<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: July 4, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission FILE NUMBER: 1-11012
GLACIER WATER SERVICES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 33-0493559
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2261 Cosmos Court, Carlsbad, California 92009
- -----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(760) 930-2420
----------------------------------------------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of issuer's class of
common stock as of the latest practicable date: 3,226,075 shares of common
stock, $.01 par value, outstanding at July 31, 1997.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GLACIER WATER SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
JULY 4, DECEMBER 31,
1997 1996*
----------- ------------
ASSETS (unaudited)
Current assets:
Cash . . . . . . . . . . . . . . . . . . . $ 10 $ 11
Accounts receivable. . . . . . . . . . . . 183 311
Inventories. . . . . . . . . . . . . . . . 2,153 2,946
Prepaid commissions and other. . . . . . . 1,379 1,084
-------- --------
Total current assets. . . . . . . . . 3,725 4,352
Property and equipment, net of
accumulated depreciation . . . . . . . . . . . 48,128 36,754
Other assets. . . . . . . . . . . . . . . . . . 6,698 4,961
-------- --------
Total assets. . . . . . . . . . . . . . . . . . $ 58,551 $ 46,067
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . $ 1,026 $ 640
Accrued commissions. . . . . . . . . . . . 2,061 988
Accrued liabilities. . . . . . . . . . . . 1,822 1,654
-------- --------
Total current liabilities . . . . . . 4,909 3,282
Long-term debt. . . . . . . . . . . . . . . . . 26,241 15,820
Deferred income taxes . . . . . . . . . . . . . 2,979 2,979
Stockholders' equity:
Preferred stock, $.01 par value;
100,000 shares authorized,
no shares issued or outstanding -- --
Common stock, $.01 par value;
10,000,000 shares authorized, 3,223,825 and
3,208,575 shares issued and outstanding,
respectively . . . . . . . . . . . . . 34 34
Additional paid-in capital. . . . . . . . . . . 15,433 15,284
Retained earnings . . . . . . . . . . . . . . . 12,518 12,231
Treasury stock; 170,500 shares, at cost . . . . (3,563) (3,563)
-------- --------
Total stockholders' equity. . . . . . . . . 24,422 23,986
-------- --------
Total liabilities and stockholders' equity . . . $ 58,551 $ 46,067
-------- --------
-------- --------
* Amounts derived from audited information
See accompanying notes
2
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except shares and per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 4, JUNE 30, JULY 4, JUNE 30,
1997 1996 1997 1996
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,038 $ 12,036 $ 27,214 $ 22,051
Operating costs and expenses:
Operating expenses. . . . . . . . . . . . . . . . . . . . . 9,834 7,406 16,909 13,695
Selling, general and administrative expenses. . . . . . . . 1,856 1,461 3,469 2,759
Depreciation and amortization . . . . . . . . . . . . . . . 2,318 1,653 4,198 3,287
Non-recurring acquisition charges . . . . . . . . . . . . . 870 -- 1,341 --
-------- --------- --------- ---------
Total operating costs and expenses. . . . . . . . . . . 14,878 10,520 25,917 19,741
-------- --------- --------- ---------
Income from operations . . . . . . . . . . . . . . . . . . . . . . 1,160 1,516 1,297 2,310
Interest expense (net) and other . . . . . . . . . . . . . . . . . 524 184 838 379
-------- --------- --------- ---------
Income before provision for income taxes . . . . . . . . . . . . . 636 1,332 459 1,931
Provision for income taxes . . . . . . . . . . . . . . . . . . . . 238 533 172 772
-------- --------- --------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 398 $ 799 $ 287 $ 1,159
-------- --------- --------- ---------
-------- --------- --------- ---------
Net income per common and
common equivalent share . . . . . . . . . . . . . . . . . . $ .12 $ .24 $ .09 $ .34
-------- --------- --------- ---------
-------- --------- --------- ---------
Weighted average common and
common equivalent shares outstanding. . . . . . . . . . . . 3,310,010 3,389,589 3,313,719 3,396,029
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes
3
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
SIX MONTHS ENDED
JULY 4, JUNE 30,
1997 1996
------- ---------
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . $ 287 $ 1,159
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization . . . . . . . . 4,198 3,287
Loss on disposal of assets. . . . . . . . . . 231 --
Change in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . (1) 337
Inventories . . . . . . . . . . . . . . . . . (285) (337)
Prepaid commissions and other . . . . . . . . (39) (471)
Payments for prepaid marketing incentives . . (1,198) (276)
Other assets. . . . . . . . . . . . . . . . . (36) (214)
Accounts payable, accrued commissions and
other accrued liabilities . . . . . . . . . . 1,220 937
------ -------
Net cash provided by operating activities . 4,377 4,422
------ -------
Cash flows from investing activities:
Purchase of property and equipment . . . . . . . . (119) (353)
Net investment in vending equipment. . . . . . . . (5,728) (2,815)
Purchase of Aqua-Vend. . . . . . . . . . . . . . . (9,355) --
------ -------
Net cash used in investing activities . . . (15,202) (3,168)
------ -------
Cash flows from financing activities:
Proceeds from long-term borrowings . . . . . . . . 19,980 7,605
Principal payments on long-term borrowings . . . . (9,304) (8,515)
Proceeds from issuance of stock. . . . . . . . . . 148 10
Purchase of treasury stock . . . . . . . . . . . . -- (371)
------ -------
Net cash used in financing activities . . . 10,824 (1,271)
------ -------
Net decrease in cash. . . . . . . . . . . . . . . . . . (1) (17)
Cash, beginning of period . . . . . . . . . . . . . . . 11 29
------ -------
Cash, end of period . . . . . . . . . . . . . . . . . . $ 10 $ 12
------ -------
------ -------
Supplemental disclosure of cash flow information:
Interest paid. . . . . . . . . . . . . . . . . . . $ 937 $ 400
------ -------
------ -------
Income taxes paid. . . . . . . . . . . . . . . . . $ 353 $ 246
------ -------
------ -------
See accompanying notes
4
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 4, 1997
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CHANGE IN FISCAL YEAR
Beginning in fiscal year 1997, the company prospectively changed its
financial reporting year from a fiscal year of twelve calendar months ending
December 31 to a fiscal year of 52 or 53 weeks ending on the Friday closest
to December 31. The period from December 31, 1996 to January 3, 1997 is not
significant to the Company's six-month operations, and has not been reported
separately.
BASIS OF PRESENTATION
In the opinion of the Company's management, the accompanying
consolidated financial statements reflect all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the
consolidated financial position of the Company and the consolidated results
of its operations and its cash flows for the three- and six-month periods
ending July 4, 1997 and June 30, 1996. Although the Company believes that
the disclosures in these financial statements are adequate to make the
information presented not misleading, certain information, including footnote
information, normally included in financial statements prepared in accordance
with generally accepted accounting principles has been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. Results of operations for the period ended July 4, 1997 are not
necessarily indicative of results to be expected for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the
current presentation.
2. ACQUISITION
On March 28, 1997, the Company purchased substantially all of the
assets of the Aqua-Vend division of McKesson Water Products Company, a
wholly-owned subsidiary of McKesson Corporation, for $9.0 million in cash
plus certain direct costs, including sales tax on assets purchased. The
transaction was accounted for under the purchase method, and the purchase
price and related direct costs were allocated based on the estimated fair
values of assets acquired and liabilities assumed, as follows (in thousands):
Inventories $ 208
Prepaid expenses 255
Vending equipment 7,565
Other fixed assets 145
Prepaid marketing incentives 1,225
Other non-current assets 110
Sales tax liability (153)
------
$9,355
------
------
5
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
July 4, 1997
(unaudited)
The unaudited consolidated pro forma results of operations for the six
months ended July 4, 1997 and June 30, 1996 presented below assume that the
transaction occurred as of the beginning of the respective periods (in
thousands, except per share amounts):
July 4, June 30,
1997 1996
---------- ----------
Net revenues $30,371 $30,290
Income from operations 317 1,532
Net income (loss) (529) 543
Net income (loss) per common share ($.16) $.16
3. INVENTORIES
Inventories consist of raw materials, repair and spare parts and
vending machines in process of assembly, and are stated at the lower of cost
(moving weighted average) or market. Costs associated with the assembly of
vending machines are accumulated until machines are completed, at which time
the costs are transferred to property and equipment.
At July 4, 1997 and December 31, 1996, inventories consist primarily of
raw materials and repair and spare parts.
4. SUPPLEMENTARY BALANCE SHEET INFORMATION
Included in Prepaid commissions and other are commission payments made
to certain retailers based on a percentage of estimated quarterly vending
machine revenues, as well as other prepaid expenses incurred in the normal
course of business. Prepaid commissions were $726,000 and $490,000 at July
4, 1997 and December 31, 1996, respectively.
Included in Other assets are prepaid marketing incentives which
represent payments made to the Company's customers for the placement of the
Company's machines at retail locations. Prepaid marketing incentives, net of
accumulated amortization were $6,100,000 and $4,606,000 at July 4, 1997 and
December 31, 1996, respectively.
5. NET INCOME PER SHARE
Net income per share of common stock is computed on the basis of the
weighted average shares of common stock outstanding plus common equivalent
shares arising from the effect of dilutive stock options, using the treasury
stock method.
In March, 1997, the Financial Accounting Standards Board adopted
Statement No. 128 "Earnings Per Share" ("Statement No. 128"), which is
effective for periods ending after December 15, 1997. Pro forma net income
per share computed pursuant to Statement No. 128 would be $.12 and $.09, for
the three- and six-month periods ended July 4, 1997, respectively, and $.24
and $.34 for the three- and six-month periods ended June 30, 1996.
6
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Effective January 1, 1997, the Company prospectively changed its fiscal year
from twelve calendar months ending December 31 to a 52- or 53-week fiscal
year ending on the Friday closest to December 31. As a result of this
change, the Company's 1997 fiscal quarters will each contain 13 calendar
weeks.
On March 28, 1997, the Company purchased substantially all of the assets of
the Aqua-Vend division of McKesson Water Products Company, a wholly-owned
subsidiary of McKesson Corporation. The assets purchased include
approximately 3,000 water vending machines. In connection with the
acquisition, the Company has developed a detailed integration plan which
includes the removal of approximately 800 Aqua-Vend machines from service,
the upgrading and modification of the majority of the remaining Aqua-Vend
machines and the rationalization and relocation of Aqua-Vend machines within
Glacier's network of machines. The revenues and operating costs associated
with these machines from March 29, 1997 are included in the Company's results
of operations.
During the second quarter, the Company focused its efforts on the integration
of the Aqua-Vend machines, removing approximately 300 machines. In addition,
the Company installed 26 new outside machines and 138 in-store machines, to
finish the quarter with 12,305 machines in operation, compared with 8,809 at
June 30, 1996. Included in the total at July 4, 1997 are 378 of the
Company's in-store machines, compared with 32 at June 30, 1996.
REVENUES
Revenues for the quarter ended July 4, 1997 increased 33.3% to $16,038,000,
from $12,036,000 in the second quarter of 1996. Revenues for the first six
months of 1997 increased 23.4% to $27,214,000, from $22,051,000 in the same
period last year. The increase is primarily the result of the increased
number of machines in operation throughout the quarter and six-month periods.
COSTS AND EXPENSES
Operating expenses for the quarter increased to $9,834,000, or 61.3% of
revenues, compared to $7,406,000, or 61.5% of revenues in the second quarter
of 1996. Operating expenses for the six months increased to $16,909,000, or
62.1% of revenues, compared to $13,695,000, or 62.1% of revenues in 1996.
The total dollar increase is due to the additional commissions and service
costs associated with the additional machines in 1997. These costs have
remained relatively consistent as a percentage of sales as the Company
continues to leverage its efficiencies in servicing outside machines while
expanding its in-store operations.
Selling, general and administrative ("SG&A") expenses for the quarter
increased to $1,856,000, or 11.6% of revenues, compared to $1,461,000, or
12.1% of revenues in the second quarter of 1996. SG&A expenses for the six
months increased to $3,469,000, or 12.7% of revenues, compared to $2,759,000,
or 12.5% of revenues in 1996. The increase in total dollars is due to an
increase in the Company's activities supporting and promoting the in-store
machine program, as well as additional administrative expenses incurred as a
result of the Aqua-Vend acquisition. SG&A expenses have remained relatively
consistent as a percentage of sales due to continued cost control efforts by
the Company.
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS - (Continued)
The non-recurring acquisition charges of $870,000 and $1,341,000 for the
quarter and six-months ended July 4, 1997 represent costs incurred pursuant
to the Company's plan to integrate Aqua-Vend's operations with its own. The
Company expects to incur a total of approximately $3.5 million in
non-recurring expenses related to the integration. These costs include
approximately $500,000 to close certain Glacier locations and write-off
obsolete assets, approximately $1.7 million to upgrade the Aqua-Vend machines
to Glacier's servicing and operability standards, approximately $1.0 million
to rationalize and relocate equipment between Aqua-Vend and Glacier locations
and approximately $300,000 to change the signage on Aqua-Vend machines to
that used by Glacier. The Company anticipates that the integration will be
completed and the remainder of the costs will be incurred by the end of the
third quarter. The expenses incurred to date have been grouped together and
separately classified in the Statements of Income for financial reporting
purposes.
Depreciation and amortization expense for the quarter increased to
$2,318,000, compared to $1,653,000 in the second quarter of 1996.
Depreciation and amortization expense for the six months increased to
$4,198,000, compared to $3,287,000 in the prior year. The increases are the
result of the net installation of approximately 780 new Glacier machines and
the addition of approximately 2,700 Aqua-Vend machines since June 30, 1996.
Interest expense for the quarter increased to $524,000, compared to $184,000
in the quarter of 1996. Interest expense for the six months increased to
$838,000 compared to $379,000 in the prior year. The increases are due to
the higher outstanding balances on the bank line of credit throughout 1997.
Borrowings throughout the year were used to finance the Company's investment
in new machines, and to finance the acquisition of Aqua-Vend.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources are cash
flows from operations and funds available under the Company's bank credit
agreement. The credit agreement provides for borrowings of up to $35 million,
and requires monthly interest payments at the bank's prime rate (8.5% per
annum at July 4, 1997) or LIBOR plus 1.75%. The credit agreement provides
for a two-year interest-only revolving period which converts to a five-year
term note due and payable July 1, 2003. The agreement is collateralized by
substantially all assets of the Company and requires, among other things,
that the Company maintain certain debt coverage and other financial ratios.
For the six months ended July 4, 1997, net cash provided by operations was
approximately $4.4 million, the Company made capital investments in vending
machines and other equipment of approximately $5.8 million, and invested
approximately $9.4 million in the purchase of Aqua-Vend. As of July 4, 1997,
the Company had a deficit in working capital of $1.2 million. Because the
Company does not have significant trade accounts receivable and product
inventories, working capital will vary from time to time depending on the
timing of payables.
Approximately $26.2 million of borrowings were outstanding and $8.8 million
was available under the credit agreement. The purchase price of the Aqua-Vend
assets was funded by additional borrowings under the Company's credit
agreement. The Company believes its cash flow generated from operations and
borrowings available under its credit agreement will be sufficient to meet
its anticipated operating and capital requirements, including its investment
in vending equipment and costs incurred pursuant to its integration plan, for
at least the next twelve months.
STATEMENTS IN THIS REPORT THAT ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. THESE FORWARD-LOOKING STATEMENTS
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS - (Continued)
WITH RESPECT TO THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE
COMPANY INVOLVE RISKS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO, TRADE
RELATIONS, DEPENDENCE ON CERTAIN LOCATIONS AND COMPETITION. FURTHER
INFORMATION ON POTENTIAL FACTORS WHICH COULD AFFECT THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE COMPANY ARE INCLUDED IN THE FILINGS OF THE
COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING, BUT NOT
LIMITED TO, THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
None.
b. REPORTS ON FORM 8-K
The Company filed the following Reports on Form 8-K during the
quarterly period ending July 4, 1997:
1.1 Report on Form 8-K filed on May 19, 1997, in connection
with the Company's determination to change its fiscal
year to the fifty-two or fifty-three week period ending
on the Friday closest to December 31.
1.2 Report on Form 8-K/A filed on June 1, 1997, in conjunction
with the Company's purchase of the Aqua-Vend division from
McKesson Water Products Company.
10
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
GLACIER WATER SERVICES, INC.
Date: August 15, 1997 By: /s/ Jerry A. Gordon
--------------------------------------
Jerry A. Gordon
President and Chief Operating Officer
Date: August 15, 1997 By: /s/ Brenda K. Foster
--------------------------------------
Brenda K. Foster
Vice President, Controller
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000883505
<NAME> GLACIER
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1998
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUL-04-1997
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 183
<ALLOWANCES> 0
<INVENTORY> 2,153
<CURRENT-ASSETS> 3,725
<PP&E> 68,063
<DEPRECIATION> 19,935
<TOTAL-ASSETS> 58,551
<CURRENT-LIABILITIES> 4,909
<BONDS> 0
0
0
<COMMON> 34
<OTHER-SE> 24,388
<TOTAL-LIABILITY-AND-EQUITY> 58,551
<SALES> 27,214
<TOTAL-REVENUES> 27,214
<CGS> 0
<TOTAL-COSTS> 20,378
<OTHER-EXPENSES> 5,539<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 838
<INCOME-PRETAX> 459
<INCOME-TAX> 172
<INCOME-CONTINUING> 287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 287
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
<FN>
<F1>Includes $1,341 of non-recurring expenses related to Aqua-Vend acquisition.
</FN>
</TABLE>
