894 | 9,546 | (5,045) | |||
Income taxes payable |
(1,628) | 269 | 1,359 | |||
Other |
(895) | 665 | 687 | |||
Net cash provided by operating activities |
123,110 | 142,632 | 123,961 | |||
Cash flows from investing activities: |
||||||
Purchase of property and equipment |
(79,177) | (128,055) | (109,774) | |||
Proceeds from the sale of property and equipment |
3,614 | 4,451 | 2,542 | |||
Purchase of marketable securities |
(20,118) | (12,635) | (13,790) | |||
Proceeds from maturities of marketable securities |
4,050 | 1,150 |
- |
|||
Proceeds from the sale of marketable securities |
7,668 | 30,170 | 19,941 | |||
Acquisition of business |
- |
- |
(6,116) | |||
Purchase of intangible assets |
(1,479) | (937) | (439) | |||
Proceeds from the sale of intangible assets |
- |
780 |
- |
|||
Change in SERP investment |
(369) | (1,694) | (165) | |||
Net cash used in investing activities |
(85,811) | (106,770) | (107,801) | |||
Cash flows from financing activities: |
||||||
Dividends paid |
(32,278) | (32,278) | (32,278) | |||
Net cash used in financing activities |
(32,278) | (32,278) | (32,278) | |||
Net increase (decrease) in cash and cash equivalents |
5,021 | 3,584 | (16,118) | |||
Cash and cash equivalents at beginning of year |
17,965 | 14,381 | 30,499 | |||
Cash and cash equivalents at end of year |
$ |
22,986 |
$ |
17,965 |
$ |
14,381 |
See accompanying notes to consolidated financial statements.
26
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 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 2014.
(b) Definition of Fiscal Year
The Company’s fiscal year ends on the last Saturday in December. Fiscal 2014 was comprised of 52 weeks, ending on December 27, 2014. Fiscal 2013 was comprised of 52 weeks, ending on December 28, 2013. Fiscal 2012 was comprised of 52 weeks, ending on December 29, 2012. 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) Correction for Immaterial Prior Period Misstatements
The Company corrected the $8.8 million balance related to “SERP investment” (consisting of level 1 mutual funds) by removing it from “Cash and cash equivalents” in the 2013 Consolidated Balance Sheet. The opening cash impact on the 2012 Consolidated Statement of Cash Flows was $6.9 million and the change to investing activities in 2012 was immaterial. The Company also corrected the “Loss (gain) on disposition/impairment of fixed assets” originally reported as a net loss of $55,000 in the 2013 Consolidated Statement of Cash Flows into the “Gain on disposition of fixed assets” of $2.0 million and the “Impairment of fixed assets” of $2.1 million. There is no cash impact on the 2013 Consolidated Statement of Cash Flows related to this change, since both line items still net to the originally reported $55,000.
(f) 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 27, 2014 and December 28, 2013 totaled $14.4 million and $7.2 million, respectively.
(g) 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, are excluded from earnings and are reported as a separate component of shareholders’ equity until realized. 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.
(h) Accounts Receivable
Accounts receivable are stated net of an allowance for uncollectible accounts of $1,578,000 and $1,882,000 as of December 27, 2014 and December 28, 2013, respectively. The reserve balance relates to amounts due from pharmacy third party providers, retail customer returned checks, manufacturing customers, vendors and tenants. The Company maintains an allowance for the amount of receivables deemed to be uncollectible and calculates this amount based upon historical collection activity adjusted for current conditions. Customer electronic payments accepted at the point of sale are classified as accounts receivable until collected.
27
WEIS MARKETS, INC.
Note 1 Summary of Significant Accounting Policies (continued)
(i) Inventories
Inventories are valued at the lower of cost or market, using both the last-in, first-out (LIFO) and average cost methods. The Company’s center store and pharmacy inventories are valued using LIFO and the Company’s fresh inventories are valued using average cost. The Company evaluates inventory shortages throughout the year based on actual physical counts in its facilities. Allowances for inventory shortages are recorded based on the results of these counts and to provide for estimated shortages from the last physical count to the financial statement date.
(j) Property and Equipment
In the first quarter of 2012, the Company changed its accounting policy for property and equipment. Property and equipment continue to be recorded at cost. Prior to January 1, 2012, the Company provided for depreciation of buildings and improvements and equipment using accelerated methods. Effective January 1, 2012, the Company changed its method of depreciation for this group of assets from the accelerated methods to straight-line. Management deemed the change preferable because the straight-line method will more accurately reflect the pattern of usage and the expected benefits of such assets. Management also considered that the change will provide greater consistency with the depreciation methods used by other companies in the Company's industry. The change was accounted for as a change in accounting estimate effected by a change in accounting principle. The net book value of assets acquired prior to January 1, 2012 with useful lives remaining will be depreciated using the straight-line method prospectively. If the Company had continued using accelerated methods, depreciation expense would have been $11.5 million greater in 2012. Had accelerated methods continued to be used, after considering the impact of income taxes, the effect would decrease net income by $6.8 million or $.25 per share in 2012.
Leasehold improvements are unaffected by the change noted above. Leasehold improvements continue to be 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.”
(k) Goodwill and Intangible Assets
Intangible assets with an indefinite useful life are not amortized until their useful life is determined to be no longer indefinite and are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill is not amortized but tested for impairment for each reporting unit on an annual basis and between annual tests in certain circumstances.
To derive the fair value of the Company’s sole reporting unit, the Company uses an income approach along with an analysis of its stock value. Under the income approach, fair value of a reporting unit is determined based on estimated future cash flows discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of the Company. Estimated future cash flows are based on the Company’s internal projection model. The stock value evaluation consists of measuring the average market capitalization of the Company against its total asset value of its sole reporting unit. The Company completes an impairment test annually. See Note 1(l) to the Consolidated Financial Statements included in this Annual Report on Form 10-K for more information on the Company’s impairment of long-lived assets.
28
WEIS MARKETS, INC.
Note 1 Summary of Significant Accounting Policies (continued)
(k) Goodwill and Intangible Assets (continued)
The Company’s intangible assets and related accumulated amortization at December 27, 2014 and December 28, 2013 consisted of the following:
December 27, 2014 |
December 28, 2013 |
|||||||||||
Accumulated |
Accumulated |
|||||||||||
(dollars in thousands) |
Gross |
Amortization |
Net |
Gross |
Amortization |
Net |
||||||
Lease Acquisitions |
$ |
3,654 |
$ |
2,418 |
$ |
1,236 |
$ |
3,654 |
$ |
2,235 |
$ |
1,419 |
Liquor Licenses |
3,358 |
- |
3,358 | 1,879 | 65 | 1,814 | ||||||
Customer Lists |
120 | 10 | 110 | 120 | 6 | 114 | ||||||
Total |
$ |
7,132 |
$ |
2,428 |
$ |
4,704 |
$ |
5,653 |
$ |
2,306 |
$ |
3,347 |
Intangible assets with a definite useful life are generally amortized on a straight-line basis over periods ranging from 15 to 30 years. Estimated amortization expense for the next five fiscal years is approximately $189,000 in 2015, $189,000 in 2016, $189,000 in 2017, $189,000 in 2018 and $189,000 in 2019. As of December 27, 2014, the Company’s intangible assets with indefinite lives consisted of goodwill and Pennsylvania 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 expected discounted future cash flows.
With respect to owned property and equipment associated with closed stores, the value of the property and equipment is adjusted to reflect recoverable values based on the Company’s prior history of disposing of similar assets and current economic conditions.
In accordance with Accounting Standards Codification No. 360, Property, Plant and Equipment, the Company recorded a pre-tax charge of $2.1 million in the third quarter of 2013 for the impairment of long-lived assets, including equipment and leasehold improvements. The charge was a result of management determining that the net book value of four properties was impaired. 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.
(m) Store Closing Costs
The Company provides for closed store liabilities relating to the estimated post-closing lease liabilities and related other exit costs associated with the store closing commitments. Currently, closed stores have remaining lease terms ranging from one to four years, and the liabilities associated with these closed store leases are paid over the terms of the lease. Closed store lease liabilities totaled $955,000 and $1,193,000 as of December 27, 2014 and December 28, 2013, respectively. The Company estimates the lease liabilities, net of estimated sublease income, using the undiscounted rent payments of closed stores. Adjustments to closed store liabilities 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 change becomes known. Store closing liabilities are reviewed quarterly to ensure that any accrued amount that is not a sufficient estimate of future costs, or that no longer is needed for its originally intended purpose, is adjusted to income in the proper period.
29
WEIS MARKETS, INC.
Note 1 Summary of Significant Accounting Policies (continued)
(m) Store Closing Costs (continued)
The following table summarizes accrual activity for future lease obligations of stores that were closed in the normal course of business:
Future Lease |
|||
(dollars in thousands) |
Obligations |
||
Balance at December 29, 2012 |
$ |
635 | |
Additions |
680 | ||
Payments |
(33) | ||
Adjustments |
(89) | ||
Balance at December 28, 2013 |
1,193 | ||
Additions |
119 | ||
Payments |
(375) | ||
Adjustments |
18 | ||
Balance at December 27, 2014 |
$ |
955 |
(n) Self-Insurance
The Company is self-insured for a majority of its workers’ compensation, general liability, vehicle accident and associate medical benefit claims. Self-insurance costs are accrued based upon the aggregate of the liability for reported claims and an estimated liability for claims incurred but not reported. The Company was liable for associate health claims up to an annual maximum of $750,000 per member prior to March 1, 2012, $1,250,000 per member prior to March 1, 2013, $2,000,000 per member prior to March 1, 2014 and an unlimited amount per member as of March 1, 2014. As of March 1, 2014, the Company purchased stop loss insurance which carries a $500,000 specific deductible with a $250,000 aggregating deductible. The Company is liable for workers' compensation claims up to $2,000,000 per claim. Property and casualty insurance coverage is maintained with outside carriers at deductible or retention levels ranging from $100,000 to $1,000,000.
(o) 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.
(p) Earnings Per Share
Earnings per share are based on the weighted-average number of common shares outstanding.
(q) Revenue Recognition
Revenue from the sale of products to the Company’s customers is recognized at the point of sale. Discounts provided to customers at the point of sale through the Weis Club Preferred Shopper loyalty program are recognized as a reduction in sales as products are sold. Periodically, the Company will run a point based sales incentive program that rewards customers with future sales discounts. The Company makes reasonable and reliable estimates of the amount of future discounts based upon historical experience and its customer data tracking software. Sales are reduced by these estimates over the life of the program. Discounts to customers at the point of sale provided by vendors, usually in the form of paper coupons, are not recognized as a reduction in sales provided the discounts are redeemable at any retailer that accepts those discounts. The Company records “Deferred revenue” for the sale of gift cards and revenue is recognized in “Net sales” at the time of customer redemption for products. Gift card breakage income is recognized in “Operating, general and administrative expenses” based upon historical redemption patterns and represents the balance of gift cards for which the Company believes the likelihood of redemption by the customer is remote. Sales tax is excluded from “Net sales.” The Company charges sales tax on all taxable customer purchases and remits these taxes monthly to the appropriate taxing jurisdiction. Merchandise return activity is immaterial to revenues due to products being returned quickly and the unit cost is relatively low.
30
WEIS MARKETS, INC.
Note 1 Summary of Significant Accounting Policies (continued)
(r) Cost of Sales, Including Warehousing and Distribution Expenses
“Cost of sales, including warehousing and distribution expenses” consists of direct product (net of discounts and allowances), distribution center and transportation costs, as well as manufacturing facility operations.
(s) Vendor Allowances
Vendor allowances that relate to the Company's buying and merchandising activities are recorded as a reduction of cost of sales as they are earned, in accordance with the underlying agreement. Off-invoice and bill-back allowances are used to reduce direct product costs upon the receipt of goods. Promotional rebates and credits are accounted for as a reduction in the cost of inventory and recognized when the related inventory is sold. Volume incentive discounts are realized as a reduction of cost of sales at the time it is deemed probable and reasonably estimable that the incentive target will be reached. Long-term contract incentives, which require an exclusive vendor relationship, are allocated over the life of the contract. Promotional allowance funds for specific vendor-sponsored programs are recognized as a reduction of cost of sales as the program occurs and the funds are earned per the agreement. Cash discounts for prompt payment of invoices are realized in cost of sales as invoices are paid. Warehouse and back-haul allowances provided by suppliers for distributing their product through the Company’s distribution system are recorded in cost of sales as the required performance is completed. Warehouse rack and slotting allowances are recorded in cost of sales when new items are initially set up in the Company's distribution system, which is when the related expenses are incurred and performance under the agreement is complete. Swell allowances for damaged goods are realized in cost of sales as provided by the supplier, helping to offset product shrink losses also recorded in cost of sales.
Vendor allowances recorded as credits in cost of sales totaled $89.5 million in 2014, $76.4 million in 2013 and $75.1 million in 2012. Vendor paid cooperative advertising credits totaled $16.0 million in 2014, $16.0 million in 2013 and $16.4 million in 2012. These credits were netted against advertising costs within “Operating, general and administrative expenses.” The Company had accounts receivable due from vendors of $395,000 and $440,000 for earned advertising credits and $5.7 million and $5.8 million for earned promotional discounts as of December 27, 2014 and December 28, 2013, respectively. The Company had $734,000 and $911,000 in unearned income included in accrued liabilities for unearned vendor programs under long-term contracts for display and shelf space allocation as of December 27, 2014 and December 28, 2013, respectively.
(t) Operating, General and Administrative Expenses
Business operating costs including expenses generated from administration and purchasing functions, are recorded in “Operating, general and administrative expenses” in the Consolidated Statements of Income. Business operating costs include items such as wages, benefits, utilities, repairs and maintenance, advertising costs and credits, rent, insurance, equipment depreciation, leasehold amortization and costs for outside provided services.
(u) Advertising Costs
The Company expenses advertising costs as incurred. The Company recorded advertising expense, before vendor paid cooperative advertising credits, of $24.6 million in 2014, $23.5 million in 2013 and $23.5 million in 2012 in “Operating, general and administrative expenses.”
(v) Rental 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.
31
WEIS MARKETS, INC.
Note 1 Summary of Significant Accounting Policies (continued)
(w) 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), which amended the existing accounting standards for revenue recognition. ASU 2014-09 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. The standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements.
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 amends guidance on reporting discontinued operations only if the disposal of a component of an entity or group of components of an entity represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. It also allows companies to have significant continuing involvement and continuing cash flows with the discontinued operations. Additional disclosures are also required for discontinued operations and individually material disposal transactions that do not meet the definition of a discontinued operation. The standard should be applied prospectively for all disposals of components of an entity and for all businesses that, on acquisition, are classified as held for sale that occurred within annual periods beginning on or after December 15, 2014, including interim periods within that reporting period. The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40)(Topic 718): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and to provide related footnote disclosures. The new requirements are effective for the annual periods ending after December 15, 2016, and for interim periods and annual periods thereafter. Early adoption is permitted. Adoption of the new ASU will not have an impact on the Company’s consolidated financial statements.
32
WEIS MARKETS, INC.
Note 2 Marketable Securities
The Company’s marketable securities are all classified as available-for-sale. 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 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 brokerage 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. In addition, the Company engaged an independent firm to value a sample of the Company’s municipal bond holdings in order to validate the investment’s assigned fair value.
Marketable securities, as of December 27, 2014 and December 28, 2013, consisted of:
Gross |
Gross |
|||||||
(dollars in thousands) |
Amortized |
Unrealized |
Unrealized |
Fair |
||||
December 27, 2014 |
Cost |
Holding Gains |
Holding Losses |
Value |
||||
Available-for-sale: |
||||||||
Level 1 |
||||||||
Equity securities |
$ |
1,198 |
$ |
6,683 |
$ |
- |
$ |
7,881 |
Level 2 |
||||||||
Municipal bonds |
64,561 | 1,613 | (96) | 66,078 | ||||
$ |
65,759 |
$ |
8,296 |
$ |
(96) |
$ |
73,959 |
Gross |
Gross |
|||||||
(dollars in thousands) |
Amortized |
Unrealized |
Unrealized |
Fair |
||||
December 28, 2013 |
Cost |
Holding Gains |
Holding Losses |
Value |
||||
Available-for-sale: |
||||||||
Level 1 |
||||||||
Equity securities |
$ |
970 |
$ |
7,239 |
$ |
- |
$ |
8,209 |
Level 2 |
||||||||
Municipal bonds |
55,431 | 686 | (1,233) | 54,884 | ||||
$ |
56,401 |
$ |
7,925 |
$ |
(1,233) |
$ |
63,093 |
Maturities of marketable securities classified as available-for-sale at December 27, 2014, were as follows:
Amortized |
Fair |
|||
(dollars in thousands) |
Cost |
Value |
||
Available-for-sale: |
||||
Due within one year |
$ |
1,875 |
$ |
1,912 |
Due after one year through five years |
46,613 | 47,740 | ||
Due after five years through ten years |
16,073 | 16,426 | ||
Equity securities |
1,198 | 7,881 | ||
$ |
65,759 |
$ |
73,959 |
33
WEIS MARKETS, INC.
Note 3 Inventories
Merchandise inventories, as of December 27, 2014 and December 28, 2013, were valued as follows:
(dollars in thousands) |
2014 |
2013 |
||
LIFO |
$ |
193,621 |
$ |
187,178 |
Average cost |
46,020 | 53,274 | ||
$ |
239,641 |
$ |
240,452 |
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 $79,933,000 and $79,022,000 higher than as reported on the above methods as of December 27, 2014 and December 28, 2013, respectively. During 2013, 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 27, 2014 and December 28, 2013, consisted of:
Useful Life |
|||||
(dollars in thousands) |
(in years) |
2014 |
2013 |
||
Land |
$ |
103,240 |
$ |
97,906 | |
Buildings and improvements |
10-60 |
544,309 | 527,789 | ||
Equipment |
3-12 |
911,169 | 874,008 | ||
Leasehold improvements |
5-20 |
193,842 | 184,995 | ||
Total, at cost |
1,752,560 | 1,684,698 | |||
Less accumulated depreciation and amortization |
1,035,700 | 979,713 | |||
$ |
716,860 |
$ |
704,985 |
Note 5 Lease Commitments
At December 27, 2014, the Company leased approximately 50% of its open store facilities under operating leases that expire at various dates through 2029. 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.
Rent expense and income on all leases consisted of:
(dollars in thousands) |
2014 |
2013 |
2012 |
|||
Minimum annual rentals |
$ |
35,183 |
$ |
32,817 |
$ |
30,141 |
Contingent rentals |
409 | 386 | 134 | |||
Lease or sublease income |
(6,881) | (6,452) | (6,352) | |||
$ |
28,711 |
$ |
26,751 |
$ |
23,923 |
34
WEIS MARKETS, INC.
Note 5 Lease Commitments (continued)
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 27, 2014.
(dollars in thousands) |
Leases |
Subleases |
||
2015 |
$ |
32,826 |
$ |
(2,962) |
2016 |
31,619 | (2,796) | ||
2017 |
26,974 | (2,261) | ||
2018 |
24,073 | (1,621) | ||
2019 |
19,185 | (855) | ||
Thereafter |
65,297 | (2,478) | ||
$ |
199,974 |
$ |
(12,973) |
The Company has $455,000 accrued as of December 27, 2014 and had $521,000 accrued as of December 28, 2013, for future minimum rental payments due on previously closed stores, reduced by the estimated sublease income to be received. The future minimum rental payments required under operating leases and estimated sublease income for these locations are included in the above schedule.
Note 6 Retirement Plans
The Company has a contributory retirement savings plan, the Weis Markets, Inc. Retirement Savings Plan, covering substantially all full-time associates. The Company had a noncontributory profit-sharing plan, the Weis Markets, Inc. Profit Sharing Plan, covering eligible associates which included certain salaried associates, store management and administrative support personnel. Effective December 1, 2009, the Weis Markets, Inc. Profit Sharing Plan was merged into the Weis Markets, Inc. Retirement Savings Plan. The Company also has three supplemental retirement plans covering highly compensated employees of the Company. The Company’s policy is to fund all qualified retirement plan costs as accrued, but not supplemental retirement costs. Employer contributions to the qualified retirement plans are made at the sole discretion of the Company.
Retirement plan costs:
(dollars in thousands) |
2014 |
2013 |
2012 |
|||
Retirement savings plan |
$ |
1,752 |
$ |
1,715 |
$ |
1,560 |
Profit-sharing plan |
1,258 | 1,750 | 1,650 | |||
Deferred compensation plan |
1,328 | 126 | 291 | |||
Supplemental retirement plan |
1,061 | 2,025 | 1,105 | |||
Pharmacist deferred compensation plan |
(228) | 178 | 198 | |||
$ |
5,171 |
$ |
5,794 |
$ |
4,804 |
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. The benefits are determined through actuarial calculations dependent on the age of the recipient, using an assumed discount rate. The Company deems the discount rate to be consistent over time with the rate of return on equity for the Company due to funding the total liability with Company assets. The plan is unfunded and accounted for on an accrual basis. The projected benefit obligations are equal to the liability for pension benefits included in “Accrued expenses” and “Postretirement benefit obligations” in the Consolidated Balance Sheets.
35
WEIS MARKETS, INC.
Note 6 Retirement Plans (continued)
Change in the benefit obligations:
(dollars in thousands) |
2014 |
2013 |
||
Benefit obligations at beginning of year |
$ |
7,800 |
$ |
7,726 |
Interest cost |
581 | 575 | ||
Benefit payments |
(51) | (51) | ||
Actuarial loss (gain) |
747 | (450) | ||
$ |
9,077 |
$ |
7,800 |
Weighted-average assumptions used to determine benefit obligations: |
2014 |
2013 |
||
Discount rate |
7.50% |
7.50% |
Components of net periodic benefit cost:
(dollars in thousands) |
2014 |
2013 |
2012 |
|||
Interest cost |
$ |
581 |
$ |
575 |
$ |
557 |
Amount of recognized (loss) gain |
(696) | 501 | 318 |
Estimated future benefit payments:
(dollars in thousands) |
Benefits |
|
2015 |
$ |
51 |
2016 |
1,929 | |
2017 |
1,929 | |
2018 |
1,929 | |
2019 |
1,929 | |
2020 - 2024 |
9,643 |
The Company also maintains a non-qualified supplemental executive retirement plan and a non-qualified pharmacist deferred compensation plan for certain of its associates. These plans are designed to provide retirement benefits and salary deferral opportunities because of limitations imposed by the Internal Revenue Code and the Regulations implemented by the Internal Revenue Service. These plans are unfunded and accounted for on an accrual basis. Participants in these plans 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 does exist for participants in these plans. The present value of accumulated benefits amounted to $9,646,000 and $9,352,000 at December 27, 2014 and December 28, 2013, respectively, and is included in “Postretirement benefit obligations” in the Consolidated Balance Sheets.
The Company has no other postretirement benefit plans.
36
WEIS MARKETS, INC.
Note 7 Accumulated Other Comprehensive Income
All balances in accumulated other comprehensive income are related to available-for-sale marketable securities. The following table sets forth the balance of the Company’s accumulated other comprehensive income, net of tax.
Unrealized Gains |
||
on Available-for-Sale |
||
(dollars in thousands) |
Marketable Securities |
|
Accumulated other comprehensive income balance as of December 29, 2012 |
$ |
5,019 |
Other comprehensive loss before reclassifications |
(36) | |
Amounts reclassified from accumulated other comprehensive income |
(1,044) | |
Net current period other comprehensive loss |
(1,080) | |
Accumulated other comprehensive income balance as of December 28, 2013 |
$ |
3,939 |
Other comprehensive income before reclassifications |
927 | |
Amounts reclassified from accumulated other comprehensive income |
(37) | |
Net current period other comprehensive income |
890 | |
Accumulated other comprehensive income balance as of December 27, 2014 |
$ |
4,829 |
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 27, 2014, December 28, 2013 and December 29, 2012.
Gains (Losses) Reclassified from |
|||||||
Accumulated Other Comprehensive Income to the |
|||||||
Consolidated Statements of Income |
|||||||
(dollars in thousands) |
Location |
2014 |
2013 |
2012 |
|||
Unrealized gains on available-for-sale marketable securities |
|||||||
Investment income |
$ |
63 |
$ |
1,774 |
$ |
713 | |
Provision for income taxes |
(26) | (730) | (293) | ||||
Total amount reclassified, net of tax |
$ |
37 |
$ |
1,044 |
$ |
420 |
37
WEIS MARKETS, INC.
Note 8 Income Taxes
The provision (benefit) for income taxes consists of:
(dollars in thousands) |
2014 |
2013 |
2012 |
|||
Current: |
||||||
Federal |
$ |
24,809 |
$ |
26,994 |
$ |
30,258 |
State |
1,237 | 6,774 | 2,534 | |||
Deferred: |
||||||
Federal |
2,686 | 8,184 | 12,107 | |||
State |
1,099 | 2,193 | 3,504 | |||
$ |
29,831 |
$ |
44,145 |
$ |
48,403 |
The reconciliation of income taxes computed at the federal statutory rate (35% in 2014, 2013 and 2012) to the provision for income taxes is:
(dollars in thousands) |
2014 |
2013 |
2012 |
|||
Income taxes at federal statutory rate |
$ |
29,749 |
$ |
40,553 |
$ |
45,820 |
State income taxes, net of federal income tax benefit |
1,519 | 5,828 | 3,925 | |||
Other |
(1,437) | (2,236) | (1,342) | |||
Provision for income taxes (effective tax rate 35.1%, 38.1% and 37.0%, respectively) |
$ |
29,831 |
$ |
44,145 |
$ |
48,403 |
Cash paid for federal income taxes was $25,000,000, $26,350,000 and $27,500,000 in 2014, 2013 and 2012 respectively.
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 27, 2014 and December 28, 2013, are:
(dollars in thousands) |
2014 |
2013 |
||
Deferred tax assets: |
||||
Accounts receivable |
$ |
615 |
$ |
585 |
Compensated absences |
362 | 403 | ||
Long term employment incentives |
1,161 | 2,785 | ||
Employee benefit plans |
3,771 | 4,221 | ||
General liability insurance |
1,344 | 1,223 | ||
Postretirement benefit obligations |
7,676 | 7,037 | ||
Net operating loss carryforwards |
6,218 | 5,736 | ||
Other |
1,358 |
- |
||
Total deferred tax assets |
22,505 | 21,990 | ||
Deferred tax liabilities: |
||||
Inventories |
(7,459) | (6,809) | ||
Unrealized gains on marketable securities |
(3,371) | (2,753) | ||
Nondeductible accruals and other |
(6,522) | (4,745) | ||
Depreciation |
(111,709) | (109,836) | ||
Total deferred tax liabilities |
(129,061) | (124,143) | ||
Net deferred tax liability |
$ |
(106,556) |
$ |
(102,153) |
Current deferred liability - net |
$ |
(5,800) |
$ |
(4,219) |
Noncurrent deferred liability - net |
(100,756) | (97,934) | ||
Net deferred tax liability |
$ |
(106,556) |
$ |
(102,153) |
38
WEIS MARKETS, INC.
Note 8 Income Taxes (continued)
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
(dollars in thousands) |
2014 |
2013 |
||
Unrecognized tax benefits at beginning of year |
$ |
- |
$ |
225 |
Increases based on tax positions related to the current year |
- |
- |
||
Additions for tax positions of prior year |
- |
- |
||
Reductions for tax positions of prior years |
- |
- |
||
Settlements |
- |
(225) | ||
Expiration of the statute of limitations for assessment of taxes |
- |
- |
||
Unrecognized tax benefits at end of year |
$ |
- |
$ |
- |
During 2013, the Company completed a final settlement with a state taxing authority resulting in a $225,000 state tax benefit net of Federal income taxes.
The Company’s U.S. Federal income tax filings have been examined by the Internal Revenue Service through 2008. The Company or one of its subsidiaries files tax returns in various states. The tax years subject to examination in Pennsylvania, where the majority of the Company's revenues are generated, are 2011 to 2014.
The Company has net operating loss carryforwards of $95.5 million available for state income tax purposes. The net operating losses will begin to expire starting in 2027. The Company expects to fully utilize these net operating loss carryforwards.
Note 9 Acquisition of Business
Fiscal 2014 Acquisitions
There were no acquisitions for fiscal 2014.
Fiscal 2013 Acquisitions
There were no acquisitions for fiscal 2013.
Fiscal 2012 Acquisitions
On June 11, 2012, Weis Markets, Inc. acquired three former Genuardi’s stores located in Conshohocken, Doylestown and Norristown, Pennsylvania from Safeway Inc. Weis Markets, Inc. acquired the store locations and operations of these three former Genuardi’s stores in an effort to establish its retail presence in the Delaware Valley. The results of operations of the three former Genuardi’s stores are included in the accompanying consolidated financial statements from the date of acquisition. The three former Genuardi’s stores contributed $22.1 million to sales in 2012.
The cash purchase price paid to Safeway Inc. was $6.1 million. The Company recognized a gain of $414,000 on the bargain purchase. The purchased assets include inventories, equipment and intangible assets. Weis Markets, Inc. assumed all three lease obligations of the former Genuardi’s stores.
The following table summarizes the fair values of the assets acquired at the date of acquisition.
(dollars in thousands) |
June 11, 2012 |
|
Inventories |
$ |
1,116 |
Equipment |
5,294 | |
Intangible assets |
120 | |
Total assets acquired |
$ |
6,530 |
39
WEIS MARKETS, INC.
Note 10 Summary of Quarterly Results (Unaudited)
Quarterly financial data for 2014 and 2013 are as follows:
(dollars in thousands, except per share amounts) |
Thirteen Weeks Ended |
|||||||
March 29, 2014 |
June 28, 2014 |
September 27, 2014 |
December 27, 2014 |
|||||
Net sales |
$ |
687,127 |
$ |
691,875 |
$ |
683,893 |
$ |
713,788 |
Gross profit on sales |
186,768 | 187,724 | 185,677 | 192,793 | ||||
Net income |
14,766 | 12,798 | 13,707 | 13,896 | ||||
Basic and diluted earnings per share |
.55 |
.48 |
.51 |
.51 |
(dollars in thousands, except per share amounts) |
Thirteen Weeks Ended |
|||||||
March 30, 2013 |
June 29, 2013 |
September 28, 2013 |
December 28, 2013 |
|||||
Net sales |
$ |
682,712 |
$ |
662,072 |
$ |
661,412 |
$ |
686,392 |
Gross profit on sales |
191,127 | 190,322 | 182,763 | 181,256 | ||||
Net income |
20,129 | 24,179 | 11,692 | 15,721 | ||||
Basic and diluted earnings per share |
.75 |
.90 |
.43 |
.59 |
Note 11 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.
Note 12 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 past 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.
40
WEIS MARKETS, INC.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Weis Markets, Inc.
We have audited the accompanying consolidated balance sheet of Weis Markets, Inc. as of December 27, 2014 and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for the period then ended. Our audit also included the financial statement schedule listed in the index at Item 15(c)(3). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Weis Markets, Inc. at December 27, 2014, and the consolidated results of its operations and its cash flows for the period then ended, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Weis Markets, Inc.’s internal control over financial reporting as of December 27, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated March 12, 2015 expressed an unqualified opinion thereon.
/S/Ernst & Young LLP
Philadelphia, Pennsylvania
March 12, 2015
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders of
Weis Markets, Inc.
We have audited Weis Markets Inc.’s internal control over financial reporting as of December 27, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Weis Markets, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
41
WEIS MARKETS, INC.
Report of Independent Registered Public Accounting Firm (continued)
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Weis Markets, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 27, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Weis Markets, Inc. as of December 27, 2014, and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for the period then ended of Weis Markets, Inc. and our report dated March 12, 2015 expressed an unqualified opinion thereon.
/S/Ernst & Young LLP
Philadelphia, Pennsylvania
March 12, 2015
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Weis Markets, Inc.
We have audited the accompanying consolidated balance sheet of Weis Markets, Inc. (a Pennsylvania corporation) and subsidiaries (the “Company”) as of December 28, 2013 and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the two years in the periods ended December 28, 2013, and December 29, 2012, (52 weeks, and 52 weeks, respectively). Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15(c)(3). These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Weis Markets, Inc. and subsidiaries as of December 28, 2013, and the results of their operations and their cash flows for each of the two years in the periods ended December 28, 2013, and December 29, 2012 (52 weeks, and 52 weeks, respectively) in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/S/Grant Thornton LLP
Philadelphia, Pennsylvania
March 12, 2015
42
WEIS MARKETS, INC.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure:
None.
Item 9a. Controls and Procedures:
Management’s Report on Disclosure Controls and Procedures
The Chief Executive Officer and the Chief Financial Officer of the Company (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of the close of the period covered by this Report, that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management's Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements. In making its assessment of internal control over financial reporting, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (1992 framework). All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
With the participation of the Chief Executive Officer and the Chief Financial Officer, management concluded that the Company’s internal control over financial reporting was effective as of December 27, 2014.
The independent registered public accounting firm of Ernst & Young LLP that has audited the Consolidated Financial Statements included in this Annual Report on Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting as of December 27, 2014. The report can be found in Item 8 of this Form 10-K.
43
WEIS MARKETS, INC.
Item 9a. Controls and Procedures: (continued)
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the fiscal quarter ended December 27, 2014, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
There was no information required on Form 8-K during this quarter that was not reported.
Item 10. Directors, Executive Officers and Corporate Governance:
In addition to the information reported in Part I of this Form 10-K under the caption “Executive Officers of the Registrant,” “Election of Directors,” “Board Committees and Meeting Attendance, Audit Committee,” “Corporate Governance Matters,” “Compensation Tables” and “Stock Ownership, Section 16(a) Beneficial Ownership Reporting Compliance” of the Weis Markets, Inc. definitive proxy statement dated March 12, 2015 are incorporated herein by reference.
Item 11. Executive Compensation:
“Board Committees and Meeting Attendance, Compensation Committee,” “Executive Compensation, Compensation Discussion and Analysis,” “Compensation Committee Report,” “Compensation Tables” and “Other Information Concerning the Board of Directors, Compensation Committee Interlocks and Insider Participation” of the Weis Markets, Inc. definitive proxy statement dated March 12, 2015 are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters:
“Stock Ownership” of the Weis Markets, Inc. definitive proxy statement dated March 12, 2015 is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence:
“Other Information Concerning the Board of Directors, Review and Approval of Related Party Transactions” and “Independence of Directors” of the Weis Markets, Inc. definitive proxy statement dated March 12, 2015 are incorporated herein by reference.
Item 14. Principal Accounting Fees and Services:
“Ratification Of Appointment Of Independent Registered Public Accounting Firm” of the Weis Markets, Inc. definitive proxy statement dated March 12, 2015 is incorporated herein by reference.
44
WEIS MARKETS, INC.
Item 15. Exhibits, Financial Statement Schedules:
(a)(1) The Company’s 2014 Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm are included in Item 8 of Part II.
Financial Statements |
Page |
Consolidated Balance Sheets |
22 |
Consolidated Statements of Income |
23 |
Consolidated Statements of Comprehensive Income |
24 |
Consolidated Statements of Shareholders’ Equity |
25 |
Consolidated Statements of Cash Flows |
26 |
Notes to Consolidated Financial Statements |
27 |
Report of Independent Registered Public Accounting Firm |
41 |
(a)(2) Financial statement schedules required to be filed by Item 8 of this form, and by Item 15(c)(3) below:
Schedule II - Valuation and Qualifying Accounts, page 47 of this annual report on Form 10-K
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
45
WEIS MARKETS, INC.
Item 15. Exhibits, Financial Statement Schedules: (continued)
(a)(3) A listing of exhibits filed or incorporated by reference is as follows:
Exhibit No. |
Exhibits |
3-A |
Articles of Incorporation, filed as exhibit 4.1 in Form S-8 on September 13, 2002 and incorporated herein by reference. |
3-B |
By-Laws, filed as exhibit under Part IV, Item 14(c) in the annual report on Form 10-K for the fiscal year ended December 29, 2001 and incorporated herein by reference. |
10-A |
Retirement Savings Plan, amended September 22, 2014 and filed with this annual report on Form 10-K. |
10-B |
Supplemental Executive Retirement Plan, filed as exhibit under Part IV, Item 15(a)(3) in the annual report on Form 10-K for the fiscal year ended December 31, 2011 and incorporated herein by reference. * |
10-C |
Deferred Compensation Plan for Pharmacists, filed as exhibit under Part IV, Item 15(a)(3) in the annual report on Form 10-K for the fiscal year ended December 26, 2009 and incorporated herein by reference. |
10-D |
Executive Benefits Agreement between the Company and Robert F. Weis, Chairman of the Board, signed on March 24, 2006, commencing immediately and continuing thereafter through December 31, 2023, filed on Form 8-K March 24, 2006 and incorporated herein by reference. * |
10-E |
Deferred Compensation Agreement between the Company and Mr. Robert F. Weis, filed as exhibit under Part IV, Item 15(a)(3) in the annual report on Form 10-K for the fiscal year ended December 26, 2009 and incorporated herein by reference. * |
10-F |
Executive Employment Agreement between the Company and Jonathan H. Weis, Vice Chairman, President and Chief Executive Officer, signed on July 14, 2014, with retroactive effect to January 1, 2014 and continuing thereafter through December 31, 2016, filed as Exhibit 10.1 to Form 8-K July 18, 2014 and incorporated herein by reference. * |
10-G |
Executive Employment Agreement between the Company and Jonathan H. Weis, Vice Chairman, President and Chief Executive Officer, signed on November 3, 2011, with retroactive effect to July 1, 2011 and continuing thereafter through December 31, 2016, filed as Exhibit 10.1 to Form 8-K November 8, 2011 and incorporated herein by reference. * |
10-H |
Chief Executive Office Incentive Award Plan between the Company and Jonathan H. Weis, Chairman, President and Chief Executive Officer, effective July 1, 2011, amended and restated effective as of January 1, 2014 and continuing thereafter through December 31, 2016, filed as Exhibit 10.2 to Form 8-K July 18, 2014 and incorporated herein by reference. * |
10-I |
Vice Chairman Incentive Award Plan between the Company and Jonathan H. Weis, Vice Chairman, President and Chief Executive Officer, signed on November 3, 2011, with retroactive effect to July 1, 2011 and continuing thereafter through December 31, 2016, filed as Exhibit 10.2 to Form 8-K November 8, 2011 and incorporated herein by reference. * |
10-J |
Confidential Separation Agreement and General Release between the Company and David J. Hepfinger, Former President and Chief Executive Officer, signed on September 21, 2013, filed as Exhibit 10.1 to Form 10-Q November 7, 2013 and incorporated herein by reference. * |
10-K |
Executive Employment Agreement between the Company and David J. Hepfinger, Former President and Chief Executive Officer, signed on March 8, 2013, with retroactive effect to March 1, 2013 and continuing thereafter through February 28, 2018, filed as Exhibit 10.1 to Form 8-K March 13, 2013 and incorporated herein by reference. * |
10-L |
Executive Employment Agreement between the Company and David J. Hepfinger, Former President and Chief Executive Officer, signed on October 26, 2010, with retroactive effect to March 1, 2010 and continuing thereafter through February 28, 2013, filed as Exhibit 10.1 to Form 8-K November 1, 2010 and incorporated herein by reference. * |
10-M |
CEO Incentive Award Plan between the Company and David J. Hepfinger, Former President and Chief Executive Officer, signed on October 26, 2010, with retroactive effect to January 1, 2010 and continuing thereafter through December 31, 2014, filed as Exhibit 10.2 to Form 8-K November 1, 2010 and incorporated herein by reference. * |
21 |
Subsidiaries of the Registrant, filed with this annual report on Form 10-K |
31.1 |
Rule 13a-14(a) Certification - CEO, filed with this annual report on Form 10-K |
31.2 |
Rule 13a-14(a) Certification - CFO, filed with this annual report on Form 10-K |
32 |
Certification Pursuant to 18 U.S.C. Section 1350, filed with this annual report on Form 10-K |
* Management contract or compensatory plan arrangement.
The Company will provide a copy of any exhibit upon receipt of a written request for the particular exhibit or exhibits desired. All requests should be addressed to the Company’s principal executive offices.
(b) The Company files as exhibits to this annual report on Form 10-K, those exhibits listed in Item 15(a)(3) above.
46
WEIS MARKETS, INC.
Item 15(c)(3). Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts:
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
WEIS MARKETS, INC.
(dollars in thousands)
Col. A |
Col. B |
Col. C |
Col. D |
Col. E |
||||||
Additions |
||||||||||
Balance at |
Charged to |
Charged to |
Balance at |
|||||||
Beginning |
Costs and |
Accounts |
Deductions |
End of |
||||||
Description |
of Period |
Expenses |
Describe |
Describe (1) |
Period |
|||||
Fiscal Year ended December 27, 2014: |
||||||||||
Deducted from asset accounts: |
||||||||||
Allowance for uncollectible accounts |
$ |
1,882 |
$ |
577 |
$ |
--- |
$ |
881 |
$ |
1,578 |
Fiscal Year ended December 28, 2013: |
||||||||||
Deducted from asset accounts: |
||||||||||
Allowance for uncollectible accounts |
$ |
1,526 |
$ |
1,320 |
$ |
--- |
$ |
964 |
$ |
1,882 |
Fiscal Year ended December 29, 2012: |
||||||||||
Deducted from asset accounts: |
||||||||||
Allowance for uncollectible accounts |
$ |
1,415 |
$ |
2,456 |
$ |
--- |
$ |
2,345 |
$ |
1,526 |
(1) Deductions are uncollectible accounts written off, net of recoveries.
47
WEIS MARKETS, INC.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WEIS MARKETS, INC. |
|
(Registrant) |
|
Date 03/12/2015 |
/S/Jonathan H. Weis |
Jonathan H. Weis |
|
Vice Chairman, |
|
President and Chief Executive Officer |
|
and Director |
|
(principal executive officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date 03/12/2015 |
/S/Robert F. Weis |
Robert F. Weis |
|
Chairman of the Board of Directors |
|
Date 03/12/2015 |
S/Jonathan H. Weis |
Jonathan H. Weis |
|
Vice Chairman, |
|
President and Chief Executive Officer |
|
and Director (principal executive officer) |
|
Date 03/12/2015 |
/S/Scott F. Frost |
Scott F. Frost |
|
Senior Vice President, Chief Financial Officer |
|
and Treasurer |
|
(principal financial officer) |
|
Date 03/12/2015 |
/S/Harold G. Graber |
Harold G. Graber |
|
Senior Vice President of Real Estate and Development and Secretary |
|
and Director |
|
Date 03/12/2015 |
/S/Edward J. Lauth III |
Edward J. Lauth III |
|
Director |
|
Date 03/12/2015 |
/S/Gerrald B. Silverman |
Gerrald B. Silverman |
|
Director |
|
Date 03/12/2015 |
/S/Glenn D. Steele Jr. |
Glenn D. Steele Jr. |
|
Director |
|
Date 03/12/2015 |
/S/Jeanette R. Rogers |
Jeanette R. Rogers |
|
Corporate Controller |
|
(principal accounting officer) |
|
48
Copyright © 2006 by
Conrad Siegel
Actuaries
|
1
|
(a)
|
Code means the Internal
Revenue Code of 1986, as it may be amended from time to
time.
|
(b)
|
ERISA means the Employee
Retirement Income Security Act of 1974, as
amended.
|
(a)
|
Compensation means,
except as provided in Section 1.2(b) hereof, any earnings reportable
as W-2 wages for federal income tax withholding purposes and earned
income, plus elective contributions, for the determination
period. For this purpose, the determination period is the plan
year. Such earnings shall include any amount contributed to a
Roth elective deferral account under this or any other qualified
plan. However, compensation shall not include any earnings
reportable as W-2 wages that are payable following the termination of
employment pursuant to a severance
agreement.
|
|
·
|
A
cafeteria plan (excludable under Code section 125 and as provided in
Section 5.1(c)(2));
|
|
·
|
A
Code section 401(k) arrangement (excludable under Code
section 402(e)(3));
|
|
·
|
A
simplified employee pension (excludable under Code
section 402(h));
|
|
·
|
A
tax sheltered annuity (excludable under Code
section 403(b));
|
|
·
|
A
deferred compensation plan excludable under Code section 457(b);
or
|
|
·
|
A
Code section 132(f)(4) qualified transportation fringe benefit
plan.
|
(b)
|
Exclusions From
Compensation – Notwithstanding the provisions of
Section 1.2(a), the following types of remuneration shall be excluded
from the participant’s
compensation:
|
|
·
|
Meal
Allowances
|
|
·
|
Auto
Personal Use
|
|
·
|
Sick
Pay
|
|
·
|
Stock
Appreciation Rights
|
|
·
|
Bonuses
|
|
·
|
Compensation
in excess of $22,000 for Pharmacists with less than 10 years of
service.
|
|
·
|
Compensation
in excess of $24,000 for Pharmacists with 10 or more years of
service.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
2
|
(c)
|
Limitations on
Compensation – For any plan year beginning after
December 31, 2001, the plan administrator shall take into
account only the first $200,000 (as adjusted for cost-of-living
increases in accordance with Code section 401(a)(17)(B) for plan
years beginning on or after January 1, 2003) of any
participant's annual compensation for determining all benefits provided
under the plan. If compensation for any prior determination
period is taken into account in determining a participant's allocations
for the current plan year, the compensation for such prior determination
period is subject to the applicable annual compensation limit in effect
for that prior period. For any plan year beginning after
December 31, 1993 but before January 1, 2002, the plan
administrator shall take into account only the first $150,000 (or, for
plan years beginning after December 31, 1994 but before
January 1, 2002, such larger amount as the Commissioner of
Internal Revenue may prescribe) of any participant's compensation for
determining all benefits provided under the plan. The
compensation dollar limitation for a plan year shall be the limitation
amount in effect on January 1 of the calendar year in which the plan
year begins. Annual compensation means compensation during the
plan year or such other 12-consecutive-month period over which
compensation is otherwise determined under the plan (the determination
period for purposes of Section 1.2). If the plan should
determine compensation on a period of time that contains less than
12 calendar months (such as for a short plan year), the annual
compensation dollar limitation shall be an amount equal to the
compensation dollar limitation for the plan year multiplied by the ratio
obtained by dividing the number of full months in the period
by 12.
|
(d)
|
Compensation for
Nondiscrimination Testing – For purposes of determining whether the
plan discriminates in favor of highly compensated employees, compensation
means compensation as defined in this Section 1.2, except that the
employer will not give effect to any exclusion from compensation specified
in Section 1.2(b).
|
(e)
|
Compensation for Compliance
with Section 5.5 – For purposes of conducting the actual
deferral percentage test or the actual contribution percentage test,
compensation means compensation as defined in Section 1.2(a) for the
entire determination period.
|
(a)
|
Accounting Date means
the date(s) on which investment results are allocated to participants’
accounts as set forth below:
|
|
·
|
With
respect to investment funds for which there is a daily market value, the
investment results shall be allocated on a daily basis. For
this purpose, daily means as of each business day on which the New York
Stock Exchange is open. The accounting date for dividends that
accrue on a daily basis but are paid monthly shall be the dividend
distribution date. The last day of each quarter shall be an
investment allocation date for all other
investments.
|
(b)
|
Allocation Date means
the date(s) as of which any contribution is allocated to participants'
accounts.
|
(c)
|
The
Effective Date of
the plan is July 1, 1994.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
3
|
Provision
|
Effective Date
|
|
Section
1.2(b) Exclusions from Compensation
|
December
1, 2009
|
|
Section
1.3(a) Accounting Date
|
October
1, 2009
|
|
Section
1.3(b) Allocation Date
|
October
1, 2009
|
|
Section
1.10(c)(3) Predecessor Service
|
October
1, 2009
|
|
Section
2.2 Plan Participation
|
December
1, 2009
|
|
Sections
3.2 and 3.2(A)
|
December
1, 2009
|
|
Section
3.6(c) Conditions for Allocations
|
October
1, 2009
|
|
Section
3.8(b) Investment Elections
|
October
1, 2009
|
|
Section
4.2(a)(6)(A) Profit Sharing Account
|
December
1, 2009
|
|
Section
4.2(c)(1) Profit Sharing Account
|
December
1, 2009
|
|
Section
4.3(a)(3) Payment Upon Other Termination of Employment
|
October
1, 2009
|
|
Section
4.3(b) Form of Payment
|
October
1, 2009
|
|
Section
4.3(c)(1) General Payment Provisions
|
October
1, 2009
|
|
Section
4.4(a) Withdrawals
|
December
1, 2009
|
(d)
|
Plan Entry Date means
the participation date(s) specified in
Article II.
|
(e)
|
Plan Year means the
12-consecutive-month period beginning on January 1 and ending on
December 31.
|
|
(f)
|
Limitation Year means
the 12-consecutive-month period beginning on January 1 and ending on
December 31.
|
(a)
|
(1)
|
Employee means any
person employed by the employer, including an owner-employee or other
self-employed individual (as defined in
Section 1.4(a)(3)). The term employee shall include any
employee of the employer as defined in Section 1.5(b). The
term employee shall also include any leased employee deemed to be an
employee of any such employer as provided in Code section 414(n) or
(o) and as defined in
Section 1.4(a)(2).
|
|
(2)
|
Leased Employee means an
individual (who otherwise is not an employee of the employer) who,
pursuant to a leasing agreement between the employer and any other person,
has performed services for the employer (or for the employer and any
persons related to the employer within the meaning of Code
section 414(n)(6)) on a substantially full time basis for at least
one year and such services are performed under the primary direction or
control of the employer. If a leased employee is treated as an
employee by reason of this Section 1.4(a)(2), compensation from the
leasing organization that is attributable to services performed for the
employer shall be considered as compensation under the
plan. Contributions or benefits provided a leased employee by
the leasing organization that are attributable to services performed for
the employer shall be treated as provided by the
employer.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
4
|
|
(3)
|
Owner-Employee/Self-Employed
Individual – Owner-employee means a self-employed individual who is
a sole proprietor (if the employer is a sole proprietorship) or who is a
partner (if the employer is a partnership) owning more than 10% of either
the capital or profits interest of the
partnership. Self-employed individual means an individual who
has earned income for the taxable year from the trade or business for
which the plan is established, or who would have had earned income but for
the fact that the trade or business had no net profits for the taxable
year.
|
(b)
|
Highly Compensated
Employee means any employee
who:
|
|
(1)
|
was
a more than 5% owner of the employer (applying the constructive ownership
rules of Code section 318, and applying the principles of Code
section 318, for an unincorporated entity) at any time during the
current plan year or the look-back year;
or
|
|
(2)
|
for
the look-back year –
|
|
(A)
|
had
compensation from the employer (as defined under Section 1.5(b)) in
excess of $80,000 (as adjusted by the Commissioner of Internal Revenue
pursuant to Code section 415(d), except that the base period shall be
the calendar quarter ending September 30, 1996),
and
|
|
(B)
|
if
the employer elects the application of this Subparagraph for such
look-back year, was in the top-paid group of employees for such look-back
year. For this purpose, an employee is in the top-paid group of
employees for any look-back year if such employee is in the group
consisting of the top 20% of the employees when ranked on the basis of
compensation paid during such look-back
year.
|
(c)
|
Nonhighly Compensated
Employee means any employee who is not a highly compensated
employee.
|
(a)
|
Employer means Weis
Markets, Inc. or any successor entity by merger, purchase, consolidation,
or otherwise; or an organization affiliated with the employer that may
assume the obligations of this plan with respect to its employees by
becoming a party to this plan. Another employer, whether or not
it is affiliated with the sponsor employer, may adopt this plan to cover
its employees by filing with the sponsor employer a written resolution
adopting the plan, upon which the sponsor employer shall indicate its
acceptance of such employer as an employer under the plan. Each
such employer shall be deemed to be the employer only as to persons who
are on its payroll.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
5
|
(b)
|
Employer for Compliance
Testing – For purposes of determining whether the plan satisfies
the participation coverage requirements of Code section 410(b) and
the limitations on benefits and allocations under Code section 415,
employer shall mean the employer that adopts this plan as set forth in
Section 1.5(a), and all members of a controlled group of corporations
(as defined in Code section 414(b)), all commonly controlled trades
or businesses (as defined in Code section 414(c)) or affiliated
service groups (as defined in Code section 414(m)) of which the
adopting employer is a part, and any other entity required to be
aggregated with the employer pursuant to regulations under Code
section 414(o).
|
(a)
|
Named Fiduciary means
the person or persons having fiduciary responsibility for the management
and control of plan assets.
|
(b)
|
Plan Administrator means the
person or persons appointed by the named fiduciary to administer the
plan.
|
(c)
|
Trustee means the
trustee named in the trust agreement executed pursuant to this plan, or
any duly appointed successor
trustee.
|
(d)
|
Investment Manager means
a person or corporation other than the trustee appointed for the
investment of plan assets.
|
(a)
|
Participant means an
eligible employee of the employer who becomes a member of the plan
pursuant to the provisions of Article II, or a former employee who
has an accrued benefit under the plan. A participant shall be
treated as benefiting under the plan for any plan year during which the
participant received or is deemed to receive an allocation in accordance
with Regulation
section 1.410(b)-3(a).
|
(b)
|
Beneficiary means a
person designated by a participant who is or may become entitled to a
benefit under the plan. A beneficiary who becomes entitled to a
benefit under the plan remains a beneficiary under the plan until the
trustee has fully distributed his benefit to him. A
beneficiary's right to (and the plan administrator's, or a trustee's duty
to provide to the beneficiary) information or data concerning the plan
shall not arise until he first becomes entitled to receive a benefit under
the plan.
|
(c)
|
Spouse means the person
of the opposite sex married to the participant at the time of the
determination and as further defined by section 3 of the Defense of
Marriage Act, 1 U.S.C. § 7
(1996).
|
(d)
|
Dependent means a
dependent as defined by Code section 152 without regard to
section 152(d)(1)(B).
|
(a)
|
Profit Sharing Account
means the balance of the separate account derived from employer’s profit
sharing contributions, including forfeitures (if any) (if so provided
under Section 3.2).
|
(b)
|
Qualified Nonelective
Contribution Account means the balance of the separate account
derived from employer's qualified nonelective contributions (if so
provided under Section 3.3).
|
(c)
|
Employee 401(k) Elective
Deferral Account means the balance of the separate account derived
from the participant's 401(k) elective deferrals (if so provided under
Section 3.4).
|
(d)
|
Employee Nondeductible
Contribution Account means the balance of the separate account
derived from the participant’s non-deductible employee contributions (if
so provided under
Section 3.5).
|
(e)
|
Employer Matching Contribution
Account means the balance of the separate account derived from
employer's matching contributions (if so provided under
Section 3.6).
|
|
(f)
|
Qualified Employer Matching
Contribution Account means the balance of the separate account
derived from employer's qualified matching contributions (if so provided
under Section 3.6).
|
(g)
|
Rollover/Transfer
Account means the balance of the separate account derived from
rollover contributions and/or transfer contributions (if so provided under
Section 3.7).
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
6
|
(h)
|
Accrued Benefit means
the total of the participant’s account balances as of the accounting date
falling on or before the day on which the accrued benefit is being
determined.
|
(a)
|
Service means any period
of time the employee is in the employ of the employer, including any
period the employee is on an unpaid leave of absence authorized by the
employer under a uniform, nondiscriminatory policy applicable to all
employees. Separation from service means that the employee no
longer has an employment relationship with the
employer.
|
(b)
|
(1)
|
Hour of Service
means:
|
|
(A)
|
Each
hour for which an employee is paid, or entitled to payment, for the
performance of duties for the employer. These hours shall be
credited to the employee for the computation period in which the duties
are performed; and
|
|
(B)
|
Each
hour for which an employee is paid, or entitled to payment, by the
employer on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty, or leave of
absence. No more than 501 hours of service shall be
credited under this Subparagraph (B) for any single continuous period
(whether or not such period occurs in a single computation
period). An hour of service shall not be credited to an
employee under this Subparagraph (B) if the employee is paid, or
entitled to payment, under a plan maintained solely for the purpose of
complying with applicable worker's compensation or unemployment
compensation or disability insurance laws. Hours under this
Subparagraph (B) shall be calculated and credited pursuant to
section 2530.200b-2 of the Department of Labor Regulations that are
incorporated herein by this reference;
and
|
|
(C)
|
Each
hour for which back pay, irrespective of mitigation of damages, is either
awarded or agreed to by the employer. The same hours of service
shall not be credited both under Subparagraph (A) or
Subparagraph (B), as the case may be, and under this
Subparagraph (C). These hours shall be credited to the
employee for the computation period or periods to which the award or
agreement pertains rather than the computation period in which the award,
agreement, or payment is made.
|
Basis
Upon Which Records
Are
Maintained
|
Credit
Granted to Individual if Individual Earns One
or
More Hours of Service During Period
|
|
Shift
|
Actual
hours of full shift
|
|
Day
|
10
hours of service
|
|
Week
|
45
hours of service
|
|
Semi-Monthly
Payroll Period
|
95
hours of service
|
|
Months
of Employment
|
190
hours of service
|
|
(2)
|
Solely
for purposes of determining whether a break in service for participation
and vesting purposes has occurred in a computation period, an individual
who is absent from work for maternity or paternity reasons shall receive
credit for the hours of service that would otherwise have been credited to
such individual but for such absence, or in any case in which such hours
cannot be determined, 8 hours of service per day of such
absence. For purposes of this paragraph, an absence from work
for maternity or paternity reasons means an absence (A) by reason of
the pregnancy of the individual, (B) by reason of a birth of a child
of the individual, (C) by reason of the placement of a child with the
individual in connection with the adoption of such child by such
individual, or (D) for purposes of caring for such child for a period
beginning immediately following such birth or placement. The
hours of service credited under this paragraph shall be
credited: (A) in the computation period in which the
absence begins if the crediting is necessary to prevent a break in service
in that period, or (B) in all other cases, in the following
computation period. No more than 501 hours of service
shall be credited under this paragraph for any single continuous period
(whether or not such period occurs in a single computation
period).
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
7
|
|
(3)
|
Solely
for purposes of determining whether a break in service for participation
and vesting purposes has occurred in a computation period, an individual
who is absent from work on unpaid leave under the Family and Medical Leave
Act shall receive credit for the hours of service that would otherwise
have been credited to such individual but for such absence, or in any case
in which such hours cannot be determined, 8 hours of service per day
of such absence. Such an individual shall be treated as
actively employed for the purposes of participation and eligibility for an
allocation of any employer contribution that may be provided under this
plan. Notwithstanding the preceding, this paragraph shall not
apply if the employer or the particular employee is not subject to the
requirements of the Family and Medical Leave Act at the time of the
absence.
|
|
(4)
|
Hours
of service shall be credited for employment with the employer as defined
in Section 1.5(b). Hours of service shall also be credited
for any leased employee who is considered an employee for purposes of this
plan under Code section 414(n) or Code
section 414(o).
|
(c)
|
(1)
|
Year of Service means a
12-consecutive-month computation period during which the employee
completes the required number of hours of service with the employer as
specified in Sections 2.1 or 4.1. No more than one
year of service will be credited for any 12-consecutive-month period
unless otherwise required by Sections 2.1(c)
and 4.1(c).
|
|
(2)
|
Service With Related
Employers – For purposes of crediting years of service, hours of
service credited in accordance with Section 1.10(b)(4) shall be taken
into account.
|
|
(3)
|
Predecessor Service – If
the employer maintains the plan of a predecessor employer, service with
such predecessor employer shall be treated as service for the
employer. If the employer does not maintain the plan of a
predecessor employer, then service as an employee of a predecessor
employer shall not be considered as service under the plan, except as
noted below:
|
|
·
|
Effective
November 18, 1994, with respect to an employee employed by the
predecessor employer as of the day immediately prior, service as an
employee of Kings Markets, Strasburg store (Store No. 159) shall be
considered as service under the plan solely for the purpose of determining
eligibility years of service (under
Section 2.1).
|
|
·
|
Effective
August 24, 2009, with respect to an employee employed by the predecessor
employer as of the day immediately prior, service as an employee of
Binghamton Giant Markets, Inc. shall be considered as service under the
plan for the purposes of determining eligibility years of service (under
Section 2.1) and vesting years of service (under
Section 4.1).
|
(d)
|
Break in Service (or One
Year Break in Service) means a 12-consecutive-month computation period
during which a participant or former participant does not complete the
specified number of hours of service with the employer as set forth in
Sections 2.1(b)
and 4.1(b).
|
(e)
|
Qualified Military
Service – Notwithstanding any provision of this plan to the
contrary, effective December 12, 1994, contributions, benefits,
and service credit with respect to qualified military service will be
provided in accordance with Code section 414(u). An
employee reemployed after qualified military service shall not be treated
as having incurred a break in service, for purposes of vesting and benefit
accruals, solely because of an absence due to qualified military
service.
|
(a)
|
Trust means the
qualified trust created under the employer’s
plan.
|
(b)
|
Trust Fund means all
property held or acquired by the
plan.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
8
|
(a)
|
Eligibility Year of
Service means an eligibility computation period during which the
employee completes at least 1,000 hours of service with the
employer.
|
(b)
|
One Year Break in
Service means for the purposes of this Article II an
eligibility computation period during which the participant or former
participant does not complete more than 500 hours of service with the
employer.
|
(c)
|
Eligibility Computation
Period – The initial eligibility computation period shall be the
12-consecutive-month period beginning with the day on which the employee
first performs an hour of service for the employer (employment
commencement date).
|
(a)
|
Eligibility
|
|
(1)
|
Eligibility for Employer Profit
Sharing Contributions
|
|
(A)
|
Age/Service Requirements
– An employee who is a member of the eligible class of employees shall be
eligible for participation for the purpose of the employer profit sharing
provision after he has satisfied the following participation
requirement(s):
|
|
(i)
|
Completion
of 1 year of service.
|
|
(ii)
|
Attainment
of age 21.
|
|
(B)
|
Eligible Class of
Employees – All employees of the employer except those described in
(i), (ii), (iii), (iv), (v), (vi), (vii), and (viii) below shall be
eligible for purposes of receiving a profit sharing allocation if employed
in the following categories: Salaried Employee, Level I
Department Manager, Head Pharmacist, Assistant Head Pharmacist, Foreman,
Corporate Lead Person, Corporate Department Assistant, Corporate
Administrative Assistant, Corporate Reorder Buyer, or Corporate
Architectural Draftsperson.
|
|
(i)
|
Individuals
not directly employed by the employer as defined in Section 1.5(a)
shall not be eligible to receive a profit sharing
contribution. An employee of the employer as that term is
defined in Section 1.5(b) with respect to the sponsoring employer
shall not be eligible to receive a profit sharing allocation unless such
employee's direct employer affirmatively elects to become a participating
employer hereunder.
|
|
(ii)
|
Employees
who became employees as the result of a “Code section 410(b)(6)(C)
transaction.” These employees shall be excluded during the
period beginning on the date of the transaction and ending on the last day
of the first plan year beginning after the date of the
transaction. A “Code section 410(b)(6)(C) transaction” is
an asset or stock acquisition, merger, or similar transaction involving a
change in the employer of the employees of a trade or
business.
|
|
(iii)
|
Employees
included in a unit of employees covered by a collective bargaining
agreement between the employer and employee representatives shall not be
eligible to receive a profit sharing allocation if retirement benefits
were the subject of good faith bargaining and if less than 2% of the
employees of the employer who are covered pursuant to that agreement are
professionals as defined in Regulation section
1.410(b)-9(g). For this purpose, the term "employee
representatives" does not include any organization more than half of whose
members are employees who are owners, officers, or executives of the
employer.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
9
|
|
(iv)
|
Leased
employees who are considered employees under the plan shall not be
eligible to receive a profit sharing
allocation.
|
|
(v)
|
Employees
who are non-resident aliens (as defined in Code
section 7701(b)(1)(B)) and who receive no earned income (as defined
in Code section 911(d)(2)) from the employer that constitutes income
from sources within the United States (as defined in Code
section 861(a)(3)) shall not be eligible to receive a profit sharing
allocation.
|
|
(vi)
|
Highly
compensated employees as defined in Section 1.4(b) shall not be eligible
to receive a profit sharing
allocation.
|
|
(vii)
|
Employees
of Superpetz, LLC shall not be eligible to receive a profit sharing
allocation.
|
|
(viii)
|
Employees
of Binghamton Giant Markets, Inc. shall not be eligible to receive a
profit sharing allocation prior to January 1,
2010.
|
|
(2)
|
Eligibility for All Other
Purposes
|
|
(A)
|
Age/Service Requirements
– An employee who is a member of the eligible class of employees shall be
eligible for all other purposes under the plan after he has satisfied the
following participation
requirement(s):
|
|
(i)
|
Completion
of 1 year of service.
|
|
(ii)
|
Attainment
of age 21.
|
|
(B)
|
Eligible Class of
Employees – All employees of the employer shall be eligible for the
purposes of this Section 2.2(a)(2) except for employees in the
following categories:
|
|
·
|
Individuals
not directly employed by the employer as defined in
Section 1.5(a). An employee of the employer as that term
is defined in Section 1.5(b) with respect to the sponsoring employer
shall not participate in this plan unless such employee's direct employer
affirmatively elects to become a participating employer
hereunder.
|
|
·
|
Employees
who became employees as the result of a “Code section 410(b)(6)(C)
transaction.” These employees shall be excluded during the
period beginning on the date of the transaction and ending on the last day
of the first plan year beginning after the date of the
transaction. A “Code section 410(b)(6)(C) transaction” is
an asset or stock acquisition, merger, or similar transaction involving a
change in the employer of the employees of a trade or
business.
|
|
·
|
Employees
included in a unit of employees covered by a collective bargaining
agreement between the employer and employee representatives if retirement
benefits were the subject of good faith bargaining and if 2% or less of
the employees of the employer who are covered pursuant to that agreement
are professionals as defined in Regulation
section 1.410(b)-9. For this purpose, the term “employee
representatives” does not include any organization more than half of whose
members are employees who are owners, officers, or executives of the
employer.
|
|
·
|
Leased
employees who are considered employees under the
plan.
|
|
·
|
Employees
who are non-resident aliens (as defined in Code
section 7701(b)(1)(B)) and who receive no earned income (as defined
in Code section 911(d)(2)) from the employer that constitutes income
from sources within the United States (as defined in Code
section 861(a)(3)).
|
(b)
|
Entry
Date
|
|
(1)
|
Entry Date for Purposes of
Employer Profit Sharing Contributions – An eligible employee shall
participate in the plan for the purpose of the employer profit sharing
contribution provisions on the earlier of the March 31, June 30,
September 30, or December 31 coinciding with or immediately
following the date on which he has met the age and service requirements,
provided he is employed on that
date.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
10
|
|
(2)
|
Entry Date for All Other
Purposes – An eligible employee shall participate in the plan for
all purposes on the earlier of the March 31, June 30,
September 30, or December 31 coinciding with or immediately
following the date on which he has met the age and service requirements,
provided he is employed on that
date.
|
|
(3)
|
If
an employee who is not a member of the eligible class of employees becomes
a member of the eligible class, such employee shall participate
immediately, if he has satisfied the age and service requirements and
would have otherwise previously become a
participant.
|
(a)
|
Vested Participant – A
former participant who had a nonforfeitable right to all or a portion of
his account balance derived from employer contributions at the time of his
termination from service shall become a participant immediately upon
returning to the employ of the employer, if he is a member of the eligible
class of employees.
|
(b)
|
Nonvested Participant or
Employee – In the case of an employee who does not have any
nonforfeitable right to his account balance derived from employer
contributions at the time of his termination from service, years of
service before a period of consecutive one-year breaks in service shall
not be taken into account in computing eligibility service if the number
of consecutive one-year breaks in service in such period equals or exceeds
the greater of 5 or the aggregate number of years of service before
such breaks in service. Such aggregate number of years of
service shall not include any years of service disregarded under the
preceding sentence by reason of prior breaks in
service.
|
(c)
|
Return to Eligible Class
– If a participant becomes an inactive participant, because he is no
longer a member of the eligible class of employees, but does not incur a
break in service, such inactive participant shall become an active
participant immediately upon returning to the eligible class of
employees. If such participant incurs a break in service,
eligibility shall be determined under the re-participation rules in
Section 2.4(a) and (b)
above.
|
(a)
|
Maintenance of Participant
Accounts – The plan administrator shall maintain separate accounts
covering each participant under the plan as herein
described. Such accounts shall be increased by contributions,
reallocation of forfeitures (if any), investment income, and market value
appreciation of the fund. They shall be decreased by market
value depreciation of the fund, forfeiture of nonvested amounts, benefit
payments, withdrawals, and
expenses.
|
(b)
|
Amount and Payment of Employer
Contribution
|
|
(1)
|
Amount of Contribution –
For each plan year, the employer contribution to the plan shall be the
amount that is determined under the provisions of this Article; provided,
however, that the employer may not make a contribution to the plan for any
plan year to the extent the contribution would exceed the participants'
maximum permissible amounts under Code
section 415. Further, the employer contribution shall not
exceed the maximum amount deductible under Code section 404, subject
to the provisions for a nondeductible contribution without penalty as
permitted under Code section 4972(c)(6). For this purpose,
effective for plan years beginning on or after January 1, 2002,
participant elective deferrals shall not be taken into account as provided
under Code section 404(n).
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
11
|
|
(2)
|
Payment of Contribution
– The employer shall make its contribution to the plan in cash within the
time prescribed by the Code or applicable Treasury
regulations. Subject to the consent of the trustee, the
employer may make its contribution in property rather than in cash,
provided the contribution is discretionary and the property contributed is
unencumbered.
|
|
(3)
|
Allocation if More Than One
Employer – If the employer consists of a sponsoring employer and
one or more participating employers, the contribution made by each such
entity shall be allocated to the accounts of the participants directly
employed by the contributing employer. If a participant is
employed by more than one entity during the applicable period, each entity
shall contribute with respect to the compensation earned by the
participant while employed by that
entity.
|
(c)
|
Limitations and
Conditions – Notwithstanding the allocation procedures set forth in
this Article, the allocations to participants' accounts shall be limited
or modified to the extent required to comply with the provisions of
Article V (limitations on allocations under Code section 415,
top-heavy provisions under Code section 416, and related employer
provisions under Code
section 414).
|
(a)
|
Amount of Contribution –
The employer shall determine, in its sole discretion, the amount of
employer profit sharing contribution to be made to the plan each year;
provided, however, that the employer shall contribute such amount as may
be required for restoration of a forfeited amount under
Section 4.2.
|
(b)
|
Conditions for
Allocations – A participant shall be eligible for an allocation of
the employer profit sharing contribution and forfeitures as of an
allocation date, provided that he satisfies the following
conditions:
|
|
(1)
|
He
completed at least 1,000 hours of service during the current plan
year, except that the hours of service requirement shall not apply with
respect to any minimum top-heavy allocation as provided in
Section 5.4.
|
|
(2)
|
He
is employed by the employer on the last day of the plan
year.
|
|
(3)
|
He
is not a Highly Compensated
Employee.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
12
|
|
(4)
|
He
is employed in one of the eligible job categories listed in Section
2.2(a)(1)(B) on the last day of the plan
year.
|
(c)
|
(1)
|
Allocation
Formula
|
|
(2)
|
Top-Heavy Plan
Years
|
|
(3)
|
Compensation – For
purposes of the allocation of the employer profit sharing contribution,
compensation means compensation as defined in Section 1.2(a)
and (b) (subject to the limitations of Section 1.2(c)) for the
entire plan year.
|
(a)
|
Amount of Contribution –
The employer shall determine, in its sole discretion, the amount of
special employer profit sharing contribution to be made to the plan as of
December 31, 2009.
|
(b)
|
Conditions for
Allocations – A participant shall be eligible for an allocation of
the special employer profit sharing contribution as of December 31, 2009,
provided that he satisfies the following
conditions:
|
|
(1)
|
He
is employed by the employer on December 31,
2008.
|
|
(2)
|
He
is not a Highly Compensated Employee in
2009.
|
|
(3)
|
He
is employed by the employer on December 31,
2009.
|
(c)
|
Allocation
Formula
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
13
|
(a)
|
Amount of
Contribution
|
(b)
|
Allocation of
Contribution
|
|
(1)
|
Allocation
of the qualified nonelective contribution shall be made to the group of
eligible non-highly compensated employees that consists of half of all
eligible non-highly compensated employees for the plan year determined by
identifying the nonhighly compensated employee with the smallest amount of
compensation and continuing in ascending order until half of all eligible
non-highly compensated employees have been identified, subject to the
further requirements of
Section 5.5(b)(1)(A)(viii).
|
|
(2)
|
Top-Heavy Plan
Years
|
|
(3)
|
Compensation – For
purposes of the allocation of the qualified nonelective contribution,
compensation means compensation as defined in Section 1.2(a)
and (b) (subject to the limitations of Section 1.2(c)) for the
entire plan year, but limited to the employee's compensation for the
portion of the plan year in which the employee actually is a member of the
eligible class of employees as defined in
Section 2.2. However, for purposes of the top-heavy
contribution, compensation means compensation as defined in
Section 5.1(c)(2), subject to the limitations of
Section 1.2(c).
|
(a)
|
Amount of Contribution –
The employer shall contribute each plan year on behalf of each active
participant who elects salary deferral a sum equal to the amount that the
participant has elected to defer under a salary reduction arrangement or
under a cash or deferred arrangement. The contribution shall be
credited to the participant's employee 401(k) elective deferral
account.
|
(b)
|
Salary Reduction
Election
|
|
(1)
|
Availability of Election
– An active participant may effect a salary reduction agreement with the
employer under which an employer contribution will be made to the plan on
behalf of such participant only if he elects to reduce his compensation or
to forgo an increase in his compensation. The amount of salary
deferral may range from 0% to 50% of
compensation.
|
|
(2)
|
Election Procedures – A
written notice of a participant’s salary reduction election shall be given
to the employer and to the plan administrator upon such forms as may be
provided by the plan administrator. The written notice shall be
given at least 10 days before March 31, June 30,
September 30, or December 31 on which it is to be
effective. However, in no event shall such notice be given or
be effective before the adoption of the employee 401(k) elective deferral
contribution provision under the plan. A participant electing
salary reduction will be deemed to desire to continue at the same rate,
unless he notifies the plan administrator at least 10 days before the
applicable date of his desire to change the amount of salary
reduction. The revised election shall be effective on the
applicable date. A salary reduction may be discontinued at any
time upon proper notice. A participant who has declined or
suspended salary reduction may elect salary reduction at a subsequent
election date by written notification to the plan administrator in the
manner and on the forms as provided under this paragraph. The
plan administrator and employer shall treat a salary reduction election as
having been revoked by the participant upon his termination of employment
or his ceasing to be a member of the eligible class of
participants.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
14
|
|
(3)
|
Compensation – For this
purpose, compensation means compensation as defined in Section 1.2(a)
and (b) (subject to the limitations of Section 1.2(c)), but
excluding short term disability benefits not paid through the employer's
payroll system. The participant’s salary reduction election
shall apply only to compensation that becomes currently available to the
employee after the effective date of the election. The employer
shall apply the salary reduction election to all of the participant’s
compensation (and to increases in compensation), unless the participant’s
salary reduction election specifies that the election is to be limited to
certain compensation.
|
|
(4)
|
Catch-Up Contributions –
Effective April 1, 2004, all employees who are eligible to make elective
deferrals under this plan before the close of the plan year and who have
attained age 50 or over by the end of their applicable taxable years
shall be eligible to make catch-up contributions in accordance with, and
subject to the limitations of, Section 5.5(a)(2). The
employer-imposed limitations on the maximum amount of permissible salary
deferral shall not apply.
|
(c)
|
Cash or Deferred
Election
|
(a)
|
Qualified Matching
Contributions – The employer matching contribution shall not be
treated as a qualified matching contribution. A qualified
matching contribution means matching contributions that are subject to the
distribution and nonforfeitability requirements under Code
section 401(k) when made.
|
(b)
|
Contributions Subject to
Matching – Employer matching contributions shall be made for an
eligible participant with respect to the following
contributions:
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
15
|
|
·
|
Any
contributions made under a salary reduction agreement pursuant to
Section 3.4
|
|
·
|
Effective
April 1, 2004, any catch-up
contributions
|
(c)
|
Conditions for
Allocation – A participant shall be eligible for an allocation of
an employer matching contribution as of an allocation date, provided that
he satisfies the following
conditions:
|
|
(1)
|
He
made a contribution that is subject to matching during the current plan
year.
|
|
(2)
|
He
completed at least one hour of service during the current allocation
period.
|
|
(3)
|
Effective
for allocations made after March 31, 2004, he is not a highly compensated
employee who has held the title of chairman, vice chairman, president, or
vice president with respect to the employer as of any day in the plan year
on or before the allocation date.
|
(d)
|
(1)
|
Allocation Formula – The
employer matching contribution and any applicable forfeitures shall be
equal to the employer matching percentage applied to the participant’s
contributions for each allocation period within the current plan year that
are subject to matching.
|
|
(2)
|
Limitation on Total Matching
Allocation – Notwithstanding the preceding allocation formula(s),
an allocation shall not be made to an individual participant's account to
the extent that when combined with any other employer matching
contribution made to the participant's account for the plan year, it would
exceed the greatest of: (i) 5% of his compensation; (ii)
his elective deferrals for the plan year; or (iii) the product of 2
times the sum of the plan’s representative matching rate (as defined in
Section 5.5(c)(1)(A)(ix)) plus the participant’s elective deferrals
for the plan year. Such an excess allocation shall be
reallocated among the remaining eligible
participants.
|
|
(3)
|
Compensation – For
purposes of the allocation of the employer matching contribution,
compensation means compensation as defined in Section 1.2(a)
and (b) (subject to the limitations of Section 1.2(c)) for the
allocation period. Compensation includable under
Section 1.2(a) and (b) but not paid through payroll shall be
treated as being paid as of the last day of the plan year or the last day
of employment, if earlier.
|
(e)
|
Forfeitures of Excess Aggregate
Contributions
|
(a)
|
Rollover Contributions –
An active participant may contribute to his rollover/transfer account any
amounts that he previously received either as a lump sum distribution (as
defined in Code section 402(e)(4)(D)) or within one taxable year as a
distribution from another qualified plan on account of termination of that
plan provided that:
|
|
(1)
|
He
transferred such distribution to an individual retirement account or
annuity within sixty (60) days after receipt,
or
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
16
|
|
(2)
|
He
transferred such distribution to this plan within sixty (60) days
after receipt.
|
(b)
|
Transfer Contributions –
With the consent of the plan administrator, an active participant may have
funds transferred directly to this plan from another qualified
plan. Consent shall not be given if the optional forms of
payment to which the funds are subject under the prior plan are not
properly disclosed by the prior plan or cannot be accommodated by this
plan and trust.
|
|
·
|
A
direct rollover of an eligible rollover distribution from a qualified plan
described in Code section 401(a) or 403(a), excluding after-tax
employee contributions.
|
|
·
|
Transfers
from a Roth elective deferral account under a qualified Code
section 401(a) plan shall not be
permitted.
|
|
·
|
A
direct rollover of an eligible rollover distribution from an annuity
contract described in Code section 403(b), excluding after-tax
employee contributions.
|
|
·
|
Transfers
from a Roth elective deferral account under a Code section 403(b)
account shall not be permitted.
|
|
·
|
A
direct rollover or a participant contribution of an eligible rollover
distribution from an eligible plan under Code section 457(b) that is
maintained by a state, political subdivision of a state, or any agency or
instrumentality of a state or political subdivision of a
state.
|
|
·
|
Transfers
from an individual retirement account or annuity described in Code
section 408(a) or 408(b) (including an account more specifically
described under Code section 408(k) or (p)) shall not be
permitted.
|
(c)
|
Contributions Before Plan Entry
Date – An employee, (who is in the eligible class of employees)
prior to satisfying the plan’s eligibility conditions, may make a rollover
or transfer contribution to the plan to the same extent and in the same
manner as a participant. If an employee makes a rollover or
transfer contribution to the plan before satisfying the plan's eligibility
conditions, the plan administrator and trustee will treat the employee as
a participant for all purposes of the plan, except the employee is not a
participant for purposes of sharing in contributions or forfeitures under
the plan until he actually becomes a participant in the
plan. If the employee has a separation from service prior to
becoming a participant, the trustee will distribute his rollover/transfer
account to him.
|
(d)
|
Distribution –
Withdrawals may be made from a rollover/transfer account under the terms
and conditions set forth in
Section 4.4.
|
(a)
|
General Allocation
Procedures
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
17
|
(b)
|
Investment
Elections
|
(a)
|
Vesting Year of Service
means a vesting computation period during which the employee completes at
least 1,000 hours of service with the employer. All of an
employee's years of service with the employer shall be counted to
determine the nonforfeitable percentage in the employee's account
balance(s) derived from employer contributions,
except:
|
|
(1)
|
Years
of service disregarded under the break in service rules in
Section 4.1(d) below. (Post-ERISA break in service
rules)
|
|
(2)
|
Years
of service before the effective date of ERISA if such service would have
been disregarded under the break in service rules of the prior plan in
effect from time to time before such date. For this purpose,
break in service rules are rules that result in the loss of prior vesting
or benefit accruals, or that deny an employee eligibility to participate,
by reason of separation or failure to complete a required period of
service within a specified period of time. (Pre-ERISA break in
service rules)
|
(b)
|
One Year Break in
Service means for the purposes of this Article IV a vesting
computation period during which the employee or former employee does not
complete more than 500 hours of service with the
employer.
|
(c)
|
Vesting Computation
Period means the 12-consecutive-month period coinciding with the
plan year.
|
(d)
|
Break in Service
Rules
|
|
(1)
|
Vested Participant – A
former participant who had a nonforfeitable right to all or a portion of
his account balance(s) derived from employer contributions or who
(effective for plan years beginning on or after January 1, 2006)
had made an employee elective deferral contribution at the time of his
termination from service shall retain credit for all vesting years of
service prior to a break in service as that term is defined in
Section 4.1(b).
|
|
(2)
|
Nonvested Participant or
Employee – In the case of a former participant or employee who did
not have any nonforfeitable right to his account balance(s) derived from
employer contributions and who (effective for plan years beginning on or
after January 1, 2006) had made no employee elective deferral
contribution at the time of his termination from service, years of service
before a period of consecutive one-year breaks in service shall not be
taken into account in computing service if the number of consecutive
one-year breaks in service in such period equals or exceeds the greater
of 5 or the aggregate number of years of service before such breaks in service. Such aggregate number of years of service shall not
include any years of service disregarded under the preceding sentence by
reason of prior breaks in service.
|
|
(3)
|
Vesting for Pre-Break and
Post-Break Accounts – In the case of a participant or employee who
has five or more consecutive one-year breaks in service, all years of
service after such breaks in service shall be disregarded for the purpose
of vesting the employer-derived account balance(s) that accrued before
such breaks in service. Whether or not such pre-break service
counts in vesting the post-break employer-derived account balance(s) shall
be determined according to the rules set forth in Section 4.1(d)(1)
and (2) above. Separate accounts shall be maintained for each
of the participant’s pre-break and post-break employer-derived account
balance(s). All accounts shall share in the investment earnings
and losses of the fund.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
18
|
(a)
|
Determination of
Vesting
|
|
(1)
|
Normal Retirement – An
employee's right to his account balance(s) shall be 100% vested and
nonforfeitable upon the attainment of age 65, the normal retirement
age. The vesting of an inactive participant who terminates
employment prior to normal retirement age shall remain subject to the
provisions of the vesting schedule following attainment of such specified
age. Distributions shall be administered in accordance with
termination from employment provisions of
Section 4.3(a)(3).
|
|
(2)
|
Late Retirement – If a
participant remains employed after his normal retirement age, his account
balance(s) shall remain 100% vested and nonforfeitable. Such
participant shall continue to receive allocations to his account as he did
before his normal retirement age.
|
|
(3)
|
Early Retirement – In
the case of a participant who has attained age 60 and
completed 7 years of service before his normal retirement age, the
participant's right to his account balance(s) shall be 100% vested and
nonforfeitable. Such participant may retire before his normal
retirement age without the consent of the employer and receive payment of
benefits from the plan. If a participant separates from service
before satisfying the age requirement for early retirement, but has
satisfied the service requirement, the participant shall be entitled to
elect an early retirement benefit upon satisfaction of such age
requirement.
|
|
(4)
|
Disability – If a
participant separates from service due to disability, such participant’s
right to his account balance(s) as of his date of disability shall be 100%
vested and nonforfeitable. Disability means the participant has
been determined by the Social Security Administration to be eligible for
either full or partial Social Security disability
benefits.
|
(5)
|
(A)
|
Death – In the event of
the death of a participant who has an accrued benefit under the plan,
(whether or not he is an active participant), 100% of the participant’s
account balance(s) as of the date of death shall be paid to his surviving
spouse; except that, if there is no surviving spouse, or if the surviving
spouse has already consented in a manner that is (or conforms to) a
qualified election under the joint and survivor annuity provisions of Code
section 417(a) and regulations issued pursuant thereto and as set
forth in Section 5.2, then such balance(s) shall be paid to the
participant's designated beneficiary. The payment options
available to the beneficiary shall be those payment options available to
the participant under
Section 4.3(b).
|
|
(B)
|
Beneficiary Designation
– Subject to the spousal consent requirements of Section 5.2, the
participant shall have the right to designate his beneficiaries, including
a contingent death beneficiary, and shall have the right at any time prior
to his death to change such beneficiaries. The designation shall be
effective only if made in writing on a form signed by the participant and
supplied by and filed with the plan administrator prior to his death. If
the participant fails to designate a beneficiary, or if the designated
person or persons predecease the participant, "beneficiary" shall mean:
(a) the spouse, (b) if no surviving spouse, then to the surviving children
in equal shares, (c) if no surviving children, then to the surviving
parents in equal shares, (d) if no surviving parents, then to the
surviving brothers and sisters in equal shares, (e) if no surviving
brothers and sisters, then (f) to the participant’s estate if an estate is
opened within 2 years of the participant’s death; and otherwise to a
charity selected in the sole discretion of the plan
administrator.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
19
|
|
(6)
|
Termination From Service
– If a participant separates from the service of the employer other than
by retirement, disability, or death, his vested interest in his accounts
shall be equal to the account balance multiplied by the vesting percentage
determined below:
|
|
(A)
|
Profit Sharing Account –
The vesting percentage applicable to the participant’s profit sharing
account shall be determined based on his vesting years of service as
follows:
|
Years
of Service
|
Vesting Percentage
|
|||
0–1
Year
|
0 | % | ||
2
|
20 | % | ||
3
|
40 | % | ||
4
|
60 | % | ||
5
|
80 | % | ||
6
or More Years
|
100 | % |
|
(B)
|
Employer Matching Contribution
Account – The vesting percentage applicable to the participant's
employer matching contribution account shall be determined as
follows:
|
Years
of Service
|
Vesting Percentage
|
|||
0–1
Year
|
0 | % | ||
2
|
20 | % | ||
3
|
40 | % | ||
4
|
60 | % | ||
5
|
80 | % | ||
6
or More Years
|
100 | % |
|
(C)
|
Other Accounts – The
participant shall always be 100% vested in his following
accounts: employee 401(k) elective deferral account; employee
nondeductible contribution account; qualified employer matching
contribution account; qualified nonelective contribution account;
rollover/transfer account. The accrued benefit in such accounts
shall be nonforfeitable.
|
(b)
|
Forfeitures
|
|
(1)
|
Time of Forfeiture – If
a participant terminates employment before his account balances derived
from employer contributions are fully vested, the nonvested portion of his
accounts shall be forfeited on the earlier
of:
|
|
(A)
|
The
last day of the vesting computation period in which the participant first
incurs five consecutive one-year breaks in service,
or
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
20
|
|
(B)
|
The
date the participant receives his entire vested accrued
benefit.
|
|
(2)
|
Cashout Distributions and
Restoration
|
|
(A)
|
Cashout Distribution –
If an employee terminates service and the value of his vested account
balances derived from employer and employee contributions are not greater
than $5,000, the employee shall receive a distribution of the value of the
entire vested portion of such account balances and the nonvested portion
will be treated as a forfeiture. If an employee would have
received a distribution under the preceding sentence but for the fact that
the employee's vested account balance exceeded $5,000 when the employee
terminated service and if at a later time such account balance is reduced
such that it is not greater than $5,000, the employee will receive a
distribution of such account balance and the nonvested portion will be
treated as a forfeiture. For purposes of this section, if the
value of an employee's vested account balances is zero, he shall be deemed
to have received a distribution of such vested account
balances. Effective for distributions made on or after
March 22, 1999, for the purpose of determining the value of a
participant's vested account balance, prior distributions shall be
disregarded if distributions have not commenced under an optional form of
payment described in
Section 4.3.
|
|
(B)
|
Restoration of Accounts
– If an employee receives a cashout distribution pursuant to this section
and resumes employment covered under this plan before he incurs five
consecutive one-year breaks in service, his employer-derived account
balances shall each be restored to the amount on the date of distribution,
if he repays to the plan the full amount of the distribution attributable
to employer contributions before the earlier of five years after the first
date on which he is subsequently re-employed by the employer, or the date
he incurs five consecutive one-year breaks in service following the date
of the distribution. If an employee is deemed to receive a
distribution pursuant to this Section 4.2(b)(2), and he resumes
employment covered under this plan before he incurs five consecutive
one-year breaks in service, upon the re-employment of such employee his
employer-derived account balances will be restored to the amount on the
date of such deemed distribution.
|
(c)
|
Disposition of
Forfeitures
|
|
(1)
|
Profit Sharing Account –
Forfeitures of profit sharing accounts shall be reallocated among the
eligible active participants at the end of the plan year in which such
forfeitures occur in accordance with the allocation procedures set forth
in Section 3.2.
|
|
(2)
|
Employer Matching Contribution
Account – Forfeitures of employer matching contribution accounts
first shall be used to reduce administrative expenses; any remaining
forfeitures shall be used to reduce the employer matching contribution for
the plan year in which such forfeitures
occur.
|
(d)
|
Withdrawal of Employee
Nondeductible Contributions – No forfeitures shall occur solely as
a result of an employee's withdrawal of employee nondeductible
contributions.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
21
|
(e)
|
Unclaimed
Benefits
|
|
(1)
|
Forfeiture – The plan
does not require the trustee or the plan administrator to search for, or
to ascertain the whereabouts of, any participant or
beneficiary. At the time the participant's or beneficiary's
benefit becomes distributable under the plan, the plan administrator, by
certified or registered mail addressed to his last known address of
record, shall notify any participant or beneficiary that he is entitled to
a distribution under this plan. If the participant or
beneficiary fails to claim his distributive share or make his whereabouts
known in writing to the plan administrator within twelve months from the
date of mailing of the notice, the plan administrator shall treat the
participant's or beneficiary's unclaimed payable accrued benefit as
forfeited and shall reallocate such forfeiture in accordance with
Section 4.2(c). A forfeiture under this paragraph shall
occur at the end of the notice period or, if later, the earliest date
applicable Treasury regulations would permit the
forfeiture. These forfeiture provisions apply solely to the
participant’s or beneficiary’s accrued benefit derived from employer
contributions.
|
|
(2)
|
Restoration – If a
participant or beneficiary who has incurred a forfeiture of his accrued
benefit under the provisions of this Subsection makes a claim, at any
time, for his forfeited accrued benefit, the plan administrator shall
restore the participant's or beneficiary's forfeited accrued benefit to
the same dollar amount as the dollar amount of the accrued benefit
forfeited, unadjusted for any gains or losses occurring after the date of
the forfeiture. The plan administrator shall make the
restoration during the plan year in which the participant or beneficiary
makes the claim from forfeitures occurring in that plan
year. If forfeitures are insufficient for the restoration, the
employer shall make a contribution to the plan to satisfy the
restoration. The plan administrator shall direct the trustee to
distribute the participant's or beneficiary's restored accrued benefit to
him not later than 60 days after the close of the plan year in which
the plan administrator restores the forfeited accrued
benefit.
|
(a)
|
Time of
Payment
|
|
(1)
|
Commencement of Benefits
– Unless the participant elects otherwise, distribution of benefits shall
begin no later than the 60th day after the latest of the close of the
plan year in which:
|
|
(A)
|
The
participant attains age 65 (or normal retirement age, if
earlier);
|
|
(B)
|
Occurs
the 10th anniversary of the year in which the participant commenced
participation in the plan; or
|
|
(C)
|
The
participant terminates service with the employer (i.e. late
retirement).
|
|
(2)
|
Payment Upon Retirement,
Disability, or Death – Subject to the provisions set forth in
Section 4.3(a)(1), in the Joint and Survivor Requirements of
Section 5.2, and in the Distribution Requirements of
Section 5.3, if the participant terminates employment due to
retirement, disability, or death, his account(s) shall be paid as soon as
administratively possible after the occurrence of the event creating the
right to a distribution.
|
|
(3)
|
Payment Upon Other Termination
of Employment – Subject to the provisions set forth in
Section 4.3(a)(1) and in the Distribution Requirements of
Section 5.3, if the participant terminates employment other than by
retirement, disability, or death, his account(s) shall be paid as soon as
administratively possible after the date of severance of
employment.
|
|
(4)
|
Notwithstanding
the foregoing, the failure of a participant (and spouse where the spouse's
consent is required) to consent to a distribution while a benefit is
immediately distributable, within the meaning of Section 5.2(a),
shall be deemed to be an election to defer commencement of payment of any
benefit sufficient to satisfy this
section.
|
(b)
|
Form of Payment – A
participant or beneficiary may elect to receive distribution of his
account(s) as a lump sum benefit payment. The participant or
beneficiary shall file a written request for benefits with the plan
administrator before payment will be made. The lump sum benefit
payment shall be made in cash from the fund. However, if the
vested accrued benefit is no more than $5,000, benefits shall
automatically be paid in a lump sum in accordance with
Section 4.3(d)(5).
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
22
|
(c)
|
General Payment
Provisions
|
|
(1)
|
All
distributions due to be made under this plan shall be made on the basis of
the amount to the credit of the participant as of the accounting date
coincident with or immediately preceding the occurrence of the event
calling for a distribution.
|
|
(2)
|
If
any person entitled to receive benefits hereunder is physically or
mentally incapable of receiving or acknowledging receipt thereof, and if a
legal guardian or power of attorney has been appointed for him, the plan
administrator may direct the benefit payment to be made to such legal
representative. The plan administrator may cause benefits to be
paid to any other individual recognized by the state law under which the
plan trust has been established.
|
|
(3)
|
Each
optional form of benefit provided under the plan shall be made available
to all participants on a nondiscriminatory basis. The plan may
not retroactively reduce or eliminate optional forms of benefits and any
other Code section 411(d)(6) protected benefits, except as provided
in Regulation section 1.411(d)-4, Q&A-2(b) and in other relief
granted statutorily or by the Commissioner of Internal
Revenue.
|
|
(4)
|
The
participant's election of a form of benefit payment shall be irrevocable
as of the annuity starting date, subject to the notice requirements
contained in Section 4.3(e). For purposes of accounting,
an installment distribution shall be debited from each of a participant's
accounts on a pro rata basis.
|
(d)
|
Eligible Rollover
Distributions
|
|
(1)
|
Eligible Rollover
Distribution – An eligible rollover distribution is any
distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not
include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period of ten
years or more; any distribution to the extent such distribution is
required under Code section 401(a)(9), the portion of any
distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to
employer securities); any hardship withdrawal made on or after
January 1, 1999 from a participant's employee 401(k) elective
deferral account before he has attained age 59½; any hardship
withdrawal made on or after January 1, 2002 from any account;
and any other distribution(s) that is reasonably expected to total less
than $200 during a year.
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Copyright © 2006 by
Conrad Siegel
Actuaries
|
23
|
|
(2)
|
Eligible Retirement Plan
– An eligible retirement plan is an individual retirement account
described in Code section 408(a), an individual retirement annuity
described in Code section 408(b), an annuity plan described in Code
section 403(a), or a qualified plan described in Code
section 401(a), that accepts the distributee's eligible rollover
distribution. Effective for distributions made on or after
January 1, 2002, an eligible retirement plan shall also mean an
annuity contract described in Code section 403(b) or an eligible plan
under Code section 457(b) that is maintained by a state, political
subdivision of a state, or any agency or instrumentality of a state or
political subdivision of a state and that agrees to separately account for
amounts transferred into such plan from this plan. The
definition of eligible retirement plan shall also apply in the case of a
distribution to a surviving spouse, or to a spouse or former spouse who is
the alternate payee under a qualified domestic relations order, as defined
in Code section 414(p). However, effective for
distributions made on or after January 1, 1993 and before
January 1, 2002, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement plan is
limited to an individual retirement account or individual retirement
annuity.
|
|
(3)
|
Distributee – A
distributee includes an employee or former employee. In
addition, the employee's or former employee's surviving spouse and the
employee's or former employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in
Code section 414(p), are distributees with regard to the interest of
the spouse or former spouse.
|
|
(4)
|
Direct Rollover – A
direct rollover is a payment by the plan to the eligible retirement plan
specified by the distributee.
|
|
(5)
|
Automatic Rollovers – In
the event of a mandatory distribution greater than $1,000 in
accordance with the provisions of Section 4.2(b)(2)(A), if the
participant does not elect to have such distribution paid directly to an
eligible retirement plan specified by the participant in a direct rollover
or to receive the distribution directly in accordance with
Section 4.3(e), then the plan administrator shall pay the
distribution in a direct rollover to an individual retirement plan
designated by the plan administrator. For purposes of
determining whether a mandatory distribution is greater than $1,000,
the portion of the participant’s distribution attributable to any rollover
contribution shall be included.
|
(e)
|
Payment Election
Procedures
|
|
(1)
|
The
plan administrator clearly informs the participant that the participant
has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution
(and, if applicable, a particular distribution option),
and
|
|
(2)
|
The
participant, after receiving the notice, affirmatively elects a
distribution.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
24
|
(a)
|
Withdrawals – An
employee may withdraw amounts from his account(s) before his separation
from service only under the circumstances and only to the extent provided
below.
|
|
(A)
|
Availability of Withdrawal
Privilege – Subject to the limitations and conditions set forth
herein, an employee who has completed at least 5 years of participation in
the plan and has attained age 55 may request a transfer in one lump sum
from his vested profit sharing account to an individual retirement
account.
|
|
(B)
|
Amount of Withdrawal –
The amount that an eligible participant may withdraw from an account shall
not exceed the vested portion of such
account.
|
|
(C)
|
Request for Withdrawal –
The participant's request to withdraw shall be made in writing to the plan
administrator. The plan administrator shall approve requests on
a nondiscriminatory basis.
|
|
(A)
|
Availability of Withdrawal
Privilege – An employee who has a financial hardship may request a
lump sum withdrawal from his employee 401(k) elective deferral account,
subject to the limitations and conditions set forth
herein.
|
|
(B)
|
Amount of Withdrawal –
The amount that an eligible participant may withdraw from his account
shall not exceed the cumulative amount of his 401(k) salary deferral
contributions. Earnings thereon may not be
withdrawn.
|
|
(C)
|
Request for Withdrawal –
The participant's request to withdraw must be made in writing to the plan
administrator and shall be subject to his consent. The basis
for the plan administrator's consenting to or refusing to consent to the
participant’s request shall be demonstrated financial hardship of the
participant as described in Hardship
Withdrawals.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
25
|
|
1.
|
The
employee has obtained all distributions, other than hardship
distributions, and all nontaxable loans under all plans maintained by the
employer;
|
|
2.
|
All
plans maintained by the employer provide that the employee's elective
deferrals (and employee nondeductible contributions) will be suspended for
6 months (12 months, for hardship distributions
before 2002) after the receipt of the hardship distribution;
and
|
|
3.
|
The
distribution is not in excess of the amount of the immediate and heavy
financial need (including amounts necessary to pay any federal, state or
local income taxes or penalties reasonably anticipated to result from the
distribution).
|
|
(A)
|
A
separate account will be established with respect to each of the
participant's accounts that is subject to a vesting schedule that shall be
credited with the participant's interest in such account as of the time of
the distribution, and
|
|
(B)
|
At
any relevant time the participant's nonforfeitable portion of each such
separate account will be equal to an amount (“X”) determined by the
formula:
|
(b)
|
Participant
Loans
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
26
|
(a)
|
Single Plan
Limitations
|
(1)
|
If
the participant does not participate in, and has never participated in
another qualified plan maintained by the employer, or a welfare benefit
fund (as defined in Code section 419(e)) maintained by the employer,
or an individual medical account (as defined in Code
section 415(l)(2)) maintained by the employer, or a simplified
employee pension (as defined in Code section 408(k)) maintained by
the employer, that provides an annual addition as defined in
Section 5.1(c)(1), the amount of annual additions that may be
credited to the participant's account for any limitation year will not
exceed the lesser of the maximum permissible amount or any other
limitation contained in this plan. If the employer contribution
that would otherwise be contributed or allocated to the participant's
account would cause the annual additions for the limitation year to exceed
the maximum permissible amount, the amount contributed or allocated will
be reduced so that the annual additions for the limitation year will equal
the maximum permissible
amount.
|
|
(2)
|
Prior
to determining the participant's actual compensation for the limitation
year, the employer may determine the maximum permissible amount for a
participant on the basis of a reasonable estimation of the participant's
compensation for the limitation year, uniformly determined for all
participants similarly situated.
|
|
(3)
|
As
soon as is administratively feasible after the end of the limitation year,
the maximum permissible amount for the limitation year will be determined
on the basis of the participant's actual compensation for the limitation
year.
|
|
(4)
|
If,
pursuant to Section 5.1(a)(3) or as a result of either the allocation
of forfeitures or a reasonable error in determining the amount of elective
deferrals that may be made with respect to a participant, there is an
excess amount, the excess will be disposed of as
follows:
|
|
(A)
|
Any
employee nondeductible contributions (and any gain attributable thereto),
to the extent they would reduce the excess amount, will be returned to the
participant. Effective for plan years beginning on or after
January 1, 2006, the attributable gain allocable to the excess
amount is the sum of: (i) the income allocable to the
participant's employee nondeductible contributions for the taxable year
multiplied by a fraction, the numerator of which is such participant's
excess amount for the year and the denominator is the participant's
account balance attributable to employee nondeductible contributions
without regard to any income or loss occurring during such taxable year;
and (ii) to the extent the excess contributions are or will be
credited with gain or loss as of an accounting date within the gap period
(i.e., the period after the close of the plan year and prior to the
distribution),10% of the amount determined under (i) multiplied by
the number of whole calendar months between the end of the participant's
taxable year and the date of distribution, taking into account the month
of distribution if distribution occurs after the 15th of such
month.
|
|
(B)
|
If
after the application of Subparagraph (A) an excess amount still
exists, any elective deferrals (and any gain attributable thereto
determined in the same manner as for Section 5.1(a)(4)(A)), to the
extent they would reduce the excess amount, will be distributed to the
participant with any Roth elective deferrals being distributed prior to
any other elective deferrals.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
27
|
|
(C)
|
If
after the application of Subparagraph (B) an excess amount still
exists, the excess amount shall be allocated and reallocated to the profit
sharing account or qualified nonelective contribution account of the other
participants in the plan to the extent permissible under the limitations
of this Section 5.1.
|
|
(D)
|
If
after the application of Subparagraph (C) an excess amount still
exists, the excess amount will be held unallocated in a suspense
account. The suspense account will be applied to reduce future
employer contributions for all active participants in the next limitation
year, and each succeeding limitation year if
necessary.
|
|
(E)
|
If
a suspense account is in existence at any time during a limitation year
pursuant to this Section 5.1(a)(4), it will not participate in the
allocation of the trust's investment gains and losses. If a
suspense account is in existence at any time during a particular
limitation year, all amounts in the suspense account must be allocated and
reallocated to participants' accounts before any employer, elective
deferral, or employee nondeductible contributions may be made to the plan
for that limitation year. Excess amounts may not be distributed
to participants or former
participants.
|
(b)
|
Combined Limitations – Other
Defined Contribution Plan
|
|
(1)
|
This
Section 5.1(b) applies if, in addition to this plan, the participant
is covered under another qualified defined contribution plan maintained by
the employer, a welfare benefit fund maintained by the employer, an
individual medical account maintained by the employer, or a simplified
employee pension maintained by the employer, that provides an annual
addition as defined in Section 5.1(c)(1), during any limitation
year. The annual additions that may be credited to a
participant's account under this plan for any such limitation year will
not exceed the maximum permissible amount reduced by the annual additions
credited to a participant's account under the other qualified defined
contribution plans, welfare benefit funds, individual medical accounts,
and simplified employee pensions for the same limitation
year. If the annual additions with respect to the participant
under other qualified defined contribution plans, welfare benefit funds,
individual medical accounts, and simplified employee pensions maintained
by the employer are less than the maximum permissible amount and the
employer contribution that would otherwise be contributed or allocated to
the participant's account under this plan would cause the annual additions
for the limitation year to exceed this limitation, the amount contributed
or allocated will be reduced so that the annual additions under all such
plans and funds for the limitation year will equal the maximum permissible
amount. If the annual additions with respect to the participant
under such other qualified defined contribution plans, welfare benefit
funds, individual medical accounts, and simplified employee pensions in
the aggregate are equal to or greater than the maximum permissible amount,
no amount will be contributed or allocated to the participant's account
under this plan for the limitation
year.
|
|
(2)
|
Prior
to determining the participant's actual compensation for the limitation
year, the employer may determine the maximum permissible amount for a
participant in the manner described in
Section 5.1(a)(2).
|
|
(3)
|
As
soon as is administratively feasible after the end of the limitation year,
the maximum permissible amount for the limitation year will be determined
on the basis of the participant's actual compensation for the limitation
year.
|
|
(4)
|
If,
pursuant to Section 5.1(b)(3) or as a result of the allocation of
forfeitures, a participant's annual additions under this plan and such
other plans would result in an excess amount for a limitation year, the
excess amount will be deemed to consist of the annual additions last
allocated, except that annual additions attributable to a simplified
employee pension will be deemed to have been allocated first, followed by
annual additions to a welfare benefit fund or individual medical account,
regardless of the actual allocation
date.
|
|
(5)
|
If
an excess amount was allocated to a participant on an allocation date of
this plan that coincides with an allocation date of another plan, the
excess amount will be disposed of in the manner provided in
Section 3.1(c).
|
|
(6)
|
Any
excess amount attributed to this plan will be disposed of in the manner
described in
Section 5.1(a)(4).
|
(c)
|
Definitions (Code Section 415
Limitations)
|
|
(1)
|
Annual Additions – The
sum of the following amounts credited to a participant's account for the
limitation year: (A) employer contributions;
(B) employee contributions (excluding catch-up contributions made in
accordance with Code section 414(v)); (C) forfeitures;
(D) amounts allocated to an individual medical account (as defined in
Code section 415(l)(2)), that is part of a pension or annuity plan
maintained by the employer are treated as annual additions to a defined
contribution plan; and (E) allocations under a simplified employee
pension. Also, amounts derived from contributions paid or
accrued that are attributable to postretirement medical benefits allocated
to the separate account of a key employee (as defined in Code
section 419A(d)(3)) under a welfare benefit fund (as defined in Code
section 419(e)) maintained by the employer are treated as annual
additions to a defined contribution
plan.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
28
|
|
(2)
|
Compensation – A
participant's earned income and any earnings reportable as W-2 wages for
federal income tax withholding purposes that are paid by the
employer. W-2 wages means wages as defined in Code
section 3401(a) but determined without regard to any rules that limit
the remuneration included in wages based on the nature or location of the
employment or the services performed (such as the exception for
agricultural labor in Code
section 3401(a)(2)).
|
|
(3)
|
Defined Contribution Dollar
Limitation – $40,000, as adjusted under Code section 415(d)
for limitation years beginning after
December 31, 2002. The defined contribution dollar
limitation is $30,000, as adjusted under Code section 415(d) for
limitation years beginning before
January 1, 2003.
|
|
(4)
|
Employer – For purposes
of this Section 5.1, employer shall mean the employer as defined in
Section 1.5(b) but including all members of a controlled group of
corporations as defined in Code section 414(b) as modified by Code
section 415(h) and all commonly controlled trades or businesses as
defined in Code section 414(c) as modified by Code
section 415(h).
|
|
(5)
|
Excess Amount – The
excess of the participant's annual additions for the limitation year over
the maximum permissible amount.
|
|
(6)
|
Limitation Year – The
12-consecutive-month period defined in Section 1.3(f). All
qualified defined contribution plans maintained by the employer must use
the same limitation year. If the limitation year is amended to
a different 12-consecutive-month period, the new limitation year must
begin on a date within the limitation year in which the amendment is
made.
|
|
(7)
|
Maximum Permissible
Amount – For limitation years beginning before
January 1, 2002, the maximum annual addition that may be
contributed or allocated to a participant's account under the plan for any
limitation year shall not exceed the lesser of: (A) the
applicable defined contribution dollar limitation, or (B) 25% of the
participant's compensation for the limitation
year.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
29
|
|
(A)
|
the
defined contribution dollar limitation as defined in
Section 5.1(c)(3); or
|
|
(B)
|
100%
of the participant's compensation for the limitation
year.
|
(a)
|
Restrictions on Immediate
Distributions – If the value of a participant's vested account
balance derived from employer and employee contributions (1) in plan
years beginning before January 1, 1998, exceeded $3,500 or
(2) in plan years beginning after January 1, 1997, exceeds
$5,000 and the account balance is immediately distributable, the
participant (or where the participant has died, the participant's spouse)
must consent to any distribution of such account
balance. Effective for distributions made on or after
March 22, 1999, for the purpose of determining the value of a
participant's vested account balance, prior distributions shall be
disregarded if distributions have not commenced under an optional form of
payment described in Section 4.3. The consent of the
participant (or the participant's surviving spouse) shall be obtained in
writing within the 90-day period ending on the annuity starting
date. The annuity starting date is the first day of the first
period for which an amount is paid in any form. The plan
administrator shall notify the participant (or the participant's surviving
spouse) of the right to defer any distribution until the participant's
account balance is no longer immediately distributable. Such
notification shall include a general description of the material features,
and an explanation of the relative values of, the optional forms of
benefit available under the plan in a manner that would satisfy the notice
requirements of Code section 417(a)(3), and shall be provided no less
than 30 days and no more than 90 days prior to the annuity
starting date. However, distribution may commence less than
30 days after the notice described in the preceding sentence is
given, provided the distribution is one to which Code
sections 401(a)(11) and 417 do not apply, the plan administrator
clearly informs the participant that the participant has a right to a
period of at least 30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and, if applicable, a
particular distribution option), and the participant, after receiving the
notice, affirmatively elects a
distribution.
|
(b)
|
Safe Harbor Rules – This
Section 5.2(b) shall apply to a participant in this profit sharing
plan, and to any distribution, made on or after the first day of the first
plan year beginning after December 31, 1988, from or under a
separate account attributable solely to accumulated deductible employee
contributions, as defined in Code section 72(o)(5)(B), and maintained
on behalf of a participant in a money purchase pension plan (including a
target benefit plan). This plan satisfies and shall continue to
satisfy the following conditions:
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
30
|
|
(1)
|
The
participant may waive the spousal death benefit described in this
Section 5.2(b) at any time provided that no such waiver shall be
effective unless it satisfies the conditions of Section 5.2(c)(1)
that would apply to the participant's waiver of the qualified
preretirement survivor annuity.
|
|
(2)
|
For
purposes of this Section 5.2(b), vested account balance shall have
the same meaning as provided in
Section 5.2(c)(3).
|
(c)
|
Definitions (Code Section 417
Requirements)
|
|
(1)
|
Qualified Election – A
waiver of a qualified preretirement survivor annuity. Any
waiver of a qualified preretirement survivor annuity shall not be
effective unless: (a) the participant's spouse consents in
writing to the election; (b) the election designates a specific
beneficiary, including any class of beneficiaries or any contingent
beneficiaries, that may not be changed without spousal consent (or the
spouse expressly permits designations by the participant without any
further spousal consent); (c) the spouse's consent acknowledges the
effect of the election; and (d) the spouse's consent is witnessed by
a plan representative or notary public. If it is established to
the satisfaction of a plan representative that there is no spouse or that
the spouse cannot be located, a waiver will be deemed a qualified
election.
|
|
(2)
|
Spouse (Surviving
Spouse) – The spouse or surviving spouse of the participant,
provided that a former spouse will be treated as the spouse or surviving
spouse and a current spouse will not be treated as the spouse or surviving
spouse to the extent provided under a qualified domestic relations order
as described in Code
section 414(p).
|
|
(3)
|
Vested Account Balance –
The aggregate value of the participant's vested account balances derived
from employer and employee contributions (including rollovers), whether
vested before or upon death, including the proceeds of insurance
contracts, if any, on the participant's life. The provisions of
this Section 5.2 shall apply to a participant who is vested in
amounts attributable to employer contributions, employee contributions, or
both at the time of death or
distribution.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
31
|
(a)
|
Required Beginning Date
– The entire interest of a participant must be distributed or begin to be
distributed no later than the participant's required beginning
date.
|
(b)
|
Limits on Distribution
Periods – As of the first distribution calendar year,
distributions, if not made in a single sum, may only be made over one of
the following periods (or a combination
thereof):
|
|
(1)
|
the
life of the participant;
|
|
(2)
|
the
life of the participant and a designated
beneficiary;
|
|
(3)
|
a
period certain not extending beyond the life expectancy of the
participant; or
|
|
(4)
|
a
period certain not extending beyond the joint life and last survivor
expectancy of the participant and a designated
beneficiary.
|
(c)
|
Death of Participant Before
Distributions Begin – If the participant dies before distributions
begin, the participant's entire interest will be distributed, or begin to
be distributed, no later than as
follows:
|
|
(1)
|
If
the participant's surviving spouse is the participant's sole designated
beneficiary, then distributions to the surviving spouse will begin by
December 31 of the calendar year immediately following the calendar
year in which the participant died, or by December 31 of the calendar
year in which the participant would have attained age 70½, if
later. If the surviving spouse so elects, the participant's
entire interest will be distributed to such surviving spouse by
December 31 of the calendar year containing the fifth anniversary of
the participant's death. If no election is received,
distributions to the surviving spouse will begin by December 31 of
the calendar year in which the participant would have attained
age 70½, or the participant's entire interest will be distributed to
such surviving spouse by December 31 of the calendar year containing
the fifth anniversary of the participant's death, if
later.
|
|
(2)
|
If
the participant's surviving spouse is not the participant's sole
designated beneficiary, then distributions to the designated beneficiary
will begin by December 31 of the calendar year immediately following
the calendar year in which the participant died. If the
designated beneficiary so elects or if no election is received, the
participant's entire interest will be distributed to such designated
beneficiary by December 31 of the calendar year containing the fifth
anniversary of the participant's
death.
|
|
(3)
|
If
there is no designated beneficiary as of September 30 of the year
following the year of the participant's death, the participant's entire
interest will be distributed by December 31 of the calendar year
containing the fifth anniversary of the participant's
death.
|
|
(4)
|
If
the participant's surviving spouse is the participant's sole designated
beneficiary and the surviving spouse dies after the participant but before
distributions to the surviving spouse begin, this Section 5.3(c),
other than Section 5.3(c)(1), will apply as if the surviving spouse
were the participant.
|
(d)
|
Forms of Distribution –
Unless the participant's interest is distributed in the form of an annuity
purchased from an insurance company or in a single sum on or before the
required beginning date, as of the first distribution calendar year
distributions will be made in accordance with Subsection (2) and
(3). If the participant's interest is distributed in the form
of an annuity purchased from an insurance company, distributions
thereunder will be made in accordance with the requirements of Code
section 401(a)(9) and the Treasury
regulations.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
32
|
(e)
|
Required Minimum Distributions
During Participant's Lifetime – If a participant's benefit is to be
distributed over (1) a period not extending beyond the life
expectancy of the participant or the joint life and last survivor
expectancy of the participant and the participant's designated beneficiary
or (2) a period not extending beyond the life expectancy of the
designated beneficiary, the amount required to be distributed for each
calendar year, beginning with distributions for the first distribution
calendar year, must at least equal the quotient obtained by dividing the
participant's benefit by the applicable life
expectancy.
|
|
(1)
|
Amount of Required Minimum
Distribution For Each Distribution Calendar Year – During the
participant's lifetime, the minimum amount that will be distributed for
each distribution calendar year is the lesser
of:
|
|
(A)
|
The
quotient obtained by dividing the participant's account balance by the
distribution period in the Uniform Lifetime Table set forth in Regulation
section 1.401(a)(9)-9, using the participant's age as of the
participant's birthday in the distribution calendar year;
or
|
|
(B)
|
If
the participant's sole designated beneficiary for the distribution
calendar year is the participant's spouse, the quotient obtained by
dividing the participant's account balance by the number in the Joint and
Last Survivor Table set forth in Regulation section 1.401(a)(9)-9,
using the participant's and spouse's attained ages as of the participant's
and spouse's birthdays in the distribution calendar
year.
|
|
(2)
|
Lifetime Required Minimum
Distributions Continue Through Year of Participant's Death –
Required minimum distributions will be determined under this
Section 5.3(e) beginning with the first distribution calendar year
and up to and including the distribution calendar year that includes the
participant's date of death.
|
|
(f)
|
Required Minimum Distributions
After Participant's Death
|
|
(1)
|
Death On or After Date
Distributions Begin – If the participant dies after distribution of
his interest has begun, the remaining portion of such interest will
continue to be distributed at least as rapidly as under the method of
distribution being used prior to the participant's
death.
|
|
(A)
|
Participant Survived by
Designated Beneficiary – If the participant dies on or after the
date distributions begin and there is a designated beneficiary, the
minimum amount that will be distributed for each distribution calendar
year after the year of the participant's death is the quotient obtained by
dividing the participant's account balance by the longer of the remaining
life expectancy of the participant or the remaining life expectancy of the
participant's designated beneficiary, determined as
follows:
|
|
(i)
|
The
participant's remaining life expectancy is calculated using the age of the
participant in the year of death, reduced by one for each subsequent
year.
|
|
(ii)
|
If
the participant's surviving spouse is the participant's sole designated
beneficiary, the remaining life expectancy of the surviving spouse is
calculated for each distribution calendar year after the year of the
participant's death using the surviving spouse's age as of the spouse's
birthday in that year. For distribution calendar years after
the year of the surviving spouse's death, the remaining life expectancy of
the surviving spouse is calculated using the age of the surviving spouse
as of the spouse's birthday in the calendar year of the spouse's death,
reduced by one for each subsequent calendar
year.
|
|
(iii)
|
If
the participant's surviving spouse is not the participant's sole
designated beneficiary, the designated beneficiary's remaining life
expectancy is calculated using the age of the beneficiary in the year
following the year of the participant's death, reduced by one for each
subsequent year.
|
|
(B)
|
No Designated
Beneficiary – If the participant dies on or after the date
distributions begin and there is no designated beneficiary as of
September 30 of the year after the year of the participant's death,
the minimum amount that will be distributed for each distribution calendar
year after the year of the participant's death is the quotient obtained by
dividing the participant's account balance by the participant's remaining
life expectancy calculated using the age of the participant in the year of
death, reduced by one for each subsequent
year.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
33
|
|
(2)
|
Death Before Date Distributions
Begin
|
|
(A)
|
Participant Survived by
Designated Beneficiary – If the participant dies before the date
distributions begin and there is a designated beneficiary, the minimum
amount that will be distributed for each distribution calendar year after
the year of the participant's death is the quotient obtained by dividing
the participant's account balance by the remaining life expectancy of the
participant's designated beneficiary, determined as provided in
Section 5.3(f)(1).
|
|
(B)
|
No Designated
Beneficiary – If the participant dies before the date distributions
begin and there is no designated beneficiary as of September 30 of
the year following the year of the participant's death, distribution of
the participant's entire interest will be completed by December 31 of
the calendar year containing the fifth anniversary of the participant's
death.
|
|
(C)
|
Death of Surviving Spouse
Before Distributions to Surviving Spouse Are Required to Begin – If
the participant dies before the date distributions begin, the
participant's surviving spouse is the participant's sole designated
beneficiary, and the surviving spouse dies before distributions are
required to begin to the surviving spouse under Section 5.3(c), this
Section 5.3(f)(2) will apply as if the surviving spouse were the
participant.
|
(g)
|
Definitions (Code Section
401(a)(9) Requirements)
|
|
(1)
|
Designated Beneficiary –
The individual who is designated as the beneficiary under the plan and is
the designated beneficiary under Code section 401(a)(9) and
Regulation
section 1.401(a)(9)-4.
|
|
(2)
|
Distribution Calendar
Year – A calendar year for which a minimum distribution is
required. For distributions beginning before the participant's
death, the first distribution calendar year is the calendar year
immediately preceding the calendar year that contains the participant's
required beginning date. For distributions beginning after the
participant's death, the first distribution calendar year is the calendar
year in which distributions are required to begin pursuant to
Section 5.3(c). The required minimum distribution for the
participant's first distribution calendar year will be made on or before
the participant's required beginning date. The required minimum
distribution for other distribution calendar years, including the required
minimum distribution for the distribution calendar year in which the
participant's required beginning date occurs, will be made on or before
December 31 of that distribution calendar
year.
|
|
(3)
|
Life Expectancy – Life
expectancy as computed by use of the Single Life Table in Regulation
section 1.401(a)(9)-9.
|
|
(4)
|
Participant's Account
Balance – The account balance as of the last valuation date in the
calendar year immediately preceding the distribution calendar year
(valuation calendar year) increased by the amount of any contributions
made and allocated or forfeitures allocated to the account balance as of
dates in the valuation calendar year after the valuation date and
decreased by distributions made in the valuation calendar year after the
valuation date. The account balance for the valuation calendar
year includes any amounts rolled over or transferred to the plan either in
the valuation calendar year or in the distribution calendar year if
distributed or transferred in the valuation calendar
year.
|
|
(5)
|
Required Beginning
Date
|
|
(A)
|
Non-5% Owner – The
required beginning date is April 1 of the calendar year following the
later of: (i) the calendar year in which the participant
attains age 70½, or (ii) the calendar year in which the
participant retires.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
34
|
|
(B)
|
5% Owner – The required
beginning date for a participant who is a 5% owner is April 1 of
the calendar year following the calendar year in which the participant
attains age 70½. A participant is treated as a
5% owner for purposes of this Section 5.3(g)(5) if such
participant is a 5% owner as defined in Code section 416(i)
(determined in accordance with section 416 but without regard to
whether the plan is top-heavy) at any time during the plan year ending
with or within the calendar year in which such participant attains
age 70½.
|
|
(C)
|
Once
distributions have begun to a 5% owner under this
Section 5.3(g)(5), they must continue to be distributed, even if the
participant ceases to be a 5% owner in a subsequent
year.
|
(a)
|
Application of
Provisions – If the plan is or becomes top-heavy in any plan year
beginning after December 31, 1983, the provisions of
Section 5.4 will supersede any conflicting provisions in the
plan.
|
(b)
|
Minimum
Allocation
|
|
(1)
|
Except
as otherwise provided in Section 5.4(b)(3) and (4) below, the
employer contributions and forfeitures allocated on behalf of any
participant who is not a key employee shall not be less than the lesser of
3% of such participant's compensation or in the case where the employer
has no defined benefit plan that designates this plan to satisfy Code
section 401, the largest percentage of employer contributions and
forfeitures, as a percentage of key employee's compensation that may be
taken into account under Section 1.2(c), allocated on behalf of any
key employee for that year. For this purpose, amounts
contributed to the key employee's elective deferral account(s) shall be
included as allocations on his behalf for that year. However,
amounts contributed to a non-key employee's elective deferral account(s)
shall not be taken into account in determining whether he has received his
minimum allocation. The minimum allocation is determined
without regard to any Social Security contribution. This
minimum allocation shall be made even though, under other plan provisions,
the participant would not otherwise be entitled to receive an allocation,
or would have received a lesser allocation for the year because of
(i) the participant's failure to complete 1,000 hours of service
(or any equivalent provided in the plan), or (ii) the participant's
failure to make mandatory employee contributions to the plan, or
(iii) the participant's failure to make elective contributions to the
plan, or (iv) compensation less than a stated
amount.
|
|
(2)
|
For
purposes of computing the minimum allocation, compensation shall mean
compensation as defined in Section 5.1(c)(2), subject to the
limitations of Section 1.2(c).
|
|
(3)
|
The
provision in Section 5.4(b)(1) above shall not apply to any
participant who was not employed by the employer on the last day of the
plan year.
|
|
(4)
|
The
provision in Section 5.4(b)(1) above shall not apply to any
participant to the extent the participant is covered under any other plan
or plans of the employer and the employer has provided in Section 3.2
or 3.3 that the minimum allocation or benefit requirement applicable
to top-heavy plans will be met in the other plan or plans (including
another plan that consists solely of a cash or deferred arrangement that
meets the ADP safe harbor requirements and matching contributions with
respect to which the ACP safe harbor requirements are met). If
this plan is intended to meet the minimum allocation or benefit
requirement applicable to another plan or plans, the employer shall so
provide in Section 3.2(c) or 3.3(b), as
appropriate.
|
|
(5)
|
The
minimum allocation required (to the extent required to be nonforfeitable
under Code section 416(b)) may not be forfeited under Code
section 411(a)(3)(B) or
411(a)(3)(D).
|
|
(6)
|
Matching Contributions –
Employer matching contributions shall be taken into account for purposes
of satisfying the minimum contribution requirements of Code
section 416(c)(2) and the plan if so provided in Section 3.2(c)
or 3.3(b). The preceding sentence shall apply with respect
to matching contributions under the plan or, if the plan provides that the
minimum contribution requirement shall be met in another plan, such other
plan. Employer matching contributions that are used to satisfy
the minimum contribution requirements shall be treated as matching
contributions for purposes of the actual contribution percentage test and
other requirements of Code
section 401(m).
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
35
|
(c)
|
Adjustments in Code Section 415
Limits – If the plan is top-heavy, the defined benefit fraction and
the defined contribution fraction shall be computed by applying a factor
of 1.0 (instead of 1.25) to the applicable dollar limits under Code
section 415(b)(1)(A) and 415(c)(1)(A) for such year, unless the
plan meets the following
conditions:
|
|
(1)
|
Such
plan would not be a top-heavy plan if “90%” were substituted for “60%” in
the top-heavy tests; and
|
|
(2)
|
The
minimum employer contribution percentage under Section 5.4(b) is 4%
instead of 3%.
|
|
(3)
|
A
non-key employee who participates in this plan and in a defined benefit
plan aggregated herewith will receive in accordance with
Section 3.2(c)(2) or Section 3.3(b) either (i) a minimum
employer contribution of 7.5% under this plan or another defined
contribution plan aggregated herewith or (ii) a minimum nonintegrated
accrued benefit of 3% of average annual compensation, not to exceed a
cumulative accrued benefit of 30% under the defined benefit
plan.
|
(d)
|
Minimum Vesting Schedule
– For any plan year in which this plan is top-heavy, the following minimum
vesting schedule shall automatically apply to the
plan:
|
Years
of Service
|
Vesting
Percentage
|
|||
0–1
Year
|
0 | % | ||
2
|
20 | % | ||
3
|
40 | % | ||
4
|
60 | % | ||
5
|
80 | % | ||
6
or More Years
|
100 | % |
(e)
|
Definitions (Code Section 416
Requirements)
|
|
(1)
|
Key Employee – In
determining whether the plan is top-heavy for plan years beginning after
December 31, 2001, key employee means any employee or former
employee (and the beneficiaries of such employee) who at any time during
the determination period is an officer of the employer if such
individual's annual compensation exceeds $130,000 (as adjusted under Code
section 416(i)(1) for plan years beginning after
December 31, 2002), a 5% owner of the employer, or a
1% owner of the employer who has an annual compensation of more than
$150,000. Annual compensation means compensation as defined in
Section 5.1(c)(2), but including elective contributions as defined in
Section 1.2(a) and elective contributions under a Code
section 457 plan or a Code section 501(c)(18) plan for any plan
year and subject to the limitations of Section 1.2(c). The
determination period is the plan year containing the determination
date. In determining whether an employee is a key employee in
2002, this paragraph shall be treated as having been in effect for the
last plan year beginning before
January 1, 2002.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
36
|
|
(2)
|
Top-Heavy Plan – For any
plan year beginning after December 31, 1983, this plan is
top-heavy if any of the following conditions
exists:
|
|
(A)
|
If
the top-heavy ratio for this plan exceeds 60% and this plan is not part of
any required aggregation group or permissive aggregation group of
plans.
|
|
(B)
|
If
this plan is a part of a required aggregation group of plans but not part
of a permissive aggregation group and the top-heavy ratio for the group of
plans exceeds 60%.
|
|
(C)
|
If
this plan is a part of a required aggregation group and part of a
permissive aggregation group of plans and the top-heavy ratio for the
permissive aggregation group exceeds
60%.
|
|
(3)
|
Top-Heavy
Ratio
|
|
(A)
|
If
the employer maintains one or more defined contribution plans (including
any Simplified Employee Pension Plan) and the employer has not maintained
any defined benefit plan that during the one-year period (five-year period
in determining whether the plan is top-heavy for plan years beginning
before January 1, 2002) ending on the determination date(s) has
or has had accrued benefits, the top-heavy ratio for this plan alone or
for the required or permissive aggregation group as appropriate is a
fraction, the numerator of which is the sum of the account balances of all
key employees as of the determination date(s) including any part of any
account balance distributed in the one-year period ending on the
determination date(s) (five-year period ending on the determination date
in the case of a distribution made for a reason other than severance from
employment, death or disability and in determining whether the plan is
top-heavy for plan years beginning before January 1, 2002), and
the denominator of which is the sum of all account balances including any
part of any account balance distributed in the one-year period ending on
the determination date(s) (five-year period ending on the determination
date in the case of a distribution made for a reason other than severance
from employment, death or disability and in determining whether the plan
is top-heavy for plan years beginning before January 1, 2002),
both computed in accordance with Code section 416 and the regulations
thereunder. Both the numerator and denominator of the top-heavy
ratio are increased to reflect any contribution not actually made as of
the determination date, but which is required to be taken into account on
that date under Code section 416 and the regulations
thereunder.
|
|
(B)
|
If
the employer maintains one or more defined contribution plans (including
any Simplified Employee Pension Plan) and the employer maintains or has
maintained one or more defined benefit plans that during the one-year
period (five-year period in determining whether the plan is top-heavy for
plan years beginning before January 1, 2002) ending on the
determination date(s) has or has had any accrued benefits, the top-heavy
ratio for any required or permissive aggregation group as appropriate is a
fraction, the numerator of which is the sum of account balances under the
aggregated defined contribution plan or plans for all key employees,
determined in accordance with (A) above, and the present value of
accrued benefits under the aggregated defined benefit plan or plans for
all key employees as of the determination date(s), and the denominator of
which is the sum of the account balances under the aggregated defined
contribution plan or plans for all participants, determined in accordance
with (A) above, and the present value of accrued benefits under the
defined benefit plan or plans for all participants as of the determination
date(s), all determined in accordance with Code section 416 and the
regulations thereunder. The accrued benefits under a defined
benefit plan in both the numerator and denominator of the top-heavy ratio
are increased for any distribution of an accrued benefit made in the
one-year period ending on the determination date (five-year period ending
on the determination date in the case of a distribution made for a reason
other than severance from employment, death or disability and in
determining whether the plan is top-heavy for plan years beginning before
January 1, 2002).
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
37
|
|
(C)
|
For
purposes of Section 5.4(e)(3)(A) and (B) above the value of
account balances and the present value of accrued benefits will be
determined as of the most recent valuation date that falls within or ends
with the 12-month period ending on the determination date, except as
provided in Code section 416 and the regulations thereunder for the
first and second plan years of a defined benefit plan. The
account balances and accrued benefits of a participant (1) who is not
a key employee but who was a key employee in a prior year, or (2) who
has not been credited with at least one hour of service with any employer
maintaining the plan at any time during the one-year period (five-year
period in determining whether the plan is top-heavy for plan years
beginning before January 1, 2002) ending on the determination
date will be disregarded. The calculation of the top-heavy
ratio, and the extent to which distributions, rollovers, and transfers are
taken into account will be made in accordance with Code section 416
and the regulations thereunder. Deductible employee
contributions will not be taken into account for purposes of computing the
top-heavy ratio. When aggregating plans the value of account
balances and accrued benefits will be calculated with reference to the
determination dates that fall within the same calendar
year.
|
|
(4)
|
Permissive Aggregation
Group – The required aggregation group of plans plus any other plan
or plans of the employer that, when considered as a group with the
required aggregation group, would continue to satisfy the requirements of
Code sections 401(a)(4)
and 410.
|
|
(5)
|
Required Aggregation
Group – (1) Each qualified plan of the employer in which at
least one key employee participates or participated at any time during the
determination period (regardless of whether the plan has terminated), and
(2) any other qualified plan of the employer that enables a plan
described in (1) to meet the requirements of Code sections 401(a)(4)
or 410.
|
|
(6)
|
Determination Date – For
any plan year subsequent to the first plan year, the last day of the
preceding plan year. For the first plan year of the plan, the
last day of that year.
|
|
(7)
|
Valuation Date – The
last day of the plan year shall be the date as of which account balances
or accrued benefits are valued for purposes of calculating the top-heavy
ratio.
|
|
(8)
|
Present Value – Present
value shall be based only on the interest and mortality rates specified in
the employer’s defined benefit
plan.
|
|
(9)
|
Non-Key Employee – Any
employee who is not a key employee. Non-key employees include
employees who are former key
employees.
|
(a)
|
(1) Limit Maximum Amount of
Elective Deferrals Under Code Section
402(g)
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
38
|
|
(2)
|
Catch-up
Contributions
|
|
(A)
|
the
dollar limit on catch-up contributions under Code
section 414(v)(2)(B)(i) for the taxable year;
or
|
|
(B)
|
when
added to other elective deferrals, 85% of the participant’s compensation
for the taxable year.
|
|
(A)
|
subject
to the limits on annual additions;
|
|
(B)
|
taken
into account under the ADP test;
and
|
|
(C)
|
taken
into account in determining the minimum allocation under
Section 5.4(b); however, catch-up contributions made in prior years
shall be taken into account in determining whether the plan is
top-heavy.
|
|
(3)
|
Distribution of Excess Elective
Deferrals
|
|
(4)
|
Claims
|
|
(5)
|
Definitions (Code Section
402(g) Limitations)
|
|
(A)
|
Elective Deferrals shall
mean any employer contributions made to the plan at the election of the
participant, in lieu of cash compensation, and shall include contributions
made pursuant to a salary reduction agreement or other deferral
mechanism. With respect to any taxable year, a participant's
elective deferral is the sum of all employer contributions made on behalf
of such participant pursuant to an election to defer under any qualified
cash or deferred arrangement as described in Code section 401(k), any
salary reduction simplified employee pension described in
section 408(k)(6), any SIMPLE IRA plan described in
section 408(p), any plan as described under section 501(c)(18),
and any employer contributions made on the behalf of a participant for the
purchase of an annuity contract under section 403(b) pursuant to a
salary reduction agreement. Elective deferrals shall not
include any deferrals properly distributed as excess annual
additions.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
39
|
|
(B)
|
Excess Elective
Deferrals shall mean those elective deferrals that
either: (i) are made during the participant's taxable year
and exceed the dollar limitation under Section 5.5(a) (including, if
applicable, the dollar limitation on catch-up contributions described in
Section 5.5(a)(2)) for such year; or (ii) are made during a
calendar year and exceed such dollar limitations for the participant's
taxable year beginning in such calendar year, counting only elective
deferrals made under this plan and any other plan, contract or arrangement
maintained by the employer. Excess elective deferrals shall be
treated as annual additions under the plan, unless such amounts are
distributed no later than the first April 15 following the close of
the participant's taxable year.
|
|
(6)
|
Determination of Income or
Loss
|
(b)
|
(1) Actual Deferral Percentage
Test
|
|
(A)
|
Special Rules Applying to ADP
Test
|
|
(i)
|
A
participant is a highly compensated employee for a particular plan year if
he meets the definition of a highly compensated employee in effect for
that plan year. A participant is a non-highly compensated
employee for a particular plan year if he does not meet the definition of
a highly compensated employee in effect for that plan
year.
|
|
(ii)
|
The
ADP for any participant who is a highly compensated employee for the plan
year and who is eligible to have elective deferrals (and qualified
nonelective contributions or qualified matching contributions, or both, to
the extent treated as elective deferrals for purposes of the ADP test)
allocated to his accounts under two or more arrangements described in Code
section 401(k), that are maintained by the employer, shall be
determined as if such elective deferrals (and, to the extent taken into
account, such qualified nonelective contributions or qualified matching
contributions, or both) were made under a single
arrangement. If a highly compensated employee participates in
two or more cash or deferred arrangements of the employer that have
different plan years, all elective deferrals made during the plan year for
this plan under all such arrangements shall be aggregated. For
plan years beginning before January 1, 2006, all elective
deferrals made under all such cash or deferred arrangements ending with or
within the same calendar year shall be treated as a single
arrangement. Notwithstanding the foregoing, certain plans shall
be treated as separate if mandatorily disaggregated under regulations
under Code section 401(k).
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
40
|
|
(iii)
|
In
the event that this plan satisfies the requirements of Code
sections 401(k), 401(a)(4), or 410(b) only if aggregated with
one or more other plans, or if one or more other plans satisfy the
requirements of such sections only if aggregated with this plan, then this
Section 5.5(b)(1) shall be applied by determining the ADP of
employees as if all such plans were a single plan. If more than
10% of the employer's non-highly compensated employees are involved in a
plan coverage change as defined in Regulation
section 1.401(k)-2(c)(4), then any adjustments to the nonhighly
compensated employees' ADP for the prior year shall be made in accordance
with such regulation, unless the employer has elected in
Section 3.4(a) to use the current year testing method. For
plan years beginning after December 31, 1989, plans may be
aggregated in order to satisfy Code section 401(k) only if they have
the same plan year. For plan years beginning after
December 31, 1996, plans may be permissively aggregated in order
to satisfy Code section 401(k) only if they use the same ADP testing
method.
|
|
(iv)
|
If: (A) this
plan is not a successor plan (as defined in Regulation
section 1.401(k)-2(c)(2)(iii)), (B) this plan is not aggregated
under Regulation section 1.401(k)-1(b)(4) for such plan year with any
other plan that was or that included a Code section 401(k) plan in
the prior year, and (C) the first plan year commences after
December 31, 1996; then, in the case of the first plan year the
plan permits any participant to make elective deferrals the amount treated
as the ADP for participants who are non-highly compensated employees for
the prior plan year shall be 3% or, if the employer so elects, the ADP for
participants who are non-highly compensated employees as calculated for
such first plan year. Such election shall be set forth in
Section 3.4(a).
|
|
(v)
|
For
purposes of determining the ADP test, elective deferrals, qualified
nonelective contributions and qualified matching contributions must be
made before the last day of the twelve-month period immediately following
the plan year to which contributions relate. An elective
deferral shall be taken into account only if it relates to compensation
that either (a) would have been received by the participant in the
plan year but for the deferral election, or (b) is attributable to
services performed by the participant in the plan year and would have been
received by the participant within 2½ months after the last day of
the plan year but for the deferral
election.
|
|
(vi)
|
The
plan administrator shall maintain records sufficient to demonstrate
satisfaction of the ADP test and the amount of qualified nonelective
contributions or qualified matching contributions, or both, used in such
test.
|
|
(vii)
|
When
the current year testing method is used, qualified nonelective
contributions may be taken into account as elective deferrals only to the
extent needed to meet the ADP test. Further, qualified matching
contributions may be taken into account only to the extent such
contributions are not needed to meet the average deferral percentage test
unless it is the intention of the plan administrator to test all qualified
nonelective and matching contributions under the ADP
test.
|
(viii)
|
Effective
for plan years beginning on or after January 1, 2006, qualified
nonelective contributions cannot be taken into account for a plan year for
a non-highly compensated employee to the extent such contributions exceed
the product of that non-highly compensated employee's compensation and the
greater of 5% or two times the plan's representative contribution
rate. For this purpose, the plan's representative contribution
rate is the lowest applicable contribution rate of any eligible non-highly
compensated employee among a group of eligible non-highly compensated
employees that consists of half of all eligible non-highly compensated
employees for the plan year (or, if greater, the lowest applicable
contribution rate of any eligible non-highly compensated employee in the
group of all eligible non-highly compensated employees for the plan year
and who is employed by the employer on the last day of the plan
year).
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
41
|
|
(ix)
|
Applicable
limitations when testing changes from current year testing to prior year
testing: The ADP for the prior plan year shall be determined
taking into account only: (A) elective contributions for
non-highly compensated employees that were taken into account for purposes
of the ADP test in the prior plan year under the current plan year testing
method and (B) qualified nonelective contributions not previously
taken into account under either the ADP or ACP
test.
|
|
(x)
|
The
determination and treatment of the ADP amounts of any participant shall
satisfy such other requirements as may be prescribed by the Secretary of
the Treasury.
|
|
(B)
|
Actual Deferral
Percentage (ADP) shall mean, for a specified group of participants
(either highly compensated employees or non-highly compensated employees)
for a plan year, the average of the ratios (calculated separately for each
participant in such group) of (1) the amount of employer
contributions actually paid over to the trust on behalf of such
participant for the plan year to (2) the participant's compensation
as defined in Section 1.2(e). The actual deferral ratio of
each participant and the actual deferral percentage of each group shall be
calculated to the nearest hundredth of a percentage
point. Employer contributions on behalf of any participant
shall include: (1) any elective deferrals (other than catch-up
contributions) made pursuant to the participant's deferral election,
including excess elective deferrals of highly compensated employees, but
excluding (a) excess elective deferrals of nonhighly compensated
employees that arise solely from elective deferrals to the extent the
excess deferrals are prohibited under Code section 401(a)(30) due to
the contributions made under this plan and without taking into account
deferrals made under an unrelated employer's plan and (b) elective
deferrals that are taken into account in the actual contribution
percentage test (provided the ADP test is satisfied both with and without
exclusion of these elective deferrals); and (2) at the election of
the employer, qualified nonelective contributions and qualified matching
contributions. For purposes of computing actual deferral
percentages, an employee who would be a participant but for the failure to
make elective deferrals shall be treated as a participant on whose behalf
no elective deferrals are made. Amounts distributed under
Section 5.1(a)(4)(B) shall not be included in the calculation of the
ADP.
|
|
(2)
|
Distribution of Excess
Contributions
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Copyright © 2006 by
Conrad Siegel
Actuaries
|
42
|
|
(A)
|
Determination of Income or
Loss – Excess contributions shall be adjusted for any income or
loss. The income or loss allocable to excess contributions
allocated to each participant is the sum of: (i) the
income or loss allocable to the participant's elective deferral account(s)
(and, if applicable, the qualified nonelective contribution account or the
qualified employer matching contribution account or both) for the plan
year multiplied by a fraction, the numerator of which is such
participant's excess contributions for the year and the denominator is the
participant's account balance(s) attributable to elective deferrals (and
qualified nonelective contributions or qualified matching contributions,
or both, if any of such contributions are included in the ADP test)
without regard to any income or loss occurring during such plan year; and
(ii) effective for plan years beginning on or after
January 1, 2006, and to the extent the excess contributions are
or will be credited with gain or loss as of an accounting date within the
gap period (i.e., the period after the close of the plan year and prior to
the distribution), 10% of the amount determined under (i) multiplied by
the number of whole calendar months between the end of the plan year and
the date of distribution, counting the month of distribution if
distribution occurs after the 15th of such
month.
|
|
(B)
|
Accounting for Excess
Contributions – Excess contributions allocated to a participant
shall be distributed from the participant's elective deferral account(s)
and qualified employer matching contribution account (if applicable) in
proportion to the participant's elective deferrals and qualified matching
contributions (to the extent used in the ADP test) for the plan
year. Excess contributions shall be distributed from the
participant's qualified nonelective contribution account only to the
extent that such excess contributions exceed the balance in the
participant's elective deferral account(s) and employer matching
contribution account.
|
|
(C)
|
Excess Contributions
shall mean, with respect to any plan year, the excess
of: (i) The aggregate amount of employer contributions
actually taken into account in computing the ADP of highly compensated
employees for such plan year, over (ii) The maximum amount of such
contributions permitted by the ADP test (determined by hypothetically
reducing contributions made on behalf of highly compensated employees in
order of the ADPs, beginning with the highest of such
percentages).
|
(c)
|
(1)
Limitations on Employee and
Matching Contributions Under Code
Section 401(m)
|
|
(A)
|
Special Rules for Limitations
Under Code Section 401(m)
|
|
(i)
|
A
participant is a highly compensated employee for a particular plan year if
he meets the definition of a highly compensated employee in effect for
that plan year. A participant is a nonhighly compensated
employee for a particular plan year if he does not meet the definition of
a highly compensated employee in effect for that plan
year.
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Copyright © 2006 by
Conrad Siegel
Actuaries
|
43
|
|
(ii)
|
Multiple
Use: If one or more highly compensated employees are
subject to both the ADP test and the ACP test and the sum of the ADP and
ACP of those highly compensated employees subject to either or both tests
exceeds the aggregate limit, then for plan years beginning before
January 1, 2002 either the ADP or the ACP of those highly
compensated employees who are subject to both tests will be reduced (in
accordance with Section 5.5(b)(2) or Section 5.5(c)(2), as
applicable) so that the limit is not exceeded. The plan
administrator shall determine whether the ADP or the ACP for the plan will
be reduced for the plan year. The amount by which each highly
compensated employee's percentage is reduced shall be treated as either an
excess contribution or an excess aggregate contribution, as
appropriate. The ADP and ACP of the highly compensated
employees are determined after any corrections required to meet the ADP
and ACP tests and are deemed to be the maximum permitted under such tests
for the plan year. Multiple use does not occur if both the ADP
and ACP of the highly compensated employees does not exceed 1.25
multiplied by the ADP and ACP of the non-highly compensated
employees. Multiple use shall not occur if the ADP test is met
by satisfying the ADP safe harbor requirements of Section 5.5(f)(2)
or if the ACP test is met by satisfying the ACP safe harbor requirements
of Section 5.5(f)(3), the plan administrator meets the notice
requirements of Section 5.5(f)(4), and there are no employee
nondeductible contributions under a plan sponsored by the
employer. Restrictions on multiple use do not apply for plan
years beginning after
December 31, 2001.
|
|
(iii)
|
For
purposes of this Section 5.5(c)(1), the contribution percentage for
any participant who is a highly compensated employee and who is eligible
to have contribution percentage amounts allocated to his account under two
or more plans described in Code section 401(a), or arrangements
described in Code section 401(k) that are maintained by the employer,
shall be determined as if the total of such contribution percentage
amounts were made under each plan and arrangement. If a highly
compensated employee participates in two or more such plans or cash or
deferred arrangements that have different plan years, all contribution
percentage amounts made during the plan year for this plan under all such
plans and arrangements shall be aggregated. For plan years
beginning before January 1, 2006, all such plans and cash or
deferred arrangements ending with or within the same calendar year shall
be treated as a single arrangement. Notwithstanding the
foregoing, certain plans shall be treated as separate if mandatorily
disaggregated under regulations under Code
section 401(m).
|
|
(iv)
|
In
the event that this plan satisfies the requirements of Code
sections 401(m), 401(a)(4) or 410(b) only if aggregated with one
or more other plans, or if one or more other plans satisfy the
requirements of such sections only if aggregated with this plan, then this
Section 5.5(c)(1) shall be applied by determining the ACP of
employees as if all such plans were a single plan. If more than
10% of the employer's non-highly compensated employees are involved in a
plan coverage change as defined in Regulation
section 1.401(m)-2(c)(4), then any adjustments to the nonhighly
compensated employee ACP for the prior year shall be made in accordance
with such regulation, unless the employer has elected in Section 3.6
to use the current year testing method. For plan years
beginning after December 31, 1989, plans may be aggregated in
order to satisfy Code section 401(m) only if they have the same plan
year. For plan years beginning after
December 31, 1996, plans may be permissively aggregated in order
to satisfy Code section 401(m) only if they use the same ACP testing
method.
|
|
(v)
|
If: (A) this
plan is not a successor plan (as defined in Regulation
section 1.401(m)-2(c)(2)(iii)), (B) this plan is not aggregated
under Regulation section 1.401(m)-1(b)(4) for such plan year with any
other plan that was or that included a Code section 401(m) plan in
the prior year, and (C) the first plan year commences after
December 31, 1996; then, in the case of the first plan year this
plan permits any participant to make employee contributions, provides for
matching contributions or both the amount treated as the ACP for
participants who are non-highly compensated employees for the prior plan
year shall be 3% or, if the employer so elects, the ACP for participants
who are non-highly compensated employees as calculated for such first plan
year. Such election shall be set forth in
Section 3.6.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
44
|
|
(vi)
|
For
purposes of determining the ACP test, employee contributions are
considered to have been made in the plan year in which contributed to the
trust. Matching contributions and qualified nonelective
contributions will be considered made for a plan year if made no later
than the end of the twelve-month period beginning on the day after the
close of the plan year.
|
|
(vii)
|
The
plan administrator shall maintain records sufficient to demonstrate
satisfaction of the ACP test and the amount of qualified nonelective
contributions or qualified matching contributions, or both, used in such
test.
|
(viii)
|
Elective
deferral contributions may be taken into account; however, the ADP test
shall be met before any elective deferrals are used in the ACP test and
the elective deferrals needed to meet the ADP test shall not be used to
meet the ACP test. When the current year testing method is
used, qualified nonelective contributions shall be taken into account to
the extent such contributions are not used to meet the ADP
test.
|
(ix)
|
Effective
for plan years beginning on or after January 1, 2006, a matching
contribution with respect to an elective deferral for a non-highly
compensated employee shall not be taken into account under the ACP test to
the extent it exceeds the greatest of: (A) 5% of
compensation; (B) the employee's elective deferrals for a year; and
(C) the product of 2 times the plan's representative matching rate
and the employee's elective deferrals for a year. For this
purpose, the plan's representative matching rate is the lowest matching
rate for any eligible non-highly compensated employee among a group of
non-highly compensated employees that consists of half of all eligible
non-highly compensated employees in the plan for the plan year who make
elective deferrals for the plan year (or, if greater, the lowest matching
rate for all eligible non-highly compensated employees in the plan who are
employed by the employer on the last day of the plan year and who make
elective deferrals for the plan
year).
|
|
(x)
|
Applicable
limitations when testing changes from current year testing to prior year
testing: The ACP for the prior plan year shall be determined
taking into account only: (A) employee contributions for
non-highly compensated employees made for the prior plan year,
(B) matching contributions for non-highly compensated employees that
were taken into account for purposes of the ACP test in the prior plan
year under the current plan year testing method, and (C) qualified
nonelective contributions not previously taken into account under either
the ADP or ACP test.
|
|
(xi)
|
The
determination and treatment of the ACP amounts of any participant shall
satisfy such other requirements as may be prescribed by the Secretary of
the Treasury.
|
|
(B)
|
Definitions (Code Section
401(m) Limitations)
|
|
(i)
|
Aggregate Limit, for
plan years beginning before January 1, 2002 only, shall mean the
sum of (i) 125% of the greater of the ADP of the nonhighly
compensated employees for the prior plan year or the ACP of nonhighly
compensated employees under the plan subject to Code section 401(m)
for the plan year beginning with or within the prior plan year of the
401(k) plan and (ii) the lesser of 200% or two plus the lesser of
such ADP or ACP. “Lesser” is substituted for “greater”
in (i) above, and “greater” is substituted for “lesser” after “two
plus the” in (ii) if it would result in a larger aggregate
limit. If the employer has elected the use of the current year
testing method, then, in calculating the aggregate limit for a particular
plan year, the nonhighly compensated employees' ADP and ACP for that plan
year is used in place of the ADP and ACP for the prior plan
year.
|
|
(ii)
|
Actual Contribution
Percentage (ACP) shall mean, for a specified group of participants
(either highly compensated employees or non-highly compensated employees)
for a plan year, the average of the contribution percentages of the
eligible participants in the group.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
45
|
|
(iii)
|
Contribution Percentage
shall mean the ratio (expressed as a percentage calculated to the nearest
hundredth of a percentage point) of the participant's contribution
percentage amounts to the participant's compensation as defined in
Section 1.2(e).
|
|
(iv)
|
Contribution Percentage
Amounts shall mean the sum of the employee nondeductible
contributions, employer matching contributions and elective deferrals (to
the extent not taken into account for purposes of the ADP test) made under
the plan on behalf of the participant for the plan year. Such
contribution percentage amounts shall not include matching contributions
that are forfeited either to correct excess aggregate contributions or
because the contributions to which they relate are excess deferrals,
excess contributions, or excess aggregate
contributions. Qualified nonelective contributions may be
included in the contribution percentage amounts. Elective
deferrals may also be used in calculating the contribution percentage
amounts so long as the ADP test is met before the elective deferrals are
used in the ACP test and the ADP test continues to be met following the
exclusion of those elective deferrals that are used to meet the ACP
test. The contribution percentage amounts shall be calculated
to the nearest hundredth of a percentage point. Amounts
distributed under Section 5.1(a)(4)(A) and (B) shall not be
included in the calculation.
|
|
(v)
|
Eligible Participant
shall mean any employee who is eligible to make an employee nondeductible
contribution, or an elective deferral (if the employer takes such
contributions into account in the calculation of the contribution
percentage), or to receive an employer matching contribution (including
forfeitures). If an employee nondeductible contribution is
required as a condition of participation in the plan, any employee who
would be a participant in the plan if such employee made such a
contribution shall be treated as an eligible participant on behalf of whom
no employee contributions are made.
|
|
(vi)
|
Employee Nondeductible
Contribution (or employee contribution) shall mean any contribution
made under Section 3.5 to the plan by or on behalf of a participant
that is included in the participant's gross income in the year in which
made and that is maintained under a separate account to which earnings and
losses are allocated.
|
|
(vii)
|
Matching Contribution
shall mean an employer contribution made to this or any other defined
contribution plan on behalf of a participant on account of an employee
nondeductible contribution made by such participant, or on account of a
participant's elective deferral, under a plan maintained by the
employer.
|
|
(2)
|
Distribution of Excess
Aggregate Contributions
|
|
(A)
|
Determination of Income or
Loss – Excess aggregate contributions shall be adjusted for any
income or loss. The income or loss allocable to excess
aggregate contributions allocated to each participant is the sum
of: (i) the income or loss allocable to the participant's
employee nondeductible contribution account, employer matching
contribution account (if any, and if all amounts therein are not used in
the ADP test) and, if applicable, qualified nonelective contribution
account and elective deferral account(s) for the plan year multiplied by a
fraction, the numerator of which is such participant's excess aggregate
contributions for the year and the denominator is the participant's
account balance(s) attributable to contribution percentage amounts without
regard to any income or loss occurring during such plan year; and
(ii) effective for plan years beginning on or after
January 1, 2006, and to the extent the excess contributions are
or will be credited with gain or loss as of an accounting date within the
gap period (i.e., the period after the close of the plan year and prior to
the distribution), 10% of the amount determined under (i) multiplied by
the number of whole calendar months between the end of the plan year and
the date of distribution, counting the month of distribution if
distribution occurs after the 15th of such
month.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
46
|
|
(B)
|
Forfeitures of Excess Aggregate
Contributions – Forfeitures of excess aggregate matching
contributions may either be reallocated to the accounts of non-highly
compensated employees or applied to reduce employer contributions, as
provided in Section 3.6(e).
|
|
(C)
|
Accounting for Excess Aggregate
Contributions – Excess aggregate contributions allocated to a
participant shall be forfeited, if forfeitable or distributed on a
pro-rata basis from the participant's employee nondeductible contribution
account and employer matching contribution account (and, if applicable,
the participant's qualified nonelective contribution account or elective
deferral account(s), or both).
|
|
(D)
|
Excess Aggregate
Contributions shall mean, with respect to any plan year, the excess
of: (i) The aggregate contribution percentage amounts
taken into account in computing the numerator of the contribution
percentage actually made on behalf of highly compensated employees for
such plan year, over (ii) The maximum contribution percentage amounts
permitted by the ACP test (determined by hypothetically reducing
contributions made on behalf of highly compensated employees in order of
their contribution percentages beginning with the highest of such
percentages).
|
|
(3)
|
Required Forfeitures –
Any employer matching contribution attributable to an excess elective
deferral determined pursuant to Section 5.5(a) or an excess
contribution determined pursuant to Section 5.5(b)(2) shall be
forfeited. Any nonvested excess aggregate contribution
determined pursuant to Section 5.5(c)(2) shall also be
forfeited.
|
(d)
|
Top-Heavy
Requirements
|
(e)
|
Restrictions on Payment of
Certain Accounts
|
|
(1)
|
Such
account balances may also be distributed
upon:
|
|
(A)
|
Termination
of the plan without the employer maintaining or establishing another
defined contribution plan (other than an employee stock ownership plan (as
defined in Code section 4975(e)(7) or 409), a simplified
employee pension plan (as defined in Code section 408(k)), a SIMPLE
IRA plan (as defined in Code section 408(p)), a plan or contract
described in Code section 403(b) or a plan described in Code
section 457(b) or (f)) at any time during the period beginning
on the date of plan termination and ending 12 months after all assets
have been distributed from the plan. Such a distribution must
be made in a lump sum or through the purchase of an annuity contract that
shall be owned by the participant (if an annuity payment option is
otherwise available under
Section 4.3(b)).
|
|
(B)
|
The
attainment of age 59½ in the case of a profit sharing
plan.
|
|
(C)
|
The
hardship of the participant as described in
Section 4.4(a).
|
|
(2)
|
For
plan years beginning before 2002, such account balances could also be
distributed upon:
|
|
(A)
|
The
disposition by a corporation to an unrelated corporation of substantially
all of the assets (within the meaning of Code section 409(d)(2)) used
in a trade or business of such corporation if such corporation continues
to maintain this plan after the disposition, but only with respect to
employees who continue employment with the corporation acquiring such
assets. Such a distribution must be made in a lump
sum.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
47
|
|
(B)
|
The
disposition by a corporation to an unrelated entity of such corporation's
interest in a subsidiary (within the meaning of Code
section 409(d)(3)) if such corporation continues to maintain this
plan, but only with respect to employees who continue employment with such
subsidiary. Such a distribution must be made in a lump
sum.
|
|
(f)
|
Safe Harbor Alternative
Compliance
|
|
(1)
|
If
the plan so provides in Section 3.4(a) or Section 3.6 that the
safe harbor requirements will be met, the provisions of this
Section 5.5(f) shall apply for the plan year as provided in such
Sections and any provisions relating to the ADP test described in
Section 5.5(b) or the ACP test described in Section 5.5(c) shall
not apply. To the extent that any other provision of the plan
is inconsistent with the provisions of this Section 5.5(f), the
provisions of this Section 5.5(f) shall govern when
Section 3.4(a) or Section 3.6 so
provide.
|
|
(2)
|
ADP Test Safe Harbor
Contributions – The plan may provide in Section 3.4(a) that
the ADP test safe harbor requirements shall be satisfied by the employer
making a safe harbor employer matching contribution as provided under
Section 3.6 (or as a separate safe harbor employer matching
contribution as provided under Section 3.6A) or by the employer
making a safe harbor nonelective contribution under Section 3.3 of at
least 3% of the employee's compensation or under another defined
contribution plan sponsored by the employer. In any case, the
notice described in Section 5.5(f)(4) shall be given. The
participant's accrued benefit derived from ADP test safe harbor
contributions shall be nonforfeitable and may not be distributed earlier
than provided in Section 5.5(e), regardless of the form of the
contribution.
|
|
(3)
|
ACP Test Safe Harbor
Requirements – The plan may provide in Section 3.6 that the
ACP test safe harbor requirements shall be satisfied by the employer
making a safe harbor nonelective contribution under Section 3.3 of at
least 3% of the employee's compensation or by the employer making a
matching contribution on behalf of each eligible employee that
either:
|
|
(A)
|
is
equal to 100% of the elective contributions of the employee to the extent
such elective contributions do not exceed 3% of the employee's
compensation, plus 50% of the elective contributions of the employee to
the extent that such elective contributions exceed 3% but do not exceed 5%
of the employee's compensation; or
|
|
(B)
|
does
not increase as an employee's rate of elective contributions increase and
the aggregate amount of which shall be at least equal to the aggregate
amount of matching contributions which would be made if matching
contributions were made on the basis of the percentages described in
Section 5.5(f)(3)(A).
|
|
(4)
|
Safe Harbor Notice – If
the employer elects to satisfy the safe harbor requirements of this
Section 5.5(f), the plan administrator shall provide to each employee
eligible to participate in the plan, no less than 30 days and no more
than 90 days prior to any plan year (or his entry date in the case of
a new participant), written notice of the employee's rights and
obligations under the plan that is sufficiently accurate and comprehensive
to apprise the employee of such rights and obligations. If an
employee becomes eligible to participate after the 90th day before the
beginning of the plan year and does not receive the notice for that
reason, the notice must be provided no more than 90 days before the
employee becomes eligible but not later than the date the employee becomes
eligible.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
48
|
|
(A)
|
Contents of the Notice –
Such notice shall be written in a manner calculated to be understood by
the average employee eligible to participate hereunder. The
notice shall accurately describe: (i) the safe harbor
matching or nonelective contribution formula used under the plan
(including a description of the levels of matching contributions, if any,
available under the plan); (ii) any other contributions under the
plan (including the potential for discretionary matching contributions)
and the conditions under which such contributions are made; (iii) the
plan to which safe harbor contributions will be made if such contributions
will be made to another plan; (iv) the type and amount of
compensation that may be deferred under the plan; (v) how to make
cash or deferred elections, including any administrative requirements that
apply to such elections; (vi) the periods available under the plan
for making cash or deferred elections; and (vii) withdrawal and
vesting provisions applicable to contributions under the
plan. If eligible employees have been provided with the current
summary plan description, the written notice may instead cross-reference
the relevant portion with respect to items (ii), (iii),
and (iv); however, such notice must also provide the telephone
numbers, addresses and, if applicable, electronic addresses, of the
individuals or offices from whom employees can obtain additional
information about the plan.
|
|
(B)
|
Alternative Timing of Amendment
and Notice for Safe Harbor Nonelective Contribution – If the
employer determines that it may choose during a plan year to satisfy the
ADP test safe harbor requirements by providing a safe harbor nonelective
contribution, the plan administrator shall provide a written notice to
eligible employees before the beginning of the plan year that (i) the
plan may be amended during the plan year to provide that the employer will
make a safe harbor nonelective contribution of at least 3% to the plan for
the plan year and (ii) if the plan is so amended, a supplemental
notice will be given to eligible employees 30 days prior to the last
day of the plan year informing them of such an amendment. If
the employer elects during the plan year to satisfy the ADP test safe
harbor requirements by providing a safe harbor nonelective contribution,
the amendment shall be adopted not later than 30 days before the last
day of the plan year. The supplemental notice shall be
distributed no later than 30 days prior to the last day of the plan
year and shall state that a 3% safe harbor nonelective contribution will
be made for the plan year.
|
(a)
|
Fiduciary Standards – A
fiduciary shall discharge his duties with respect to a plan solely in the
interest of the participants and beneficiaries and
–
|
(b)
|
Allocation of Fiduciary
Responsibility
|
|
(1)
|
It
is intended to allocate to each fiduciary, either named or otherwise, the
individual responsibility for the prudent execution of the functions
assigned to him. None of the allocated responsibilities or any
other responsibilities shall be shared by two or more fiduciaries unless
specifically provided for in the
plan.
|
|
(2)
|
When
one fiduciary is required to follow the directions of another fiduciary,
the two fiduciaries shall not be deemed to share such
responsibility. Instead, the responsibility of the fiduciary
giving the directions shall be deemed to be his sole responsibility and
the responsibility of the fiduciary receiving directions shall be to
follow those directions insofar as such instructions on their face are
proper under applicable law.
|
|
(3)
|
Any
person or group of persons may serve in more than one fiduciary capacity
with respect to this plan.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
49
|
|
(4)
|
A
fiduciary under this plan may employ one or more persons, including
independent accountants, attorneys and actuaries to render advice with
regard to any responsibility such fiduciary has under the
plan.
|
(c)
|
Indemnification by
Employer – Unless resulting from the gross negligence, willful
misconduct or lack of good faith on the part of a fiduciary who is an
officer or employee of the employer, the employer shall indemnify and save
harmless such fiduciary from, against, for and in respect of any and all
damages, losses, obligations, liabilities, liens, deficiencies, costs and
expenses, including without limitation, reasonable attorney's fees and
other costs and expenses incident to any suit, action, investigation,
claim or proceedings suffered in connection with his acting as a fiduciary
under the plan.
|
(d)
|
Named Fiduciary – The
person or persons named by the employer as having fiduciary responsibility
for the management and control of plan assets shall be known as the “named
fiduciary” hereunder. Such responsibility shall include the
appointment of the plan administrator (Section 6.2(a)) and the
investment manager (Section 6.4(b)) and the deciding of benefit
appeals (Section 6.3). The employer shall retain the
authority to appoint the trustee
(Section 6.4(a)).
|
(a)
|
Appointment of Plan
Administrator
|
(b)
|
Duties and Powers of Plan
Administrator
|
|
(1)
|
To
determine in a nondiscriminatory manner all questions relating to the
eligibility of employees to become
participants.
|
|
(2)
|
To
determine in a nondiscriminatory manner eligibility for benefits and to
determine and certify the amount and kind of benefits payable to
participants.
|
|
(3)
|
To
authorize all disbursements from the
fund.
|
|
(4)
|
To
appoint or employ any independent person to perform necessary plan
functions and to assist in the fulfillment of administrative
responsibilities as he deems advisable, including the retention of a third
party administrator, custodian, auditor, accountant, actuary, or
attorney.
|
|
(5)
|
When
appropriate, to select an insurance company and annuity contracts that, in
his opinion, will best carry out the purposes of the
plan.
|
|
(6)
|
To
construe and interpret any ambiguities in the plan and to make, publish,
interpret, alter, amend or revoke rules for the regulation of the plan
that are consistent with the terms of the plan and with
ERISA.
|
|
(7)
|
To
prepare and distribute, in such manner as determined to be appropriate,
information explaining the plan.
|
(c)
|
Allocation of Fiduciary
Responsibility Within Plan Administrative
Committee
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
50
|
(d)
|
Miscellaneous
Provisions
|
|
(1)
|
Plan Administrative Committee
Actions – The actions of such committee shall be determined by the
vote or other affirmative expression of a majority of its
members. Either the chairperson or the secretary may execute
any certificate or other written direction on behalf of the
committee. A member of the committee who is a participant shall
not vote on any question relating specifically to himself. If
the remaining members of the committee, by majority vote thereof, are
unable to come to a determination of any such question, the named
fiduciary shall appoint a substitute member who shall act as a member of
the committee for the special vote.
|
|
(2)
|
Expenses – The plan
administrator shall serve without compensation for service as
such. All reasonable expenses of the plan administrator shall
be paid by the employer or from the
fund.
|
|
(3)
|
Examination of Records –
The plan administrator shall make available to any participant for
examination during business hours such of the plan records as pertain only
to the participant involved.
|
|
(4)
|
Information to the Plan
Administrator – To enable the plan administrator to perform the
administrative functions, the employer shall supply full and timely
information to the plan administrator on all participants as the plan
administrator may require.
|
(a)
|
Notification of Claim
Determination – The plan administrator shall notify each
participant in writing of his determination of benefits. If the
plan administrator denies any benefit, such written denial shall
include:
|
|
·
|
The
specific reasons for denial;
|
|
·
|
Reference
to provisions on which the denial is
based;
|
|
·
|
A
description of and reason for any additional information needed to process
the claim; and
|
|
·
|
A
description of the Plan’s review procedures and the time limits applicable
to such procedures, including a statement of the claimant’s right to bring
a civil action under ERISA section 502(a) following an adverse
benefit determination on review.
|
(b)
|
Appeal – The participant
or his duly authorized representative
may:
|
|
·
|
Make
a written request for a review of the participant's case by the named
fiduciary;
|
|
·
|
Review
upon request and free of charge, have reasonable access to, and have
copies of, all documents, records, and other information relevant to the
claimant's claim for benefits;
|
|
·
|
Submit
written issues, comments, documents, records, and other information
relating to the claim for benefits, without regard to whether such
information was submitted or considered in the initial benefit
determination.
|
|
·
|
Was
relied upon in making the benefit
determination;
|
|
·
|
Was
submitted, considered, or generated in the course of making the benefit
determination, without regard to whether such document, record, or other
information was relied upon in making the benefit determination;
or
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
51
|
|
·
|
Demonstrates
compliance with the administrative processes and safeguards required by
law in making the benefit
determination.
|
(c)
|
Appeal
Procedure
|
|
(1)
|
Except
as provided in Section 6.3(c)(2), the named fiduciary must render a
decision no later than 60 days after receiving the written request
for review, unless circumstances make it impossible to do so; but in no
event shall the decision be rendered later than 120 days after the
request for review is received. If the named fiduciary
determines that an extension of time for processing is required, written
notice of the extension shall be furnished to the claimant by the plan
administrator prior to the termination of the initial 60-day
period. The extension notice shall indicate the special
circumstances requiring an extension of time and the date by which the
plan expects to render the determination on
review.
|
|
(2)
|
If
the named fiduciary is a committee or board of trustees that holds
regularly scheduled meetings at least quarterly, Section 6.3(c)(1)
shall not apply. The named fiduciary shall instead make a
benefit determination no later than the date of the meeting of the
committee or board that immediately follows the plan's receipt of a
request for review, unless the request for review is filed within
30 days preceding the date of such meeting. In such case,
a benefit determination may be made by no later than the date of the
second meeting following the plan's receipt of the request for
review. If special circumstances require a further extension of
time for processing, a benefit determination shall be rendered not later
than the third meeting of the committee or board following the plan's
receipt of the request for review. If such an extension of time
for review is required because of special circumstances, the plan
administrator shall provide the claimant with written notice of the
extension, describing the special circumstances and the date as of which
the benefit determination will be made, prior to the commencement of the
extension. The plan administrator shall notify the claimant of
the benefit determination as soon as possible, but not later than
5 days after the benefit determination is
made.
|
|
(3)
|
The
review shall take into account all comments, documents, records, and other
information submitted by the claimant relating to the claim, without
regard to whether such information was submitted or considered in the
initial benefit determination. If the claim is denied upon
review, the written notice of denial shall include the items listed in
Section 6.3(a) and the statement required by Regulation
section 2560.503-1(j)(5)(iii) regarding the possible availability of
alternative dispute resolution
options.
|
(d)
|
Limitation on Time Period for
Litigation of a Benefit Claim – Following receipt of the written
rendering of the named fiduciary's decision under Section 6.3(c), the
participant shall have 365 days in which to file suit in the
appropriate court. Thereafter, the right to contest the
decision shall be waived.
|
(a)
|
Appointment of
Trustee
|
(b)
|
Appointment of Investment
Manager
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
52
|
(c)
|
Funding
Policy
|
(d)
|
Valuation of the
Fund
|
(e)
|
Expenses
|
(a)
|
No
amendment shall increase the duties or liabilities of the plan
administrator, the trustee, or other fiduciary without their respective
written consent.
|
(b)
|
No
amendments shall have the effect of vesting in the employer any interest
in or control over any contracts issued pursuant hereto or any other
property in the fund.
|
(c)
|
No
amendment to the plan shall be effective to the extent that it has the
effect of decreasing a participant's accrued
benefit. Notwithstanding the preceding sentence, a
participant's account balance may be reduced to the extent permitted under
Code section 412(c)(8). For purposes of this paragraph, a
plan amendment that has the effect of decreasing a participant's account
balance, with respect to benefits attributable to service before the
amendment shall be treated as reducing an accrued
benefit. Furthermore, if the vesting schedule of a plan is
amended, in the case of an employee who is a participant as of the later
of the date such amendment is adopted or the date it becomes effective,
the nonforfeitable percentage (determined as of such date) of such
employee's right to his employer-derived accrued benefit will not be less
than his percentage computed under the plan without regard to such
amendment.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
53
|
(d)
|
No
amendment to the plan shall be effective to eliminate or restrict an
optional form of benefit. The preceding sentence shall not
apply to a plan amendment that eliminates or restricts the ability of a
participant to receive payment of his or her account balance under a
particular optional form of benefit if the amendment provides a single-sum
distribution form that is otherwise identical to the optional form of
benefit being eliminated or restricted. For this purpose, a
single-sum distribution form is otherwise identical only if the single-sum
distribution form is identical in all respects to the eliminated or
restricted optional form of benefit (or would be identical except that it
provides greater rights to the participant) except with respect to the
timing of payments after
commencement.
|
(e)
|
No
amendment to the vesting schedule adopted by the employer hereunder shall
deprive a participant of his vested portion of his employer contribution
accounts to the date of such amendment. If the plan's vesting
schedule is amended, or the plan is amended in any way that directly or
indirectly affects the computation of the participant's nonforfeitable
percentage or if the plan is deemed amended by an automatic change to or
from a top-heavy vesting schedule, each participant with at least
3 years of service with the employer may elect, within a reasonable
period after the adoption of the amendment or change, to have the
nonforfeitable percentage computed under the plan without regard to such
amendment or change. For participants who do not have at least
one hour of service in any plan year beginning after
December 31, 1988, "5 years of service" shall be
substituted for "3 years of service" in the preceding
sentence. The period during which the election may be made
shall commence with the date the amendment is adopted or deemed to be made
and shall end on the latest of:
|
|
(1)
|
60 days
after the amendment is adopted;
|
|
(2)
|
60 days
after the amendment becomes effective;
or
|
|
(3)
|
60 days
after the participant is issued written notice of the amendment by the
employer or plan administrator.
|
(a)
|
When Plan Terminates –
This plan shall terminate upon the happening of any of the following
events: legal adjudication of the employer as bankrupt; a
general assignment by the employer to or for the benefit of its creditors;
the legal dissolution of the employer; or termination of the plan by the
employer.
|
(b)
|
Allocation of Assets –
Upon termination, partial termination, or complete discontinuance of
employer contributions, the account balance(s) of each affected
participant who is an active participant or who is not an active
participant but has neither received a complete distribution of his vested
accrued benefit nor incurred five one-year breaks in service shall be 100%
vested and nonforfeitable. The amount of the fund assets shall
be allocated to each participant, subject to provisions for expenses of
administration of the liquidation, in the ratio that such participant's
account(s) bears to all accounts. If a participant under this
plan has terminated his employment at any time after the first day of the
plan year in which the employer made his final contribution to the plan,
and if any portion of any account of such terminated participant was
forfeited and reallocated to the remaining participants, such forfeiture
shall be reversed and the forfeited amount shall be credited to the
account of such terminated
participant.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
54
|
(a)
|
Any
contribution made by the employer because of a mistake of fact must be
returned to the employer within one year of the
contribution.
|
(b)
|
In
the event the deduction of a contribution made by the employer is
disallowed under Code section 404, such contribution (to the extent
disallowed) must be returned to the employer within one year of the
disallowance of the deduction.
|
(c)
|
If
the Commissioner of Internal Revenue determines that the plan is not
initially qualified under the Internal Revenue Code, any contribution made
incident to that initial qualification by the employer must be returned to
the employer within one year after the date the initial qualification is
denied, but only if the application for the qualification is made by the
time prescribed by law for filing the employer's return for the taxable
year in which the plan is adopted, or such later date as the Secretary of
the Treasury may prescribe.
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
55
|
Copyright © 2006 by
Conrad Siegel
Actuaries
|
56
|
|
(4)
|
If
a participant elects to make employee nondeductible contributions or
elective deferrals that together with any contribution the employer is
obligated to make under the terms of this plan (including pursuant to any
published discretionary contribution) would otherwise cause the annual
additions for the limitation year to exceed the maximum permissible
amount, the contribution election of the participant shall be limited
before any employer contribution is reduced so that the annual additions
for the limitation year will equal the maximum permissible
amount.
|
|
(5)
|
If
an allocation date of this plan coincides with an allocation date of
another plan and the employee or employer contribution that would
otherwise be contributed or allocated to a participant's account under the
plans would cause the annual additions for the limitation year to exceed
the maximum permissible amount, Section 3.1(c) shall control which
contribution or allocation will be reduced so that the annual additions
for the limitation year will equal the maximum permissible
amount.
|
(c)
|
Limitations and
Conditions – Notwithstanding the allocation procedures set forth in
this Article, the allocations otherwise contributable to participants'
accounts under this plan shall be limited or reduced as provided in
Section 5.1.
|
|
(6)
|
Determination of Income or
Loss
|
(c)
|
Exclusive Benefit – In
compliance with the exclusive benefit requirements of Code
section 401(a), the sponsorship of this plan may not be transferred
to an unrelated entity if the transfer is not in connection with a
transfer of business assets or operations from the employer to such
entity.
|
|
(2)
|
Eligible Retirement Plan
– An eligible retirement plan is an individual retirement account
described in Code section 408(a), an individual retirement annuity
described in Code section 408(b), an annuity plan described in Code
section 403(a), or a qualified plan described in Code
section 401(a), that accepts the distributee's eligible rollover
distribution. Effective for distributions made on or after
January 1, 2002, an eligible retirement plan shall also mean an
annuity contract described in Code section 403(b) or an eligible plan
under Code section 457(b) that is maintained by a state, political
subdivision of a state, or any agency or instrumentality of a state or
political subdivision of a state and that agrees to separately account for
amounts transferred into such plan from this
plan.
|
|
(3)
|
Distributee – A
distributee includes an employee or former employee. In
addition, the employee's or former employee's surviving spouse and the
employee's or former employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in
Code section 414(p), are distributees with regard to the interest of
the spouse or former spouse. Effective for death benefit
distributions made on or after January 1, 2007, a distributee
shall include a nonspouse beneficiary but only with respect to a direct
transfer to an inherited individual retirement account or annuity that is
established on his behalf and that will be treated as an inherited
individual retirement account or annuity pursuant to the provisions of
Code section 402(c)(11).
|
(e)
|
Payment Election
Procedures
|
|
(2)
|
Compensation – A
participant's earned income and any earnings reportable as W-2 wages
for federal income tax withholding purposes that are paid by the
employer. W-2 wages means wages as defined in Code
section 3401(a) but determined without regard to any rules that limit
the remuneration included in wages based on the nature or location of the
employment or the services performed (such as the exception for
agricultural labor in Code
section 3401(a)(2)).
|
(a)
|
Restrictions on Immediate
Distributions – If the value of a participant's vested account
balance derived from employer and employee contributions(1) in plan
years beginning before January 1, 1998, exceeded $3,500 or
(2) in plan years beginning after January 1, 1997, exceeds
$5,000 and the account balance is immediately distributable, the
participant (or where the participant has died, the participant's spouse)
must consent to any distribution of such account
balance. Effective for distributions made on or after March 22,
1999, for the purpose of determining the value of a participant's vested
account balance, prior distributions shall be disregarded if distributions
have not commenced under an optional form of payment described in Section
4.3. The consent of the participant (or the participant's
surviving spouse) shall be obtained in writing within the 180-day period
ending on the annuity starting date. The annuity starting date
is the first day of the first period for which an amount is paid in any
form. The plan administrator shall notify the participant (or
the participant's surviving spouse) of the right to defer any distribution
until the participant's account balance is no longer immediately
distributable. Such notification shall include a general
description of the material features (and an explanation of the relative
values) of the optional forms of benefit available under the plan in a
manner that would satisfy the notice requirements of Code
section 417(a)(3), and shall be provided no less than 30 days
and no more than 180 days prior to the annuity starting
date. However, distribution may commence less than 30 days
after the notice described in the preceding sentence is given, provided
the distribution is one to which Code sections 401(a)(11)
and 417 do not apply, the plan administrator clearly informs the
participant that the participant has a right to a period of at least
30 days after receiving the notice to consider the decision of
whether or not to elect a distribution (and, if applicable, a particular
distribution option), and the participant, after receiving the notice,
affirmatively elects a distribution. Effective for notices
issued on or after January 1, 2007, the written explanation
shall include a description of the consequences of failing to defer
receipt of the distribution.
|
(b)
|
Safe Harbor Rules – This
Section 5.2(b) shall apply to a participant in this profit sharing
plan, and to any distribution, made on or after the first day of the first
plan year beginning after December 31, 1988, from or under a
separate account attributable solely to accumulated deductible employee
contributions, as defined in Code section 72(o)(5)(B), and maintained
on behalf of a participant in a money purchase pension plan, (including a
target benefit plan). This plan satisfies and shall continue to
satisfy the following conditions: (1) the participant
cannot elect payments in the form of a life annuity; and (2) on the
death of a participant, the participant's vested account balance will be
paid to the participant's surviving spouse, but if there is no surviving
spouse, or if the surviving spouse has consented in a manner conforming to
a qualified election, then to the participant's designated
beneficiary. The surviving spouse may elect to have
distribution of the vested account balance commence within the 180-day
period following the date of the participant's death. The
account balance shall be adjusted for gains or losses occurring after the
participant's death in accordance with the provisions of the plan
governing the adjustment of account balances for other types of
distributions.
|
(e)
|
Definitions (Code Section 416
Requirements)
|
|
(3)
|
Top-Heavy
Ratio
|
|
(A)
|
If
the employer maintains one or more defined contribution plans (including
any Simplified Employee Pension Plan) and the employer has not maintained
any defined benefit plan that during the five-year period ending on the
determination date(s) has or has had accrued benefits, the top-heavy ratio
for this plan alone or for the required or permissive aggregation group as
appropriate is a fraction, the numerator of which is the sum of the
account balances of all key employees as of the determination date(s)
including any part of any account balance distributed in the one-year
period ending on the determination date(s) (five-year period ending on the
determination date in the case of a distribution made for a reason other
than severance from employment, death or disability and in determining
whether the plan is top-heavy for plan years beginning before
January 1, 2002), and the denominator of which is the sum of all
account balances including any part of any account balance distributed in
the one-year period ending on the determination date(s) (five-year period
ending on the determination date in the case of a distribution made for a
reason other than severance from employment, death or disability and in
determining whether the plan is top-heavy for plan years beginning before
January 1, 2002), both computed in accordance with Code
section 416 and the regulations thereunder. Both the
numerator and denominator of the top-heavy ratio are increased to reflect
any contribution not actually made as of the determination date, but which
is required to be taken into account on that date under Code
section 416 and the regulations
thereunder.
|
|
(B)
|
If
the employer maintains one or more defined contribution plans (including
any Simplified Employee Pension Plan) and the employer maintains or has
maintained one or more defined benefit plans that during the five-year
period ending on the determination date(s) has or has had any accrued
benefits, the top-heavy ratio for any required or permissive aggregation
group as appropriate is a fraction, the numerator of which is the sum of
account balances under the aggregated defined contribution plan or plans
for all key employees, determined in accordance with (A) above, and
the present value of accrued benefits under the aggregated defined benefit
plan or plans for all key employees as of the determination date(s), and
the denominator of which is the sum of the account balances under the
aggregated defined contribution plan or plans for all participants,
determined in accordance with (A) above, and the present value of
accrued benefits under the defined benefit plan or plans for all
participants as of the determination date(s), all determined in accordance
with Code section 416 and the regulations thereunder. The
accrued benefits under a defined benefit plan in both the numerator and
denominator of the top-heavy ratio are increased for any distribution of
an accrued benefit made in the one-year period ending on the determination
date (five-year period in determining whether the plan is top-heavy for
plan years beginning before
January 1, 2002).
|
|
(6)
|
Determination of Income or
Loss
|
|
(A)
|
Determination of Income or
Loss – Excess contributions shall be adjusted for any income or
loss. The income or loss allocable to excess contributions
allocated to each participant is the sum of: (i) the
income or loss allocable to the participant's elective deferral account(s)
(and, if applicable, the qualified nonelective contribution account or the
qualified employer matching contribution account or both) for the plan
year multiplied by a fraction, the numerator of which is such
participant's excess contributions for the year and the denominator is the
participant's account balance(s) attributable to elective deferrals (and
qualified nonelective contributions or qualified matching contributions,
or both, if any of such contributions are included in the ADP test)
without regard to any income or loss occurring during such plan year; and
(ii) effective solely for the plan year beginning on or after
January 1, 2006 and the plan year beginning on or after
January 1, 2007, and to the extent the excess contributions are
or will be credited with gain or loss as of an accounting date within the
gap period (i.e., the period after the close of the plan year and prior to
the distribution), 10% of the amount determined under (i) multiplied by
the number of whole calendar months between the end of the plan year and
the date of distribution, counting the month of distribution if
distribution occurs after the 15th of such
month.
|
|
(A)
|
Determination of Income or
Loss – Excess aggregate contributions shall be adjusted for any
income or loss. The income or loss allocable to excess
aggregate contributions allocated to each participant is the sum
of: (i) the income or loss allocable to the participant's
employee nondeductible contribution account, employer matching
contribution account (if any, and if all amounts therein are not used in
the ADP test) and, if applicable, qualified nonelective contribution
account and elective deferral account(s) for the plan year multiplied by a
fraction, the numerator of which is such participant's excess aggregate
contributions for the year and the denominator is the participant's
account balance(s) attributable to contribution percentage amounts without
regard to any income or loss occurring during such plan year; and
(ii) effective solely for the plan year beginning on or after
January 1, 2006 and the plan year beginning on or after
January 1, 2007, and to the extent the excess contributions are
or will be credited with gain or loss as of an accounting date within the
gap period (i.e., the period after the close of the plan year and prior to
the distribution), 10% of the amount determined under (i) multiplied by
the number of whole calendar months between the end of the plan year and
the date of distribution, counting the month of distribution if
distribution occurs after the 15th of such
month.
|
AMENDMENT #3 | ||||||
TO THE | ||||||
WEIS MARKETS, INC. RETIREMENT SAVINGS PLAN | ||||||
As authorized by Section 7.2 of the Weis Markets, Inc. Retirement Savings Plan ("Plan") as amended and restated effective January 1, 2009, the employer, Weis Markets, Inc., hereby amends the Plan in the following manner: | ||||||
FIRST: Exclusions From Compensation | ||||||
Section 1.2(b)(2) is amended to exclude from pharmacist compensation amounts in excess of $65,000, regardless of the participant's years of service. As amended, Section 1.2(b)(2) shall read as follows: | ||||||
(2) | Additional Exclusions From Compensation for Profit Sharing Contribution Allocation Purposes: | |||||
|
Compensation in excess of $65,000 for Pharmacists | |||||
SECOND: Predecessor Service | ||||||
Section 1.10(c)(3) is amended to provide that employees employed by the Vestal, New York Medicine Shoppe will be credited for prior service for purposes of eligibility to participate and vesting. As amended, Section 1.10(c)(3) shall contain an additional bulleted paragraph that shall read as follows: | ||||||
|
Effective January 11, 2010, with respect to an employee employed by the predecessor employer as of the day immediately prior, service as an employee of the Vestal, New York Medicine Shoppe shall be considered as service under the plan for the purposes of determining eligibility years of service (under Section 2.1) and vesting years of service (under Section 4.1). | |||||
THIRD: Eligibility for Employer Profit Sharing Contributions | ||||||
Section 2.2(a)(1)(B) is amended to provide that all pharmacists are eligible to receive a profit sharing allocation (if they are otherwise eligible) as salaried employees. As amended 2.2(a)(1)(B) shall read as follows: | ||||||
(B) | Eligible Class of Employees - All employees of the employer except those described in (i), (ii), (iii), (iv), (v), (vi), (vii), and (viii) below shall be eligible for purposes of receiving a profit sharing allocation if employed in the following categories: Salaried Employee, Level I Department Manager, Foreman, Corporate Lead Person, Corporate Department Assistant, Corporate Administrative Assistant, Corporate Reorder Buyer, or Corporate Architectural Draftsperson. | |||||
FOURTH: Waiver of Entry Date Requirements | ||||||
Section 2.2 is amended to provide that Vestal, New York Medicine Shoppe employees are eligible to participate in the Plan as of February 22, 2010, if they are otherwise eligible to participate. As amended Section 2.2 shall contain a new subsection (c) that shall read as follows: | ||||||
(c) | Waiver of Entry Date Requirements - Effective February 22, 2010, a former employee of the Vestal, New York Medicine Shoppe who is employed by the employer during such plan year and who is a member of the eligible class of employees shall be eligible to participate in the plan as of February 22, 2010, for all purposes. | |||||
FIFTH: Effective Date | ||||||
These amendments are made effective as of January 1, 2010. | ||||||
SIXTH: Remaining Plan Provisions | ||||||
All other provisions of the Plan remain in full force and effect. | ||||||
2011 COMPLIANCE AMENDMENT | |||||
TO THE | |||||
WEIS MARKETS, INC. RETIREMENT SAVINGS PLAN | |||||
As authorized by Section 7.2 of the Weis Markets, Inc. Retirement Savings Plan ("Plan") as amended and restated effective January 1, 2009, the employer, Weis Markets, Inc., hereby amends the Plan to comply with the Workers Retirees and Employers Relief Act of 2008 effective as of January 1, 2009, and with other law and regulatory changes effective as of, or prior to, the 2011 plan year and now required to be incorporated into the Plan. This amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this amendment. The employer hereby amends the Plan in the following manner: | |||||
FIRST: Exclusions From Compensation | |||||
Section 1.2(b) is amended to remove the compensation exclusion that formerly applied to pharmacists. As amended, Section 1.2(b) shall read as follows: | |||||
(b) | Exclusions From Compensation – Notwithstanding the provisions of Section 1.2(a), the following types of remuneration shall be excluded from the participant's compensation: | ||||
|
Meal Allowances | ||||
|
Auto Personal Use | ||||
|
Sick Pay | ||||
|
Stock Appreciation Rights | ||||
|
Bonuses | ||||
SECOND: Profit Sharing Allocation Formula | |||||
Section 3.2(c)(1) is amended to change the regular profit sharing allocation formula from a unit credit to a two part discretionary formula permitting both flat dollar allocations and in ratio to compensation allocations each plan year. As amended, Section 3.2(c)(1) shall read as follows: | |||||
The employer shall make a separate profit sharing contribution for the plan year with respect to each allocation formula as described below. The trustee shall be notified by the employer in writing as to the amount being contributed with respect to each formula. Forfeitures for the plan year shall be allocated under allocation formula (B) below. For this purpose, the following allocation formulas shall be used: | |||||
(A) | The employer profit sharing contribution shall be allocated to the profit sharing account of each eligible participant in equal amounts, but not in excess of the maximum permissible amount as defined in Section 5.1(c). | ||||
(B) | The employer profit sharing contribution and forfeitures for the plan year shall be allocated to the profit sharing account of each eligible participant in the ratio that such participant's compensation bears to the compensation of all participants. | ||||
THIRD: Employer Matching Contribution Allocation Formula | |||||
Effective April 1, 2012, Section 3.6(d)(1) is amended to change the employer matching contribution allocation formula from a described formula to a fully discretionary formula. As amended, Section 3.6(d)(1) shall read as follows: | |||||
(d) | (1) | Allocation Formula – The employer matching contribution and any applicable forfeitures shall be equal to the employer matching percentage applied to the participant's contributions for each allocation period within the current plan year that are subject to matching. The employer matching percentage shall be determined each year by the employer in its own discretion. | |||
FOURTH: Definitions (Code Section 415 Limitations) – Compensation | |||||
Effective for limitation years beginning on or after January 1, 2009, Section 5.1(c)(2) is amended to comply with Code section 414(u)(12) as added by the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART) regarding differential wage payments. As amended, Section 5.1(c)(2) shall contain the following additional paragraph that shall read as follows: | |||||
For limitation years beginning after December 31, 2008, compensation for a limitation year shall include amounts paid as differential wages to a participant on qualified military service leave of more than 30 days and otherwise meeting the requirements of Code section 3401(h)(2). | |||||
FIFTH: Minimum Required Distribution Temporary Waiver for 2009 | |||||
Section 5.3 is amended to temporarily waive the minimum distribution requirement to comply with Code section 401(a)(9)(H) as added by the Workers Retirees and Employers Relief Act of 2008. As amended, the preamble of Section 5.3 shall contain an additional paragraph that shall read as follows: | |||||
With respect to calendar year 2009, the provisions of Section 5.3 shall be applied subject to Code section 401(a)(9)(H). Although the plan administrator shall calculate any required minimum distribution under Section 5.3 and pay it separately to any participant or beneficiary commencing distribution during 2009, such recipient shall be eligible to deposit such amount in a qualified employer plan or individual retirement account. Any participant (i) receiving required minimum distributions as a non-5% owner who elected to continue such distributions after January 1, 2003, or (ii) receiving or due to commence such distributions as a 5% owner shall not receive a required minimum distribution with respect to 2009 in the absence of an affirmative election. To the extent that a participant's entire interest is otherwise required to be distributed to a beneficiary by December 31 of the calendar year containing the fifth anniversary of the participant's death, such 5-year period shall be determined without regard to calendar year 2009. | |||||
SIXTH: Trust Fund Expenses | |||||
Effective as of the adoption of this amendment, Section 6.4(e) is amended to provide that although the trust fund may pay the reasonable expenses incurred in the administration of the plan and the investment of the fund, the precise handling of such expenses shall be addressed outside of the plan document. Further, certain expenses incurred with respect to a particular participant or beneficiary may be allocated against the participant's account on a direct basis. As amended, Section 6.4(e) shall read as follows: | |||||
The trust fund may pay the expenses incurred in the administration of the plan and the investment of the fund, provided the cost is reasonable. Such expenses shall include legal fees incurred by the plan administrator or the trustee, provided such fiduciaries are not proven to have committed a prohibited transaction. If the trust fund pays the expenses, the expenses generally shall be allocated against the participant accounts on a pro rata basis. Certain expenses incurred with respect to a particular participant or beneficiary may be allocated against the participant's account on a direct basis. The plan administrator shall communicate such expense charges to the participant through a written notice. | |||||
SEVENTH: Effective Date | |||||
These amendments are effective as of January 1, 2011, except as otherwise provided herein. | |||||
EIGHTH: Remaining Plan Provisions | |||||
All other provisions of the Plan remain in full force and effect. | |||||
AMENDMENT #5 | |||||
TO THE | |||||
WEIS MARKETS, INC. RETIREMENT SAVINGS PLAN | |||||
As authorized by Section 7.2 of the Weis Markets, Inc. Retirement Savings Plan ("Plan") as amended and restated effective January 1, 2009, the employer, Weis Markets, Inc., hereby amends the Plan in the following manner: | |||||
FIRST: Predecessor Service | |||||
Section 1.10(c)(3) is amended to provide that the Plan will credit for purposes of participation eligibility and vesting the predecessor employer service of individuals employed by the employer as of its acquisition of the Genuardi's Safeway stores on June 11, 2012. As amended, Section 1.10(c)(3) shall contain an additional bulleted provision that shall read as follows: | |||||
|
Effective as of the date of acquisition, with respect to an employee employed by the predecessor employer as of the day immediately prior, service as an employee of the Genuardi's Safeway stores acquired on June 11, 2012, shall be considered as service under the plan for the purposes of determining eligibility years of service (under Section 2.1) and vesting years of service (under Section 4.1) | ||||
SECOND: Waiver of Entry Date Requirements | |||||
Section 2.2 is amended to provide that the former employees of the Genuardi's Safeway stores acquired on June 11, 2012 will be permitted to participate as of specified entry period to accommodate the absorption of these personnel. As amended, Section 2.2 shall contain an additional paragraph under subsection (c) that shall read as follows: | |||||
Effective July 1, 2012, a former employee of the Genuardi's Safeway stores acquired on June 11, 2012, who is employed by the employer during such plan year shall be eligible to participate in the plan, if he is otherwise eligible, on or before August 1, 2012, but no earlier than July 1, 2012. | |||||
THIRD: Eligible Class of Employees | |||||
Section 2.2 is amended to exclude Genuardi's Safeway stores from participating in any employer profit sharing allocation prior to January 1, 2013. As amended 2.2(a)(1)(B) shall contain an additional paragraph and read as follows: | |||||
(B) | Eligible Class of Employees - All employees of the employer except those described in (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), and (ix) below shall be eligible for purposes of receiving a profit sharing allocation if employed in the following categories: Salaried Employee, Level I Department Manager, Foreman, Corporate Lead Person, Corporate Department Assistant, Corporate Administrative Assistant, Corporate Reorder Buyer, or Corporate Architectural Draftsperson. | ||||
(i) | Individuals not directly employed by the employer as defined in Section 1.5(a) shall not be eligible to receive a profit sharing contribution. An employee of the employer as that term is defined in Section 1.5(b) with respect to the sponsoring employer shall not be eligible to receive a profit sharing allocation unless such employee's direct employer affirmatively elects to become a participating employer hereunder. | ||||
(ii) | Employees who became employees as the result of a "Code section 410(b)(6)(C) transaction." These employees shall be excluded during the period beginning on the date of the transaction and ending on the last day of the first plan year beginning after the date of the transaction. A "Code section 410(b)(6)(C) transaction" is an asset or stock acquisition, merger, or similar transaction involving a change in the employer of the employees of a trade or business. | ||||
(iii) | Employees included in a unit of employees covered by a collective bargaining agreement between the employer and employee representatives shall not be eligible to receive a profit sharing allocation if retirement benefits were the subject of good faith bargaining and if less than 2% of the employees of the employer who are covered pursuant to that agreement are professionals as defined in Regulation section 1.410(b)-9(g). For this purpose, the term "employee representatives" does not include any organization more than half of whose members are employees who are owners, officers, or executives of the employer. | ||||
(iv) | Leased employees who are considered employees under the plan shall not be eligible to receive a profit sharing allocation. | ||||
(v) | Employees who are non-resident aliens (as defined in Code section 7701(b)(1)(B)) and who receive no earned income (as defined in Code section 911(d)(2)) from the employer that constitutes income from sources within the United States (as defined in Code section 861(a)(3)) shall not be eligible to receive a profit sharing allocation. | ||||
(vi) | Highly compensated employees as defined in Section 1.4(b) shall not be eligible to receive a profit sharing allocation. | ||||
(vii) | Employees of Superpetz, LLC shall not be eligible to receive a profit sharing allocation. | ||||
(viii) | Employees of Binghamton Giant Markets, Inc. shall not be eligible to receive a profit sharing allocation prior to January 1, 2010. | ||||
(ix) | Employees of Genuardi's Safeway stores shall not be eligible to receive a profit sharing allocation prior to January 1, 2013. | ||||
Notwithstanding the above eligible class of employees, the eligible class provisions of the plan before January 1, 2009 shall continue to apply to participants who received profit sharing allocations before January 1, 2009, and to employees who otherwise would have become participants in the Plan by December 31, 2009. | |||||
FOURTH: Effective Date | |||||
These amendments are made effective as of July 1, 2012. | |||||
FIFTH: Remaining Plan Provisions | |||||
All other provisions of the Plan remain in full force and effect. | |||||
2014 COMPLIANCE AMENDMENT | ||||||
TO THE | ||||||
WEIS MARKETS, INC. RETIREMENT SAVINGS PLAN | ||||||
As authorized by Section 7.2 of the Weis Markets, Inc. Retirement Savings Plan ("Plan") as amended and restated effective January 1, 2009, the employer, Weis Markets, Inc., hereby amends the Plan to comply with certain law and regulatory changes effective as of the 2013 and 2014 plan years not otherwise incorporated into the Plan. This amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this amendment. The employer hereby amends the Plan in the following manner: | ||||||
FIRST: Spouse | ||||||
In response to the overturning of the Defense of Marriage Act, 110 Stat. 2419, section 3 by the Supreme Court in United States v. Windsor, Section 1.7(c) is amended to redefine "spouse" for purposes of the Plan. As amended, Section 1.7(c) shall read as follows: | ||||||
(c) | Spouse means the person married to the participant at the time of the determination as evidenced by a marriage license valid under the laws of the place of issuance. | |||||
SECOND: Effective Date | ||||||
This amendment is effective as of June 26, 2013. | ||||||
THIRD: Remaining Plan Provisions | ||||||
All other provisions of the Plan remain in full force and effect. | ||||||
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