-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OwM52NzC/Dw9GITQAT2cqUzt+ioOyd+N/QBcJf6P1zf+6kdHpRGrbzjkyXy35sdH JggQxk2YzuunrtV3XZKyPw== 0001157523-05-004675.txt : 20050512 0001157523-05-004675.hdr.sgml : 20050512 20050512132015 ACCESSION NUMBER: 0001157523-05-004675 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050403 FILED AS OF DATE: 20050512 DATE AS OF CHANGE: 20050512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLACIER WATER SERVICES INC CENTRAL INDEX KEY: 0000883505 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-NONSTORE RETAILERS [5960] IRS NUMBER: 330493559 STATE OF INCORPORATION: DE FISCAL YEAR END: 1226 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11012 FILM NUMBER: 05823465 BUSINESS ADDRESS: STREET 1: 1385 PARK CENTER DRIVE CITY: VISTA STATE: CA ZIP: 92081-8338 BUSINESS PHONE: 7605601111 MAIL ADDRESS: STREET 1: 1385 PARK CENTER DRIVE CITY: VISTA STATE: CA ZIP: 92081-8338 10-Q 1 a4885447.txt GLACIER WATER SERVICES, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(D) of the Securities Exchange Act of 1934 for the Quarterly Period Ended: April 03, 2005 [ ] Transition Report Pursuant to Section 13 or 15(D) of the Securities Exchange Act of 1934 For the transition period from_______________to_________________ Commission File Number: 1-11012 ------- GLACIER WATER SERVICES, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 33-0493559 - ---------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.r.s. Employer Identification No.) Incorporation or Organization) 1385 Park Center Drive, Vista, California 92081 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (760) 560-1111 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES [ ] NO [X] Indicate the number of shares outstanding of each of issuer's class of common stock as of the latest practicable date: 2,195,408 shares of common stock, $.01 par value, outstanding at April 25, 2004. PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS GLACIER WATER SERVICES, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
April 3, January 2, 2005 2005 * --------- ---------- ASSETS (unaudited) ------ Current assets: Cash and cash equivalents ............................................. $ 4,416 $ 2,256 Accounts receivable, net of allowance for doubtful accounts of $206 and $201 as of April 3, 2005 and January 2, 2005, respectively ......... 2,257 2,476 Repair parts .......................................................... 2,290 2,403 Prepaid expenses and other ............................................ 962 950 --------- --------- Total current assets ............................................... 9,925 8,085 Property and equipment, net .............................................. 56,363 52,370 Goodwill ................................................................. 6,868 6,868 Intangible assets, net of accumulated amortization of $739 and $681 as of April 3, 2005 and January 2, 2005, respectively ..................... 417 475 Investment in Glacier Water Trust I Common Securities .................... 2,629 2,629 Investment in Glacier Water Trust I Preferred Securities ................. 3,357 3,357 Other assets ............................................................. 5,597 5,716 --------- --------- Total assets ............................................................. $ 85,156 $ 79,500 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable ...................................................... $ 2,876 $ 2,759 Accrued commissions ................................................... 1,901 1,989 Accrued liabilities ................................................... 2,594 2,215 Current portion of deferred rent ...................................... 18 -- Current portion of obligations under capital lease .................... 266 262 Current portion of long-term notes payable ............................ 460 460 --------- --------- Total current liabilities .......................................... 8,115 7,685 Long-term debt ........................................................... 87,629 87,629 Long-term notes payable .................................................. 17,000 10,040 Long-term portion of deferred rent ....................................... 162 112 Long-term portion of obligations under capital lease ..................... 592 661 --------- --------- Total liabilities ........................................................ 113,498 106,127 Stockholders' deficit: Common stock, $.01 par value; 10,000,000 shares authorized, 2,173,943 and 2,160,218 shares issued and outstanding as of April 3, 2005 and January 2, 2005, respectively ........................................................ 38 38 Additional paid-in capital ............................................ 19,206 18,948 Retained deficit ...................................................... (15,024) (13,051) Treasury stock, at cost, 1,587,606 shares as of April 3, 2005 and January 2, 2005 ..................................................... (32,562) (32,562) --------- --------- Total stockholders' deficit ........................................ (28,342) (26,627) --------- --------- Total liabilities and stockholders' deficit .............................. $ 85,156 $ 79,500 ========= =========
*Amounts derived from audited information The accompanying notes are an integral part of these consolidated financial statements. 2 GLACIER WATER SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
Three Months Ended -------------------------- April 3, March 28, 2005 2004 ----------- ----------- Revenues ............................................. $ 17,543 $ 17,546 Operating costs and expenses: Operating expenses .............................. 11,434 11,676 Depreciation and amortization ................... 3,302 2,510 ----------- ----------- Cost of goods sold ......................... 14,736 14,186 Selling, general and administrative expenses .... 2,700 2,631 ----------- ----------- Total operating costs and expenses ......... 17,436 16,817 ----------- ----------- Income from operations ............................... 107 729 Other expenses: Interest expense ................................ 2,080 1,930 ----------- ----------- Loss before income taxes ............................. (1,973) (1,201) Income tax benefit ................................... -- -- ----------- ----------- Net loss ............................................. (1,973) (1,201) Basic and diluted loss per common share: Net loss applicable to common stockholders ...... $ (0.91) $ (0.57) =========== =========== Weighted average shares used in calculation 2,172,055 2,119,483
GLACIER WATER SERVICES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS) (UNAUDITED)
Three Months Ended -------------------- April 3, March 28, 2005 2004 -------- ------- Net loss ................................................... $(1,973) $(1,201) ------- ------- Unrealized gain on securities: Unrealized holding gain arising during the period ........ -- -- Less: reclassification adjustment for net realized losses included in net loss ............................... -- -- ------- ------- Net unrealized gain ........................................ -- -- ------- ------- Comprehensive loss ......................................... $(1,973) $(1,201) ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 3 GLACIER WATER SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Three Months Ended ------------------ April 3, March 28, 2005 2004 -------- ------- Cash flow from operating activities: Net loss ............................................................ $(1,973) $(1,201) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization ................................... 3,302 2,510 Loss on disposal of assets ...................................... 15 15 Change in operating assets and liabilities: Accounts receivable ............................................. 219 (120) Repair parts .................................................... 113 22 Prepaid expenses and other ...................................... (11) 67 Other assets .................................................... (293) 72 Accounts payable, accrued commissions and accrued liabilities ... 408 209 ------- ------- Net cash provided by operating activities .......... 1,780 1,574 ------- ------- Cash flows from investing activities: Investment in property and equipment ................................ (6,841) (1,474) ------- ------- Net cash used in investing activities .............. (6,841) (1,474) ------- ------- Cash flows from financing activities: Principal payments on line of credit and long-term notes payable .... (40) (540) Proceeds from long-term notes payable ............................... 7,000 617 Principal payments under capital lease obligations .................. (64) (59) Proceeds from issuance of stock ..................................... 258 10 Increase in deferred rent ........................................... 67 -- ------- ------- Net cash provided by (used in) financing activities 7,221 28 ------- ------- Net increase (decrease) in cash and cash equivalent .................... 2,160 128 Cash and cash equivalents, beginning of period ......................... 2,256 1,924 ------- ------- Cash and cash equivalents, end of period ............................... $ 4,416 $ 2,052 ======= =======
Three Months Ended ------------------ April 3, March 28, 2005 2004 ------ ------ Supplemental disclosure of cash flow information: Cash paid for interest ....................... $2,035 $1,881 ====== ====== Cash paid for income taxes ................... $ 14 $ 3 ====== ======
The accompanying notes are an integral part of these consolidated financial statements. 4 GLACIER WATER SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 3, 2005 (UNAUDITED) 1. BASIS OF PRESENTATION Glacier Water Services, Inc., a Delaware corporation ("Glacier" or "Company"), is primarily engaged in the operation of self-service vending machines that dispense drinking water to consumers. In the opinion of the Company's management, the accompanying consolidated financial statements reflect all adjustments necessary for a fair presentation of the consolidated financial position of the Company and its subsidiaries and the consolidated results of their operations and their cash flows for the three month periods ended April 3, 2005 and March 28, 2004. Although the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information, including footnote information, normally included in financial statements prepared in accordance with United States generally accepted accounting principles has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Results of operations for the three-month period ended April 3, 2005 are not necessarily indicative of results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended January 2, 2005. 2. STOCK OPTION PLANS In December 2002, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. In December 2004, the Financial Accounting Standards Board (FASB) issued STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) No. 123R (SFAS 123R), "Share-Based Payment", which replaces SFAS No. 123, "Accounting for Stock-Based Compensation" and supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exception, the amount of compensation cost is measured based on the grant date fair value of the equity or liability instruments used. SFAS 123R requires liability for awards to be re-measured each reporting period and compensation costs to be recognized over the period that an employee provides service in exchange for the award. SFAS123R is effective beginning the first annual reporting period that begins after June 15, 2005. The Company plans to adopt the provisions of SFAS 123R prospectively effective fiscal year 2006. The Company's Stock Compensation Program expired in March 2004 and no options were granted during the year ended January 2, 2005 or the quarter ended April 3, 2005. The Company is currently determining the effect of SFAS 123R on the Company's consolidated financial statements. The Company has options outstanding under the 1994 Stock Compensation Program. The Company accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, under which no compensation cost has been recognized, since the exercise prices of the options granted were not less than the market prices of the stock on the date of grant. 5 The following unaudited pro forma disclosures represent what the Company's net income (loss) and income (loss) per common share would have been had the Company recorded compensation cost for this plan in accordance with the provisions of SFAS No. 123:
Three Months Ended -------------------- April 3, March 28, 2005 2004 ------- -------- (in thousands, except per share data) Net loss applicable to common stockholders, as reported ........................................ $(1,973) $(1,201) ------- ------- Deduct: Total stock-based employee compensation expense determined under the fair value method for all awards ......................................... 23 175 ------- ------- Pro forma net loss applicable to common stockholders $(1,996) $(1,376) ======= ======= Basic and Diluted loss per common share: As reported ........................................ $ (0.91) $ (0.57) ======= ======= Pro forma .......................................... $ (0.92) $ (0.65) ======= =======
3. EARNINGS PER SHARE Basic earnings per common share is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed based on the weighted average number of common shares outstanding during the period increased by the effect of dilutive stock options and warrants, using the treasury stock method. The computations for basic and diluted earnings per share are as follows:
Three Months Ended --------------------------- April 3, March 28, 2005 2004 ----------- ----------- (in thousands, except per sharedata ) Numerator for basic earnings per share - net loss applicable to common shareholders ........................................... $ (1,973) $ (1,201) ----------- ----------- Denominator - shares: Weighted average common shares for basic earnings per share ..................................... 2,172,055 2,119,483 Effect of dilutive securities ............................ -- ----------- ----------- Dilutive potential shares for diluted earnings per share ...... 2,172,055 2,119,483 =========== =========== Loss per share: Basic and dilutive loss applicable to common shareholders ...................................... $ (0.91) $ (0.57) =========== =========== Potentially dilutive securities not included above since they are antidilutive ......................................... 435,048 225,543 =========== ===========
4. LONG-TERM DEBT AND LINE OF CREDIT COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES 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 3,400,000 of 9.0625% Cumulative Trust Preferred Securities with a liquidation amount of $25.00 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 and purchasing Subordinated Debentures. Concurrent with the issuance of such securities, the Trust invested the proceeds therefrom in an aggregate principal amount of $85,000,000 of 9.0625% Junior Subordinated Debentures (the "Subordinated Debentures") issued by the Company. 6 The Subordinated Debentures are unsecured obligations of the Company to the trust and are subordinate and junior in right of payment to other indebtedness of the Company. The Trust relies on payments on the Subordinated Debentures to make distributions on the Trust Preferred Securities. 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. To date, the Company is current on all distributions. The Trust Preferred Securities are subject to mandatory redemption upon the repayment of the Subordinated Debentures at the 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 since January 31, 2003. The Company effectively provides a full and unconditional guarantee of the Trust's obligations under the Trust Securities. The Company's Board of Directors authorized the purchase of up to 1,250,000 of the Trust Preferred Securities. As of April 3, 2005, the Company had repurchased 921,400 of the Trust Preferred Securities at an average cost of $16.40 per share. The Company did not repurchase any shares of Trust Preferred Securities during the periods ended April 3, 2005 and March 28, 2004. As of April 3, 2005, the Company had used $15,118,000 in cash to repurchase $23,035,000 face value of the Trust Preferred Securities less $1,098,000 of deferred financing costs. The Company may continue to make such purchases from time to time in open market transactions or block trades. Pursuant to an Exchange Offer, which commenced on February 26, 2003 and expired on April 11, 2003, holders of a total of 983,880 shares of Common Stock exchanged those shares for a total of 787,105 Trust Preferred Securities then held by the Company at a ratio of one share of Common Stock for eight-tenths of a Trust Preferred Security. The Exchange Offer increased long-term debt by approximately $19,678,000, which represents the total liquidation value of the 787,105 Trust Preferred Securities. The Trust is considered a variable interest entity under FIN 46R. Prior to FIN 46R, variable interest entities were generally consolidated by an enterprise when the enterprise had a controlling financial interest through ownership of a majority voting interest in the entity. Under FIN 46R, a variable interest entity should be consolidated by its primary beneficiary. Because the Company is not the primary beneficiary of the Trust, the financial statements of the Trust are no longer included in the consolidated financial statements of the Company. FIN 46R may be adopted either by recording a cumulative effect adjustment as of the date of the adoption, or restating prior period financial statements. The Company opted to restate prior period financial statements. As a result of the de-consolidation, the Company has recorded its ownership of 105,154 Common Trust Securities of the Trust and its ownership of 134,295 shares of Trust Preferred Securities as long-term assets and has recorded the Junior Subordinated Debentures as long-term debt at a face value of $87,629,000. At April 3, 2005 and March 28, 2004, there were 3,265,705 Trust Preferred Securities outstanding (other than the 134,295 held by the Company). 7 LINE OF CREDIT AND NOTES PAYABLE On October 7, 2003, the Company restructured its credit facility with City National Bank in connection with the acquisition of Water Island. The two existing revolving notes, under which no borrowings were outstanding, were replaced with a new $12,000,000 revolving credit facility, which had a maturity date of February 1, 2009. The credit availability on the new revolving credit facility was reduced by $400,000 every three months beginning February 7, 2004 until its maturity in February 2009. The credit facility required monthly interest payments at the City National Bank's prime rate plus 1.00%. The new credit facility required a quarterly unused facility fee of 0.50% per annum, and contained certain customary financial covenants which restricted indebtedness and capital expenditures. On March 26, 2004, the City National Bank reduced the interest rate of the revolving credit facility to City National Bank's prime rate. All other terms on the credit facility remained the same. On December 1, 2004, City National Bank increased the availability on the credit facility to $25,000,000. The revised credit facility requires monthly interest payments at the City National Bank's prime rate (5.75% per annum at April 3, 2005). The revolving credit facility requires a quarterly unused facility fee of 0.50% per annum and continues to contain certain customary financial covenants, which restrict indebtedness and capital expenditures. The Company pledged certain assets such as repair parts and equipment as collateral for its obligations under the credit facility. The credit availability on the revised revolving credit facility is reduced by $1,500,000 every three months beginning January 1, 2006 until its maturity in February 2009. The Company was in compliance at April 3, 2005 with all such covenants. As of April 3, 2005, there was $17,000,000 outstanding on the credit facility, which is included in long-term notes payable. Availability under the $25,000,000 revolving credit facility was $8,000,000 as of April 3, 2005. As of April 3, 2005, there is $460,000 outstanding under notes payable associated with the Pure Fill and Water Island acquisitions. The Pure Fill note was payable over 4 years in equal quarterly payments and as of April 3, 2005, had an outstanding balance of $160,000. As of April 3, 2005 the Water Island note had a balance of $300,000 and is payable in October 2005. Amounts due after April 3, 2006 under the Company's credit facility and notes payable are included in long-term notes payable. Both the Pure Fill and the Water Island notes payable accrue interest at the prime rate published in the Wall Street Journal (5.75% and 4.0% per annum at April 3, 2005 and March 28, 2004, respectively). ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIS REPORT CONTAINS "FORWARD-LOOKING" INFORMATION, AS THAT TERM IS DEFINED BY THE FEDERAL SECURITIES LAWS, ABOUT OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS. YOU CAN FIND MANY OF THESE STATEMENTS BY LOOKING FOR WORDS SUCH AS "MAY", "WILL", "EXPECT", "ANTICIPATE", "BELIEVE", "ESTIMATE", AND SIMILAR WORDS USED IN THIS REPORT. THE FORWARD-LOOKING STATEMENTS IN THIS REPORT ARE INTENDED TO BE SUBJECT TO THE SAFE HARBOR PROTECTION PROVIDED BY THE FEDERAL SECURITIES LAWS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO NUMEROUS ASSUMPTIONS, RISKS AND UNCERTAINTIES (INCLUDING TRADE RELATIONS AND COMPETITION) THAT MAY CAUSE OUR ACTUAL RESULTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS EXPRESSED OR IMPLIED IN THOSE STATEMENTS. BECAUSE THE STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS. WE CAUTION READERS NOT TO PLACE UNDUE RELIANCE ON THESE STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE OF THIS REPORT. THE CAUTIONARY STATEMENTS SET FORTH ABOVE SHOULD BE CONSIDERED IN CONNECTION WITH ANY SUBSEQUENT WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS THAT WE OR PERSONS ACTING ON OUR BEHALF MAY ISSUE. WE DO NOT UNDERTAKE ANY OBLIGATION TO REVIEW OR CONFIRM ANALYSTS' EXPECTATIONS OR ESTIMATES OR TO RELEASE PUBLICLY ANY REVISIONS TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS REPORT OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. 8 RESULTS OF OPERATIONS OVERVIEW Since its inception in 1983, the Company has created an extensive network of water vending machines located throughout the United States. The Company's water vending machines, which include both outdoor and indoor machines, are placed at supermarkets and other retail locations in order to take advantage of the regular customer traffic at such locations. Currently operating in 39 states, the Company continually looks for opportunities to expand its presence in existing markets as well as new high-potential markets. The Company also looks for ways to reduce operating costs in all areas. The Company explores opportunities to implement technology to improve efficiency of servicing the vending machines to lower its operating costs. The Company continues to monitor selling, general and administrative expenses and reduce costs where possible. The Company looks for acquisition opportunities that will strengthen the Company and improve its operating results. On February 8, 2002, Glacier acquired substantially all of the assets of Pure Fill. Immediately after the acquisition, Glacier integrated the Pure Fill assets into the Glacier operations. On October 7, 2003, Glacier acquired Water Island, Inc., a privately held water vending company headquartered in Indianapolis, Indiana. Immediately after the acquisition, Glacier integrated Water Island into the Glacier operations. During the three-month period ended April 3, 2005, the Company continued with a major initiative to upgrade its outside water vending machines. The upgrade results in a new generation machine ("G-2") with a new modern appearance and increased functionality such as dollar bill validators, multi-vend capability, a replaceable stainless steel vend chamber and replaceable Lexan panels. The Company plans to complete the upgrade of approximately 11,000 outside machines by the end of fiscal 2005. As of April 3, 2005, the Company has upgraded approximately 7,500 machines at a total cost of approximately $15,000,000. The Company expects that it will expend a total of approximately $22,000,000 in connection with this major upgrade initiative. The initiative is such that the Company has the ability to time these expenditures with the availability of its cash flows from operations and availability under its credit facility. REVENUES Revenues for the quarter ended April 3, 2005 remained relatively constant at $17,543,000 compared to $17,546,000 for the same period last year. As of April 3, 2005, the Company had approximately 15,100 machines in operation, compared to 15,300 machines as of March 28, 2004. COSTS AND EXPENSES Operating expenses, excluding depreciation and amortization, for the quarter ended April 3, 2005 decreased 2.1% to $11,434,000, or 65.2% of revenues, compared to $11,676,000, or 66.5% of revenues, for the same period last year. The decrease in operating expenses for the three-month period ended April 3, 2005 was due primarily to the reduction in repair and maintenance costs associated with maintaining the Company's vending machines. The Company's operating costs are not completely linear or variable to sales and as such, significant fluctuations in revenues can impact the operating costs as a percentage of revenues. Depreciation and amortization expense was $3,302,000 for the quarter ended April 3, 2005, compared to $2,510,000 for the same period last year. Depreciation and amortization expense includes the amortization of intangible assets and prepaid contract rights of approximately $470,000 and $253,000 for the three-month periods ended April 3, 2005 and March 28, 2004, respectively. The increase in depreciation and amortization expense was due primarily to new capital expenditures added since last year, primarily associated with the G-2 upgrade of the Company's outside machines, offset partially by some assets becoming fully depreciated or amortized. The Company currently has sufficient machines in storage available for deployment in fiscal 2005. Machines that have been previously installed and are in storage awaiting redeployment continue to be depreciated. 9 SG&A expenses for the quarter ended April 3, 2005 increased slightly to $2,700,000, or 15.4% of revenues, compared to $2,631,000, or 15.0% of revenues, for the same period last year. Interest expense for the quarter ended April 3, 2005 increased $150,000 to $2,080,000, compared to $1,930,000 for the same period last year. The increase in interest expense was primarily due to additional interest associated with higher outstanding borrowing on the credit facility in connection with the G-2 project as compared to last year. The Company had no investment income for the quarters ended April 3, 2005, and March 28, 2004. As a result of the foregoing, the Company had a net loss applicable to common stockholders of $1,973,000 for the three-month period ended April 3, 2005, compared to a loss of $1,201,000 for the same period last year. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity and capital resources are cash and cash equivalents, cash flows from operations and funds available under the Company's credit facility. On October 7, 2003, the Company restructured its credit facility with City National Bank. The new $12,000,000 revolving credit facility had a maturity date of February 1, 2009. The credit availability of this facility was reduced by $400,000 every three months beginning February 7, 2004 until its maturity in February 2009. The revolving credit facility required monthly interest payments at the City National Bank's prime rate plus 1.00%. On March 26, 2004, the City National Bank revised the interest rate of the revolving credit facility to City National Bank's prime rate (5.75% per annum at April 3, 2005). The revolving credit facility requires a quarterly unused facility fee of 0.50% per annum. On December 1, 2004, City National Bank increased the availability on the credit facility to $25,000,000. The revised credit facility requires monthly interest payments at the City National Bank's prime rate (5.75% per annum at April 3, 2005). The revolving credit facility requires a quarterly unused facility fee of 0.50% per annum and continues to contain certain customary financial covenants, which restrict indebtedness and capital expenditures. The Company pledged certain assets such as repair parts and equipment as collateral for its obligations under the credit facility. The credit availability on the revised revolving credit facility is reduced by $1,500,000 every three months beginning January 1, 2006 until its maturity in February 2009. The Company was in compliance at April 3, 2005 with all such covenants. As of April 3, 2005, there was $17,000,000 outstanding on the credit facility, which is included in long-term notes payable. Availability under the $25,000,000 revolving credit facility was $8,000,000 as of April 3, 2005. For the three months ended April 3, 2005, net cash provided by operations was approximately $1,780,000. The Company made capital investments in vending machines and other equipment of approximately $6,841,000, up from $1,474,000 in the first quarter of the previous year, which was associated primarily with the upgrade of the outside coin machines. Net cash provided by financing activities was approximately $7,221,000, primarily as a result of additional borrowings under the credit facility. As of April 3, 2005, the Company had working capital of $1,810,000. Because the Company does not have significant product inventories, working capital will vary from time to time depending on the timing of payables, other accrued liabilities, and payments of prepaid contract rights. The Company's stockholders' deficit as of April 3, 2005 was $28,342,000, which amount continues to be below the American Stock Exchange's listing guidelines. Although no actions have been taken to date, it is possible that the American Stock Exchange could delist the Company's stock. The Company believes that its cash and cash equivalents, cash flow from operations and the availability under its credit facility will be sufficient to meet its anticipated amounts due under its credit facility, operating and capital requirements, as well as distributions related to the Trust Preferred Securities, for at least the next twelve months. 10 RECENT ACCOUNTING PRONOUNCEMENTS In December 2003, FASB issued Interpretation No. 46R, CONSOLIDATION OF VARIABLE INTEREST ENTITIES ("FIN 46R"), which supercedes FIN46. The application of the revised Interpretation is required in the financial statements of companies that have interests in special purpose entities for periods after December 15, 2003. FIN 46R required the Company to de-consolidate its investment in Glacier Water Trust I. The application of this interpretation resulted in the Company reflecting its ownership of Trust Securities as long-term assets and increasing long-term debt by the same amount of $5,986,000 (see "Note 4"). The Company chose to restate prior year's consolidated balance sheet to conform to the current year presentation, in accordance with the transition provisions of FIN 46R. In December 2004, the Financial Accounting Standards Board (FASB) issued STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) No. 123R (SFAS 123R), "Share-Based Payment", which replaces SFAS No. 123, "Accounting for Stock-Based Compensation" and supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exception, the amount of compensation cost is measured based on the grant date fair value of the equity or liability instruments used. SFAS 123R requires liability awards to be re-measured each reporting period and compensation costs to be recognized over the period that an employee provides service in exchange for the award. SFAS123R is effective beginning the first annual reporting period that begins after June 15, 2005. The Company plans to adopt the provisions of SFAS 123R prospectively effective fiscal year 2006. The Company's Stock Compensation Program expired in March 2004 and no options were granted during the year ended January 2, 2005 or the quarter ended April 3, 2005. The Company is currently determining the effect of SFAS 123R on the Company's consolidated financial statements. In November 2004, the FASB issued FASB Statement No. 151, INVENTORY COSTS: AN AMENDMENT OF ARB NO. 43, which establishes standards for the accounting for unexpected production defects and waste and the impact on capitalized inventory costs. FASB No. 151 is effective for financial statements for fiscal years beginning after June 15, 2005. The Company does not expect that the adoption of FASB 151 will have a material impact on the consolidated financial statements. In November 2004, the FASB issued FASB Statement No. 152, ACCOUNTING FOR REAL ESTATE TIME-SHARING TRANSACTIONS - AN AMENDMENT OF FASB STATEMENTS NO. 66 AND NO. 67. The Statement amends FASB No. 66, ACCOUNTING FOR SALES OF REAL Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, ACCOUNTING FOR REAL ESTATE TIME-SHARING TRANSACTIONS. This Statement also amends FASB Statement No. 67, ACCOUNTING FOR COSTS AND INITIAL RENTAL OPERATIONS OF REAL ESTATE PROJECTS, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. FASB No. 152 is effective for financial statements for fiscal years beginning after June 15, 2005. The Company does not expect that the adoption of FASB 152 will have a material impact on the consolidated financial statements. 11 In November 2004, the FASB issued FASB Statement No. 153, EXCHANGES OF NONMONETARY ASSETS - AN AMENDMENT OF APB OPINION NO. 29. The guidance in APB Opinion No. 29, ACCOUNTING FOR NONMONETARY TRANSACTIONS, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. FASB No. 153 is effective for financial statements for fiscal periods beginning after June 15, 2005. The Company does not expect that the adoption of FASB 153 will have a material impact on the consolidated financial statements. ITEM 3 - QUANTITATIVE AND QUALITIVE DISCLOSURE ABOUT MARKET RISK The Company's primary market risk exposure is interest rate risk. The principal objectives of our asset/liability management activities are to minimize debt and maximize net investment income, while maintaining acceptable levels of interest rate risk and facilitating our funding needs. Our net investment income and interest expense are subject to the risk of interest rate fluctuations. The Company's outstanding bank debt is tied to the bank's prime lending rate and as such, the Company is at risk due to increases in market rates. A 10% change in the bank's lending rate would have the potential of increasing the annual interest on the outstanding borrowings of the bank debt and impacting the future earnings of the Company by less than $100,000 annually. The Company's exposure to interest rate risk also relates to the opportunity cost of fixed-rate obligations associated with the Trust Preferred Securities. The Company believes that the fixed rate of the Trust Preferred Securities approximates the Company's long-term market rate. As of April 3, 2005, the Company held no marketable securities available-for-sale. ITEM 4 - CONTROLS AND PROCEDURES Since April 3, 2005, the Company carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures were effective as of April 3, 2005 to ensure that information required to be disclosed in reports that are filed or submitted under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There has been no change in our internal controls over financial reporting during the latest fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS From time to time, claims are made against the Company in the ordinary course of business. With the assistance from legal counsel, estimated amounts for such claims that are probable and can reasonably be estimated are recorded as liabilities in the consolidated balance sheets. The likelihood of a material change in these estimated accruals would be dependent on new claims as they arise and the favorable or unfavorable outcome of the particular litigation. As of April 3, 2005, the Company was not a party to any legal proceeding that is likely to reasonably have a material impact on the results of operations, financial condition or liquidity of the Company. 12 ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECUITY HOLDERS There were no matters submitted to a vote of the security holders during the quarter ended April 3, 2005. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K a. EXHIBITS 31.1 Certification of Brian H. McInerney, Chief Executive Officer, under SEC Rule 13a-14(a). 31.2 Certification of W. David Walters, Chief Financial Officer, under SEC Rule 13a-14(a). 32.1 Certification of Brian H. McInerney, Chief Executive Officer, under SEC Rule 13a-14(b). 32.2 Certification of W. David Walters, Chief Financial Officer, under SEC Rule 13a-14(b). b. REPORTS ON FORM 8-K There were no reports on form 8-K filed during the period ended April 3, 2005. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GLACIER WATER SERVICES, INC. Date: April 29, 2005 By: /S/ BRIAN H. MCINERNEY ------------------------------------------- Brian H. McInerney President and Chief Executive Officer Date: April 29, 2005 By: /S/ W. DAVID WALTERS ------------------------------------------- W. David Walters Senior Vice President and Chief Financial Officer 13 EX-31.1 2 a4885447ex311.txt EXHIBIT 31.1 Exhibit 31.1 RULE 13A - 14(A) - CERTIFICATION I, Brian H. McInerney, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Glacier Water Services, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptable accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weakness in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 29, 2005 By: /s/ BRIAN H. MCINERNEY ----------------------------------------- Brian H. McInerney President and Chief Executive Officer EX-31.2 3 a4885447ex312.txt EXHIBIT 31.2 EXHIBIT 31.2 RULE 13A - 14(A) - CERTIFICATION I, W. David Walters, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Glacier Water Services, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptable accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weakness in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 29, 2005 By: /s/ W. DAVID WALTERS ------------------------------------------- W. David Walters Senior Vice President and Chief Financial Officer EX-32.1 4 a4885447ex321.txt EXHIBIT 32.1 EXHIBIT 32.1 RULE 13A - 14(B) CERTIFICATION In connection with the Quarterly Report of Glacier Water Services, Inc., (the Company) on Form 10-Q for the Quarter ended April 3, 2005 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Brian H. McInerney, President and Chief Executive Officer of the Company, certify, pursuant to and for the purposes of 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition of the Company as of the dates indicated and results of operations of the Company for the periods indicated. /s/ BRIAN H. MCINERNEY - ------------------------------------- Brian H. McInerney President and Chief Executive Officer April 29, 2005 EX-32.2 5 a4885447ex322.txt EXHIBIT 32.2 EXHIBIT 32.2 RULE 13A - 14(B) CERTIFICATION In connection with the Quarterly Report of Glacier Water Services, Inc., (the Company) on Form 10-Q for the quarter ended April 3, 2005 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, W. David Walters, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to and for the purposes of 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition of the Company as of the dates indicated and results of operations of the Company for the periods indicated. /s/ W. DAVID WALTERS - ------------------------------------------------- W. David Walters Senior Vice President and Chief Financial Officer April 29, 2005 -----END PRIVACY-ENHANCED MESSAGE-----