<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: October 4, 1998
[ ] 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: 1-11012
-------
GLACIER WATER SERVICES, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0493559
- - ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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: 3,021,525 shares of common
stock, $.01 par value, outstanding at October 30, 1998.
1
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GLACIER WATER SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
October 4, January 4,
1998 1998*
---------- ----------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 545 $ 13
Short-term investments, at fair value . . . . . . . . . . . . . . . 35,052 315
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . 1,287 467
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,507 3,007
Prepaid commissions and other . . . . . . . . . . . . . . . . . . . 1,561 1,164
---------- ----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . 40,952 4,966
Property and equipment, net of accumulated depreciation. . . . . . . . 54,897 48,523
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,441 5,984
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $105,290 $ 59,473
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,349 $ 602
Accrued commissions and other liabilities . . . . . . . . . . . . . 3,636 2,389
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 4,985 2,991
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28,732
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 2,739 3,127
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely junior
subordinated debentures . . . . . . . . . . . . . . . . . . . . . . 85,000 --
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, 3,021,525 and
3,226,175 shares issued and outstanding,
respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . 35 34
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 15,801 15,548
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 12,074 12,661
Treasury stock, at cost, 408,900 and 172,600
shares, respectively. . . . . . . . . . . . . . . . . . . . . . . (9,861) (3,620)
Unrealized loss on short-term investments . . . . . . . . . . . . . (5,483) -
---------- ----------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . 12,566 24,623
---------- ----------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . $105,290 $ 59,473
---------- ----------
---------- ----------
</TABLE>
* Amounts derived from audited information
See accompanying notes
2
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATION
(in thousands, except shares and per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 4, October 5, October 4, October 5,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,916 $ 17,138 $ 44,163 $ 44,352
Operating costs and expenses:
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . 10,610 10,573 28,305 27,482
Selling, general and administrative expenses. . . . . . . . . . . 2,637 1,954 7,199 5,414
Depreciation and amortization . . . . . . . . . . . . . . . . . . 2,624 2,317 7,630 6,515
Non-recurring charges . . . . . . . . . . . . . . . . . . . . . . - 1,721 - 3,062
--------- --------- --------- ---------
Total operating costs and expenses . . . . . . . . . . . . . . 15,871 16,565 43,134 42,473
--------- --------- --------- ---------
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . 1,045 573 1,029 1,879
Interest expense, and investment gain/(loss) net . . . . . . . . . . . 493 570 1,760 1,417
--------- --------- --------- ---------
Income (loss) before income taxes. . . . . . . . . . . . . . . . . . . 552 3 (731) 462
Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . 260 (29) (147) 143
--------- --------- --------- ---------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . $ 292 $ 32 $ (584) $ 319
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic and diluted earnings (loss) per share. . . . . . . . . . . . . . $ .10 $ .01 $ (.18) $ .10
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes
3
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
October 4, October 5,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (584) $ 319
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 7,630 6,515
Loss on disposal of assets . . . . . . . . . . . . . . . . . . . . . . . . . - 195
Realized gains on sales of marketable securities . . . . . . . . . . . . . . (805) -
Change in operating assets and liabilities.. . . . . . . . . . . . . . . . . . (815) (228)
-------- --------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . 5,426 6,801
-------- --------
Cash flows from investing activities:
Purchase of marketable securities. . . . . . . . . . . . . . . . . . . . . . . (68,379) -
Proceeds from sales and maturities of marketable securities. . . . . . . . . . 28,367 -
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . . . (301) (241)
Net investment in vending equipment. . . . . . . . . . . . . . . . . . . . . . (11,462) (7,969)
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . - 111
Purchase of Aqua-Vend. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (9,355)
-------- --------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . (51,775) (17,454)
-------- --------
-------- --------
Cash flows from financing activities:
Issuance of company obligated mandatorily
redeemable preferred securities, net of discount. . . . . . . . . . . . . . . 81,600 -
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . 950 25,140
Principal payments on long-term borrowings . . . . . . . . . . . . . . . . . . (29,682) (14,684)
Proceeds from issuance of stock. . . . . . . . . . . . . . . . . . . . . . . . 254 196
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . (6,241) -
-------- --------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . 46,881 10,652
-------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . 532 (1)
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . 13 11
-------- --------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . $ 545 $ 10
-------- --------
-------- --------
Supplemental disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,879 $ 1,506
-------- --------
-------- --------
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12 $ 365
-------- --------
-------- --------
</TABLE>
See accompanying notes
4
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 4, 1998
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CHANGE IN FISCAL YEAR
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 Sunday closest to December 31. The period from January 1,
1997 to January 3, 1997 was not significant to the nine-month period ended
October 5, 1997, and accordingly was not reported separately. As a result of
the change, the nine-month period ended October 5, 1997 had 278 days, compared
to 273 days in the nine-month period ended October 4, 1998.
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 nine-month periods ending October 4, 1998
and October 5, 1997. 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 October 4, 1998 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 January 4, 1998.
OTHER COMPREHENSIVE INCOME
Effective January 5, 1998, the Company adopted FASB Statement No. 130,
REPORTING COMPREHENSIVE INCOME, which established standards for reporting and
displaying comprehensive income (loss) and its components in a financial
statement that is displayed with the same prominence as other financial
statements. Prior to 1998, the Company had no other comprehensive income. The
components of comprehensive loss for the three- and nine-month periods ended
October 4, 1998 are reported as follows (in thousands):
<TABLE>
<CAPTION>
Three Nine
Months Months
Ended Ended
-------- --------
<S> <C> <C>
Income/(Loss):
Net income/(loss) $ 292 $ (584)
Other comprehensive loss:
Unrealized loss on marketable securities (4,771) (5,483)
-------- --------
Comprehensive loss $(4,479) $(6,067)
-------- --------
-------- --------
</TABLE>
5
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
October 4, 1998
(unaudited)
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
presentation.
2. INVESTMENTS
Investments are accounted for in accordance with FASB Statement No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, which requires
that the Company determine the appropriate classification of investments at the
time of purchase and reevaluate such designation as of each balance sheet date.
At October 4, 1998 and January 4, 1998, the Company considered all investments
as available for use in its current operations, and therefore classified them
short-term, available-for-sale investments. Available-for-sale investments are
stated at fair value, with unrealized gains and losses, if any, reported as a
separate component of stockholders' equity. Interest, dividends, realized gains
and losses and declines in value judged to be other-than-temporary are included
in interest expense, net. The cost of securities sold is based on the specific
identification method.
At January 4, 1998, short-term investments consisted of corporate
securities and convertible securities, and cost approximated fair value. At
October 4, 1998, short-term investments consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Corporate securities. . . . . . . . . . $ 19,350 $ 75 $ (3,643) $ 15,782
Convertible securities. . . . . . . . . 4,560 - (736) 3,824
U.S. government securities. . . . . . . 2,644 - (923) 1,721
--------- --------- --------- --------
Total debt securities . . . . . . . . . 26,554 75 (5,302) 21,327
Equity securities . . . . . . . . . . . 13,981 - (256) 13,725
--------- --------- --------- --------
Total marketable securities . . . . . . $ 40,535 $ 75 $ (5,558) $ 35,052
--------- --------- --------- --------
--------- --------- --------- --------
</TABLE>
Proceeds from sales or maturities of marketable securities for the three-
and nine-month periods ended October 4, 1998 were $17,624,000 and $28,367,000,
respectively. Gross realized gains on such sales or maturities for the three-
and nine-month periods were $1,261,000 and $1,942,000, respectively. Gross
realized losses for the three- and nine-month periods were $760,000 and
$1,137,000, respectively. The Company's investment guidelines include investing
approximately $15.5 million of its portfolio with a professional asset
management firm whose investment approach consists of investing in hedged
transactions. Each position in the portfolio is created by purchasing a
convertible debt or equity security and selling short the underlying common
stock against it. The gross gains and losses reflected in the above table are
primarily the result of this investment approach.
6
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
October 4, 1998
(unaudited)
3. EARNINGS PER SHARE
The following table sets forth the calculation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- ------------------
October 4, October 5, October 4, October 5,
1998 1997 1998 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss). . . . . . . . . . . . . . . . . . . . . $ 292,000 $ 32,000 $ (584,000) $ 319,000
---------- ---------- ----------- ----------
Numerator - basic and diluted. . . . . . . . . . . . . . . $ 292,000 $ 32,000 $ (584,000) $ 319,000
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Denominator:
Weighted-average shares. . . . . . . . . . . . . . . . . . 2,893,759 3,226,759 3,162,912 3,216,461
Effect of dilutive securities -
Employee stock options. . . . . . . . . . . . . . . . . . 118,006 124,275 - 109,226
---------- ---------- ----------- ----------
Weighted average common and
Potential common shares . . . . . . . . . . . . . . . . . 3,011,765 3,351,034 3,162,912 3,325,687
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Basic earnings (loss) per share. . . . . . . . . . . . . . . $ .10 $ .01 $ (.18) $ .10
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Diluted earnings (loss) per share. . . . . . . . . . . . . . $ .10 $ .01 $ (.18) $ .10
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
During the third quarter of 1998, the Company installed 230 outside machines and
119 in-store machines to finish the quarter with 13,509 machines in operation,
12,589 outside machines and 920 in-store machines. At October 5, 1997, the
Company had a total of 12,170 machines in operation, 11,710 outside machines and
460 in-store machines.
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 included approximately 3,000
water vending machines. The transaction was accounted for under the purchase
method, and the nine-month period ended October 5, 1997 includes the revenues
and operating costs associated with the purchased machines from March 29, 1997.
REVENUES
For the quarter ended October 4, 1998, the Company's revenues decreased 1.3% to
$16,916,000, from $17,138,000 in the third quarter of 1997. Average revenue per
machine for the quarter decreased 9% from last year. However, this decrease was
offset in part by an increase of 8.4% in the average number of machines in
operation throughout the quarter. The decrease in average revenue per machine
and in total revenues was primarily due to the negative effects on sales in
September from extensive media coverage in the Company's southern California
markets regarding a test conducted by the County of Los Angeles on a sample of
water vending machines.
For the nine-month period, revenues remained consistent with the same period in
the prior year, at $44,163,000, compared to $44,352,000 in fiscal 1997. For the
nine-month period, average revenue per machine decreased 13.1% from the same
period in 1997. However, this decrease was offset by an increase of 14.4% in the
average number of machines in operation throughout the period. The decrease in
average revenue per machine and in total revenues was primarily due to the
negative effects on sales in September from extensive media coverage of water
vending machines mentioned above and due to the adverse effects on sales in the
first half of the fiscal year from the El Nino weather condition, which caused
unusually heavy rainfall and cool temperatures in California and the western
United States.
COSTS AND EXPENSES
Operating expenses for the quarter ended October 4, 1998 increased to
$10,610,000, or 62.7% of revenues, compared to $10,573,000, or 61.7% of revenues
in the same period last year. Total commissions decreased for the quarter due to
a reduction in average revenue per machine. The increase in total operating
costs, and in operating costs as a percentage of revenues, is the result of
increased servicing costs related to expansion.
Operating expenses for the nine-month period ended October 4, 1998 increased to
$28,305,000, or 64.1% of revenues, compared to $27,482,000, or 62.0% of revenues
in the same period last year. Total commissions for the nine-month period
remained flat, consistent with revenues for the period. The increase in total
operating costs, and in operating costs as a percentage of revenues, is the
result of increased servicing costs related to expansion.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
Selling, general and administrative ("SG&A") expenses for the quarter ended
October 4, 1998 increased to $2,637,000, or 15.6% of revenues, compared to
$1,954,000, or 11.4% of revenues in the same period last year. SG&A expenses
for the nine-month period increased to $7,199,000, or 16.3% of revenues,
compared to $5,414,000, or 12.2% of revenues in the same period last year. The
increase in total SG&A expenses and SG&A expenses as a percentage of revenues in
both the quarter and nine-month period is due primarily to increased sales and
marketing activity and to legal expenses in connection with patent litigation.
With respect to the increased sales and marketing activity, the Company
commenced its first media advertising campaign in the test markets of San Diego
and Phoenix in the second and third quarters, at a cost of approximately
$800,000. Other sales and marketing activities related primarily to the
Company's expansion into new market areas, including the commencement of
operations in Mexico during the second quarter.
Depreciation and amortization expense was $2,624,000 for the quarter ended
October 4, 1998, compared to $2,317,000 in the same period last year.
Depreciation and amortization expense was $7,630,000 for the nine-month period
ended October 4, 1998, compared to $6,515,000 for the same period last year. The
increases in each period are the result of the net addition of approximately
2,400 Aqua-Vend machines through the March 28, 1997 acquisition, and the
installation of 1,339 new Glacier machines since October 5, 1997.
The non-recurring charges of $1,721,000 for the quarter and $3,062,000 for the
nine-month period ended October 5, 1997 represent costs incurred to close
certain Glacier locations and write off obsolete assets in conjunction with the
integration of Aqua-Vend into Glacier's operations.
Interest expense, net, was $493,000 for the quarter ended October 4, 1998,
compared to interest expense of $570,000 in the same period last year.
Interest expense, net, for the nine-month period ended October 4,
1998, increased to $1,760,000, compared to interest expense of $1,417,000 for
the same period last year. For the quarter, interest expense decreased from
the prior year due to a higher level of interest income and realized gain on
sales of short-term investments of $1,458,000, which offset a higher
interest expenses incurred on the Company's $85,000,000 Trust Preferred
Securities. For the nine-month period, the increase in interest expense over
the prior year was offset to a lesser extent by interest income and net
realized gains of $3,752,000.
As a result of the foregoing, net income was $292,000, or $.10 per share for
the quarter and net loss was $584,000, or ($.18) per share for the nine-month
period ended October 4, 1998, compared with net income of $32,000, or $.01 per
share for the quarter and $319,000, or $.10 per share for the nine-month period
ended October 5, 1997.
LIQUIDITY AND CAPITAL RESOURCES
On January 27, 1998, the Company, through a newly created wholly-owned
business trust, completed a public offering of 3.4 million 9 1/16% Cumulative
Trust Preferred Securities with a liquidation amount of $25 per security (the
"Trust Preferred Securities"). The proceeds from the sale of the Trust
Preferred Securities were used to purchase an equivalent amount of 9 1/16%
Junior Subordinated Debentures (the "Debentures") from the Company. With the
net proceeds of $81.6 million from the sale of the Debentures, the Company
repaid its outstanding bank debt of approximately $28.7 million, terminated
its bank credit agreement and invested the remainder in cash equivalents and
short-term marketable securities. These short-term investments, as well as
cash flows from operations, are the Company's primary sources of liquidity.
In addition, the Company has the capacity to borrow up to $5 million from a
national brokerage firm against its investments in
9
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
marketable securities, at an interest rate of 6.5% per annum. The Company had
no borrowings other than the Debentures outstanding at October 4, 1998.
At October 4, 1998, the Company had cash and cash equivalents and marketable
securities of $35.6 million, and working capital of $36.0 million. For the
nine-month period ended October 4, 1998, net cash provided by operations totaled
$3.7 million.
Net cash provided by financing activities was $46.9 million, and net cash used
in investing activities was $51.8 million for the nine-month period ended
October 4, 1998. After the issuance of the Trust Preferred Securities and the
repayment of its outstanding bank debt, the Company made net purchases of
short-term marketable securities of $38.3 million, and made capital investments
of $11.7 million in vending machines and other equipment. The Company has the
authorization to purchase up to 750,000 shares of its common stock from time to
time on the open market. During the nine-month period the Company invested $6.2
million in the purchase of treasury stock and as of October 4, 1998, the Company
was authorized to purchase an additional 341,100 shares, or approximately 11.2%
of the Company's total shares outstanding.
The Company believes that its cash flows from operations and the remaining
proceeds from the issuance of the Trust Preferred Securities will be sufficient
to meets its anticipated operating and capital requirements including its
investment in vending machines and expansion, both domestic and international,
as well as distributions related to the Trust Preferred Securities, 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 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 IS INCLUDED IN
THE FILINGS OF THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION,
INCLUDING, BUT NOT LIMITED TO, THE COMPANY'S REGISTRATION STATEMENT ON FORM
S-2, AS AMENDED, (FILE NO. 333-40335) AND ITS ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED JANUARY 4, 1998.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In response to an allegation by Pure Fill Corporation and Dennis
DiSanto that certain features of the Company's water vending machines violate
their patents, on October 28, 1997, the Company filed a lawsuit in the United
States District Court for the Southern District of California against Pure
Fill Corporation and Dennis DiSanto, as named defendants, seeking a
declaration that the patents held by them are invalid under United States
patent law and that the Company's water vending machines do not infringe any
valid claim of the patents. On November 17, 1997, the defendants filed an
answer to the complaint and a counterclaim alleging that the Company is
infringing its patents. Although the Company believes, based on advice of
patent counsel, that this litigation will not have a material adverse effect
on the Company's business, financial condition or operating results, there
can be no assurance that the lawsuit ultimately will be resolved in favor of
the Company, or that the Company will not have to make modifications to its
machines.
On October 28, 1998, Pure Fill Corporation commenced an action against
the Company in the Superior Court for the State of California, County of
Stanislaus. The lawsuit alleges, among other things, that the Company
violated provisions of the California State antitrust statute, the Cartwright
Act, by purportedly conspiring to monopolize the market for the sale of
non-prepackaged drinking water through self-service vending machines,
selling product below cost, engaging in discriminatory pricing, and exclusive
dealing. The plaintiff is seeking injunctive relief and damages in
unspecified amounts. The Company has not yet responded to the complaint or
commenced discovery. While this lawsuit is at a preliminary stage, the
Company does not believe that the lawsuit has merit and intends to defend
itself vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
Exhibit 27.1 Financial Data Schedule for the
nine-month period ended October 4, 1998.
b. REPORTS ON FORM 8-K
None.
INDEX TO EXHIBITS
27.1 Financial Data Schedule for the nine-month period
ended October 4, 1998.
11
<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: NOVEMBER 13, 1998 By: /s/ Jerry A. Gordon
-------------------------------------
Jerry A. Gordon
President and Chief Operating Officer
12
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> JAN-05-1998
<PERIOD-END> OCT-04-1998
<CASH> 545
<SECURITIES> 35,052
<RECEIVABLES> 1,287
<ALLOWANCES> 0
<INVENTORY> 2,507
<CURRENT-ASSETS> 40,952
<PP&E> 84,158
<DEPRECIATION> (29,261)
<TOTAL-ASSETS> 105,290
<CURRENT-LIABILITIES> 4,985
<BONDS> 0
0
0
<COMMON> 35
<OTHER-SE> 12,531
<TOTAL-LIABILITY-AND-EQUITY> 105,290
<SALES> 44,163
<TOTAL-REVENUES> 44,163
<CGS> 0
<TOTAL-COSTS> 43,134
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,760
<INCOME-PRETAX> (731)
<INCOME-TAX> (147)
<INCOME-CONTINUING> (584)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (584)
<EPS-PRIMARY> (.18)
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