<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: April 5, 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
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: 3,198,325 shares of common
stock, $.01 par value, outstanding at May 3, 1998.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GLACIER WATER SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
APRIL 5, JANUARY 4,
1998 1998*
-------- ---------
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and cash equivalents........................ $ 15,575 $ 13
Short-term investments, at fair value............ 33,242 315
Accounts receivable.............................. 928 467
Inventories...................................... 3,248 3,007
Prepaid commissions and other.................... 1,816 1,164
------- --------
Total current assets........................ 54,809 4,966
Property and equipment, net of accumulated
depreciation........................................ 51,294 48,523
Other assets.......................................... 9,383 5,984
-------- --------
Total assets.......................................... $115,486 $ 59,473
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 863 $ 602
Accrued commissions and other liabilities........ 3,137 2,389
-------- --------
Total current liabilities................... 4,000 2,991
Long-term debt......................................... -- 28,732
Deferred income taxes................................. 3,178 3,127
Company obligated manditorily 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, 3,198,325 and
3,226,175 shares issued and outstanding,
respectively................................. 34 34
Additional paid-in capital....................... 15,665 15,548
Retained earnings................................ 12,175 12,661
Treasury stock, at cost, 206,800 and
172,600 shares, respectively................. (4,660) (3,620)
Unrealized gain on marketable securities,
net of tax................................... 94 --
-------- --------
Total stockholders' equity.................. 23,308 24,623
-------- --------
Total liabilities and stockholders' equity............ $115,486 $ 59,473
-------- --------
-------- --------
</TABLE>
* Amounts derived from audited information
See accompanying notes
1
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except shares and per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 5, APRIL 4,
1998 1997
-------- --------
<S> <C> <C>
Revenues......................................... $ 12,814 $ 11,176
Operating costs and expenses:
Operating expenses............................... 8,411 7,075
Selling, general and administrative expenses..... 1,941 1,608
Depreciation and amortization.................... 2,437 1,880
Non-recurring charges..................... -- 471
--------- ---------
Total operating costs and expenses............... 12,789 11,034
--------- ---------
Income from operations........................... 25 142
Interest expense, net............................ 763 319
--------- ---------
Loss before income taxes......................... (738) (177)
Income tax benefit............................... (252) (66)
--------- ---------
Net loss......................................... $ (486) $ (111)
--------- ---------
--------- ---------
Basic and diluted net loss per share............. $ (.15) $ (.03)
--------- ---------
--------- ---------
Weighted average shares outstanding.............. 3,211,988 3,316,391
--------- ---------
--------- ---------
</TABLE>
See accompanying notes
2
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 5, APRIL 4,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $ (486) $ (111)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.............................. 2,437 1,880
Loss on disposal of assets................................. 9 216
Realized gains on sales of marketable securities........... (276) --
Change in operating assets and liabilities..................... (874) (544)
-------- --------
Net cash provided by operating activities............... 810 1,441
-------- --------
Cash flows from investing activities:
Purchases of marketable securities............................. (39,686) --
Proceeds from sales and maturities of marketable securities.... 7,180 --
Purchases of property and equipment............................ (95) (69)
Net investment in vending equipment............................ (4,592) (3,161)
Purchase of Aqua-Vend.......................................... -- (9,355)
-------- --------
Net cash used in investing activities................... (37,193) (12,585)
-------- --------
Cash flows from financing activities:
Issuance of company obligated manditorily redeemable
preferred securities, net of discount................... 81,600 --
Proceeds from long-term borrowings............................. 950 14,717
Principal payments on long-term borrowings..................... (29,682) (3,579)
Proceeds from issuance of stock................................ 117 6
Purchase of treasury stock..................................... (1,040) --
-------- --------
Net cash provided by financing activities............... 51,945 11,144
-------- --------
Net increase in cash and cash equivalents.............................. 15,562 --
Cash and cash equivalents, beginning of period......................... 13 11
-------- --------
Cash and cash equivalents, end of period............................... $ 15,575 $ 11
-------- --------
-------- --------
Supplemental disclosure of cash flow information:
Interest paid.................................................. $ 1,622 $ 406
-------- --------
-------- --------
Income taxes paid.............................................. $ 4 $ 69
-------- --------
-------- --------
</TABLE>
See accompanying notes
3
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 5, 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 first quarter of 1997, and
accordingly was not reported separately. As a result of the change, the first
quarter of fiscal 1997 had 94 days, compared to 91 days in the first quarter of
fiscal 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-month periods ending April 5, 1998
and April 4, 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 April 5, 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 ("Statement No. 130"), 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 income (loss) for the
three-month period ended April 5, 1998 are reported as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Net loss $(486)
Other comprehensive income:
Unrealized gain on marketable securities,
net of tax 94
-------
Comprehensive loss $(392)
-------
-------
</TABLE>
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the
current presentation.
4
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
April 5, 1998
(unaudited)
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):
<TABLE>
<CAPTION>
<S> <C>
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
-------
-------
</TABLE>
The unaudited consolidated pro forma results of operations for the three-
month period ended April 4, 1997 set forth below assume that the transaction
occurred as of the beginning of the period (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
April 4,
1997
--------
<S> <C>
Net revenues $14,334
Loss from operations (609)
Net loss (695)
Net loss per common share ($.22)
</TABLE>
3. 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 April 5, 1998 and January 4, 1998, the Company
considered all investments as available for use in its current operations, and
therefore classified them as short-term, available-for-sale investments.
Available-for-sale investments are stated at fair value, with unrealized gains
and losses, if any, net of tax, 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.
5
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
April 5, 1998
(unaudited)
At January 4, 1998, short-term investments consisted of corporate
securities and convertible securities, and cost approximated fair value. At
April 5, 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 $14,034 $ 114 $ (219) $13,929
Convertible securities 6,257 385 (47) 6,595
U.S. government securities 2,103 $ 55 -- 2,158
------- ------ ------- -------
Total debt securities 22,394 554 (266) 22,682
Equity securities 10,703 883 (1,026) 10,560
------- ------ ------- -------
Total marketable securities $33,097 $1,437 $ (1,292) $33,242
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
Proceeds from sales or maturities of marketable securities for the three-
month period ended April 5, 1998 were $7,180,000. Gross gains and losses
realized on such sales or maturities were $322,000 and $46,000, 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. Gains and
losses in the convertible security are offset by losses and gains in the short
position. The gross gains and losses reflected in the above table are
primarily the result of this investment approach.
6
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION 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 Sunday closest to December 31. The period from January 1, 1997
to January 3, 1997 was not significant to the first quarter of 1997, and
accordingly, was not reported separately. As a result of the change, the first
quarter of fiscal 1997 had 94 days, compared to 91 days in the first quarter of
fiscal 1998.
During the first quarter of 1998, the Company installed 262 outside machines
and 151 in-store machines to finish the quarter with 12,857 machines in
operation, 12,168 outside and 689 in-store machines. At April 4, 1997, the
Company had a total of 12,438 machines in operation, 12,198 outside and 240 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. In connection with the
acquisition, the Company developed a detailed integration plan which included
the removal of approximately 800 Aqua-Vend machines from service, the upgrade
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 to April 4, 1997 were not material and are included in the
Company's results of operations for the quarter ended April 4, 1997.
REVENUES
For the quarter ended April 5, 1998, revenues increased 14.7% to $12,814,000,
from $11,176,000, in the first quarter of fiscal 1997. This increase was due
to the increase of approximately 36.1% in the average number of machines in
operation throughout the quarter; however, average revenues per machine
declined approximately 15.7% due to the negative effects of El Nino and the
related heavy rainfall in Southern California, the Company's largest market
area.
COSTS AND EXPENSES
Operating expenses for the quarter ended April 5, 1998 were $8,411,000, or
65.6% of revenues, compared to $7,075,000, or 63.3% of revenues in the same
period last year. The total dollar increase is due to the additional
commissions and service costs associated with the additional number of machines
in operation throughout the first quarter. The increase as a percentage of
revenues is due to the decrease in average revenues per machine discussed
above.
Selling, general and administrative ("SG&A") expenses for the quarter ended
April 5, 1998 increased to $1,941,000, or 15.1% of revenues, compared to
$1,608,000, or 14.4% of revenues in the same period last year. The increase in
total dollars is due primarily to additional activities supporting the
Company's significant increase in machines, primarily the result of the Aqua-
Vend acquisition that occurred at the end of the first quarter 1997. The
increase in SG&A as a percentage of revenues is due to the decrease in average
revenues per machine discussed above.
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
The non-recurring charges of $471,000 in 1997 represent costs incurred to close
certain Glacier locations and write off obsolete assets pursuant to the
Company's plan to integrate Aqua-Vend's operations with its own.
Depreciation and amortization expense was $2,437,000, for the quarter ended
April 5, 1998, compared to $1,880,000 in the same period last year. The
increase is a result of the net addition of approximately 2,400 Aqua-Vend
machines through the March 28, 1997 acquisition, and the installation of
approximately 616 new Glacier machines since April 5, 1997.
Interest expense, net of interest income and realized gains and losses on sales
of short-term investments, for the quarter increased to $763,000, from $319,000
in the same period last year. The increase is due to the increase in new
machines, combined with the issuance of $85 million of Trust Preferred
Securities.
As a result of the foregoing, the net loss for the quarter ended April 5, 1998
was $486,000, or $.15 per share, compared with a net loss of $111,000, or $.03
per share for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
On January 27, 1998, the Company, through a newly created business trust and
wholly-owned subsidiary, completed a public offering of 3.4 million of 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"). 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 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 marketable securities, at an interest rate of
6.5% per annum.
At April 5, 1998, the Company had cash and cash equivalents and marketable
securities of $48.8 million, and working capital of $50.8 million. For the
quarter ended April 5, 1998, net cash provided by operations totaled $810,000.
Net cash provided by financing and investing activities was $14.8 million for
the quarter ended April 5, 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 $32.5 million, and made
capital investments of $4.7 million in vending machines and other equipment.
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 ARE 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.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
Exhibit 27. 1 Financial Data Schedule.
b. REPORTS ON FORM 8-K
The Company filed a Report on Form 8-K/A on January 22, 1998.
EXHIBITS
27.1 Financial Data Schedule
9
<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: May 19, 1998 By: /s/Jerry A. Gordon
----------------------
Jerry A. Gordon
President and Chief Operating Officer
Date: May 19, 1998 By: /s/Brenda K. Foster
----------------------
Brenda K. Foster
Vice President, Controller
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> JAN-05-1998
<PERIOD-END> APR-05-1998
<CASH> 15,575
<SECURITIES> 33,242
<RECEIVABLES> 928
<ALLOWANCES> 0
<INVENTORY> 3,248
<CURRENT-ASSETS> 54,809
<PP&E> 76,720
<DEPRECIATION> (25,426)
<TOTAL-ASSETS> 115,486
<CURRENT-LIABILITIES> 4,000
<BONDS> 0
0
0
<COMMON> 34
<OTHER-SE> 23,274
<TOTAL-LIABILITY-AND-EQUITY> 115,486
<SALES> 12,814
<TOTAL-REVENUES> 12,814
<CGS> 0
<TOTAL-COSTS> 12,789
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 763
<INCOME-PRETAX> (738)
<INCOME-TAX> (252)
<INCOME-CONTINUING> (486)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (486)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
