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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For Annual and Transition Reports pursuant to sections 13
or 15(d) of the Securities and Exchange Act of 1934
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended: January 2, 2000
[ ] 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
<TABLE>
<CAPTION>
Glacier Water Services, Inc.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
<S> <C>
Delaware 33-0493559
---------------------------------------- ----------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2261 Cosmos Court,
Carlsbad, CA 92009
---------------------------------------- -----------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number,
including area code: (760)930-2470
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.01 Par Value Per Share American Stock Exchange
</TABLE>
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [x] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K of any amendment to this
Form 10-K. [ ]
As of March 20, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $26,695,760 (calculated at the average bid
and asked prices on March 20, 2000 on the American Stock Exchange multiplied by
outstanding shares held by non-affiliates). For purposes of the foregoing
calculation, the registrant has excluded from the group of stockholders deemed
to be non-affiliates any outstanding shares of common stock known by the
registrant to be held by its officers, directors and employees.
As of March 20, 2000, the registrant had 2,834,174 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12 and 13) is incorporated
by reference to portions of the registrant's definitive proxy statement for the
2000 Annual Meeting of Stockholders which will be filed with the Securities and
Exchange Commission within 120 days after the close of the 1999 fiscal year.
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<PAGE>
Statements in this Annual 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, as described in Part I below, that could
cause actual results to differ materially from those projected.
PART I
Item 1. Business
Introduction
- ------------
Glacier Water Services, Inc., a Delaware Corporation ("Glacier" or the
"Company"), is the leading provider of high quality, low priced drinking water
dispensed to consumers through self-service vending machines. Since its
inception in 1983, the Company has created a network of over 13,800 water
vending machines throughout the sunbelt and midwest regions of the United States
and Mexico. The Company's water vending machines are placed at supermarkets and
other retail locations in order to take advantage of the regular customer
traffic at such locations.
The Company's internally developed and manufactured water vending machines
are connected to the municipal water source at each of its retail locations. The
vending machines reduce impurities in the water through a combination of micron
filtration, reverse osmosis, carbon absorption and ultraviolet sterilization.
The Company generally charges $.25 to $.39 per gallon, which is significantly
lower than the price of water sold off-the-shelf in retail locations or sold
through home delivery services. The Company's water vending machines are
clustered in close proximity to one another within the geographic areas served
in order to provide cost-effective, quality service. Each water vending machine
is generally serviced and tested weekly.
The Company has experienced significant growth. The number of water vending
machines in operation has increased from 3,666 machines as of December 31, 1992
to 13,816 machines as of January 2, 2000. During fiscal year 1997, the Company's
growth was primarily a result of the acquisition of the Company's largest
competitor, Aqua-Vend, a division of McKesson Water Products Company.
Historically, the Company has operated water vending machines designed
primarily for outside use in warm-weather climates. Because it is impractical to
use outdoor vending machines in cold-weather climates, the Company developed a
new water vending machine specifically designed to be installed inside retail
locations. The "in-store" machine is smaller and has a sleeker exterior, thereby
making it more compatible with an interior retail layout. As of January 2, 2000,
the Company had 2,071 in-store machines in operation. The in-store machines
afford the Company significant opportunities for continued expansion into new
markets as well as the opportunity to add in-store machines at existing
locations.
In addition to its growth strategy, the Company intends to maintain its
leading position in the water vending industry by: (i) providing high quality,
low priced water to consumers; (ii) developing and maintaining good
relationships with retail accounts; (iii) increasing brand awareness; and (iv)
maximizing operating efficiencies and asset productivity.
1
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Business Background
- -------------------
The following table presents the number of machines installed annually since
December 31, 1994:
<TABLE>
<CAPTION>
<S> <C>
Total installed machines as of December 31, 1994....................................... 6,725
Machines added during the year:
1995 ............................................................................... 1,793
1996 ............................................................................... 646
1997 ............................................................................... 3,280
1998 ............................................................................... 1,258
1999 ............................................................................... 114
------
Total installed machines as of January 2, 2000......................................... 13,816
======
Total machines installed as of January 2, 2000 are distributed by state as follows:
California ............................................................................ 6,844
Texas ............................................................................ 1,777
Florida ............................................................................ 1,732
Arizona ............................................................................ 862
Nevada ............................................................................ 306
Other ............................................................................ 2,295
------
13,816
======
</TABLE>
The placement of the Company's vending machines at retail locations is based
upon a thorough review of each site. Included in the site review is an analysis
of the surrounding trade area in order to determine the neighborhood
demographics, the level of overall retail activity, the level of direct
competition and the proximity of the site to other vending machines operated by
the Company. Further, the Company reviews each site in order to ensure high
visibility and easy access for the consumer, along with appropriate access to
the retailer's water supply and power source. Upon completion of this review,
the Company makes a determination as to the viability of the location and
whether a single machine or multiple machines are required at the time of
initial installation. With large chains of supermarkets, the Company generally
places machines at all of the chains' locations as part of its business
agreements. To attain optimum efficiency, multiple vending machines may be
installed at a site if the volume of sales so warrants.
Glacier's internally developed water vending machines utilize micron
filtration, reverse osmosis, carbon absorption and ultraviolet sterilization in
order to provide high quality drinking water. The design of the Company's
machines provides a high degree of reliability and serviceability through the
use of interchangeable parts and a durable fiberglass cabinet. The machines are
also designed to be easy for consumers to use, with clear and simple
instructions.
The Bottled Water Industry
- --------------------------
The bottled water market in the United States is comprised of four segments:
nonsparkling, sparkling, club soda/seltzer and imported water. Nonsparkling
water is the segment in which the Company competes and is consumed as an
alternative to tap water. Nonsparkling water is distributed through three
principal channels: packaged water sold off-the-shelf in retail locations,
packaged water delivered to homes and offices and water sold through vending
machines. Like water sold off-the-shelf or through home delivery services,
vended water is processed using the reverse osmosis or deionization methods.
Although equivalent in quality, vended water is sold at a substantially lower
price than off-the-shelf and delivered water. Vended water eliminates two
principal cost components: packaging, because consumers provide their own
containers, and transportation.
2
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Business Strategy
- -----------------
Provide High Quality, Low Priced Drinking Water. The Company intends to
maintain its leading position in the water vending industry by providing high
quality, low priced drinking water delivered to the consumer through a network
of conveniently located water vending machines. In order to maintain the
Company's superior quality standards, the Company provides frequent, regular and
reliable service and support to its network of water vending machines.
Generally, the Company's service technicians visit and service each vending
machines on a weekly basis. The service technicians test the quality of the
Company's processed water in order to assure compliance with all company,
federal, state and local standards. The Company believes that providing clean,
operating water vending machines is a significant factor in the Company's
ability to continue to build consumer usage.
The Company's drinking water competes with nonsparkling water sold in
containers inside retail outlets and with water sold in containers delivered
directly to homes and offices. The principal costs associated with water sold
off-the-shelf and through delivery are packaging and distribution, which costs
are reflected in the retail price to the consumer. Because the Company's water
is processed on-site in its vending machines and the consumer provides the
container for the Company's product, the Company is able to avoid the packaging
and distribution costs incurred by these competitors. Accordingly, the Company
passes on these savings to consumers by charging a retail price of $0.25 to
$0.39 per gallon, compared with retail pricing ranging from approximately $0.69
to over $1.00 per gallon for water sold in containers in retail outlets.
Nonsparkling water sold in containers delivered directly to consumers' homes
generally sells at an effective price in excess of $1.00 per gallon, including
the cost of renting the dispensing unit.
Develop and Maintain Relationships With Retail Accounts. The Company
arranges to place its outdoor and in-store water vending machines on the
premises of supermarkets and other retail locations. The Company provides the
machines and pays for all installation costs, while the retailer provides and
pays for the required municipally supplied water and for the electricity to
operate the machines. The Company generally pays monthly commissions to the
retailers based upon a percentage of sales, generally ranging from 25% to 60%.
The Company believes it can continue to capitalize on its existing relationships
to place in-store water vending machines at locations where the Company has
already successfully placed its outdoor water vending machines, as retailers
become increasingly cognizant of the growing demand for vended water.
Substantially all of the Company's arrangements with its retail trade
accounts are evidenced by written contracts, some of which contain termination
clauses as well as automatic renewal clauses. The terms of these agreements
range from 30 days to five years, during which time the Company has the
exclusive right to provide water vending machines at specified locations. The
Company aggressively competes to maintain existing retail accounts and to
establish new retail relationships. In some cases, the Company provides
marketing incentives in order to encourage certain retailers to promote the
Company's products.
Increase Brand and Product Awareness. The Company believes that it will
continue to benefit from increasing consumer awareness and trial usage. To
date, the Company has used point-of-purchase signage, special introductory and
promotional pricing, and promotional activities coinciding with the installation
of new machines as its primary marketing tools. Additionally, since 1994, with
the introduction of a new logo, the Company's marketing efforts have focused on
the development and promotion of "Glacier" as a recognizable brand to the
consumer and the supermarket industry.
Maximize Operating Efficiencies. The Company creates economies of scale in
its operations and achieves a competitive advantage over other vended water
suppliers by clustering machines in close proximity to one another within the
geographic areas served, in order to provide cost-effective, frequent service.
The clustering has allowed the Company over the last five years to increase the
number of machines serviced by technicians from 40 machines to 70 machines per
week. The Company continuously strives to develop technical improvements to its
water vending machines that make the machines easier to use and easier to
service. To this end, the Company has made improvements to its water vending
machines including the introduction of its fast-flow nozzle, which increases the
speed of water flow from the Company's water vending machines thereby cutting
consumer fill-time,
3
<PAGE>
and the introduction of the Company's dual-vend technology, which doubles the
number of nozzles on a machine to allow consumers to fill two water containers
simultaneously. The Company continually monitors and evaluates demand for the
Company's product at each location. This allows the Company to continue to
evaluate the productivity of each of its machines and relocate machines as
necessary to optimize their productivity on an on-going basis.
Growth Strategy
- ---------------
According to an industry source, there are approximately 72,000 grocery
stores (excluding convenience stores) in the United States. The Company
currently operates water vending machines at less than 10% of such locations.
The Company intends to continue its expansion into these locations as well as
into select international markets. The Company's growth strategy includes the
following:
. Increase Penetration in Existing Domestic Markets. The Company operates
in thirty-six states throughout the United States through the use of both
in-store and outside water vending machines. Management believes it can
place additional outdoor machines with both existing and new retail
accounts in those states. Management also believes there are significant
opportunities to add in-store water vending machines at its current
retail chain account locations without adversely affecting revenues
generated by its outdoor machines at such locations.
. Expand Into New Domestic Markets. The Company intends to continue placing
it's in-store water vending machines inside retail locations in cold-
weather regions throughout the United States. In addition, the Company
intends to expand into new warm-weather markets using both in-store and
outdoor machines at large supermarket and drug store chains.
. Expand Into Select International Markets. The Company intends to
capitalize on the demand for bottled water outside of the United States
by expanding into select international markets. The Company has
established operations in Mexico as an entry into the international
market. As of January 2, 2000 the Company has 434 water vending machines
in operation in Mexico City.
. Pursue Select Acquisition Opportunities. The Company intends to evaluate
and pursue select strategic acquisition opportunities, but has no firm
commitments with respect to acquisitions at this time.
The Aqua-Vend 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 a purchase price of approximately $ 9.0
million. Prior to the acquisition, Aqua-Vend was the Company's largest
competitor, with approximately 3,000 water vending machines. In connection with
the acquisition, the Company developed a detailed integration plan, which
included the removal of approximately 600 Aqua-Vend machines and the
rationalization and relocation of Aqua-Vend machines within Glacier's network of
machines.
Competition
- -----------
The bottled water market is highly competitive. The Company competes in the
non-sparkling segment of the bottled water market with companies that deliver
water to homes and offices, sell bottled water off-the-shelf and other vending
machine operators. Many of the Company's competitors have significantly greater
resources than the Company. Since the Company's primary competitive advantage
over water delivery services and off-the-shelf bottled water is price, a
substantial decline in the price of either delivered or off-the-shelf bottled
water could adversely affect the demand for water dispensed from the Company's
water vending machines.
The Company's competitors within the water vending market are primarily
smaller, independent operators. Although the Company believes that there are
significant barriers to entry to new and existing competitors in the water
vending market due to, among other things, the substantial capital outlay
required to purchase the number
4
<PAGE>
of machines needed to achieve competitive operating efficiencies, a competitor
with significant financial resources may be able to compete with the Company.
There can be no assurance that any competitors will not be able to raise the
capital required to effectively compete with the Company.
Seasonality
- -----------
The Company's revenues are subject to seasonal fluctuations with decreased
revenues during rainy or cold weather months and increased revenues during hot
weather months.
Intellectual Property
- ---------------------
The tradename and trademarks "Glacier Water" and "Glacier Water & Penguin
Design" used by the Company contain the word "Glacier" which is commonly used
and has been registered in connection with other marks and designs by a number
of other entities for water and related services. The mark "Glacier Water", by
itself, is considered by the United States Patent and Trademark Officer (the
"PTO") to be generic in relation to water and related services. One party
claiming to sell bottled water in a limited area near Incline Village, Nevada,
informed the Company that it objected to the Company's use of the mark "Glacier
Water". However, the PTO has cancelled this party's registration. Accordingly,
the Company believes that no party can claim exclusive rights in "Glacier
Water", and the Company may only claim rights to stylized forms of the mark or
the mark with design elements. Notwithstanding the foregoing, no assurance can
be given that other entities might not assert superior or exclusive rights in
the marks and seek to obtain damages from and injunctive relief against the
Company. Thus, there can be no assurance that the Company's use of the
tradename and trademarks "Glacier Water" and "Glacier Water & Penguin Design"
will not violate the proprietary rights of others, which could result in a
material adverse effect on the Company. The Company does not hold any patents.
Government Regulation
- ---------------------
The water vending industry is subject to various federal, state and local
laws and regulations, which require the Company, among other things, to obtain
licenses for its business and vending machines, to pay annual license and
inspection fees, to comply with certain detailed design and quality standards
regarding the vending machines and the vended water, and to continuously control
the quality of the vended water. The Company's vending machines are subject to
routine and random regulatory quality inspections. Although the Company believes
it is operating in substantial compliance with these laws and regulations, such
laws and regulations and their interpretations and enforcement are subject to
change. There can be no assurance that additional or more stringent requirements
will not be imposed on the Company's operations in the future. Failure to comply
with such current or future laws and regulations could result in fines against
the Company, a temporary shutdown of the Company's operations, the loss of
certification to sell its product or, even in the absence of governmental
action, a reduction in the Company's profit margin based on increases in
licensing or inspection fees payable by the Company or other additional
compliance costs.
Insurance
- ---------
The Company carries general and product liability insurance. Its combined
coverage is $26,000,000 per occurrence and $27,000,000 in the aggregate, which
amounts the Company believes to be adequate. Although the Company is not aware
of any actions having ever been filed and believes that the technology contained
in its machines makes any contamination of the products dispensed by its
machines unlikely, any significant damage awards against the Company in excess
of the Company's insurance coverage could result in a material loss to the
Company.
Employees
- ---------
As of January 2, 2000, the Company had 335 employees, including 45 in
administration and 290 in operations. The Company's employees are not
represented by a labor union and the Company has experienced no work stoppages.
The Company believes that its employee relations are good.
5
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Item 2. Properties
The Company's principal facility, a 30,000-square-foot building in Carlsbad,
California containing its executive offices and assembly shop is under lease
through May 2001. The Company also leases various other facilities containing
its area service centers. These leases range in square footage from 1,200 to
13,400 square feet, and expire on various dates from April 2000 through April
2003.
Item 3. Legal Proceedings
On October 12, 1998, Aqua Natural Purefect Water, Inc. and Maxwell Daveson
(collectively "Aqua Natural") commenced an action against the Company and
others, in Harris County, Texas, known as Aqua Natural Purefect Water, Inc. v.
The Kroger Company et al., Case No. 98-48829. On January 14, 1999, Aqua
Natural filed a First Amended Petition against the Company alleging causes of
action against the Company for civil conspiracy to defraud, conversion, tortious
interference with existing and prospective contracts and business opportunities,
and intentional infliction of emotional distress. Aqua Natural alleged that the
Company interfered with an existing contract and business relationship between
the Kroger Company and Aqua Natural and that during the changeover of water
vending systems, the Company and its agents and Kroger damaged Aqua Natural's
equipment. Glacier Water Services, Inc., the Kroger Company and Aqua Natural
settled this dispute in March 2000 with no material effect on the financial
position or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of 1999.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock of Glacier is traded on the American Stock Exchange under
the symbol "HOO". The following table sets forth the range of high and low sales
prices on the American Stock Exchange for the Common Stock for the periods
indicated.
<TABLE>
<CAPTION>
High Low
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<S> <C> <C>
Fiscal Year 1999
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First Quarter $26.75 $20.00
Second Quarter 20.94 19.50
Third Quarter 19.88 16.75
Fourth Quarter 16.88 15.13
Fiscal Year 1998
----------------
First Quarter $31.75 $29.00
Second Quarter 32.00 28.88
Third Quarter 29.88 27.38
Fourth Quarter 27.25 24.50
</TABLE>
The Company did not pay dividends on its Common Stock in 1999 and 1998 and
presently intends to continue this policy. The Company had approximately 35
stockholders of record as of January 2, 2000.
Item 6. Selected Consolidated Financial Data
The following sets forth selected financial data as of and for the periods
presented. Effective January 1, 1997, the Company prospectively changed its
fiscal year from twelve calendar months to a 52- or 53-week year
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ending the Sunday closest to December 31. As a result of this change, the
Company's fiscal year 1997, which ended on January 4, 1998, contained 369 days.
Fiscal 1998 and 1999, which ended on January 3, 1999 an January 2, 2000,
respectively, contained 364 days. This data should be read in conjunction with
the Consolidated Financial Statements and the accompanying Notes thereto and
other financial information appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
(in thousands except share and per share data) Fiscal Year Ended
--------------------------------------------------------------
January 2, January 3, January 4, Dec 31, Dec 31,
2000 1999 1998 1996 1995
--------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................................................. $ 56,774 $ 56,321 $ 57,294 $ 46,091 $ 42,409
Operating costs and expenses:
Operating expenses.................................... 36,984 36,727 35,569 28,088 25,933
Selling, general and administrative expenses.......... 9,143 9,879 7,200 5,749 5,467
Depreciation and amortization......................... 10,740 10,212 8,852 6,769 5,756
Non-recurring and other charges....................... - 971 3,062 - -
---------- ---------- ---------- ---------- ----------
Total operating costs and expenses................ 56,867 57,789 54,683 40,606 37,156
---------- ---------- ---------- ---------- ----------
Income (loss) from operations.............................. (93) (1,468) 2,611 5,485 5,253
Other (income) expenses:
Interest expense..................................... 7,859 7,446 1,988 767 739
Investment (income) loss............................. 1,342 (4,259) - - -
---------- ---------- ---------- ---------- ----------
Total other expense........................................ 9,201 3,187 1,988 767 739
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and extraordinary gain... (9,294) (4,655) 623 4,718 4,514
Income tax provision (benefit)............................. (2,059) (1,383) 193 1,415 1,805
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary gain.................... (7,235) (3,272) 430 3,303 2,709
Extraordinary gain on early retirement of debt............. 2,617 - - - -
---------- ---------- ---------- ---------- ----------
Net income (loss).......................................... $ (4,618) $ (3,272) $ 430 $ 3,303 $ 2,709
========== ========== ========== ========== ==========
Basic earnings (loss) per share:
Income (loss) before extraordinary gain.................... $ (2.54) $ (1.05) $ .13 $ .99 $ .81
========== ========== ========== ========== ==========
Extraordinary gain......................................... $ .92 $ - $ - $ - $ -
========== ========== ========== ========== ==========
Net income (loss).......................................... $ (1.62) $ (1.05) $ .13 $ .99 $ .81
========== ========== ========== ========== ==========
Diluted earnings (loss) per share:
Income (loss) before extraordinary gain.................... $ (2.54) $ (1.05) $ .13 $ .98 $ .80
========== ========== ========== ========== ==========
Extraordinary gain......................................... $ .92 $ - $ - $ - $ -
========== ========== ========== ========== ==========
Net income (loss).......................................... $ (1.62) $ (1.05) $ .13 $ .98 $ .80
========== ========== ========== ========== ==========
Weighted average shares used for basic earnings per share.. 2,850,253 3,119,696 3,219,082 3,334,504 3,334,851
Dilutive common stock options.............................. - - 113,808 39,978 70,253
---------- ---------- ---------- ---------- ----------
Weighted average shares used for diluted earnings per
share..................................................... 2,850,253 3,119,696 3,332,890 3,374,482 3,405,104
========== ========== ========== ========== ==========
</TABLE>
7
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Selected Balance Sheet Data
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<TABLE>
<CAPTION>
January 2, January 3, January 4, December 31,
2000 1999 1998 1996 1995
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
(in thousands)
Investments, available for sale............................. $ 9,826 $ 31,037 $ 315 $ -- $ --
Property and equipment, net of accumulated
depreciation.............................................. $58,936 $ 54,939 $48,523 $38,007 $33,272
Total assets................................................ $89,409 $100,515 $59,473 $46,067 $40,638
Long-term debt and line of credit, including
current portion........................................... $79,748 $ 85,000 $28,732 $15,820 $11,087
Stockholders' equity........................................ $ 4,673 $ 9,284 $24,623 $23,986 $24,087
Working capital............................................. $11,360 $ 32,501 $ 1,975 $ (183) $ 1,366
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion should be read in conjunction with the information contained
in the Consolidated Financial Statements and the accompanying Notes thereto of
the Company appearing elsewhere in this Form 10-K. The following table sets
forth for the periods indicated, the percentage of revenues represented by
certain items included in the Consolidated Statements of Income.
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------
January 2, January 3, January 4,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Revenues............................................................ 100.0% 100.0% 100.0%
Costs and expenses:
Operating expenses.............................................. 65.2% 65.3% 62.1%
General and administrative expenses............................. 16.1% 17.5% 12.6%
Depreciation and amortization................................... 18.9% 18.1% 15.4%
Non-recurring and other charges................................. -% 1.7% 5.3%
------ ------ -----
Total costs and expenses.................................... 100.2% 102.6% 95.4%
------ ------ -----
Income (loss) from operations....................................... (0.2)% (2.6)% 4.6%
Other (income) expenses:
Interest expense................................................ 13.8% 13.3% 3.5%
Investment (income) loss........................................ 2.4% (7.6)% 0.0%
------ ------ -----
Total other expenses........................................ 16.2% 5.7% 3.5%
------ ------ -----
Income (loss) before income taxes and extraordinary gain............ (16.4)% (8.3)% 1.1%
Income tax provision (benefit)...................................... (3.7)% (2.5)% .3%
Extraordinary gain.................................................. 4.6% -% -%
------ ------ -----
Net income (loss)................................................... (8.1)% (5.8)% 0.8%
====== ===== =====
</TABLE>
Results of Operations
- ---------------------
Overview
In order to more closely align its fiscal reporting to its business cycle,
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. As a result of this change, the
Company's fiscal 1997 quarters each contained 13 calendar weeks, and the fiscal
year which ended January 4, 1998 contained 369 days.
8
<PAGE>
Results of operations for the period from January 1, 1997 to January 5, 1997
have not been reported separately, as they are not material to the fiscal year
ended January 4, 1998. Fiscal 1998 and 1999 which ended on January 3, 1999 and
January 2, 2000, respectively, contained 364 days.
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 600 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
fiscal 1997, the Company substantially completed the Aqua-Vend integration
activities and incurred non-recurring expenses of $3,062,000 related to these
activities.
As of January 2, 2000, the Company had 13,816 machines in operation compared
to 13,702 machines at January 3, 1999. The Company had 2,071 in-store machines
and 11,375 outside machines in operation at January 2, 2000. Included in the
total at January 3, 1999 were 12,680 outside machines and 1,022 in-store
machines. During fiscal 1997, the Company installed 390 new outside machines and
418 in-store machines, as well as acquiring a net of 2,472 Aqua-Vend machines,
to finish the year with a total of 12,444 machines in operation, compared with
9,164 at December 31, 1996. Included in the total at January 4, 1998 are 538 in-
store machines, compared with 120 at December 31, 1996.
Revenues
- --------
Revenues for fiscal year 1999 increased 0.8% to $56,774,000 from $56,321,000
in fiscal year 1998. The increase in revenues in 1999 was the result of more
machines in operation throughout the year compared to 1998. This was primarily
due to increasing the number of inside machines in operation from 1022 at the
beginning of the year to 2,071 at year end. The slight decrease in revenues in
1998 compared to 1997 was due to the negative impact of cooler weather in the
beginning of the year as a result of the El Nino weather conditions and the
negative impact as a result of a study done by Los Angeles County and media
reports in early September that called into question the safety and purity of
vended water in southern California. Although no Glacier machines were found to
be in violation of any health or safety standards and the state health
department has assured consumers that the study uncovered no significant public
health risk, these reports severely impacted sales.
Costs and Expenses
- ------------------
Operating expenses for fiscal year 1999 increased to $36,984,000 or 65.2% of
revenues, compared to $36,727,000 or 65.3% of revenues in 1998. The slight
increase in total dollar operating costs was primarily due to the additional
service costs associated with the expansion in new markets. At year end,
Glacier Water was operating in thirty-six (36) states and Mexico. As these new
markets mature and the number of locations increase, the Company will continue
to leverage the costs associated with servicing the machines. Operating
expenses for fiscal year 1998 increased to $36,727,000 or 65.3% of revenues,
compared to $35,569,000, or 62.1% of revenues in 1997. The increase in total
dollar operating costs in 1998 was due primarily to additional service costs
associated with the additional machines in operation during 1998 offset by
slightly lower commissions. The increase in operating expenses as a percentage
of revenues in 1998 was primarily due to softer revenues and the inefficiencies
caused by entering new markets, both in the United States and Mexico.
General and administrative expenses ("G&A") for fiscal year 1999 decreased
$736,000 to $9,143,000 or 16.1% of revenues, compared to $9,879,000 or 17.5% of
revenues in 1998 and $7,200,000 or 12.6% of revenues in 1997. This decrease in
general and administrative expenses in fiscal year 1999 was primarily associated
with a reduction in media advertising expenditures and a reduction in legal
expenses incurred in connection with an alleged patent infringement which has
been dismissed. The increase in 1998 compared to 1997 resulted primarily from an
expenditure of over $800,000 related to an unsuccessful media advertising test
conducted in San Diego and Phoenix, $120,000 in public relations costs related
to the Los Angeles County study of water vending
9
<PAGE>
machines, and legal expenditures of over $675,000 in connection with an alleged
patent infringement which has been dismissed.
Depreciation and amortization expense for fiscal year 1999 increased to
$10,740,000, compared to $10,212,000 in 1998 and $8,852,000 in 1997. The
increases in each year are the result of having more machines in operation
throughout the year compared to the prior year.
In the fourth quarter of 1998, the Company incurred a charge of $971,000 for
certain costs associated with the removal of approximately 1,450 machines at
under-performing locations. These under-performing machines were primarily
located at small independent retailers. The Company has relocated these
machines to large supermarket and drug store chains where it believes that it
will achieve better returns.
The Company incurred a total of $3,062,000 in non-recurring expenses in 1997
related to the integration of Aqua-Vend's operations with Glacier's operations.
Specifically, the integration plan included costs to close certain Glacier
locations and write-off obsolete assets, to upgrade the Aqua-Vend machines to
Glacier's servicing and operability standards, to rationalize and relocate
equipment between Aqua-Vend and Glacier locations and to change the signage on
Aqua-Vend machines to that used by Glacier.
Interest expense for fiscal year 1999 increased to $7,859,000 compared to
$7,446,000 in 1998 and $1,988,000 in 1997. The increase in interest expense in
1999 compared to 1998 was due to having interest due on the $85,000,000
subordinated debt for the entire year. The increase in interest expense in 1998
compared to 1997 was due to the fact that the subordinated debt was issued in
January 1998. In 1997, the acquisition of Aqua-Vend and the Company investment
in new machines were financed through cash flows from operations and additional
borrowings on the Company's credit facility. The Company had net losses of
$1,342,000 on investments in 1999 compared to $4,259,000 of net investment
income in fiscal year 1998. Investments were managed by Kayne Anderson
Investment Management and Camden Asset Management, L.P. during fiscal 1998 and
1999. The Company had no material investment income in 1997.
The Company's effective tax rate in fiscal year 1999 was 37%, compared to
effective rates of 30% in 1998 and 31% in 1997.
On August 13, 1999, the Company announced that the Company's Board of
Directors authorized the Company to purchase up to 250,000, or approximately
7.4% of the then 3,400,000 shares outstanding, of the Glacier Water Trust
Preferred Securities (AMEX: HOO_pa) issued by Glacier Water Trust I, a wholly
owned subsidiary of the Company, in the open market as part of the Company's
stock repurchase plan. On December 16, 1999, the Company's Board of Directors
increased the authorized number of Glacier Water Trust Preferred Securities
subject to repurchase to 500,000 shares. As of January 2, 2000, the Company had
repurchased 342,100 shares of Glacier Water Trust Preferred Securities for a net
extraordinary gain of $2,617,000, or $0.92 per share, which was the result of a
gain of $3,025,000, less the write-off of $408,000 deferred debt costs. The
Company may continue to make such purchases from time to time in open market
transactions or block trades. As of January 2, 2000, there were 3,041,000 shares
of the Glacier Water Trust Preferred Securities outstanding.
For fiscal year 1999, the Company incurred a loss before extraordinary gain
on the early extinguishment of debt of $7,235,000, or $2.54 per basic and
diluted share compared to a loss of $3,272,000, or $1.05 per basic and diluted
share in 1998. For fiscal year 1999, the Company incurred a net loss of
$4,618,000, or $1.62 per basic and diluted share compared to a net loss of
$3,272,000, or $1.05 per basic and diluted share in 1998. Net income in 1997 was
$430,000, or $.13 per basic and diluted share.
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of liquidity and capital resources in fiscal
year 1999 were cash and investments, cash flows from operations and funds
available under the Company's Credit Facility. On January 27, 1999, the Company
entered into a new credit facility with Tokai Bank of California which provides
for borrowings of up to $8.0 million and requires quarterly interest payments at
the bank's prime rate (7.75% per
10
<PAGE>
annum at January 27, 1999) or LIBOR plus 1.60% (6.63% per annum at January 27,
1999). As of January 2, 2000, the Company had approximately $4.7 million of
funds available under the credit facility. This credit facility matures on May
1, 2000 and is currently being re-negotiated.
For fiscal year 1999, net cash used in operations was approximately $29,000
and the Company made capital investments in vending machines and other equipment
of approximately $12.4 million. Net cash used in financing activities was
approximately $5.3 million which included the repurchase of the Trust Preferred
Securities of approximately $5.5 million, the purchase of Treasury Stock of
approximately $3.2 million offset by the net borrowing on the credit line of
$3.3 million. As of January 2, 2000, the Company had working capital of $11.4
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, other accrued liabilities, and payments of prepaid
marketing incentives.
On January 27, 1998, Glacier Water Trust I (the "Trust"), a newly created
Delaware business trust and a wholly-owned subsidiary of the Company, issued
105,154 its common securities to the Company and completed a public offering of
3.4 million shares of its 9.0625% Cumulative Trust Preferred Securities with a
liquidation amount of $25 per security (the "Trust Preferred Securities" and
together with the common securities the "Trust Securities"). Concurrent with the
issuance of the Trust Preferred Securities, the Trust invested the proceeds
therefrom in an aggregate principal amount of $85.0 million of 9.0625% Junior
Subordinated Debentures (the "Subordinated Debentures") issued by the Company.
The Trust exists for the sole purpose of issuing Trust Securities and purchasing
Subordinated Debentures. With the proceeds from the issuance of the Subordinated
Debentures, the Company repaid in full all amounts outstanding under its then
existing credit facility and terminated that agreement.
Distributions on the Trust Preferred Securities are payable monthly in
arrears by the Trust. The Company may cause the Trust to defer the payment of
distributions for a period not to exceed 60 consecutive months. During any such
deferral period, distributions will accrue and compound quarterly, and the
Company may not declare or pay distributions on its common or preferred stock or
debt securities that rank equal or junior to the Subordinated Debentures.
The Subordinated Debentures are unsecured obligations of the Company and are
subordinate and junior in right of payment to other indebtedness of the Company.
The Trust Preferred Securities are subject to mandatory redemption upon the
repayment of the Subordinated Debentures at a redemption price equal to the
aggregate liquidation amount of the Trust Preferred Securities plus any
accumulated and unpaid distributions. The Subordinated Debentures mature on
January 31, 2028, but may be redeemed at the option of the Company at any time
after January 31, 2003. The Company effectively provides a full and
unconditional guarantee of the Trust's obligations under the Trust Preferred
Securities. Issuance costs of approximately $4.1 million related to the Trust
Preferred Securities are deferred and will be amortized over the period until
the mandatory redemption of the securities in January 2028.
The Company believes that its cash and investments on hand, cash flow from
operations and availability under its Credit Facility, will be sufficient to
meet its anticipated operating and capital requirements, including its
investment in vending machines, as well as distributions related to the Trust
Preferred Securities, for at least the next twelve months.
Seasonality
- -----------
The Company's revenues are subject to seasonal fluctuations with decreased
revenues during rainy or cold weather months and increased revenues during hot
weather months.
11
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk exposures are interest rate risk and equity
price risk. At January 2, 2000, the Company held a portfolio of marketable
securities with an estimated fair value equal to $9,826,000. Of that amount,
the estimated fair value of the Company's total debt investments available for
sale was $7,061,000, including $307,000 in convertible debt securities, and the
estimated fair value of the Company's total equity securities available for sale
was $2,765,000, including $2,022,000 of convertible preferred securities. See
Note 1 to the Company's Consolidated Financial Statements. The Company's
exposure to interest rate risk relates primarily to the opportunity cost of
fixed rate obligations. The Company's exposure to equity price risk relates
primarily to the risk that the market price of a security may fluctuate or drop
over time.
The Company's investment guidelines had included investing approximately
$15.5 million of its portfolio with a professional asset management firm whose
investment approach consists of investing in hedged transactions. Each hedged
position in the Company's portfolio is created by purchasing a convertible debt
or equity security and selling short the underlying common stock against it. The
purpose of entering into these hedged transactions was to minimize the impact of
interest rate fluctuations and equity price risk on the Company's invested
portfolio. The Company has reduced its investment portfolio to a level that it
no longer uses this asset management firm and the Company's entire portfolio is
now invested by Kayne Anderson Investment Management, primarily in fixed rate
corporate bonds and mortgage backed securities.
The table below presents principal cash flows and related weighted average
interest rates by expected maturity dates for the Company's derivative
investments:
<TABLE>
<CAPTION>
Cash Flow (in thousands)
- ---------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total
---- ---- ---- ---- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Convertible
Preferred Stock /(1)/
Principal $ 0 $ 0 $ 0 $ 0 $ 0 $1,258 $1,258
Interest 240 240 240 240 240 /(2)/ /(2)/
Weighted average
Interest rate 7.9% 7.9% 7.9% 7.9% 7.9% 7.9%
</TABLE>
/(1)/ Dividends paid-in-kind have been included (based on their cash value) in
the calculations for the convertible preferred stock.
/(2)/ Beyond 2004, interest payments on convertible preferred stock generally
continue so long as the Company continues to hold the security.
Item 8. Y2K
Prior to January 1, 2000 Glacier undertook a comprehensive "year 2000"
assessment. Under this assessment, the Company reviewed all of its critical
software and hardware to determine what remediation, if any, were necessary for
the proper functioning of these systems in the year 2000 and beyond. The
Company worked with its outside vendors to ensure that they would continue to
support the products that they supply to Glacier including the performance by
the vendors of any required year 2000 remediation. Glacier updated for year
2000 purposes certain software and hardware systems that it uses internally.
The Company considered year 2000 issues for all new products and services as
well as those in development or included in business acquisitions.
State of Readiness. The Company performed a review of its computer
applications related to their continuing functionality for the year 2000 and
beyond. Based on this review, the Company did not believe that it had material
exposure with respect to the year 2000 issue in regards to its computer
applications. Glacier's computer system was certified as fully Y2K compliant.
All critical computer hardware, including servers, hubs, routers,
telecommunications equipment, personal computers, laptop computers and hand-held
computers were tested to be Y2K compliant. The historical costs to the Company
for its Y2K preparation have been nominal.
12
<PAGE>
Glacier Water's primary source of revenue is from the operation of water
vending machines, which require electricity from the local electric company and
water from the local water supply. The majority of the machines are located in
front of retail supermarkets and drug stores and are operational 24-hours a day,
7-days a week. The remaining machines are placed inside the retail location and
require the store to be open in order for customers to vend water. The machines
are Y2K compliant in that they do not have any electronic or mechanical parts
that keep track of the date or time. The transition from 1999 to the year 2000
occurred without incident as it relates to the proper functioning of any of
Glacier's systems. Since there were very minor disruptions of the municipal
water/power supply to the vending machines, Glacier's operations were
unaffected. Glacier continues to monitor it's systems, but does not expect any
disruptions that could have a material impact on the Company and it's results of
operation.
Item 9. Consolidated Financial Statements and Supplementary Data
The Company's Consolidated Financial Statements together with accompanying
Notes and the Report of Arthur Andersen LLP, Independent Public Accountants are
set forth on pages 17 through 36 after Part IV of this report.
Item 10. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
The Company has had no changes in or disagreements with its accountants on
its accounting and financial disclosure.
Part III
Item 11. Directors and Executive Officers of the Registrant
There is incorporated herein by reference the information required by this
Item in the Company's definitive proxy statement for the 2000 Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year ended January 2, 2000.
<TABLE>
<CAPTION>
Executive Officers of the Registrant
------------------------------------
Name Position Age
- ---- -------- ---
<S> <C> <C>
Jerry A. Gordon President, Chief Executive Officer and Director 54
Glen A. Skumlien Executive Vice President, Operations 50
S. Dane Seibert Senior Vice President, Marketing 51
John T. Vuagniaux Senior Vice President, Operations 51
W. David Walters Senior Vice President, Chief Financial Officer,
& Secretary 51
Luz E. Gonzales Vice President, Human Resources 47
Brian T. Nakagawa Vice President, Technology & Information Systems 46
</TABLE>
The executive officers are elected by and serve at the discretion of the
Board of Directors until their successors are duly chosen and qualified.
Jerry A. Gordon
Mr. Gordon has served as the President and Chief Executive Officer of Glacier
Water Services, Inc. since September 1999, President and Chief Operating Officer
from September 1994 to September 1999 and as a Director of the Company since
June 1997. Mr. Gordon joined the Company in June 1993 as Vice President of
Marketing. From 1992 to 1993, Mr. Gordon was a business consultant specializing
in management operations in start-up companies.
13
<PAGE>
Glen A. Skumlien
Mr. Skumlien has served as Executive Vice President, Operations since
September 1994. From November 1991 to September 1994, Mr. Skumlien served as
Vice President-Operations.
S. Dane Seibert
Mr. Seibert has served as Senior Vice President of Marketing since joining
the Company in March 1995. From 1990 until joining the Company, Mr. Seibert was
Corporate Vice President - International Marketing for Miller/Zell Inc.
John T. Vuagniaux
Mr. Vuagniaux has served as Senior Vice President, Operations since November
1996, after joining the Company in January 1995 as Vice President, Service
Support. From April 1994 to January 1995, Mr. Vuagniaux was owner of Logistics
Solutions, a consulting firm specializing in logistics and operations
management. From January 1992 to April 1994, Mr. Vuagniaux was Director of
Distribution for Blockbuster Entertainment Corporation.
W. David Walters
Mr. Walters joined the Company in January 1999 as Chief Financial Officer and
Vice President, Finance. Mr. Walters has served as Senior Vice President, Chief
Financial Officer since January 2000. From 1997 to 1999, Mr. Walters was the
Vice President Finance and Controller for the Penn Traffic Company. From 1996
to 1997, Mr. Walters was the Vice President, Controller for Bruno's, Inc. Prior
to that, Mr. Walters was the Chief Financial Officer for ABCO Markets, Inc. from
1992 to 1996.
Luz E. Gonzales
Mrs. Gonzales joined the Company in February 1995 as Vice President of Human
Resources. From 1981 to February 1995, Mrs. Gonzales was Corporate Director of
Human Resources for Southwest Water Company, a water service company.
Brian T. Nakagawa
Mr. Nakagawa has served as Vice President, Technology and Information Systems
since February 1996, after joining the Company as Director of Technology and
Information Systems in June 1995. Prior to joining the Company Mr. Nakagawa was
the owner of New Frontier Technologies, an information systems consulting
company.
Item 12. Executive Compensation
There is incorporated herein by reference the information required by this
Item in the Company's definitive proxy statement for the 2000 Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the year ended January 2, 2000.
14
<PAGE>
Item 13. Security Ownership of Certain Beneficial Owners and Management
There is incorporated herein by reference the information required by this
Item in the Company's definitive proxy statement for the 2000 Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year ended January 2, 2000.
Item 14. Certain Relationships and Related Transactions
There is incorporated herein by reference the information required by this
Item in the Company's definitive proxy statement for the 2000 Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year ended January 2, 2000.
Part IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents Filed with Report
---------------------------
1. Consolidated Financial Statements
---------------------------------
The consolidated financial statements listed on the accompanying Index to
Consolidated Financial Statements are filed as part of this report. The
financial statement schedules have been omitted as they are either not
required or not applicable.
2. Exhibits
--------
The exhibits listed on the accompanying Index to Exhibits on page 39 are
filed as part of this report.
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed during the last quarter of the
fiscal year ended January 2, 2000.
15
<PAGE>
<TABLE>
<CAPTION>
Index
-----
Page
Number
------
<S> <C>
Consolidated Financial Statements
- ---------------------------------
Report of Independent Public Accountants.................................................... 17
Consolidated Balance Sheets at January 2, 2000 and January 3, 1999.......................... 18
Consolidated Statements of Operations for the fiscal years ended January 2, 2000,
January 3, 1999, and January 4, 1998..................................................... 19
Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended
January 2, 2000, January 3, 1999, and January 4, 1998.................................... 20
Consolidated Statements of Stockholders' Equity for the fiscal years ended January 2, 2000,
January 3, 1999, and January 4, 1998..................................................... 21
Consolidated Statements of Cash Flows for the fiscal years ended January 2, 2000,
January 3, 1999, and January 4, 1998..................................................... 22
Notes to Consolidated Financial Statements.................................................. 24
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Glacier Water Services, Inc.:
We have audited the accompanying consolidated balance sheets of Glacier Water
Services, Inc. (a Delaware corporation) and subsidiaries as of January 2, 2000
and January 3, 1999, and the related consolidated statements of operations,
comprehensive income (loss), stockholders' equity and cash flows for each of the
three fiscal years in the period ended January 2, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Glacier Water Services, Inc.
and subsidiaries as of January 2, 2000 and January 3, 1999, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 2, 2000, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
San Diego, California
February 16, 2000
17
<PAGE>
<TABLE>
<CAPTION>
GLACIER WATER SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
------
January 2, January 3,
2000 1999
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 4,205 $ 109
Investments, available for sale............................................. 9,826 31,037
Accounts receivable......................................................... 589 1,348
Inventories................................................................. 3,249 2,890
Prepaid expenses and other.................................................. 1,779 1,388
-------- --------
Total current assets.................................................... 19,648 36,772
Property and equipment, net of accumulated depreciation...................... 58,936 54,939
Other assets................................................................. 10,825 8,804
-------- --------
Total assets................................................................. $ 89,409 $100,515
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.......................................................... $ 1,272 $ 656
Accrued commissions....................................................... 2,238 1,469
Accrued liabilities....................................................... 1,478 2,146
Line of credit............................................................ 3,300 -
-------- --------
Total current liabilities............................................... 8,288 4,271
Long-term debt............................................................... 76,448 85,000
Deferred income taxes........................................................ - 1,960
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 100,000 shares
authorized, no shares issued and outstanding.......................... -- --
Common stock, $.01 par value, 10,000,000 shares authorized,
2,834,174 and 2,959,975 shares issued and outstanding at
January 2, 2000 and January 3, 1999, respectively..................... 34 34
Additional paid-in capital................................................ 16,119 15,963
Retained earnings......................................................... 4,771 9,389
Treasury stock, at cost, 598,026 and 460,350 shares at January 2, 2000
and January 3, 1999, respectively..................................... (14,795) (11,549)
Accumulated other comprehensive loss...................................... (1,456) (4,553)
-------- --------
Total stockholders' equity.............................................. 4,673 9,284
-------- --------
Total liabilities and stockholders' equity................................... $ 89,409 $100,515
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
18
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------
<S> <C> <C> <C>
January 2, January 3, January 4,
2000 1999 1998
--------- --------- ---------
Revenues.............................................................. $56,774 $56,321 $57,294
Operating costs and expenses:
Operating expenses............................................... 36,984 36,727 35,569
Selling, general and administrative expenses..................... 9,143 9,879 7,200
Depreciation and amortization.................................... 10,740 10,212 8,852
Non-recurring and other charges.................................. - 971 3,062
------- ------- -------
Total operating costs and expenses.......................... 56,867 57,789 54,683
------- ------- -------
Income (loss) from operations......................................... (93) (1,468) 2,611
Other (income) expenses:
Interest expense................................................. 7,859 7,446 1,988
Investment (income) loss......................................... 1,342 (4,259) -
------- ------- -------
Total other expense......................................... 9,201 3,187 1,988
------- ------- -------
Income (loss) before income taxes and extraordinary gain.............. (9,294) (4,655) 623
Income tax provision (benefit)........................................ (2,059) (1,383) 193
------- ------- -------
Income (loss) before extraordinary gain............................... (7,235) (3,272) 430
Extraordinary gain on early retirement of debt........................ 2,617 - -
------- ------- -------
Net income (loss)..................................................... $(4,618) $(3,272) $ 430
======= ======= =======
Basic earnings (loss) per share:
Income (loss) before extraordinary gain............................... $ (2.54) $ (1.05) $ .13
Extraordinary gain.................................................... .92 - -
------- ------- -------
Net income (loss)..................................................... $ (1.62) $ (1.05) $ .13
======= ======= =======
Diluted earnings (loss) per share:
Income (loss) before extraordinary gain............................... $ (2.54) $ (1.05) $ .13
Extraordinary gain.................................................... .92 - -
------- ------- -------
Net income (loss)..................................................... $ (1.62) $ (1.05) $ .13
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
19
<PAGE>
Glacier Water Services, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------
January 2, January 3, January 4,
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Net income (loss)............................................ $(4,618) $(3,272) $430
Unrealized gain (loss) on securities, net of tax:............
Unrealized holding gain (loss) arising during the period... 5,504 (5,464) --
Less: reclassification adjustment for net losses (gains)
included in net income (loss)............................ 2,407 (911) --
------- ------- -------
Net unrealized gain (loss) 3,097 (4,553) --
------- -------- --------
Comprehensive income (loss) $(1,521) $(7,825) $430
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
20
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except shares)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
------------ Paid-In Retained Treasury Comprehensive
Shares Amount Capital Earnings Stock Gain (Loss) Total
---------- ------ -------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996................ 3,208,575 $34 $15,284 $12,231 $ (3,563) $ -- $23,986
Exercise of Stock Options................. 19,700 -- 264 -- -- -- 264
Purchase of Treasury Stock................ (2,100) -- -- -- (57) -- (57)
Net Income................................ -- -- -- 430 -- -- 430
--------- ------ ------- ------- -------- ---------- -------
Balance, January 4, 1998.................. 3,226,175 34 15,548 12,661 (3,620) -- 24,623
Exercise of Stock Options................. 21,550 -- 415 -- -- -- 415
Purchase of Treasury Stock................ (287,750) -- -- -- (7,929) -- (7,929)
Net Unrealized (Loss) on Investments...... -- -- -- -- -- (4,553) (4,553)
Net (Loss)................................ -- -- -- (3,272) -- -- (3,272)
--------- ------ ------- ------- -------- ---------- -------
Balance, January 3, 1999.................. 2,959,975 34 15,963 9,389 (11,549) (4,553) 9,284
Exercise of Stock Options................. 11,875 -- 156 -- -- -- 156
Purchase of Treasury Stock................ (137,676) -- -- -- (3,246) -- (3,246)
Net Unrealized Gain on Investments........ -- -- -- -- -- 3,097 3,097
Net (Loss)................................ -- -- -- (4,618) -- -- (4,618)
--------- ------ ------- ------- -------- ---------- -------
Balance, January 2, 2000.................. 2,834,174 $34 $16,119 $ 4,771 $(14,795) $(1,456) $ 4,673
========= ====== ======= ======= ======== ========== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
21
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
January 2, January 3, January 4,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,618) $ (3,272) $ 430
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 10,740 10,212 8,852
Loss (gain) on disposal of assets 103 310 (3)
Extraordinary gain on early retirement of debt (2,617) -- --
Deferred tax provision (benefit) (2,059) (1,167) 148
Realized (gain) loss on sales of investments 2,407 (911) --
Change in operating assets and liabilities:
Accounts receivable 759 (881) (158)
Inventories (359) 117 (1,106)
Prepaid expenses and other (391) (224) 175
Payments for prepaid marketing incentives (4,461) (1,213) (1,262)
Other assets (250) (570) (261)
Accounts payable, accrued liabilities and accrued commissions 717 1,280 (444)
-------- -------- --------
Total adjustments 4,589 6,953 5,941
-------- -------- --------
Net cash provided by (used in) operating activities (29) 3,681 6,371
-------- -------- --------
Cash flows from investing activities:
Net investment in vending equipment (12,115) (14,244) (9,647)
Purchase of property and equipment (341) (225) (304)
Proceeds from sales of property and equipment -- -- 132
Purchase of Aqua-Vend -- -- (9,355)
Purchase of investments (48,001) (74,163) (315)
Proceeds from sale and maturities of investments 69,900 39,693 --
-------- -------- --------
Net cash provided by (used in) investing activities 9,443 (48,939) (19,489)
-------- -------- --------
Cash flows from financing activities:
Issuance of long-term debt, net of fees -- 81,600 --
Early retirement of long-term debt (5,528) -- --
Proceeds from line of credit 15,090 950 30,485
Principal payments on line of credit (11,790) (29,682) (17,572)
Proceeds from issuance of stock 156 415 264
Purchase of treasury stock (3,246) (7,929) (57)
-------- -------- --------
Net cash provided by (used in) financing activities (5,318) 45,354 13,120
-------- -------- --------
Net increase in cash and cash equivalents 4,096 96 2
Cash, beginning of year 109 13 11
-------- -------- --------
Cash and cash equivalents, end of year $ 4,205 $ 109 $ 13
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
22
<PAGE>
GLACIER WATER SERVICES, INC.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(in thousands)
<TABLE>
<CAPTION>
January 2, January 3, January 4,
2000 1999 1998
----------- ---------- ----------
<S> <C> <C> <C>
$ 7,828 $ 6,804 $ 2,074
Cash paid for interest............................................. ======== ======== ========
Cash paid for income taxes......................................... $ 5 $ 13 $ 400
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
23
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business
The Company is primarily engaged in the operation of self-service
vending machines that dispense drinking water to consumers. The machines
are placed at supermarkets and other retail outlets under commission
arrangements with the retailers. The Company's revenues are subject to
seasonal fluctuations, with decreased revenues during rainy or cold weather
months and increased revenues during hot weather months. The Company's
machines are primarily located throughout the sunbelt and midwest regions
of the United States. As of January 2, 2000, the Company had machines in
thirty-six states with approximately 50% of the Company's machines located
in California.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Glacier Water Services, Inc. and its wholly-owned subsidiaries.
All significant inter-company accounts and transactions have been
eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make certain
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and the disclosure of contingent assets
and liabilities. Actual results could differ from those estimates.
Change in Fiscal Year
In order to more closely align its fiscal reporting to its business
cycle, effective January 1, 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 Sunday
closest to December 31. As a result of this change, the Company's fiscal
1997 quarters each contained 13 weeks, and fiscal year which ended January
4, 1998 contained 369 days. Results of operations for the period from
January 1, 1997 to January 5, 1997 are not significant to the fiscal year
ended January 4, 1998, and have not been reported separately. Fiscal year
ended January 2, 2000 and January 3, 1999 both contained 364 days.
Other Comprehensive Income (Loss)
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. As a result, the Company is presenting Consolidated
Statements of Comprehensive Income (Loss) for fiscal 1999, 1998 and 1997.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. As of January 2,
2000, cash equivalents primarily consist of cash held in money market
accounts.
24
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 based on management's intent and reevaluate such designation as
of each balance sheet date. At January 2, 2000 and January 3, 1999, 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 net unrealized
gains or losses, if any, net of tax, reported as a separate component of
stockholders' equity. Realized gains or losses from the sale of investments,
interest income and dividends are included in investment income (loss) in the
accompanying statements of operations. Management reviews the carrying values of
its investments and writes such investments down to estimated fair value by a
charge to operations when such review results in management's determination that
an investment's impairment is considered to be other than temporary. As of
January 2, 2000, management believes its unrealized losses aggregating
$1,877,000 to be temporary in nature. The cost of securities sold is based on
the specific identification method.
At January 2, 2000, investments available for sale consisted of the
following (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Corporate securities $ 7,196 $ 117 $(1,336) $5,977
Convertible securities 318 - (11) 307
Mortgage backed securities 721 56 - 777
------- ------- ------- ------
Total debt securities 8,235 173 (1,347) 7,061
Equity securities 3,047 248 (530) 2,765
------- ------- ------- ------
Total investments available
$11,282 $ 421 $(1,877) $9,826
for sale ======= ======= ======== ======
</TABLE>
The Company's primary market risk exposures are interest rate risk and
equity price risk. At January 2, 2000, the Company held a portfolio of
marketable securities with an estimated fair value equal to $9,826,000. Of that
amount, the estimated fair value of the Company's total debt investments
available for sale was $7,061,000, including $307,000 in convertible debt
securities, and the estimated fair value of the Company's total equity
securities available for sale was $2,765,000. The Company's exposure to interest
rate risk relates primarily to the opportunity cost of fixed rate obligations.
The Company's exposure to equity price risk relates primarily to the risk that
the market price of a security may fluctuate or drop over time.
Proceeds from sales or maturities of marketable securities for the year
ended January 2, 2000 were $69,900,000. Gross realized gains on such sales for
the year ended January 2, 2000 were $986,000. Gross realized losses for the year
ended January 2, 2000 were $3,393,000. During 1999, the Company recognized a
write down of $2.1 million in investments it believed to be permanently
impaired. This amount is included in the realized losses on investments for the
year ended January 2, 2000. The Company has since divested of these securities.
Corporate securities have maturity dates from January 2001 to March 2006.
Corporate debt securities have maturity dates of February 2001. Mortgage backed
securities have maturity dates of December 2021. Kayne Anderson Investment
Management currently manages the Company's investment portfolio (See Note 11).
25
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At January 3, 1999, investments available for sale consisted of the following
(in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Corporate securities $14,424 $159 $(2,722) $11,861
Convertible securities 4,259 197 (13) 4,443
Mortgage backed securities 2,337 - (1,139) 1,198
------- ---- ------- -------
Total debt securities 21,020 356 (3,874) 17,502
14,570 37 (1,072) 13,535
Equity securities ------- ---- ------- -------
Total investments available
for sale $35,590 $393 $(4,946) $31,037
======= ==== ======= =======
</TABLE>
The Company's primary market risk exposures are interest rate risk and
equity price risk. At January 3, 1999, the Company held a portfolio of
marketable securities with an estimated fair value equal to $31,037,000. Of that
amount, the estimated fair value of the Company's total debt investments
available for sale was $17,502,000, including $4,443,000 in convertible debt
securities, and the estimated fair value of the Company's total equity
securities available for sale was $13,535,000, including $11,189,000 in
convertible preferred securities. The Company's exposure to interest rate risk
relates primarily to the opportunity cost of fixed rate obligations. The
Company's exposure to equity price risk relates primarily to the risk that the
market price of a security may fluctuate or drop over time.
Proceeds from sales or maturities of marketable securities for the year
ended January 3, 1999 were $39,693,000. Gross realized gains on such sales for
the year ended January 3, 1999 were $2,849,000. Gross realized losses for the
year ended January 3, 1999 were $1,938,000.
Inventories
Inventories consist of raw materials, repair 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 finished machines are ready for installation at a retail
location, at which time the costs are transferred to property and equipment.
Prepaid Commissions
Prepaid commissions represent payments made to certain retailers based on a
percentage of estimated monthly or quarterly vending machine revenues. Prepaid
commissions at January 2, 2000, and January 3, 1999, were $65,000 and $345,000,
respectively. Commission expense for the years ended January 2, 2000, January 3,
1999, and January 4, 1998 was $25,991,000, $26,202,000 and $27,219,000,
respectively.
26
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment and Depreciation
Property and equipment are recorded at cost and consist of the following
(in thousands):
<TABLE>
January 2, January 3,
2000 2000
---- ----
<S> <C> <C>
Vending equipment............................................... $ 94,829 $ 83,706
Equipment, furniture and fixtures............................... 2,571 2,156
Leasehold improvements.......................................... 604 589
-------- --------
98,004 86,451
Less: Accumulated depreciation and amortization................. (39,068) (31,512)
-------- --------
$ 58,936 $ 54,939
======== ========
</TABLE>
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets as follows:
Vending equipment 10 years
Equipment, furniture and fixtures 5 to 10 years
Leasehold improvements Life of Lease
The Company's vending equipment is depreciated to a 20% salvage value.
Costs associated with installing vending equipment are capitalized and
depreciated over five years.
All maintenance, repair and refurbishment costs are charged to operations
as incurred. Additions and major improvements are capitalized.
Long-Lived Assets
The Company evaluates and assesses its long-lived assets for impairment
under the guidelines of Statement of FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The
Company periodically reevaluates the original assumptions and rationale utilized
in the establishment of the carrying value and estimated lives of these assets.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
other current assets and accounts payable and accrued and other current
liabilities approximate fair value because of the short-term nature of those
instruments. Based on borrowing rates currently available to the Company for
credit arrangements with similar terms, the carrying amounts of balances under
the line of credit and long-term debt approximate fair value.
Income Taxes
Income taxes have been provided for using the liability method in
accordance with FASB Statement No. 109, Accounting for Income Taxes.
27
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earnings (Loss) Per Share
The Company computes and presents earnings (loss) per share in accordance
with FASB Statement No. 128, Earnings Per Share. Basic earnings per share is
computed based upon the weighted average number of common shares outstanding
during the period. Dilutive earnings per share is based upon the weighted
average number of common shares outstanding and potentially dilutive securities
during the period. Potentially delutive securities include options granted under
the Company's stock options plans using the treasury stock method. For 1998 and
1999, potentially delutive securities were not used to calculate diluted loss
per share because of their anti-dilutive effect.
The following table sets forth the calculation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------------------
January 2, January 3, January 4,
2000 1999 1998
----------- ----------- ----------
<S> <C> <C> <C>
Numerator:
Net income (loss).......................... $ (4,618,000) $(3,272,000) $ 430,000
----------- ----------- ----------
Numerator - basic and diluted.............. (4,618,000) (3,272,000) $ 430,000
=========== =========== ==========
Denominator:
Weighted-average shares..................... 2,850,253 3,119,696 3,219,082
Effect of dilutive securities -
Employee stock options.................... -- -- 113,808
----------- ----------- ----------
Weighted-average common and
Potential common shares................... 2,850,253 3,119,696 3,332,890
=========== =========== ==========
Basic earnings (loss) per share............ $ (1.62) $ (1.05) $ .13
=========== =========== ==========
Diluted earnings (loss) per share.......... $ (1.62) $ (1.05) $ .13
=========== =========== ==========
</TABLE>
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 value of assets acquired and
liabilities assumed, as follows (in thousands):
<TABLE>
<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>
28
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The unaudited consolidated pro forma results of operations for the fiscal
year ended January 4, 1998 presented below assume that the transaction occurred
as of the beginning of the fiscal year (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Fiscal Year
Ended
----------
January 4,
1998
----------
<S> <C>
Net revenues.................................................... $60,452
Income from operations.......................................... 1,865
Net loss........................................................ (215)
Net loss per common share - basic and diluted................... (.07)
</TABLE>
3. Supplementary Balance Sheet Information
Other Assets
<TABLE>
<CAPTION>
Other assets consist of the following (in thousands): January 2, January 3,
2000 1999
---- ----
<S> <C> <C>
Prepaid marketing incentives, net of accumulated amortization
of $5,093 in fiscal 1999 and $3,803 in fiscal 1998.................... $ 6,607 $4,395
Deferred financing cost, net of accumulated amortization of
$545 in fiscal 1999 and $105 in fiscal 1998........................... 3,670 4,047
Other................................................................... 548 362
------- ------
$10,825 $8,804
======= ======
</TABLE>
Prepaid marketing incentives consist of fees paid to retailers for future
benefits associated with the ongoing placement of the Company's vending
equipment at those locations. These fees are amortized over the life of the
contract, generally ranging from three to five years.
Deferred financing costs of $4.1 million were incurred in connection with
the Trust Preferred Securities discussed in Note 4 and are amortized over the
period until the mandatory redemption of the securities in January 2028.
Accrued Liabilities
<TABLE>
<CAPTION>
Accrued liabilities consist of the following (in thousands): January 2, January 3,
2000 1999
---------- ----------
<S> <C> <C>
Accrued compensation and related taxes................................... $ 574 $ 545
Accrued income and other taxes........................................... 229 158
Accrued interest......................................................... 380 402
Accrued site costs....................................................... - 499
Other accrued liabilities................................................ 295 542
------ ------
$1,478 $2,146
====== ======
</TABLE>
29
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Long-Term Debt
Company Obligated Mandatorily Redeemable Preferred Securities of a
Subsidiary Trust Holding Solely Subordinated Debt Securities of the Company
On January 27, 1998, Glacier Water Trust I (the "Trust"), a newly created
Delaware business trust and a wholly-owned subsidiary of the Company, issued
105,154 common securities to the Company and completed a public offering of 3.4
million of 9.0625% Cumulative Trust Preferred Securities with a liquidation
amount of $25 per security (the "Trust Preferred Securities" and together with
the common securities the "Trust Securities"). The Trust exists for the sole
purpose of issuing Trust Securities. Concurrent with the issuance of such
securities, the Trust invested the proceeds therefrom in an aggregate principal
amount of $85.0 million of 9.0625% Junior Subordinated Debentures (the
"Subordinated Debentures") issued by the Company.
Distributions on the Trust Preferred Securities are payable monthly in
arrears by the Trust. The Company may cause the Trust to defer the payment of
distributions for a period not to exceed 60 consecutive months. During any such
deferral period, distributions will accrue and compound quarterly, and the
Company may not declare or pay distributions on its common or preferred stock or
debt securities that rank equal or junior to the Subordinated Debentures.
The Subordinated Debentures are unsecured obligations of the Company and
are subordinate and junior in right of payment to certain other indebtedness of
the Company. The Trust Preferred Securities are subject to mandatory redemption
upon the repayment of the Subordinated Debentures at a redemption price equal to
the aggregate liquidation amount of the Securities plus any accumulated and
unpaid distributions. The Subordinated Debentures mature on January 31, 2028,
but may be redeemed at the option of the Company at any time after January 31,
2003. The Company effectively provides a full and unconditional guarantee of the
Trust's obligations under the Trust Securities.
Long-term debt at January 4, 1998, represents borrowings under the
Company's bank credit agreement. The credit agreement provided for long-term
borrowings of up to $35.0 million. Borrowings bore interest at the bank's prime
rate (8.5% at January 4, 1998) or LIBOR plus 1.75% (7.7% at January 4, 1998, and
the entire principal balance was due July 1, 2003. As of January 4, 1998, the
Company had approximately $6.3 million of funds available under the agreement.
Borrowings under the agreement were secured by substantially all of the assets
of the Company. On January 27, 1998, the Company repaid the outstanding balance
and all accrued interest on the line of credit and terminated the credit
agreement.
On January 27, 1999, the Company entered into a new $8.0 million unsecured
credit facility with Tokai Bank of California. The credit facility requires
quarterly interest payments at the Banks prime rate (7.75% per annum at January
27, 1999) or LIBOR plus 1.60% (6.63% per annum at January 27, 1999). The credit
facility contains certain covenants including liquidity and debt coverage
requirements. As of January 2, 2000, the Company had approximately $4.7 million
of funds available under the agreement. This credit facility matures on May 1,
2000 and is currently being re-negotiated.
On August 13, 1999, the Company announced that the Company's Board of
Directors authorized the Company to purchase up to 250,000, or approximately
7.4% of the then 3,400,000 shares outstanding, of the Glacier Water Trust
Preferred Securities (AMEX: HOO-pa) issued by Glacier Water Trust I, a wholly
owned subsidiary of the Company, in the open market as part of the Company's
stock repurchase plan.
30
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On December 16, 1999, the Company announced that the Company's Board of
Directors increased the number of Glacier Water Trust Preferred Securities
authorized to be purchased in the open market as part of the Company's stock
repurchase plan from 250,000 shares to 500,000 shares. As of January 2, 2000,
the Company has repurchased 342,100 shares of the Glacier Water Trust Preferred
Securities and recorded a net extraordinary gain of $2,617,000, or $0.92 per
share, which was the result of a gain of $3,025,000, less the write-off of
applicable deferred financing costs of $408,000. As of February 15, 2000, there
were 2,970,800 shares of Glacier Water Trust Preferred Securities outstanding.
5. Commitments and Contingencies
Leases
The Company leases certain vehicles, warehouse and office facilities under
non-cancelable operating leases that expire on various dates through 2003.
Future minimum lease payments under non-cancelable operating leases with
initial terms of one or more years are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000............................... $ 1,718
2001............................... 789
2002............................... 288
2003............................... 34
--------
Total minimum lease payments....... $ 2,829
========
</TABLE>
Total lease expense for the years ended January 2, 2000, January 3, 1999,
and January 4, 1998, was $2,158,000, $1,926,000 and $1,503,000, respectively.
Contingencies
The Company is involved in various legal proceedings and claims arising in
the ordinary course of business, none of which, in the opinion of management, is
expected to have a material adverse effect on the Company's consolidated
financial position or results of operations.
6. Income Taxes
Significant components of the provision (benefit) for income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------
January 2, January 3, January 4,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Federal Income Taxes:
Current........................................... $ -- $ (216) $ 14
Deferred.......................................... (1,863) (941) 82
------- ------- ----
(1,863) (1,157) 96
------- ------- ----
State and Local Income Taxes:
Current........................................... -- -- 31
Deferred.......................................... (196) (226) 66
-------- -------- ----
(196) (226) 97
-------- -------- ----
$(2,059) $(1,383) $193
======== ======== ====
</TABLE>
31
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred tax liabilities and assets result from the following (in thousands):
<TABLE>
<CAPTION>
January 2, January 3,
2000 1999
------- -------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment............................................... $ 7,500 $ 6,994
------- -------
Total deferred tax liabilities............................................. 7,500 6,994
------- -------
Deferred tax assets:
Alternative minimum tax credit....................................... (917) (943)
Net operating loss................................................... (5,314) (2,656)
Manufacturer's investment credit..................................... (591) (591)
State deferred tax adjustment........................................ -- (25)
Accruals and reserves................................................ (778) (819)
------- -------
Total deferred tax assets.................................................. (7,600) (5,034)
------- -------
Net deferred tax liabilities (assets)...................................... $ (100) $ 1,960
======= =======
</TABLE>
The net deferred tax asset in the amount of $100,000 as of January 2, 2000 is
included in other assets.
The Company's effective income tax rate differs from the federal statutory rate
as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------
January 2, January 3, January 4,
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Federal statutory rate................................................. (34.0)% (34.0)% 34.0%
State and local taxes, net of federal benefit......................... (2.0)% (2.0)% 6.0%
Foreign Taxes.......................................................... --% 4.0% --%
Manufacturer's investment credit generated and other................... (1.0)% 2.0% (9.0)%
------ ------ -----
Effective rate......................................................... (37.0)% (30.0)% 31.0%
======= ======= ======
</TABLE>
At January 2, 2000, the company had Federal and California income tax net
operating loss carry forwards of $14.4 million and $4.3 million, respectively,
which will begin to expire in 2012 and 2003 for federal and state income tax
purposes, respectively.
7. Stockholders' Equity
Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of
100,000 shares of preferred stock, par value $.01 per share. The rights,
preferences and privileges of the authorized shares (none of which have been
issued) may be established by the Board of Directors without further action by
the holders of the Company's common stock.
Treasury Stock
The Board of Directors has authorized the purchase of up to 750,000 shares
of the Company's common stock in the open market. As of January 2, 2000, 598,026
shares had been repurchased under this program, and the Company was authorized
to repurchase an additional 151,974 shares, approximately 5.4% of the Company's
total shares outstanding.
32
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Stock Option Plans
The Company has options outstanding under two stock option plans, the 1992
Stock Option Plan, which was terminated in 1994, and the 1994 Stock Compensation
Program. The Company accounts for these plans under APB Opinion No. 25, under
which no compensation cost has been recognized.
The Company has reserved 705,000 shares of common stock under the 1994
Stock Compensation Program (the "Program"), as amended, for issuance under a
stock option plan that provides for the issuance of incentive and non-qualified
stock options to key employees, including directors and consultants. Incentive
stock options are granted at no less than the fair market value on the date of
the grant. Non-qualified options may be granted at prices determined by the
Board of Directors, but at no less than 85% of the fair market value on the date
of the grant. Options generally have a term of 10 years and become exercisable
at a rate of 25% per annum. The Program also allows directors to receive stock
options in lieu of their annual directors' fees. Options granted under this
provision (Deferral Options) have a term of five years and become exercisable
one year following the date of grant.
The Company had reserved 360,000 shares of common stock under the 1992
Stock Option Plan for issuance under a stock option plan that provided for the
issuance of incentive and non-qualified stock options to key employees,
including directors and consultants. The 1992 Stock Option Plan was terminated
in 1994 with a balance of 42,250 shares of common stock available for grant
which were transferred to the 1994 Stock Compensation Program.
A summary of the status of the Company's stock option plans and activity is
as follows:
<TABLE>
<CAPTION>
Wtd. Avg.
Exercise
Shares Price
--------- ---------
<S> <C> <C>
Balance at December 31, 1996.......................................... 344,654 $15.88
Granted............................................................... 106,902 $25.71
Exercised............................................................. (19,700) $10.09
-------- ------
Balance at January 4, 1998............................................ 431,856 $18.57
Granted............................................................... 231,282 $31.11
Exercised............................................................. (21,550) $15.19
-------- ------
Balance at January 3, 1999............................................ 41,588 $23.21
Granted............................................................... 77,537 $24.53
Exercised............................................................. (11,875) $13.12
Canceled.............................................................. (80,870) $30.56
-------- ------
Balance as of January 2, 2000......................................... 626,380 $22.64
Exercisable at January 2, 2000........................................ 362,206 $18.56
Weighted average fair value of options granted.............. $10.07
</TABLE>
There are 98,000 options outstanding under the 1992 plan at January 2,
2000, all of which are exercisable, and have exercise prices between $8.25 and
$13.63, with a weighted average exercise price of $11.76 and a weighted average
remaining contractual life of 3.2 years.
33
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
There are 528,380 options outstanding under the 1994 plan at January 2,
2000 with exercise prices between $12.50 and $31.25, with a weighted average
exercise price of $24.65 and a weighted average remaining contractual life of
5.8 years. 264,206 of these options are exercisable, and their weighted average
exercise price is $21.09.
The following pro forma disclosures represent what the Company's net loss
and loss per share would have been had the Company recorded compensation cost
for these plans in accordance with the provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation ("Statement No. 123"):
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------
January 2, January 3, January 4,
2000 1999 1998
---- ---- -----
<S> <C> <C> <C>
Pro forma net loss (in thousands).............................. $(5,086) $(3,700) $( 57)
Pro forma basic loss per share................................. (1.78) $ (1.19) $( .02)
Pro forma diluted loss per share............................... (1.78) $ (1.19) $( .02)
</TABLE>
Because the method of accounting required under FASB Statement No. 123 has
not been applied to options granted prior to January 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be expected in
future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in fiscal 1999, 1998, and 1997, respectively:
average risk-free interest rates of 5.1%, 5.8% and 6.5%; no expected dividend
yield; expected lives of 8 years for regular options and 5 years for Deferral
Options in all years; expected volatility of approximately 27% for all years.
9. Significant Customers
The following table sets forth the percentage of the Company's total
revenues that were derived from major customers:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------
January 2, January 3, January 4,
2000 1999 1998
----- ----- ----
<S> <C> <C> <C>
Company A 10.01% 10.32% 4.56%
</TABLE>
10. Non Recurring and Other Charges
In the fourth quarter of 1998, the Company incurred a charge of $971,000
for certain costs associated with the removal of approximately 1,450 machines at
under-performing locations. These under-performing machines were primarily
located at small independent retailers. The Company relocated these machines to
large supermarket and drug store chains where it believes that it will achieve
better returns.
The Company incurred a total of $3,062,000 in non-recurring expenses in
1997 related to the integration of Aqua-Vend's operations with Glacier's
operations. Specifically, the integration plan included costs to close certain
Glacier locations and write-off obsolete assets, to upgrade the Aqua-Vend
machines to Glacier's servicing
34
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and operability standards, to rationalize and relocate equipment between Aqua-
Vend and Glacier locations and to change the signage on Aqua-Vend machines to
that used by Glacier.
11. Related Party Transactions
Kayne Anderson Investment Management currently manages the Company's
investment portfolio. The Chairman of the Board and other board members are also
employed as senior executives of Kayne Anderson Investment Management. The
Chairman of the Board, other board members employed as senior executives of
Kayne Anderson Investment Management, and Kayne Anderson Investment Management
are shareholders of the Company. The Company incurred costs of $69,000 and
$103,000 in 1999 and 1998, respectively, to Kayne Anderson Investment Management
in connection with investment management fees. The Company did not incur any
costs prior to 1998 in connection with investment management fees. The Company
incurred costs of $11,000 and $46,000 for consulting services provided by LEK
Consulting during 1999 and 1998, respectively. A director of the Company was the
President of the North American practice of LEK Consulting Group during 1999 and
1998. He is no longer employed by LEK Consulting.
12. Segment Reporting
In fiscal 1997, the FASB issued Statement No. 131 (SFAS 131), Disclosures
About Segments Of An Enterprise and Related Information. SFAS 131 requires that
a public business enterprise report financial and descriptive information about
its reportable segments. Operating segments are components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. Glacier operates in a single business
segment providing high quality, low priced drinking water dispensed to consumers
through self-service vending machines.
SFAS 131 also requires that a public business enterprise report geographic
information relative to revenue and long-lived assets. Glacier began operations
in Mexico during fiscal 1998. The geographic revenues for the fiscal years and
long-lived assets are as follows:
<TABLE>
<CAPTION>
Revenues Long-Lived Assets
----------------- -------------------
Fiscal Year Ended Fiscal Year Ended
----------------- -----------------
January 2, January 3, January 2, January 3,
2000 1999 2000 1999
----- ---- ----- ----
<S> <C> <C> <C> <C>
(in thousands)
United States.............................................. $56,579 $56,304 $56,295 $53,996
Mexico..................................................... 195 17 2,641 943
------- ------- ------- -------
Total...................................................... $56,774 $56,321 $58,936 $54,939
======= ======= ======= =======
</TABLE>
13. Recent Accounting Pronouncements
In 1998, the FASB issued Statement No. 133 (SFAS 133), Accounting for
Derivative Instruments and Hedging Activities. SFAS 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize those items
as assets or liabilities in the statement of financial position and measure them
at fair value. SFAS 133 is effective for fiscal years beginning after June 15,
2000. The Company does not expect that the adoption of SFAS 133 will have a
material effect on its financial position or results of operations.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, Reporting on the Cost of Start-up Activities.
SOP 98-5 requires costs of start-up activities and organizational
35
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
costs to be expensed as incurred. Accordingly, the Company expensed $128,000 in
1998 relative to its start-up activities in Mexico. The Company did not have
significant capitalized costs prior to fiscal 1998, and, therefore, a cumulative
adjustment was not required.
15. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
----------------- ------------------- ----------------- -------------------
(in thousands, except shares and per share amounts)
<S> <C> <C> <C> <C>
Year Ended January 2, 2000:
Net revenues $ 12,623 $ 14,232 $ 15,706 $ 14,213
Income (loss) from operations (401) (223) 903 (372)
Loss before extraordinary gain (2,593) (1,713) (772) (2,157)
Gain on early extinguishment of debt - - 336 2,281
Net income (loss) (2,593) (1,713) (436) 124
Basic earnings (loss) per share:
Loss before extraordinary gain (.87) (.61) (.27) (.76)
Extraordinary gain - - .12 .80
Net income (loss) (.87) (.61) (.15) .04
Weighted average shares 2,987,879 2,827,301 2,833,000 2,834,174
Diluted earnings (loss) per share:
Loss before extraordinary gain (.87) (.61) (.27) (.76)
Extraordinary gain - - .12 .80
Net income (loss) (.87) (.61) (.15) .04
Weighted average shares and
potential shares 2,987,879 2,827,301 2,833,000 2,858,303
Year Ended January 3, 1999:
Net revenues $ 12,814 $ 14,433 $ 16,916 $ 12,158
Income (loss) from operations 25 (42) 1,045 (2,496)
Net income (loss) (486) (391) 292 (2,687)
Basic earnings (loss) per share (.15) (.12) .10 (.90)
Weighted average shares 3,211,988 3,201,389 2,893,759 2,987,879
Diluted earnings (loss) per share (.15) (.12) .10 (.90)
Weighted average shares and
potential shares 3,211,988 3,201,389 3,011,765 2,987,879
Year Ended January 4, 1998:
Net revenues $ 11,176 $ 16,038 $ 17,138 $ 12,942
Income from operations 142 1,164 573 732
Net income (loss) (111) 398 32 111
Basic earnings (loss) per share (.03) .12 .01 .03
Weighted average shares 3,208,580 3,214,150 3,226,758 3,226,706
Diluted earnings (loss) per share (.03) .12 .01 .03
Weighted average shares and
potential shares 3,208,580 3,310,010 3,351,034 3,354,263
</TABLE>
36
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No.
- ---
<S> <C>
3.1 Certificate of Incorporation of Registrant (i.)
3.2 Bylaws of Registrant (i.)
4.1 Specimen Stock Certificate of Registrant (i.)
4.2 Junior Subordinated Indenture between Glacier Water Services, Inc. and Wilmington Trust Company,
as Indenture Trustees, dated January 28, 1997 (viv.)
4.3 Officers' Certificate and Company Order executed by Glacier Water Services, Inc., dated January 27,
1998
4.4 Certificate of Trust of Glacier Water Trust I, dated November 13, 1997 (viii.)
4.5 Trust Agreement of Glacier Water Trust I, dated November 13, 1997 (viii.)
4.5.1 Amended and Restated Trust Agreement of Glacier Water Trust I, dated January 27, 1998 (viv.)
4.6 Trust Preferred Certificate of Glacier Water Trust I (viv.)
4.7 Common Securities Certificate of Glacier Water Trust I (viv.)
4.8 Guarantee Agreement between Glacier Water Services, Inc. and Wilmington Trust Company, as Trustee,
dated January 27, 1998 (viv.)
4.9 Agreement as to Expenses and Liabilities between Glacier Water Services, Inc. and Glacier Water Trust I,
dated January 27, 1998 (viv.)
4.10 Junior Subordinated Deferrable Interest Debenture of Glacier Water Services, Inc. (viv.)
10.1 Amended and Restated 1992 Stock Incentive Plan (ii.)
10.2 Vending Machine Agreement between the Vons Companies, Inc. and BWVI (i.)
10.3 Location Agreement between Ralph's Grocery Company, Cala Co., and GW Services, Inc. (v.)
10.4 Form of Indemnification Agreement with Officers and Directors (i.)
10.5 1994 Stock Compensation Plan (iii.)
10.5.1 Amendment No. 1 to 1994 Stock Compensation Plan (iv.)
10.5.2 Amendment No. 2 to 1994 Stock Compensation Plan (v.)
10.5.3 Amendment No. 3 to 1994 Stock Compensation Plan (v.)
10.5.4 Amendment No. 4 to 1994 Stock Compensation Plan (vi.)
10.5.5 Amendment No. 5 to 1994 Stock Compensation Plan (vii.)
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP Independent Public Accountants
27 Financial Data Schedule for the Fiscal Year Ended January 2, 2000
- --------------------
(i.) Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-45360)
amendments thereto.
(ii.) Incorporated by reference to the Company's Registration Statement on Form S-8 (File Number 33-
61942) filed April 30, 1993.
(iii.) Incorporated by reference to the Company's Registration Statement on Form S-8 (File Number 33-
80016) filed June 8, 1994.
(iv.) Incorporated by reference to the Company's Proxy Statement for the Annual Meeting held on June 2,
1993.
(v.) Incorporated by reference to the Company's Proxy Statement for the Annual Meeting held on June 6,
1995.
(vi.) Incorporated by reference to the Company's Proxy Statement for the Annual Meeting held on June 3,
1997.
(vii.) Incorporated by reference to the Company's Proxy Statement for the Annual Meeting held on June 9,
1998.
(viii.) Incorporated by reference to the Company's Registration Statement on Form S-2 (File Number 333-
40335) filed January 22, 1998.
(viv.) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended
January 4, 1998.
</TABLE>
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GLACIER WATER SERVICES, INC.
By /s/ Jerry A. Gordon
---------------------------------------------
Jerry A. Gordon
President, Chief Executive Officer and Director
By /s/ W. David Walters
----------------------------------------------
W. David Walters
Senior Vice President, Chief Financial Officer
Date: March 22, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 22, 2000.
Signature Title
- --------- -----
Principal Executive Officer:
/s/ Jerry A. Gordon President, Chief Executive
- ----------------------------------------- Officer and Director
Jerry A. Gordon
/s/ Douglas C. Boyd Director
- -----------------------------------------
Douglas C. Boyd
/s/ Richard A. Kayne Chairman of the Board and
- --------------------------------------- Director
Richard A. Kayne
/s/ Peter H. Neuwirth Director
- -----------------------------------------
Peter H. Neuwirth
/s/ Scott H. Shlecter Director
- -----------------------------------------
Scott H. Shlecter
/s/ Robert V. Sinnott Director
- -----------------------------------------
Robert V. Sinnott
/s/ Jerry R. Welch Director
- ------------------------------------------
Jerry R. Welch
38
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Name of State of Name Under Which
Subsidiary Incorporation Subsidiary Operates
- ------------------------------------- ------------- --------------------------------
<S> <C> <C>
GW Services, Inc. California GW Services Inc., except for the
state of Texas where DBA is Bottle
Water Vending, Inc. and the State
of Arizona where DBA is Glacier
Water, Inc.
Glacier Water Trust I Delaware Glacier Water Trust I
GW Services International, Inc. Delaware GW Services International, Inc.
</TABLE>
39
<PAGE>
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into Glacier Water Services, Inc.'s previously
filed Registration Statements File No. 33-61942 and File No. 33-80016.
Arthur Andersen LLP
San Diego, California
March 22, 2000
40
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> JAN-02-2000
<CASH> 4,205
<SECURITIES> 9,826
<RECEIVABLES> 589
<ALLOWANCES> 0
<INVENTORY> 3,249
<CURRENT-ASSETS> 19,648
<PP&E> 98,004
<DEPRECIATION> 39,068
<TOTAL-ASSETS> 89,409
<CURRENT-LIABILITIES> 8,288
<BONDS> 0
34
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 89,409
<SALES> 56,774
<TOTAL-REVENUES> 56,774
<CGS> 56,867
<TOTAL-COSTS> 56,867
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,201
<INCOME-PRETAX> (9,294)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 2,617
<CHANGES> 0
<NET-INCOME> (4,618)
<EPS-BASIC> (1.62)
<EPS-DILUTED> (1.62)
</TABLE>
