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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1996
Commission file number: 1-11012
GLACIER WATER SERVICES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 33-0493559
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2261 Cosmos Court
Carlsbad, CA 92009
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (760) 930-2420
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Securities registered purusant 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
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 14, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $42,370,738 (calculated at the closing
price on the American Stock Exchange multiplied by outstanding shares held by
non-affiliates). For purposes of the foregoing calculation, certain persons who
have filed reports on Schedule 13D with the SEC with respect to their beneficial
ownership of more than 5% of the registrant's outstanding common stock and
directors and officers have been excluded from the group of stockholders deemed
to be non-affiliates of the registrants.
As of March 14, 1997, the registrants had 3,208,575 shares of common stock
outstanding.
The total number of pages in this Form 10-K is 28; the Index to Exhibits is
located on page 27.
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
1997 Annual Meeting of Stockholders which will be filed with the Securities and
Exchange Commission within 120 days after the close of the 1996 year.
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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
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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
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Glacier Water Services, Inc. ("Glacier" or the "Company") is a leading
provider of high quality, low priced drinking water dispensed to consumers
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through self-service vending machines that are designed, developed and assembled
by the Company. The Company's machines, which are currently located in the
---
states of California, Texas, Florida, Arizona, Nevada, Louisiana, New Mexico,
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Mississippi, Georgia, and Illinois, are placed at supermarkets and other retail
locations in order to take advantage of the regular customer traffic at such
locations and to provide easy access for consumers.
The Company has grown from approximately 3,700 machines in operation as of
December 31, 1992 to over 9,100 machines in operation as of December 31, 1996.
This expansion in installed machines has resulted in significant growth in
revenues, which have increased from $27 million in 1992 to $46 million in 1996.
Other than the Company, the water vending market is comprised primarily of
smaller independent operators. The Company's growth strategy includes the
continued addition of machines in existing markets and selective expansion into
new markets. Generally, the cost to the Company of adding new machines in
existing markets is approximately $5,400 to $6,500 per machine, including
manufacturing and installation costs. On March 28, 1997, the Company purchased
substantially all of the assets of the Aqua-Vend division of McKesson Water
Products Company.
Glacier's vending machines are connected to municipal water sources at each
retail location. The 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 $.35 per
gallon, which represents a significant discount to the price of water sold off-
the-shelf in retail locations or sold through home delivery services. The
Company's machines are clustered in close proximity to one another within the
geographic areas served in order to assure cost-effective, quality service.
Machines are serviced and tested weekly by technicians whose routes are
structured to allow each technician to service approximately 70 machines per
week.
Glacier Water Services, Inc. was incorporated in Delaware on November 19,
1991. Substantially all of its operations are conducted by GW Services, Inc.
(the "Subsidiary"), a California corporation and a wholly-owned subsidiary of
Glacier. The Company conducts substantially all of its operations through the
Subsidiary which was incorporated in California on April 12, 1983. The Company
maintains its executive offices at 2261 Cosmos Court, Carlsbad, California 92009
and its telephone number is (760) 930-2420.
BUSINESS BACKGROUND
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The Company commenced operations in 1983 in southern California. The Company
then expanded into Arizona in 1984, Nevada in 1986, Florida and Texas in 1988,
New Mexico in 1993, Louisiana and Mississippi in 1994, Georgia in 1995 and
Illinois in 1996. The following table sets forth the number of machines
installed annually from December 31, 1992:
Total installed machines as of December 31, 1992... 3,666
Machines added during the year:
1993.......................................... 1,114
1994.......................................... 1,945
1995.......................................... 1,793
1996.......................................... 646
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Total installed machines as of December 31, 1996... 9,164
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1
Total machines installed as of December 31, 1996 are distributed by state as
follows:
California....................................... 5,121
Texas............................................ 1,564
Florida.......................................... 1,495
Arizona.......................................... 667
Nevada........................................... 142
Other............................................ 175
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9,164
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The Company has continued its expansion strategy emphasizing a high quality,
efficient water vending machine, low price to the consumer, a high level of
service for its network of machines and the clustering of machines within a
market area to realize significant operating economies of scale in the operation
of its business. The Company competes with other marketers of nonsparkling
water primarily on the basis of price, providing a product of comparable quality
at a significantly lower price to the consumer. See "Retail Pricing" below.
Glacier's internally developed water vending machines utilize micron
filtration, reverse osmosis, carbon adsorption 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 servicability 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 Company provides frequent, regular and reliable service and support to its
network of vending machines through an extensive route servicing system. The
Company believes that its strong commitment to the maintenance of its network,
ensuring cleanliness and operability, is a significant factor in the Company's
ability to continue to build consumer usage. In order to provide this high
level of service and support in a cost-effective manner, the Company has pursued
a strategy of placing machines in close proximity to one another which fosters
operating efficiencies and important economies of scale. See "Route Servicing
System" below.
TRADE RELATIONS
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The Company arranges to place its 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 electricity. The Company generally pays
monthly commissions to the retailers based upon a percentage of sales, typically
ranging from 25% to 60%. The Company believes that retailers are increasingly
cognizant of the benefits of vended water, which provides additional revenues to
the retailers without occupying valuable and limited shelf space and without the
related investment in inventory.
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. In some cases, the
Company provides marketing incentives in order to encourage certain retailers to
promote the Company's products.
The Company's most significant account in 1996 was Ralph's Grocery Company
(Ralph's), a California-based chain of supermarkets. During the fiscal year
ended December 31, 1996, approximately 10% of the Company's total revenues were
derived from sales from machines located at Ralph's stores. Prior to 1996, the
Company's most significant account was Vons Companies, Inc. (Vons), a
California-based chain of supermarkets. During the fiscal years ended December
31, 1996, 1995, and 1994, approximately 9%, 10% and 13%, respectively, of the
total revenues of the Company were derived from sales from machines located at
Vons stores. The Company entered into a written contract with Ralph's in
December 1996. This contract, which succeeds a previous contract with certain
Ralph's locations, has a five-year term and is not terminable by Ralph's except
in the event of a material breach of the contract by the Company. While the
Company believes its relations with
2
Ralph's and its other accounts are good, any termination of the Company's
contract with Ralph's or Vons would adversely affect the Company.
LOCATION SELECTION
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In accordance with the Company's expansion strategy, 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.
ROUTE SERVICING SYSTEM
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The Company believes that providing frequent, regular and reliable service and
support is one of the most important elements in the operation of its machine
network. In order to maintain this level of service and support, the Company
has implemented its route servicing system, utilizing well-trained technicians
to perform the Company's regularly scheduled service procedures. A service
technician has a route consisting of approximately 70 machines, each of which
are visited and serviced on a weekly basis. The service technician tests the
quality and quantity of the Company's processed water in order to assure
compliance with all Company, federal, state and local standards. Records of
these tests are prepared and maintained for the appropriate regulatory
authorities.
The other key components of the Company's route servicing system are regional
service centers located in Glendale, California; Carlsbad, California;
Pleasanton, California; Gilbert, Arizona; Houston, Texas; Orlando, Florida; and
Riviera Beach, Florida, which are designed to support the activities of the
service technicians. All coin collections are delivered to and verified by a
service center for bank deposit preparation. Inventories of filters, supplies
and machine parts are maintained at the service centers for the service
technicians' use in making service calls. Finally, the Company maintains 24-
hour, toll-free telephone support for responding to consumer calls regarding
machine operation problems. Instructions and the toll-free number are posted on
the machines.
RETAIL PRICING
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The Company's drinking water competes with nonsparkling water sold in
containers inside retail outlets and with water sold in containers delivered
directly to consumers' homes. As with many consumer products, the costs of
packaging and distributing drinking water sold by these competing methods
represent a significant portion of the total cost of the product, and these
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 certain costs
incurred by its competitors. Accordingly, the Company passes on these savings
to consumers by charging a retail price per gallon which represents a
substantial discount from the price of bottled water sold by non-vending machine
sources. In the Company's current market areas, it generally offers drinking
water at a retail price of $.25 to $.35 per gallon, compared with retail prices
ranging from $.69 to $.99 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.
CONSUMER MARKETING
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With respect to consumer marketing, the Company believes it benefits most
from consumer awareness and trial usage and also believes that utilizing
promotional activities at individual machine locations is the most cost-
effective approach for achieving these objectives. To date, the Company has used
point-of-purchase signage,
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special introductory and promotional pricing, and promotional activities
coinciding with the installation of new machines as its primary marketing tools.
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.
COMPETITION
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The bottled water market is highly competitive. The Company competes in the
nonsparkling segment of the bottled water market with companies which deliver
water to the home, with off-the-shelf marketers and with other vending machine
operators. The Company's primary competitive advantage over home delivery and
off-the-shelf marketers is price. A substantial decline in the price of either
home-delivered or off-the-shelf bottled water could adversely affect the demand
for water dispensed from the Company's vending machines.
The Company's principal competitor within the vended water sector has
historically been Aqua-Vend, a division of McKesson Water Products Company, a
wholly-owned subsidiary of McKesson Corporation. On March 28, 1997, the Company
purchased substantially all of the assets of the Aqua-Vend division of McKesson
Water Products Company, which acquisition will include approximately 2,600
machines at various locations. The Company's remaining competitors in the vended
water sector are primarily smaller, independent operators, many of which the
Company believes lack significant financial resources. The Company believes
there are significant barriers to entry to new and existing competitors,
including the substantial capital outlay required to purchase a sufficient
number of machines to achieve competitive operating efficiencies and the time
and cost involved in developing a sophisticated service network, obtaining
locations at which to place vending machines, acquiring expertise in the
industry and developing operating procedures.
Certain of the Company's potential customers may use portable or permanent
water filtration systems installed in their homes. These systems are relatively
expensive to install and maintain, and the Company believes that these systems
have not had and will not have a material effect on the Company's operations.
SEASONALITY
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The Company's revenues are subject to seasonal fluctuations, with decreased
revenues during cold weather months and increased revenues during hot weather
months.
PATENTS AND TRADEMARKS
- ----------------------
The Company does not hold any patents. The basic technologies used in the
Company's water vending machines cannot be patented as they are in the public
domain. The tradename and trademark "Glacier Water" used by the Company has the
word "Glacier" in common with marks that have been used and registered by a
number of other entities. To date, the Company has been unable to register the
mark due principally to one party, which registered the trademark "Glacier".
However, there can be no assurance that other entities might not assert superior
or exclusive rights in the mark and seek or obtain damages from or injunctive
relief against the Company. Additionally, there can be no assurance that the
loss of the Company's mark would not affect sales.
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 and quantity of the vended water. The Company believes that it is
operating in substantial compliance with these laws and regulations. The
Company's vending machines are subject to routine and random regulatory quality
inspections.
4
INSURANCE
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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 unlikely any contamination of the products dispensed by
its machines, 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
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As of December 31, 1996, the Company had 282 employees, including 50 in
administration and 232 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.
ITEM 2. PROPERTIES
The Company's principal facility, a 30,000-square-foot building in Carlsbad,
California containing its executive offices, assembly shop and one area service
center, is under lease through May 1999. The Company also leases various other
facilities containing its remaining area service centers. These leases range in
square footage from 2,100 to 5,900 square feet, and expire on various dates from
March 1997 through October 2001.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceeding.
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 1996.
5
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.
High Low
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1996
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First Quarter $19.50 $16.50
Second Quarter 20.00 18.13
Third Quarter 23.00 19.00
Fourth Quarter 23.25 19.63
1995
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First Quarter $21.38 $18.50
Second Quarter 19.88 18.75
Third Quarter 22.50 19.75
Fourth Quarter 21.88 18.63
The Company did not pay dividends on its Common Stock in 1996 and 1995 and
presently intends to continue this policy. In addition, the Company's credit
agreement contains a number of financial covenants, which may, among other
things, limit the Company's ability to pay dividends. The Company had
approximately 45 stockholders of record as of December 31, 1996.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following sets forth selected financial data as of and for the periods
presented. 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.
Year Ended December 31,
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1996 1995 1994 1993 1992
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(in thousands, except shares and per share amounts)
Consolidated Statements of Income Data:
Revenues.............................................. $ 46,091 $ 42,409 $ 36,557 $ 30,636 $ 27,182
Costs and expenses:
Operating expenses............................... 27,926 25,933 23,504 20,061 18,351
General and administrative expenses.............. 5,895 5,483 4,791 4,516 3,707
Depreciation and amortization.................... 6,769 5,756 3,662 2,692 1,995
---------- ---------- ---------- ---------- ----------
Total costs and expenses.................... 40,590 37,172 31,957 27,269 24,053
---------- ---------- ---------- ---------- ----------
Income from operations................................ 5,501 5,237 4,600 3,367 3,129
Other expenses:
Interest expense, net............................ 783 723 317 38 182
Guaranty expense................................. -- -- -- -- 294
---------- ---------- ---------- ---------- ----------
Total other expenses........................ 783 723 317 38 476
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Income before provision for income taxes.............. 4,718 4,514 4,283 3,329 2,653
Provision for income taxes............................ 1,415 1,805 1,578 1,282 1,016
---------- ---------- ---------- ---------- ----------
Net income............................................ $ 3,303 $ 2,709 $ 2,705 $ 2,047 $ 1,637
========== ========== ========== ========== ==========
Net income per share.................................. $ .98 $ .80 $ .80 $ .62 $ .54
========== ========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding........................ 3,374,482 3,405,104 3,367,151 3,299,130 3,058,029
========== ========== ========== ========== ==========
SELECTED BALANCE SHEET DATA
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As of December 31,
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1996 1995 1994 1993 1992
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(in thousands)
Working capital (deficit).................................. $ 1,070 $ 1,366 $ 61 $ (185) $ 1,648
Total assets............................................... $ 46,067 $ 40,638 $ 34,042 $ 23,415 $ 20,119
Long-term debt, including current portion.................. $ 15,820 $ 11,087 $ 8,199 $ 1,510 $ 880
Stockholders' equity....................................... $ 23,986 $ 24,087 $ 20,376 $ 17,265 $ 15,218
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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.
GENERAL
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The Company has continued to expanded its business by placing water vending
machines in new and existing market areas. The number of machines in operation
increased to 9,164 at the end of 1996 from 8,518 for 1995, and 6,725 for 1994.
RESULTS OF OPERATIONS
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Revenues consist primarily of revenues generated from consumer use of the
Company's water vending machines. Revenues in 1996 increased by 8.7% over 1995,
to $46.1 million. Revenues in 1995 increased by 16.0% over 1994, to $42.4
million. The growth in revenues in both years is primarily attributable to the
increase in the number of Company vending machines in operation.
The following table sets forth, for the periods indicated, the percentage of
revenues represented by certain items included in the Consolidated Statements of
Income.
As Percentage of Revenues
Year Ended December 31,
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1996 1995 1994
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Revenues........................................ 100.0% 100.0% 100.0%
Costs and expenses:
Operating expenses......................... 60.6 61.2 64.3
General and administrative expenses........ 12.8 12.9 13.1
Depreciation and amortization.............. 14.7 13.6 10.0
----- ----- -----
Total costs and expenses.............. 88.1 87.7 87.4
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Income from operations.......................... 11.9 12.3 12.6
Interest expense, net........................... 1.7 1.7 0.9
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Income before income taxes...................... 10.2% 10.6% 11.7%
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Operating expenses and general and administrative expenses increased in
absolute dollars from 1995 to 1996 and from 1994 to 1995 principally due to the
increase in the number of Company vending machines in operation described above.
Operating expenses decreased as a percentage of revenues to 60.6% in 1996,
compared to 61.2% in 1995 and 64.3% in 1994. The decreases were due primarily
to increased efficiencies in route servicing. General and administrative
expenses decreased as a percentage of revenues to 12.8% in 1996, from 12.9% in
1995 and 13.1% in 1994. The decreases as a percentage of revenue in each year
result from the Company's ability to more efficiently utilize its corporate
infrastructure in supporting the growth in its installed base of machines.
Depreciation and amortization increased 17.6% over 1995 to $6.8 million in
1996, and 57.2% over 1994 to $5.8 million in 1995. The increases are due
primarily to the Company's continued investment in new vending machines.
Net interest expense was 1.7% of revenues in both 1996 and 1995, compared to
0.9% in 1994. The increase is due to higher outstanding balances on the
Company's bank loans during 1996 and 1995. The increased
8
borrowings were utilized to fund the increased installation of machines in both
years, and in 1996 were also used to fund the Company's repurchase of 170,500
shares.
The Company's effective income tax rate decreased to 30% in 1996 from 40% in
1995 as the Company realized the cumulative effect of certain income tax
credits. The Company's effective rate in 1994 was approximately 37%.
LIQUIDITY AND CAPITAL RESOURCES
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The Company's primary sources of liquidity and capital resources are cash
flows from operations and funds available under the Company's bank credit
agreement. As of December 31, 1996, the Company had a credit agreement with a
bank which provides for long-term borrowings of up to $18.0 million. This credit
agreement requires monthly interest payments at the bank's prime rate (8.25% at
December 31, 1996) or the LIBOR plus 1.75% (7.4% at December 31, 1996). The
credit agreement provides for a two year interest-only revolving period which
converts to a five-year term note due and payable July 1, 2003. The agreement is
collateralized by substantially all the Company's assets and provides, among
other things, that the Company meets a debt coverage ratio, a debt to tangible
net worth ratio, and other financial covenants, as set forth in the agreement.
During 1996, net cash provided by operations was approximately $7.2 million,
and the Company made capital expenditures for vending machines and other
equipment aggregating approximately $8.5 million. As of December 31, 1996, the
Company had working capital of approximately $1.1 million. Approximately $15.8
million of borrowings were outstanding, with $2.2 million of additional funds
were available under the credit agreement.
In March 1997, the Company's credit agreement was amended to provide for
borrowings of up to $35.0 million. 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
purchase price of $9.0 million was financed with additional borrowings under the
Company's credit agreement. The Company will finance any additional capital
expenditures and operating costs related to the acquisition through cash flow
generated from the operation of the acquired machines, as well as additional
borrowings on the line of credit.
The Company believes its cash balances, funds generated from operations, and
borrowings available under its amended credit facility will be sufficient to
meet its operating and capital requirements for at least the next twelve months.
The ability of the Company to meet its debt service requirements and the ability
of the Company to comply with the restrictive covenants will be dependent upon
future performance, which is subject to financial, economic, competitive,
regulatory and other factors affecting the Company, many of which are beyond its
control.
SEASONALITY
- -----------
The revenues of the Company are subject to seasonal fluctuations, with
decreased revenues during cold weather months and increased revenues during hot
weather months.
ITEM 8. 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 14 through 26 after Part IV of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
9
PART III
ITEM 10. 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 1997 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 December 31, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
Name Position Age
- ---- -------- ---
Jerry R. Welch Chairman of the Board, Chief Executive Officer 46
and Director
Jerry A. Gordon President and Chief Operating Officer 51
Glen A. Skumlien Executive Vice President, Operations 47
Dane Seibert Senior Vice President, Marketing & Sales 48
John T. Vuagniaux Senior Vice President, Operations 48
Brenda K. Foster Vice President, Controller and Secretary 30
Dana B. Gilbert Vice President, National Accounts 48
Roger J. Gilchrist Vice President, Eastern Operations 48
Luz E. Gonzales Vice President, Human Resources 44
Brian T. Nakagawa Vice President, Technology & Information Systems 43
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 R. WELCH
Mr. Welch has been a director of the Company since October 1991, has been the
Chairman of the Board since April 1993 and was elected Chief Executive Officer
in September 1994. He also served as Chairman of the Board from January 1992
through September 1992. From October 1991 until his resignation in September
1992, Mr. Welch served as the Company's Chief Executive Officer. Mr. Welch
currently serves as a Senior Vice President of Kayne Anderson Investment
Management and has served in such a capacity since January 1993.
JERRY A. GORDON
Mr. Gordon has served as the President and Chief Operating Officer of Glacier
Water Services, Inc. since September 1994. 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.
GLEN A. SKUMLIEN
Mr. Skumlien has served as Executive Vice President, Operations since
September 1994. Prior to that, Mr. Skumlien served as Vice President-Operations
from November 1991. Mr. Skumlien served as the Company's Director of Field
Operations from 1989 to November 1991.
DANE SEIBERT
Mr. Seibert joined the Company in March 1995 as Senior Vice President of
Marketing & Sales. From 1990 until joining the Company Mr. Seibert was
Corporate Vice President - International Marketing for Miller/Zell Inc., a
retail and merchandising consulting and design firm located in Atlanta, GA.
10
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.
BRENDA K. FOSTER
Ms. Foster has served as Vice President, Controller since February 1996, after
joining the Company as Controller in September 1995. Ms. Foster is a Certified
Public Accountant, and worked for Ernst & Young LLP from 1988 to 1995.
DANA B. GILBERT
Mr. Gilbert has served as Vice President, National Accounts since February
1996. Mr. Gilbert joined the Company in January 1992 as a Sales Manager. From
January 1994 to February 1996, Mr. Gilbert served as Regional Sales Manager for
the Western Division.
ROGER J. GILCHRIST
Mr. Gilchrist has served as Vice President, Eastern Operations since February
1996. Mr. Gilchrist joined the Company in April 1988 as District Manager. In
May 1993, Mr. Gilchrist assumed the position of Regional Sales Manager for the
Eastern Division.
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 11. EXECUTIVE COMPENSATION
There is incorporated herein by reference the information required by this
Item in the Company's definitive proxy statement for the 1997 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 December 31, 1996.
ITEM 12. 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 1997 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 December 31, 1996.
11
ITEM 13. 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 1997 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 December 31, 1996.
12
PART IV
ITEM 14. 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 27 are
filed as part of this report.
(b) Reports on Form 8-K
-------------------
The registrant did not file any reports on Form 8-K during the last
quarter for the year for which this report is filed.
13
INDEX
-----
Page
Number
------
Consolidated Financial Statements
---------------------------------
Report of Independent Public Accountants................................................ 15
Consolidated Balance Sheets at December 31, 1996 and December 31, 1995.................. 16
Consolidated Statements of Income for the years ended December 31, 1996,
December 31, 1995, and December 31, 1994.............................................. 17
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996,
December 31, 1995, and December 31, 1994.............................................. 18
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
December 31, 1995, and December 31, 1994.............................................. 19
Notes to Consolidated Financial Statements.............................................. 20
14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Glacier Water Services, Inc.
We have audited the accompanying consolidated balance sheets of Glacier Water
Services, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Glacier Water Services, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
January 23, 1997
15
GLACIER WATER SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
------
1996 1995
---- ----
Current assets:
Cash......................................................................... $ 11 $ 29
Accounts receivable.......................................................... 311 614
Inventories.................................................................. 2,946 2,200
Prepaid commissions and other................................................ 1,084 888
------- -------
Total current assets........................................................ 4,352 3,731
Property and equipment, net of accumulated depreciation....................... 36,754 33,272
Other assets.................................................................. 4,961 3,635
------- -------
Total assets.................................................................. $46,067 $40,638
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable............................................................. $ 640 $ 342
Accrued commissions.......................................................... 988 734
Accrued liabilities.......................................................... 1,654 1,289
------- -------
Total current liabilities................................................... 3,282 2,365
Long-term debt................................................................ 15,820 11,087
Deferred income taxes......................................................... 2,979 3,099
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, 3,208,575 and 3,367,825 shares issued and
outstanding in 1996 and 1995, respectively................................. 34 34
Additional paid-in capital................................................... 15,284 15,125
Retained earnings............................................................ 12,231 8,928
Treasury stock, 170,500 shares, at cost...................................... (3,563) --
------- -------
Total stockholders' equity................................................. 23,986 24,087
------- -------
Total liabilities and stockholders equity..................................... $46,067 $40,638
======= =======
The accompanying notes are an integral part of these consolidated statements.
16
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994
---- ---- ----
Revenues........................................................... $ 46,091 $ 42,409 $ 36,557
Costs and expenses:
Operating expenses............................................ 27,926 25,933 23,504
General and administrative expenses........................... 5,895 5,483 4,791
Depreciation and amortization................................. 6,769 5,756 3,662
---------- ---------- ----------
Total costs and expenses.................................. 40,590 37,172 31,957
---------- ---------- ----------
Income from operations............................................. 5,501 5,237 4,600
Interest expense, net.............................................. 783 723 317
---------- ---------- ----------
Income before provision for income taxes........................... 4,718 4,514 4,283
Provision for income taxes......................................... 1,415 1,805 1,578
---------- ---------- ----------
Net income......................................................... $ 3,303 $ 2,709 $ 2,705
========== ========== ==========
Net income per share............................................... $ .98 $ .80 $ .80
========== ========== ==========
Weighted average common and common
equivalent shares outstanding..................................... 3,374,482 3,405,104 3,367,151
========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
17
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
---------- ------ ---------- -------- ------ -----
Balance, December 31, 1993....................... 3,236,986 $ $33 $ 13,718 $ 3,514 $ -- $ 17,265
Exercise of Stock Options........................ 57,108 -- 406 -- -- 406
Net Income....................................... -- -- -- 2,705 - 2,705
--------- ------ --------- -------- -------- --------
Balance, December 31, 1994....................... 3,294,094 33 14,124 6,219 -- 20,376
Exercise of Stock Options........................ 73,731 1 1,001 -- -- 1,002
Net Income....................................... -- -- -- 2,709 -- 2,709
--------- ------ --------- -------- -------- --------
Balance, December 31, 1995....................... 3,367,825 34 15,125 8,928 -- 24,087
Exercise of Stock Options........................ 11,250 -- 159 -- -- 159
Purchase of Treasury Stock....................... (170,500) -- -- -- (3,563) (3,563)
Net Income....................................... -- -- -- 3,303 -- 3,303
--------- ------ --------- -------- -------- --------
Balance, December 31, 1996....................... 3,208,575 $ $34 $ 15,284 $ 12,231 $ (3,563) $ 23,986
========= ====== ========= ======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
18
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $ 3,303 $ 2,709 $ 2,705
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 6,769 5,756 3,662
Loss (gain) on disposal of assets 74 13 (46)
Deferred tax provision (benefit) (120) 682 596
Change in operating assets and
liabilities:
Accounts receivable 303 105 (323)
Inventories (746) (573) 11
Prepaid commissions and other (196) 99 (109)
Payments for prepaid marketing
incentives (2,966) (750) (2,144)
Other assets (124) (201) (1,093)
Accounts payable, accrued liabilities and accrued commissions 896 (455) 231
-------- -------- --------
Total adjustments 3,890 4,676 785
-------- -------- --------
Net cash provided by operating activities 7,193 7,385 3,490
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment (476) (182) (525)
Net investment in vending equipment (8,064) (10,609) (10,874)
Proceeds from sales of equipment -- -- 802
-------- -------- --------
Net cash used in investing (8,540) (10,791) (10,597)
activities -------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt 19,778 15,588 16,897
Principal payments on long-term debt (15,045) (12,700) (10,208)
Proceeds from issuance of stock 159 474 406
Purchase of treasury stock (3,563) -- --
-------- -------- --------
Net cash provided by financing activities 1,329 3,362 7,095
-------- -------- --------
Net decrease in cash (18) (44) (12)
Cash, beginning of year 29 73 85
-------- -------- --------
Cash, end of year $ 11 $ 29 $ 73
======== ======== ========
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 748 $ 735 $ 235
======== ======== ========
Cash paid for income taxes $ 1,010 $ 580 $ 793
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
19
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 cold weather months and increased revenues
during hot weather months. The Company's machines are located in California,
Nevada, Arizona, New Mexico, Texas, Louisiana, Mississippi, Georgia, Florida,
and Illinois.
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.
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.
Inventories consist primarily of raw materials and repair parts at December
31, 1996 and 1995.
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 December 31, 1996 and 1995 were $490,000 and $371,000,
respectively. Commission expense for the years ended December 31, 1996, 1995
and 1994 was $21,678,000, $19,643,000 and $17,320,000, respectively.
Property and Equipment and Depreciation
Property and equipment are recorded at cost and consist of the following at
December 31 (in thousands):
1996 1995
---- ----
Vending equipment................................. $ 51,433 $ 44,415
Equipment, furniture and fixtures................. 1,617 1,186
Leasehold improvements............................ 520 437
-------- --------
53,570 46,038
Less: Accumulated depreciation and amortization... (16,816) (12,766)
-------- --------
$ 36,754 $ 33,272
======== ========
20
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Income Taxes
Income taxes have been provided for using the liability method in
accordance with FASB Statement No. 109, Accounting for Income Taxes.
Net Income Per Share
Net income per share of common stock is computed on the basis of the
weighted average shares of common stock outstanding plus common equivalent
shares arising from the effect of dilutive stock options, using the treasury
stock method.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
presentation.
2. SUPPLEMENTARY BALANCE SHEET INFORMATION
Accounts Receivable
Included in accounts receivable at December 31, 1996 is a $100,000 note
receivable from Jerry A. Gordon, the Company's President and Chief Operating
Officer. The note, issued during 1996, is non-interest bearing, and was repaid
in full subsequent to December 31, 1996.
Other Assets
Other assets consist of the following at December 31 (in thousands):
1996 1995
---- ----
Prepaid marketing incentives, net of accumulated amortization
of $3,167 in 1996 and $2,867 in 1995........................... $4,606 $3,180
Other........................................................... 355 455
------ ------
$4,961 $3,635
====== ======
21
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Accrued liabilities consist of the following at December 31 (in thousands):
1996 1995
---- ----
Accrued compensation and related taxes................. $ 789 $ 570
Accrued income and other taxes......................... 639 500
Other accrued liabilities.............................. 226 219
------ ------
$1,654 $1,289
====== ======
3. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 represents borrowings under
the Company's bank credit agreement.
The credit agreement provides for long-term borrowings of up to
$18,000,000. Borrowings bear interest at the bank's prime rate (8.25% at
December 31, 1996) or LIBOR plus 1.75% (7.4% at December 31, 1996), and the
entire principal balance is due July 1, 2003. As of December 31, 1996, the
Company had approximately $2,200,000 of funds available under the agreement.
Borrowings under the agreement are secured by substantially all of the assets
of the Company. The agreement provides, among other things, that the Company
maintain certain debt coverage and other financial ratios, as defined in the
agreement. The agreement also limits the payment of dividends and additional
borrowings by the Company.
4. LEASES
The Company leases certain vehicles, warehouse and office facilities under
non-cancelable operating leases which expire on various dates through 2001.
Future minimum lease payments under non-cancelable operating leases with
initial terms of one or more years for the years ending December 31 are as
follows (in thousands):
1997........................... $1,019
1998........................... 653
1999........................... 332
2000........................... 21
2001........................... 16
------
Total minimum lease payments... $2,041
======
Total lease expense for the years ended December 31, 1996, 1995 and 1994 was
$1,284,000, $1,109,000, and $864,000, respectively.
22
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES
Significant components of the provision (benefit) for income taxes for the
years ended December 31, 1996, 1995 and 1994 are as follows (in thousands):
1996 1995 1994
---- ---- ----
Federal Income Taxes:
Current........................................... $ 1,418 $ 934 $ 835
Deferred.......................................... (75) 460 507
------- ------- -------
1,343 1,394 1,342
State and Local Income Taxes and
Other:
Current............................................ 117 189 147
Deferred........................................... (45) 222 89
------- ------- -------
72 411 236
------- ------- -------
Total $ 1,415 $ 1,805 $ 1,578
======= ======= =======
Deferred tax liabilities and assets result from the following at December 31 (in thousands):
1996 1995
---- ----
Deferred tax liabilities:
Property and equipment....................................... $ 4,801 $ 4,431
Other........................................................ -- 43
------- -------
Total deferred tax liabilities................................ 4,801 4,474
------- -------
Deferred tax assets:
Alternative minimum tax credit............................... (1,183) (1,091)
Manufacturer's investment credit............................. (492) --
State deferred tax adjustment................................ (16) (238)
Accruals and reserves........................................ (131) (46)
------- -------
Total deferred tax assets..................................... (1,822) (1,375)
------- -------
Net deferred tax liabilities.................................. $ 2,979 $ 3,099
======= =======
The Company's effective income tax rate differs from the federal statutory rate as follows:
1996 1995 1994
------- ------- -------
Federal statutory rate................................ 34.0% 34.0% 34.0%
State and local taxes, net of federal benefit......... 6.7% 6.0% 2.8%
Manufacturer's investment credit generated............ (10.7%) -- --
------- ------- -------
Effective rate........................................ 30.0% 40.0% 36.8%
======= ======= =======
The Company is currently under examination by the Internal Revenue Service for
the year ended December 31, 1992. Management does not anticipate that the
results of such audit will have a material impact on the Company's financial
statements.
23
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. 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
In December 1995, the Board of Directors authorized the purchase of up to
250,000 shares of the Company's common stock in the open market. During 1996,
170,500 shares were repurchased under this program. In December 1996, the
Board of Directors authorized the additional purchase of up to 250,000 shares
of the Company's common stock. As of December 31, 1996, the Company was
authorized to repurchase 329,500 shares, approximately 10.3% of the Company's
total shares outstanding.
7. STOCK OPTION PLANS
The Company has 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 following pro forma disclosures represent what
the Company's net income and earnings 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).
1996 1995
---- ----
Pro Forma Net Income (in thousands) $2,984 $2,568
Pro Forma EPS $ .88 $ .75
Because the method of accounting required under 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 Company has reserved 275,000 shares of common stock under the 1994
Stock Compensation 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.
24
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company had reserved 360,000 shares of common stock under the 1992
Stock Option Plan 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 become exercisable at a rate of 25% per annum. The 1992 Stock
Compensation 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 two stock option plans at December
31, 1996 and activity during the year then ended follows:
Wtd. Avg.
Exercise
Shares Price
--------- --------
Balance at December 31, 1995..................... 305,354 $15.08
Granted.......................................... 76,300 $19.45
Exercised........................................ (11,250) $ 9.88
Canceled......................................... (25,750) $19.63
-------- ------
Balance at December 31, 1996..................... 344,654 $15.88
Exercisable at December 31, 1996................. 153,604 $13.76
Weighted average fair value of options granted... $8.57
The 136,750 shares under the 1992 plan outstanding at December 31, 1996
have exercise prices between $8.25 and $13.63, with a weighted average
exercise price of $11.39 and a weighted average remaining contractual life
of 6.4 years. 98,500 of these options are exercisable; their weighted
average exercise price is $11.08.
The 207,904 shares under the 1994 plan outstanding at December 31, 1996
have exercise prices between $15.25 and $19.88, with a weighted average
exercise price of $18.82 and a weighted average remaining contractual life of
7.5 years. 55,104 of these options are exercisable; their weighted average
exercise price is $18.55.
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 1995 and 1996, respectively: risk-free interest
rates of 7.2% and 5.8%; no expected dividend yield; expected lives of 7 years
for regular options and 5 years for Deferral Options in both years; expected
volatility of 30% in both years.
8. SIGNIFICANT CUSTOMERS
The following table sets forth the percentage of the Company's total
revenues that were derived from major customers for the years ended December
31, 1996, 1995 and 1994:
1996 1995 1994
---- ---- ----
Company A 10.2% 5.8% --
Company B 9.0% 9.8% 13.3%
25
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. SUBSEQUENT EVENT (UNAUDITED)
On March 28, 1997, the Company acquired 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. The transaction was
accounted for under the purchase method of accounting, resulting in the
valuation of the purchased assets at fair market value, with no resulting
goodwill. In March 1997, the Company's bank line of credit was amended to
provide for borrowings of up to $35 million. The asset purchase was funded
with additional borrowing on this line of credit.
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
(in thousands, except shares and per share amounts)
Year Ended December 31, 1996:
Net revenues $ 10,015 $ 12,036 $ 13,709 $ 10,331
Income from operations 794 1,516 2,295 896
Net income 360 799 1,556 588
Earnings per share .11 .24 .46 .18
Weighted average shares 3,406,797 3,389,589 3,398,650 3,327,953
Year Ended December 31, 1995:
Net revenues $ 9,193 $ 10,470 $ 13,193 $ 9,553
Income from operations 925 1,309 2,264 739
Net income 472 661 1,233 343
Earnings per share .14 .20 .36 .10
Weighted average shares 3,419,851 3,385,400 3,397,746 3,405,572
26
INDEX TO EXHIBITS
Exhibit
No.
- -------
3.1 Certificate of Incorporation of Registrant (i.)
3.2 Bylaws of Registrant (i.)
4.1 Specimen Stock Certificate of Registrant (i.)
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 Food 4 Less Supermarkets, Inc. and Services, Inc. (vii.)
10.4 Location Agreement between Ralph's Grocery Company, Cala Co., and Services, Inc.
10.5 Form of Indemnification Agreement with Officers and Director (i.)
10.6 Lease Agreement between Enterprise Leasing and GW Services, Inc. (iii.)
10.7 Lease Agreement between Robert N. and Jean K. Rindt and Glacier Water Services Inc.
relating to the Carlsbad, CA facility (iv.)
10.8 1994 Stock Compensation Plan (v.)
10.8.1 Amendment No. 1 to 1994 Stock Compensation Plan (vi.)
10.8.2 Amendment No. 2 to 1994 Stock Compensation Plan
10.9 Asset Purchase Agreement by and between Glacier Water Services, Inc.
and McKesson Corp. and McKesson Water Products Company
10.10 Credit Agreement between Tokai Bank of California and Glacier Water
Services, Inc. and GW Services, Inc. (vi.)
10.10.1 Modification of Note and Credit Agreement between Tokai Bank of
California and Glacier Water Services, Inc. and GW Services, Inc.
effective February 6, 1996 (viii.)
10.10.2 Modification of Note and Credit Agreement between Tokai Bank of
California and Glacier Water Services, Inc. and GW Services, Inc.
effective June 20, 1996
10.10.3 Modification of Note and Credit Agreement between Tokai Bank of
California and Glacier Water Services, Inc. and GW Services, Inc.
effective March 28, 1997
10.10.4 Amendment to Guarantee
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP Independent Public Accountants
- --------------------
(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 Annual Report on Form 10-K and amendments thereto
dated March 11, 1994 for the year ended December 31, 1993.
(iv.) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the three months ended
March 31, 1994.
(v.) Incorporated by reference to the Company's Registration Statement on Form S-8 (File Number 33-80016)
filed June 8, 1994.
(vi.) Incorporated by reference to the Company's Annual Report on Form 10-K dated March 15, 1995.
(vii.) Incorporated by reference to the Company's proxy statement from the 1995 Annual Meeting of Stockholders
filed May 1, 1995.
(viii.) Incorporated by reference to the Company's Annual Report on Form 10-K dated March 15, 1996.
27
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 and Chief Operating Officer
By /s/Brenda K. Foster
---------------------------------------------
Brenda K. Foster
Vice President, Controller
Date: March 31, 1997
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 31, 1997.
Signature Title
- --------- -----
Principal Executive Officer:
/s/Jerry A. Gordon President, Chief Operating Officer
- ----------------------------
Jerry A. Gordon
/s/Jerry R. Welch Chairman of the Board, Chief Executive
- ----------------------------
Jerry R. Welch Officer and Director
/s/Timothy G. Clark Director
- ----------------------------
Timothy G. Clark
/s/Peter B. Foreman Director
- ----------------------------
Peter B. Foreman
/s/Richard A. Kayne Director
- ---------------------------
Richard A. Kayne
/s/Robert V. Sinnott Director
- ----------------------------
Robert V. Sinnott
/s/Brenda K. Foster Vice President, Controller
- ---------------------------
Brenda K. Foster
28