Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 2, 1998
AQUAPENN SPRING WATER COMPANY, INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 001-0013809 251541772
------------ ----------- ---------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
AquaPenn Spring Water Company, Inc.
One AquaPenn Drive
P.O. Box 938
Milesburg, Pennsylvania 16853
(Address of principal executive offices) (Zip Code)
(814) 355-5556
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>
General Explanation
On November 6, 1998, AquaPenn Spring Water Company, Inc. (the "Company")
filed a Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9"), which relates to the offer (the "Offer") by Zoneo Acquisition Corp.
(the "Purchaser"), a Pennsylvania corporation and an indirect subsidiary of
Groupe Danone, a French societe anonyme, to purchase all outstanding shares of
common stock, no par value (the "Shares"), of the Company at a price of $13.00
per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Purchaser's Offer to Purchase, dated November 6,
1998, and in the related Letter of Transmittal.
The Offer may expire prior to the Company's filing of its Annual Report on
Form 10-K for the year ended September 30, 1998. Accordingly, the Company is
filing this Current Report on Form 8-K to make available its consolidated
financial statements (audited) as of September 30, 1998, 1997 and 1996 before
such expiration.
Item 7. Financial Statements and Exhibits.
Financial Statements
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Table of Contents
September 30, 1998 and 1997
Independent Auditors' Report........................................F-1
Financial Statements:
Consolidated Balance Sheets................................F-2
Consolidated Statements of Operations......................F-3
Consolidated Statements of Stockholders' Equity............F-4
Consolidated Statements of Cash Flows......................F-5
Notes to Consolidated Financial Statements..........................F-7
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of
AquaPenn Spring Water Company, Inc.:
We have audited the accompanying consolidated balance sheets of AquaPenn Spring
Water Company, Inc. and subsidiaries as of September 30, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended September 30, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 AquaPenn Spring
Water Company, Inc. and subsidiaries as of September 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1998, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
State College, PA
November 23, 1998
F-1
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1998 and 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1998 1997
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,544,282 $ 687,035
Accounts receivable, net 10,482,939 3,604,524
Inventories 3,270,708 1,533,617
Prepaid expenses and other current assets 597,836 425,279
Deferred income taxes 641,800 243,400
------------ ------------
Total current assets 18,537,565 6,493,855
Property, plant, and equipment, net 42,200,878 20,030,909
Other, principally goodwill 4,797,602 55,421
------------ ------------
Total assets $ 65,536,045 $ 26,580,185
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Current portion of notes payable $ 1,146,621 $ 298,966
Accounts payable and accrued liabilities 13,247,426 3,098,571
------------ ------------
Total current liabilities 14,394,047 3,397,537
Notes payable 1,529,073 4,518,501
Deferred income taxes 1,485,560 599,800
------------ ------------
Total liabilities 17,408,680 8,515,838
------------ ------------
Stockholders' equity:
Series A, non-voting convertible preferred stock, $1 par value;
0 and 2,000,000 shares authorized, 0 and 1,713,750 shares
issued, respectively -- 1,713,750
Common stock, no par value, 100,000,000 shares authorized;
7,973,328 and 4,423,712 shares issued, respectively -- --
Additional paid-in capital 41,725,462 12,196,269
Retained earnings 6,860,682 4,242,456
Less 0 and 11,250 shares of preferred stock in treasury,
at cost, respectively -- (11,250)
Less 66,478 and 3,004 shares of common stock in treasury,
at cost, respectively (378,820) (5,000)
Less stock subscriptions receivable (79,959) (71,878)
------------ ------------
Total stockholders' equity 48,127,365 18,064,347
------------ ------------
Total liabilities and stockholders' equity $ 65,536,045 $ 26,580,185
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended September 30, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Product sales $ 58,702,341 $ 37,526,028 $ 27,931,308
Other 790,770 489,287 309,433
------------ ------------ ------------
Net revenues 59,493,111 38,015,315 28,240,741
Cost of goods sold 44,731,636 28,316,938 21,271,313
------------ ------------ ------------
Gross profit 14,761,475 9,698,377 6,969,428
------------ ------------ ------------
Selling, advertising, and promotion 7,944,152 3,318,443 2,877,139
General and administrative 2,788,499 1,808,140 1,436,341
------------ ------------ ------------
10,732,651 5,126,583 4,313,480
------------ ------------ ------------
Income from operations 4,028,824 4,571,794 2,655,948
Other income (expense):
Other income 507,320 328,180 116,484
Interest expense, net (128,356) (208,467) (297,204)
------------ ------------ ------------
378,964 119,713 (180,720)
------------ ------------ ------------
Income before income tax expense 4,407,788 4,691,507 2,475,228
Income tax expense 1,789,562 1,904,752 990,000
------------ ------------ ------------
Net income $ 2,618,226 $ 2,786,755 $ 1,485,228
============ ============ ============
Income per common share:
Basic $ .37 $ .64 $ .35
Diluted $ .34 $ .47 $ .26
============ ============ ============
Weighted average shares used in computing
income per common share:
Basic 7,072,017 4,346,212 4,255,545
Diluted 7,710,813 5,951,844 5,620,740
============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended September 30, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Convertible Common
Preferred Stock Stock
---------------------------------------
Additional Retained
Number of Number of Paid-in Earnings
Shares Par Value Shares Capital (Deficit)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1995 1,713,750 $ 1,713,750 4,208,060 $11,186,265 $ (29,527)
Issuance of Common Stock for services
rendered by the Board of Directors -- -- 10,814 54,000 --
Issuance of Common Stock
for private placement -- -- 64,886 320,569 --
Interest accrued on subscriptions receivable -- -- -- -- --
Net income -- -- -- -- 1,485,228
- ------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 1,713,750 1,713,750 4,283,760 11,560,834 1,455,701
Issuance of Common Stock for services
rendered by the Board of Directors -- -- 10,814 70,200 --
Issuance of Common Stock for
Employee Stock Purchase Plan -- -- 105,256 445,985 --
Issuance of Common Stock for Rabbi Trust -- -- 23,882 119,250 --
Interest accrued on subscriptions receivable -- -- -- -- --
Net income -- -- -- -- 2,786,755
- ------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1997 1,713,750 1,713,750 4,423,712 12,196,269 4,242,456
Issuance of Common Stock for
purchase of Castle Rock -- -- 158,900 2,065,717 --
Issuance of Common Stock and 57,076 options
relating to spring water leases -- -- 1,802 565,635 --
Issuance of Common Stock for
conversion of warrants -- -- 135,180 675,000 --
Issuance of Common Stock for
Employee Stock Purchase Plan -- -- 77,812 427,612 --
Conversion and cancellation of
Preferred Stock (1,713,750) (1,713,750) 1,022,862 1,702,500 --
Issuance of Common Stock for
offering, net of offering costs -- -- 2,000,000 23,660,520 --
Issuance of 30,268 options for services rendered
by non-employee -- -- -- 85,994 --
Treasury Stock held for Rabbi Trust -- -- -- -- --
Purchase of Treasury Stock -- -- -- -- --
Issuance of Common Stock for Option Plan -- -- 153,060 346,215 --
Issuance of Common Stock for services
rendered by the Board of Directors -- -- -- -- --
Interest accrued on subscriptions
receivable -- -- -- -- --
Net income -- -- -- -- 2,618,226
- ------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1998 -- -- 7,973,328 $41,725,462 $ 6,860,682
- ------------------------------------------------------------------------------------------------------------------------
Treasury Stock
Series A Convertible Treasury Stock
Preferred Common
--------------------------------------------------
Number of Number of Subscriptions
Shares Cost Shares Cost Receivable Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995 11,250 $ (11,250) 3,004 $ (5,000) $ (58,069) $ 12,796,169
Issuance of Common Stock for services
rendered by the Board of Directors -- -- -- -- -- 54,000
Issuance of Common Stock
for private placement -- -- -- -- -- 320,569
Interest accrued on subscriptions receivable -- -- -- -- (6,545) (6,545)
Net income -- -- -- -- -- 1,485,228
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 11,250 (11,250) 3,004 (5,000) (64,614) 14,649,421
Issuance of Common Stock for services
rendered by the Board of Directors -- -- -- -- -- 70,200
Issuance of Common Stock for
Employee Stock Purchase Plan -- -- -- -- -- 445,985
Issuance of Common Stock for Rabbi Trust -- -- -- -- -- 119,250
Interest accrued on subscriptions receivable -- -- -- -- (7,264) (7,264)
Net income -- -- -- -- -- 2,786,755
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1997 11,250 (11,250) 3,004 (5,000) (71,878) 18,064,347
Issuance of Common Stock for
purchase of Castle Rock -- -- -- -- -- 2,065,717
Issuance of Common Stock and 57,076 options
relating to spring water leases -- -- -- -- -- 565,635
Issuance of Common Stock for
conversion of warrants -- -- -- -- -- 675,000
Issuance of Common Stock for
Employee Stock Purchase Plan -- -- -- -- -- 427,612
Conversion and cancellation of
Preferred Stock (11,250) 11,250 -- -- -- --
Issuance of Common Stock for
offering, net of offering costs -- -- -- -- -- 23,660,520
Issuance of 30,268 options for services
rendered by non-employee -- -- -- -- -- 85,994
Treasury Stock held for Rabbi Trust -- -- 31,383 (166,706) -- (166,706)
Purchase of Treasury Stock -- -- 41,550 (266,233) -- (266,233)
Issuance of Common Stock for Option Plan -- -- -- -- -- 346,215
Issuance of Common Stock for services
rendered by the Board of Directors -- -- (9,459) 59,119 -- 59,119
Interest accrued on subscriptions
receivable -- -- -- -- (8,081) (8,081)
Net income -- -- -- -- -- 2,618,226
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1998 -- $ -- 66,478 $ (378,820) $ (79,959) $ 48,127,365
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended September 30, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,618,226 $ 2,786,755 $ 1,485,228
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,190,328 2,385,212 1,831,626
Provision for doubtful accounts -- -- 25,000
Provision for deferred income taxes, net 487,360 146,500 372,000
Issuance of common stock for services 59,119 70,200 54,000
Issuance of options for services rendered
by non-employee 85,994 -- --
Increase in accounts receivable (6,331,732) (809,748) (663,986)
(Increase) decrease in inventories (1,335,096) (202,229) 373,407
Increase in prepaid expenses
and other current assets (63,310) (146,684) (141,482)
Increase in other assets (72,877) (11,189) (4,615)
Increase in accounts payable
and accrued liabilities 8,560,961 576,901 232,674
------------ ------------ ------------
Net cash provided by operating activities 7,198,973 4,795,718 3,563,852
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property, plant, and equipment (22,162,936) (7,861,192) (2,949,010)
Acquisition of Castle Rock Spring Water (1,437,402) -- --
------------ ------------ ------------
Net cash used in investing activities (23,600,338) (7,861,192) (2,949,010)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 44,071,658 7,301,460 4,913,536
Repayments of notes payable (49,481,373) (4,292,457) (5,935,944)
Proceeds from exercise of stock options
and conversion of warrants 1,021,215 -- --
Proceeds from issuance of stock through employee
stock purchase plan 427,612 -- --
Proceeds from issuance of common stock 23,660,520 565,235 --
Proceeds from private stock offering, net -- -- 320,569
Interest accrued on stock subscriptions receivable (8,081) (7,264) (6,545)
Repurchase of treasury shares and treasury stock
held for Rabbi Trust (432,939) -- --
------------ ------------ ------------
Net cash provided by (used in) financing activities 19,258,612 3,566,974 (708,384)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 2,857,247 501,500 (93,542)
Cash and cash equivalents at beginning of year 687,035 185,535 279,077
------------ ------------ ------------
Cash and cash equivalents at end of year $ 3,544,282 $ 687,035 $ 185,535
============ ============ ============
</TABLE>
(Continued)
F-5
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Supplemental disclosure of cash flow information:
<S> <C> <C> <C>
Cash paid during the year for interest, net of
$349,526 in capitalized interest in 1998 $ 124,389 $ 192,299 $ 307,720
Cash paid during the period for income taxes 1,086,231 1,627,100 174,568
----------- ----------- -----------
Supplemental disclosure of non-cash investing
and financing activities:
Issuance of common stock and options
for spring site lease agreements $ 565,635 -- --
Acquisition of Castle Rock
Fair value of assets acquired $ 8,166,429 -- --
Liabilities assumed (4,663,310) -- --
Stock issued (2,065,717) -- --
----------- ----------- -----------
Cash paid $ 1,437,402 $ -- $ --
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies
Background of Business
AquaPenn Spring Water Company, Inc., (the Company) was formed as a
Pennsylvania corporation during November 1986. The Company bottles and
distributes non-sparkling natural spring water.
The Company's water products are sold to both regional and national
customers under retailers' and other customers' private labels and under
its proprietary brand labels.
Principles of consolidation
The consolidated financial statements include the financial statements of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months
or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market with cost determined
using the first-in first-out (FIFO) method.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. Depreciation and
amortization on property, plant, and equipment are provided utilizing the
straight-line method over the estimated useful lives of the related assets.
Repairs and maintenance are charged to expense and betterments are
capitalized; any gain or loss on dispositions is recognized currently.
Other Assets, Principally Goodwill
Other assets, including goodwill arising from the excess of the purchase
price over the fair value of the net assets acquired with the purchase of
Dunsmuir Bottling Company, is being amortized on a straight-line basis over
40 years. Other assets also include the value of common stock and options
issued to third parties in connection with real estate transactions
relating to the Company's spring water leases. These costs are being
amortized over 10 years. Amortization expense during fiscal 1998 associated
with goodwill and the spring water leases was $145,731.
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (Statement 121) in the beginning of fiscal 1997.
There was no impact on the consolidated statement of operations upon the
adoption of Statement 121.
(Continued)
F-7
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
(1) Continued
Under the provisions of this statement, the Company has evaluated its
long-lived assets for financial impairment, and will continue to evaluate
them as events or changes in circumstances indicate that the carrying
amount of such assets may not be fully recoverable.
Accounting Changes
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(Statement 130), which is effective for fiscal years beginning after
December 15, 1997. This Statement establishes standards for reporting and
classifying components of comprehensive income in the financial statements.
The FASB also issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
(Statement 131), which is effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for providing
disclosures related to products and services, geographic area, and major
customers. In addition, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" (Statement 132), which is effective for fiscal
years beginning after December 15, 1997. This Statement standardizes the
disclosure requirements for pensions and other postretirement benefits to
the extent practicable, requires additional information on benefit
obligations and plan assets, and suggests combined formats for presentation
of pension and other postretirement benefit disclosures. The Company
anticipates that adopting these statements in its fiscal year 1999 will
increase disclosures only and will have no material effect on the Company's
consolidated financial statements.
The FASB also issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (Statement
133), which is effective for fiscal years beginning after June 15, 1999.
This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. The Company anticipates
adopting this statement in its fiscal year 2000 and anticipates no material
effect on the Company's consolidated financial statements.
Revenue Recognition
Revenue is recognized when products are shipped.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized 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.
(Continued)
F-8
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
(1) Continued
The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the recorded amounts of revenues and
expenses during the reporting period. Actual results could differ from
these estimates.
Net Income Per Share
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(Statement 128), became effective for financial statements issued for
periods ending after December 15, 1997. During the first quarter of fiscal
1998, the Company adopted this Statement and has restated prior periods as
required. Implementation of Statement 128 did not have a material effect on
the Company's consolidated financial statements.
Statement 128 replaces the previous standards for presentation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share excludes the dilutive impact of common
stock equivalents and is computed by dividing income available to common
stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share includes the
effect of potential dilution from the exercise of common stock equivalents.
In addition, the dilutive effect of common stock equivalents is calculated
under the treasury stock method using the average market price for the
period.
A reconciliation of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution is as follows:
September 30,
----------------------------------
1998 1997 1996
---- ---- ----
Weighted average common shares
outstanding 7,072,017 4,346,212 4,255,545
Effect of dilutive securities:
Options 589,165 512,085 182,669
Warrants 49,631 70,685 159,664
Preferred stock -- 1,022,862 1,022,862
--------- --------- ---------
Average common shares outstanding
assuming dilution 7,710,813 5,951,844 5,620,740
========= ========= =========
(Continued)
F-9
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
(1) Continued
Reclassification
Certain prior year amounts have been reclassified to conform with current
year presentations.
(2) Related Party Transactions
The Company entered into the following transactions with related parties:
The Company sold product to a former corporate investor in the Company at
normal sales prices in the amount of approximately $738,000 and $696,000 in
fiscal 1997 and 1996, respectively.
The Company recorded compensation expense to a director of $250,000,
$250,000 and $214,981 in fiscal 1998, 1997 and 1996, respectively, for his
services as an independent food broker. Accrued commissions to this
director at September 30, 1998 and 1997 were $20,833 each year.
The Company had stock subscriptions receivable from a director of $79,959
and $71,878 at September 30, 1998 and 1997, respectively.
(3) Accounts Receivable
Accounts receivable consist of the following:
September 30,
--------------------------------
1998 1997
---- ----
Accounts receivable - trade $10,117,409 $ 3,676,555
Other 500,530 27,969
----------- -----------
10,617,939 3,704,524
Less allowance for doubtful accounts 135,000 100,000
----------- -----------
$10,482,939 $ 3,604,524
=========== ===========
(Continued)
F-10
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
(4) Inventories
Inventories consist of the following:
September 30,
--------------------------------
1998 1997
---- ----
Raw materials $2,613,123 $1,087,507
Finished goods 657,585 446,110
---------- ----------
$3,270,708 $1,533,617
========== ==========
(5) Property, Plant, and Equipment
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
Estimated
useful September 30,
lives in ---------------------
years 1998 1997
--------- ---- ----
<S> <C> <C> <C>
Land -- $ 1,590,870 $ 1,190,850
Land improvements 20 141,017 154,121
Buildings 30 16,799,460 7,729,748
Machinery and equipment 3-20 30,590,256 13,941,998
Transportation equipment 3-5 673,486 497,943
Construction in progress -- 1,811,767 2,877,630
---- ----------- -----------
51,606,856 26,392,290
Less accumulated depreciation and amortization 9,405,978 6,361,381
----------- -----------
$42,200,878 $20,030,909
=========== ===========
</TABLE>
Property held for rental is classified as property, plant, and equipment.
This property relates to the Company's former manufacturing facility in
State College, Pennsylvania which has a net book value of approximately
$1,128,000, which is net of approximately $539,000 in accumulated
depreciation at September 30, 1998.
Interest costs for the construction and purchase of certain long-term
assets were capitalized and will be amortized over the related assets'
estimated useful lives. The Company capitalized interest costs of $349,526,
$0 and $0 in fiscal 1998, 1997 and 1996, respectively.
Total depreciation and amortization expense relating to property, plant,
and equipment was $3,044,597, $2,385,212 and $1,831,626 in fiscal 1998,
1997 and 1996, respectively.
(Continued)
F-11
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
(6) Notes Payable
<TABLE>
<CAPTION>
September 30,
---------------------
1998 1997
---- ----
<S> <C> <C>
Unsecured note payable to a bank, $10,000,000 revolving credit
note, interest at London Interbank Offered Rate (LIBOR)
plus 1.15% (6.537% at September 30, 1998), requires interest
only through February 1999 with principal and interest due
monthly thereafter with maturity in 2004 $ 22,839 $2,900,000
Mortgage funding payable in monthly installments of principal
and interest to the Pennsylvania Industrial
Development authority at an interest rate of 5%,
due through May 2011 1,610,439 1,700,383
Note payable to a bank, $6,000,000 line of credit at LIBOR
plus 1.0% (6.344% at September 30, 1998), payable
on demand and requires a negative pledge of the
Company's accounts receivable and inventories -- 200,000
Various installment loan obligations at interest rates between
9.0% and 11.9%, due through March 2001, payable to
various companies, and secured by machinery and
equipment 29,933 15,624
Unsecured note payable to a bank, $6,000,000 line of credit,
interest at LIBOR plus .95% (6.337% at September 30,
1998), and is due February 1999 1,012,483 1,460
---------- ----------
2,675,694 4,817,467
Less portion due within one year 1,146,621 298,966
---------- ----------
$1,529,073 $4,518,501
========== ==========
</TABLE>
During fiscal year 1998, the Company obtained a $10,000,000 revolving
credit note with a bank. Interest is calculated at LIBOR plus 1/2% adjusted
based on outstanding balance. The balance on the note was $0 as of
September 30, 1998.
During fiscal year 1998, the Company obtained a $6,000,000 revolving credit
note with a bank. Interest is calculated at LIBOR plus 1/2% adjusted based
on outstanding balance. The balance on the note was $0 as of September 30,
1998.
Interest expense, net of capitalized interest, was $128,356 in fiscal 1998.
Interest expense was $208,467 and $297,204 in fiscal 1997 and 1996,
respectively. Interest expense is recorded in other income (expense) in the
consolidated statements of operations.
(Continued)
F-12
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
(6) Continued
Based on current payment terms, the required principal reduction of the
above debt is as follows:
Year ending
September 30, Amount
------------- ------
1999 $1,146,621
2000 107,000
2001 108,000
2002 109,000
2003 115,000
Thereafter 1,090,073
---------- ----------
$2,675,694
=========== ==========
(7) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
September 30,
---------------------------
1998 1997
---- ----
Accounts payable $ 6,238,489 $ 1,021,471
Accrued expenses 5,019,747 860,825
Accrued payroll 423,415 142,224
Income taxes payable 1,084,443 822,322
Other 481,332 251,729
----------- -----------
$13,247,426 $ 3,098,571
=========== ===========
(8) Employee Benefit Plan
Effective March 1, 1994, the Company adopted a deferred 401(k) Salary
Savings Plan for the benefit of its employees and their beneficiaries.
Generally, any employee who has completed six months of service and is over
21 years of age is eligible to participate in the Plan. Each eligible
employee may elect to contribute up to 15% of his or her compensation for
services rendered in any year. The Company matches employee contributions
in an amount equal to 100% of the first 1%, 75% of the second 1% and 50% of
the third 1% of each participant's contributions. The Company contributed
approximately $75,000, $52,000 and $24,000 in fiscal 1998, 1997 and 1996,
respectively, to this plan.
(Continued)
F-13
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
(9) Sales to Major Customers
During fiscal 1998, sales to two customers accounted for approximately 14%
and 12% of net revenues. During fiscal 1997, sales to two customers
accounted for approximately 15% and 11% of net revenues. During fiscal
1996, sales to one customer accounted for approximately 23% of net
revenues.
(10) Income Taxes
The provision for income taxes attributable to income from operations
consists of the following:
1998 1997 1996
---- ---- ----
Currently payable:
Federal $1,034,362 $1,452,000 $ 483,900
State 340,100 306,252 134,100
---------- ---------- ----------
1,374,462 1,758,252 618,000
---------- ---------- ----------
Deferred (benefit):
Federal 306,400 108,100 274,600
State 108,700 38,400 97,400
---------- ---------- ----------
415,100 146,500 372,000
---------- ---------- ----------
$1,789,562 $1,904,752 $ 990,000
========== ========== ==========
Total income tax expense was $1,789,562, $1,904,752 and $990,000 for the
years ended September 30, 1998, 1997 and 1996, respectively, and differed
from the amounts computed by applying the U.S. Federal income tax rate of
35% to pretax income as a result of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 1,542,726 $ 1,642,027 $ 866,330
State income tax, net of federal benefit 291,720 224,024 150,475
Change in valuation allowance -- -- (27,000)
Other, net (44,884) 38,701 195
----------- ----------- -----------
$ 1,789,562 $ 1,904,752 $ 990,000
=========== =========== ===========
</TABLE>
(Continued)
F-14
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
(9) Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1998 and 1997 are presented below:
1998 1997
---- ----
Deferred tax assets:
Accounts receivable, due to allowance
for doubtful accounts $ 54,800 $ 40,600
Inventories 120,100 70,100
Deferred compensation 81,700 62,500
Net operating loss carry-forwards 77,200 5,300
Accruals for financial reporting purposes 425,959 116,277
Other 40,941 15,223
---------- ----------
Total gross deferred tax assets 800,700 310,000
Less valuation allowance -- --
---------- ----------
Net deferred tax assets 800,700 310,000
---------- ----------
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation 1,644,460 662,400
Other -- 4,000
---------- ----------
Total gross deferred tax liabilities 1,644,460 666,400
---------- ----------
Net deferred tax liability $ 843,760 $ 356,400
========== ==========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. Based on the weight of all available evidence, management
believes it is more likely than not the Company will realize the benefits
of these deductible temporary differences and that a valuation allowance is
not necessary at September 30, 1998.
At September 30, 1998, the Company has a Florida net operating loss
carry-forward for state income tax purposes of approximately $1,400,000
which is available, subject to limitation, to offset future Florida taxable
income, if any, through the fiscal year ending September 30, 2013.
(Continued)
F-15
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
(10) Commitments
The Company rents certain land, office equipment and transportation
equipment under non-cancelable operating leases. Rent expense for these
leases amounted to approximately $271,000, $138,000 and $152,000 for fiscal
1998, 1997 and 1996 respectively. The future minimum annual rent
commitments under these leases are approximately as follows:
Year Ending
September 30, Amount
------------- ------
1999 $389,000
2000 180,000
2001 89,000
2002 90,000
2003 78,000
Thereafter --
---------- --------
$826,000
========
The Company has made certain commitments for building improvements and
equipment. As of September 30, 1998, the open commitments are approximately
$3,400,000.
(12) Year 2000
The Company is currently engaged in the ongoing process of evaluating its
information technology infrastructure for year 2000. In addition, the
Company expects to correspond in the near future with its principal
customers, suppliers, vendors and subcontractors to ascertain their
readiness for the year 2000. While the total estimated cost of these
efforts is difficult to predict with accuracy, based on a preliminary
evaluation, the Company believes that there should not be a material
adverse impact on its operating results or financial condition. However,
year 2000 issues could have a significant impact on the Company's
operations and its financial results if modifications cannot be completed
on a timely basis, unforeseen needs or problems arise, or if there are
unforeseen compliance problems with the systems operated by others. Upon
final completion of the evaluation of its information technology
infrastructure for year 2000, the Company will establish a contingency plan
detailing how the Company will handle unforeseen or unusual problems.
(13) Stockholders' Equity
Common Stock
In January 1998, the Company completed the issuance of an additional
2,000,000 common shares through a public offering, resulting in net
proceeds (after deducting issuance costs) of $23,660,520. The
(Continued)
F-16
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
(13) Continued
proceeds of the offering were used to repay certain borrowings, to finance
certain construction projects and acquire Dunsmuir Bottling Company (see
note 15). All share and per share data gives effect to the occurrence of
the 0.6008-for-one Board authorized reverse stock split of each outstanding
share of common stock of the Company on the date of the public offering.
In July 1998, the Board of Directors approved a stock repurchase program.
Under this program, the Company has the authority to repurchase up to a
total of 500,000 shares of the Company's Common Stock as and when
determined to be reasonable as business conditions dictate. At September
30, 1998, 41,550 shares had been purchased under this program by the
Company.
Stock Options
The Company maintains various stock option agreements and plans. Stock
options have been granted at prices at or above the fair market value as of
the date of grant. Options vest and expire according to terms established
at the grant date.
In fiscal year 1997, the Company adopted the disclosure requirements of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Statement 123). As allowed by Statement 123, the Company has
chosen to continue to account for stock based compensation using Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price
of the Company's stock at the grant date over the amount an employee must
pay to acquire the stock. Accordingly, no compensation cost has been
recognized. Had compensation cost for the Company's plans been determined
under Statement 123, the Company's net income and net income per share
would have been reduced to the pro forma amounts indicated below:
September 30,
-----------------------------------------
1998 1997 1996
---- ---- ----
Net income:
As reported $ 2,618,000 $ 2,787,000 $ 1,485,000
Pro forma $ 2,401,000 $ 2,247,000 1,104,000
Net income per share:
Basic
As reported $ .37 $ .64 $ .35
Pro forma $ .34 $ .52 $ .26
Diluted
As reported $ .34 $ .47 $ .26
Pro forma $ .31 $ .38 $ .20
- --------------------------------------------------------------------------------
(Continued)
F-17
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
(13) Continued
The 1998 and 1997 pro forma amounts include the effect of the shares issued
under the Stock Purchase Plan as if they were accounted for under Statement
123.
The per share weighted-average fair values of stock options granted during
fiscal years 1998 and 1997 were $3.56 and $6.75, respectively, on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: fiscal year 1998 expected dividend yield 0%,
risk-free interest rate of 5.428%, a volatility factor of the expected
market price of the Company's common stock of .5226, and a weighted-average
expected life of approximately 10 years; fiscal year 1997 expected dividend
yield 0%, risk-free interest rate of 5.945%, a volatility factor of the
expected market price of the Company's common stock of .4166, and a
weighted-average expected life of approximately 10 years.
The fair value of stock options included in the pro forma amounts for
fiscal years 1998 and 1997 is not necessarily indicative of future effects
on net income and net income per share.
A summary of the status of the Company's stock option plans as of September
30, 1998, 1997 and 1996 and changes during the years ended on those dates
is presented below:
<TABLE>
<CAPTION>
Fiscal years ended: September 30, 1998 September 30, 1997 September 30, 1996
---------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 832,108 $ 3.87 696,928 $ 2.45 570,760 $ 1.89
Granted 244,520 7.37 135,180 11.17 126,168 4.99
Exercised (153,060) 2.26 -- -- -- --
Cancelled (90,120) 12.60 -- -- -- --
------- --------- ------- --------- ------- --------
Outstanding at
end of year 833,448 $ 4.24 832,108 $ 3.87 696,928 $ 2.45
======= ========= ======= ========= ======= ========
Options exercisable
at year-end 833,448 $ 4.24 832,108 $ 3.87 696,928 $ 2.45
======= ========= ======= ========= ======= ========
</TABLE>
(Continued)
F-18
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
(13) Continued
The following table summarizes information about the Company's stock option
plans as of September 30, 1998:
<TABLE>
<CAPTION>
Options Exercisable
Weighted ---------------------------------------
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Outstanding Exercise
Price September 30, 1998 Life Price September 30, 1998 Price
- ----------- ------------------ ----------- -------- ------------------ --------
<S> <C> <C> <C> <C> <C>
$ 4.99 17,988 3 years $ 4.99 17,988 $ 4.99
13.00 27,264 5 years 13.00 27,264 13.00
1.66-1.90 435,760 6 years 1.88 435,760 1.88
4.99-9.22 262,316 9 years 6.93 262,316 6.93
5.31 90,120 10 years 5.31 90,120 5.31
- ----------- ------- -------- --------- ------- --------------
$1.66-13.00 833,448 833,448
=========== ======= =======
</TABLE>
Series A Non-Voting Convertible Preferred Stock
During fiscal 1998, all of the Company's series A non-voting convertible
preferred stock (the preferred stock) was converted into shares of the
Company's common stock. The preferred stock was cancelled upon conversion.
(14) Stock Purchase Plan
Under the terms of the Company's Stock Purchase Plan, eligible employees
may purchase shares of the Company's common stock at 85% of the estimated
fair market value at the offering date. At September 30, 1998, there were
37,681 shares set aside for eligible employees under this plan of which
37,681 shares had been subscribed for at $8.50 per share. In addition,
2,224 shares were purchased by employees during the year ended September
30, 1998.
Payment for the subscribed shares must be made by March 30, 1999.
Under the terms of the Company's Stock Purchase Plan, a total of 75,588
shares of common stock were issued during fiscal 1998 at $5.41 per share
for a total of $408,708. Of this amount, the Company is contingently liable
for $371,253 as a result of bank loans guaranteed by the Company.
(Continued)
F-19
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
(15) Acquisition of Dunsmuir Bottling Company, Inc. (Unaudited)
On October 15, 1997, the Company entered into a merger agreement to
purchase all of the stock of Dunsmuir Bottling Company, Inc. ("Dunsmuir",
also known as Castle Rock Spring Water). Under terms of this agreement, the
Company purchased Dunsmuir for approximately $1,437,000 in cash and
approximately $2,066,000 in shares of common stock at $13.00 per share plus
the assumption of $4,663,000 in Dunsmuir's liabilities.
The following unaudited pro forma, condensed, financial information assumes
the acquisition occurred at the beginning of fiscal 1997. This financial
information does not purport to be indicative of what would have occurred
had the acquisition been made at the beginning of fiscal 1997, or of the
results which may occur in the future. Pro forma results are not presented
for fiscal 1998 as pro forma results are not materially different from
actual results presented.
Pro
forma
-----
Sales $ 45,819,000
Gross profit 11,428,000
Other costs and expenses 9,109,000
------------
Net income $ 2,319,000
============
Earnings per share:
Basic $ .51
Diluted $ .38
(16) Subsequent Event
On November 2, 1998, the Company entered into an agreement and plan of
merger ("the Merger Agreement") with Groupe Danone ("the Parent") and Zoneo
Acquisition Corp. ("the Purchaser"), an indirect subsidiary of the Parent.
Under terms of the Merger Agreement, the Purchaser has commenced a tender
offer to acquire all the issued and outstanding shares of the Company's
common stock for $13.00 per share in cash. If the Purchaser does not
acquire at least 80% of the then outstanding shares in its tender offer,
which is initially scheduled to expire on December 7, 1998, the Merger
Agreement and the Merger must be approved by the shareholders of the
Company at a special meeting. The Company's Board of Directors has
unanimously approved the Merger Agreement.
F-20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
AQUAPENN SPRING WATER COMPANY, INC.
By: /s/ Edward J. Lauth, III
--------------------------
December 2, 1998 Name: Edward J. Lauth, III
Title: President and Chief Executive Officer
