SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1998
SPARKLING SPRING WATER GROUP LIMITED
------------------------------------
ONE LANDMARK SQUARE, STAMFORD CT, USA 06901
-------------------------------------------
(Address of principal executive offices)
[Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F]
Form 20-F X Form 40-F
----- -----
[Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3 - 2(b) under the
Securities Exchange Act of 1934.]
Yes No X
----- -----
SIGNATURE
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.
Sparkling Spring Water Group Limited
By: /s/ David M. Arnold
---------------------------------
Name: David M. Arnold
Title: Vice President Finance, Treasurer
Date: August 28, 1998
---------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
PRIMARY
STATE OR OTHER STANDARD
JURISDICTION OF INDUSTRIAL
EXACT NAME OF REGISTRANT AS INCORPORATION CLASSIFICATION
SPECIFIED IN ITS CHARTER OF ORGANIZATION CODE NUMBER
Sparkling Spring Water Limited Nova Scotia 5149
Spring Water, Inc. Delaware 5149
Cullyspring Water Co., Inc. Washington 5149
Crystal Springs of Seattle, Inc. Delaware 5149
Crystal Springs Drinking Water, Inc. Washington 5149
Crystal Springs Acquisition, Inc. Delaware 5149
Mountain Fresh Acquisition Corp. Delaware 5149
Water Jug Enterprises Limited Nova Scotia 5149
Withey's Water Softening & Purification Ltd. Nova Scotia 5149
Aqua Care Water Softening & Purification Inc. Nova Scotia 5149
High Valley Water Limited Nova Scotia 5149
3003969 Nova Scotia Limited Nova Scotia 5149
Coastal Mountain Water Corp. British Columbia 5149
Canadian Springs Water Company Limited Nova Scotia 5149
Sparkling Spring Water UK Limited UK 5149
Aquaporte (UK) Limited UK 5149
Krystal Fountain Water Co. Limited UK 5149
Marlborough Employment Limited Scotland 5149
Water at Work Limited Scotland 5149
Natural Water Limited Scotland 5149
The address of the principal executive offices of each of the
Additional Registrants is the same as for Sparkling Spring Water Group Limited,
as set forth on the cover page of this Report.
<PAGE>
Sparkling Spring Water Group Limited
Quarterly Report On Form 6 - K
For The Quarter Ended June 30, 1998
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997..................................................................1
Consolidated Statements of Operations for the three and six month
periods ended June 30, 1998 and the sixteen and twenty-eight week
periods ended July 11, 1997............................................................2
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and the twenty-eight weeks ended July 11, 1997.....................3
Notes to Consolidated Financial Statements............................................ 4
Item 2. Management's Discussion And Analysis Of
Financial Condition And Results Of Operations..........................................7
Part II Other Information
Item 6. Exhibits and Reports on Form 6-K......................................................11
</TABLE>
<PAGE>
Part I Financial Information
Item 1. Financial Statements
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
---- ----
ASSETS (Unaudited)
Current
Cash and cash equivalents $ 9,137,907 $ 27,507,257
Accounts receivable 13,129,973 8,267,315
Inventories 1,722,258 1,751,562
Prepaid expenses 2,124,058 1,536,755
------------- -------------
Total current assets 26,114,196 39,062,889
Deferred taxes 1,473,699 1,379,736
Fixed assets 28,092,902 23,307,315
Goodwill and deferred charges 52,261,156 43,248,972
------------- -------------
Total assets $ 107,941,953 $ 106,998,912
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current
Accounts payable and accrued liabilities $ 7,767,106 $ 6,645,552
Income tax payable 929,782 1,042,567
Unearned revenue 308,441 75,488
Customer deposits 4,027,583 3,396,466
Debt due within one year 1,304,955 1,189,868
------------- -------------
Total current liabilities 14,337,867 12,349,941
------------- -------------
Obligations under capital leases 2,386,948 2,485,204
Loans payable 888,513 1,123,617
Subordinated notes payable 100,000,000 100,000,000
------------- -------------
Total long-term liabilities 103,275,461 103,608,821
------------- -------------
Temporary equity (note 6) 262,080 --
------------- -------------
Shareholders' equity (deficit)
Capital Stock
Issued and outstanding:
Class D common shares 1,383,328
(1997-1,383,328) 6,038,014 6,269,204
Less: Subscriptions receivable (230,003) (230,003)
------------- -------------
5,808,011 6,039,201
Cumulative translation adjustment (802,537) (770,729)
Deficit (14,938,929) (14,228,322)
------------- -------------
Total shareholders' equity (deficit) (9,933,455) (8,959,850)
------------- -------------
Total liabilities and
shareholders' equity (deficit) $ 107,941,953 $ 106,998,912
============= =============
SEE ACCOMPANYING NOTES
1
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Sixteen Six Months Twenty-Eight
Ended Weeks Ended Ended Weeks Ended
June 30,1998 July 11, 1997 June 30,1998 July 11, 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenue:
Water $ 9,139,369 $ 7,817,353 $ 16,481,226 $12,325,516
Rental 3,441,498 3,064,739 6,313,815 4,986,549
Other 1,870,847 1,890,625 3,518,420 2,988,153
----------- ----------- ------------ -----------
Total revenue 14,451,714 12,772,717 26,313,461 20,300,218
----------- ----------- ------------ -----------
Cost of sales:
Water 1,797,212 1,543,250 3,457,572 2,405,123
Other 763,623 769,882 1,442,110 1,237,295
----------- ----------- ------------ -----------
Total cost of sales 2,560,835 2,313,132 4,899,682 3,642,418
----------- ----------- ------------ -----------
Gross profit 11,890,879 10,459,585 21,413,779 16,657,800
Expenses:
Selling, delivery and administrative 7,668,522 6,874,433 14,416,037 11,160,739
Depreciation and amortization 1,813,695 1,621,482 3,592,004 2,770,624
----------- ----------- ------------ -----------
Operating profit 2,408,662 1,963,670 3,405,738 2,726,437
Interest expense 929,175 1,052,727 4,303,165 1,728,382
----------- ----------- ------------ -----------
Income (loss) before income taxes 1,479,487 910,943 (897,427) 998,055
Provision for (recovery of) income taxes 945,401 421,076 (186,820) 516,326
----------- ----------- ------------ -----------
Net income (loss) $ 534,086 $ 489,867 $ (710,607) $ 481,729
=========== =========== ============ ===========
Basic earnings (loss) per share $ 0.39 $ 0.28 $ (0.51) $ 0.28
=========== =========== ============ ===========
Diluted earnings per share $ 0.35 $ 0.27 N/A $ 0.26
=========== =========== ============ ===========
</TABLE>
SEE ACCOMPANYING NOTES
2
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Twenty-Eight
Months Ended Weeks Ended
June 30, July 11,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (710,607) $ 481,729
Items not requiring cash
Depreciation and amortization 3,592,004 2,770,624
Deferred taxes (93,963) 120,718
Unrealized gain on cross currency swap (1,322,438) --
------------ ------------
1,464,996 3,373,071
Net change in non-cash working capital balances (2,615,071) (1,011,991)
------------ ------------
Cash (used in) provided by operating activities (1,150,075) 2,361,080
------------ ------------
INVESTING ACTIVITIES
Purchase of fixed assets, net (5,396,341) (4,269,310)
Acquisitions (11,435,477) (19,401,464)
------------ ------------
Cash used in investing activities (16,831,818) (23,670,774)
------------ ------------
FINANCING ACTIVITIES
Increase in long-term debt 666,990 22,420,976
Repayment of long-term debt (945,975) (1,245,305)
Issuance of common shares 262,080 32,445
Increase in deferred charges (957,904) (1,159,367)
------------ ------------
Cash (used in) provided by financing activities (974,809) 20,048,749
------------ ------------
Effect of foreign currency translation on cash 587,352 704,359
------------ ------------
Decrease in cash and cash equivalents during the period (18,369,350) (556,586)
Cash and cash equivalents, beginning of period 27,507,257 2,230,735
------------ ------------
Cash and cash equivalents, end of period $ 9,137,907 $ 1,674,149
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid $ 5,979,191 $ 1,757,686
============ ============
Income taxes paid $ 25,604 $ 188,586
============ ============
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
1. Basis of Presentation
Sparkling Spring Water Group Limited ("Sparkling Spring") is
incorporated under the laws of the Province of Nova Scotia, Canada and provides
containered water to home and office markets in British Columbia and the
Maritime provinces of Canada, England, Scotland and the Pacific Northwestern
United States. The Company uses the US$ as its reporting currency and the
Canadian dollar as its functional currency.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the unaudited
interim consolidated financial statements of the Company reflect all adjustments
necessary to present fairly the financial position of the Company, the results
of its operations and the changes in its financial position for the interim
periods presented. All such adjustments are of a normal recurring nature.
The accompanying consolidated financial statements should be read in
conjunction with the Audited Financial Statements for the year ended December
31, 1997 and the notes thereto contained in the Company's Annual Report on Form
20-F filed with the Securities and Exchange Commission.
2. Seasonal Nature of Business
Operating results for the three and six month periods ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998 due to the seasonal nature of the business. This
seasonality results from a combination of higher unit sales of the Company's
products in the second and third quarters and the accounting for such
administrative and other overhead costs including but not limited to
depreciation, amortization and interest expense which are not significantly
impacted by business seasonality.
3. Inventories
Inventories consist of the following:
June 30, 1998 December 31, 1997
------------- -----------------
(unaudited)
Packaging materials $ 970,664 $ 973,583
Goods for resale 498,398 502,608
Cooler parts 165,376 151,208
Other 87,820 124,163
---------- ----------
$1,722,258 $1,751,562
========== ==========
4. Derivative Financial Instruments
In December 1997, the Company entered into two cross currency interest
rate swaps with a US bank to more closely match the interest requirements of its
subordinated notes with the cash flows earned by the Company's Canadian and UK
subsidiaries. The Company entered into a $30 million US six year swap in British
pounds sterling and a $28 million US five year swap in Canadian dollars. The
semi annual interest payments are approximately 1.1 million pounds on the pounds
sterling swap and $2.2 million Canadian dollars on the Canadian swap. At June
30, 1998 and December 31, 1997, the aggregate fair market value of the two swaps
4
<PAGE>
was approximately $1,558,000 and $423,000 in favor of the Company respectively.
Of these amounts approximately $1,322,000 and $115,000 were recorded as a
reduction in interest expense for the six months ended June 30, 1998 and the
year ended December 31, 1997 respectively.
5. Earnings per Share
The Company has adopted Statement of Financial Accounting Standard No.
128 (SFAS No. 128), Earnings per Share. SFAS No. 128 replaces the previous
standards for presentation of primary and fully diluted earnings per share (EPS)
with basic and diluted EPS. Basic EPS excludes the dilutive effect of the
exercise of all outstanding options and warrants. Diluted EPS includes the
dilutive effect of the exercise of all outstanding options and warrants. The
effect of the exercise of outstanding options and warrants has not been included
in the computation of earnings per share for the six months ended June 30, 1998
as the effect would be antidilutive.
The weighted average number of shares used to calculate basic and
diluted loss per share is 1,383,328 and 1,635,525 respectively for the three and
six month periods ended June 30, 1998 and 1,728,246 and 1,980,443 respectively
for the sixteen and twenty-eight week periods ended July 11, 1997.
6. Common Stock
In January 1998, certain key managers of the Company subscribed for an
aggregate of 9,360 shares of Common Stock of the Company. The shares were
recorded at $28 per share, representing the estimated fair value as determined
by an agreed upon formula. These managers have granted an option to Sparkling
Spring enabling Sparkling Spring to repurchase these shares of Common Stock at
any time at their estimated fair market value determined in accordance with the
same agreed upon formula price. Sparkling Spring is obligated to repurchase
these shares at the option of the key managers for the same formula price during
a one-month period each year, subject to any financial covenants and financing
requirements affecting the Company. The shares are shown as "Temporary Equity"
in the Company's financial statements.
7. Acquisitions
On February 24, 1998, the Company purchased all of the outstanding
capital stock of Coastal Mountain Water Corp. (Coastal) for approximately $4.3
million. Coastal is based in Vancouver, British Columbia and focuses on the
direct delivery of eighteen litre containers of water to residential and
commercial customers and the rental of water coolers.
On May 15, 1998, the Company purchased all of the outstanding shares of
Krystal Fountain Water Co. Limited (Krystal Fountain) for approximately $7.1
million including debt assumed. Krystal Fountain operates in the M25 area in
London, England.
The following unaudited pro forma information presents a summary of
consolidated results of operations as if the acquisitions of D&D and Company,
Inc., High Valley Water Limited, Withey's Water Softening and Purification
Limited, Marlborough Employment Limited, Soja Enterprises Inc., Crystal Spring
Bottled Water Co., Inc., Cullyspring Water Co., Inc., Crystal Springs Drinking
Water Inc., Coastal Mountain Water Corp. and Krystal Fountain Water Co. Limited
had occurred at January 1, 1998 and January 1, 1997.
5
<PAGE>
Six Months Twenty Eight Weeks
Ended Ended
June 30, 1998 July 11, 1997
------------- -------------
Total revenue $ 27,627,632 $26,395,241
Net income (loss) (790,142) 25,414
Extraordinary item -- --
Basic income (loss) per share $ (0.571) $ 0.015
8. Financing Arrangements
On May 26, 1998, the Company completed a $40 million senior credit
facility for purposes of financing future capital investments, working capital,
business acquisitions and general corporate purposes. The loan facility matures
in 2007. The Company's payment obligations under the credit facility have
pledged as collateral a first priority security interest granted in favor of the
lenders over substantially all of the assets of the Company. The Company's
obligations under the credit facility rank senior to the payment of the
Company's subordinated notes payable.
6
<PAGE>
ITEM 2. Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying consolidated
financial statements.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated certain
statement of operations and other data of the Company.
<TABLE>
<CAPTION>
Three Months Sixteen Weeks Six Months Twenty-Eight Weeks
Ended Ended Ended Ended
June 30, 1998 July 11, 1997 June 30, 1998 July 11, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue 100% 100% 100% 100%
Cost of sales 17.7 18.1 18.6 17.9
---- ---- ---- ----
Gross profit 82.3 81.9 81.4 82.1
Selling, delivery and administrative 53.1 53.8 54.8 55.1
---- ---- ---- ----
EBITDA 29.2 28.1 26.6 27.0
Depreciation and amortization 12.6 12.7 13.7 13.6
---- ---- ---- ----
Operating profit 16.6 15.4 12.9 13.4
Interest expense 6.4 8.3 16.3 8.5
---- ---- ---- ----
Income (loss) before income taxes 10.2 7.1 (3.4) 4.9
Provision for (recovery of) income taxes 6.5 3.3 (0.7) 2.5
---- ---- ---- ----
Net income 3.7 3.8 (2.7) 2.4
==== ==== ==== ====
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIXTEEN WEEKS
ENDED JULY 11, 1997
REVENUE. Revenue increased $1.7 million or 13.1% to $14.5 million in
the three months ended June 30, 1998 compared to $12.8 million in the sixteen
weeks ended July 11, 1997. This increase was reduced by approximately $2.3
million or 18% as a result of fewer delivery days in the shorter 1998 quarter.
In addition, revenue growth was reduced by approximately $0.2 million or 1.6%
with the decline in the Canadian Dollar more than offsetting a slight increase
in the exchange rate for the Pound. Acquisitions completed in 1997 but not owned
for the entire second quarter accounted for approximately $2.0 million of the
increase. The acquisition of Coastal Mountain Water Corp. in February 1998 and
Krystal Fountain Water Co. Limited in May 1998 accounted for approximately $1.1
million of the increase. The balance of the increase was from growth in sales
from the Company's increasing customer base. The Company's water cooler customer
7
<PAGE>
locations ended the second quarter at 137,348 up from 115,037 at December 31,
1997. Approximately 5,200 of this increase came from the acquisition of Krystal
Fountain.
COST OF SALES. The cost of sales increased by $0.2 million or 10.7% to
$2.5 million in 1998 compared to $2.3 million in 1997 largely as a result of
acquisitions completed since the 1997 period. This increase was reduced by $0.4
million as a result of fewer delivery days in the 1998 second quarter. The cost
of sales as a percentage of revenue decreased by 0.4% from 18.1% in the 1997
period to 17.7% in the 1998 second quarter as a result of a lower percentage mix
of lower margin small pack and other non - water products
OPERATING EXPENSES. Selling, delivery, and administrative operating
expenses increased by $0.8 million or 11.5% to $7.7 million in the 1998 second
quarter from $6.9 million in the 1997 period. This increase was reduced by
approximately $1.3 million as a result of fewer delivery days in the 1998 second
quarter. The balance of the increase was the result of increased business
operations from businesses acquired during and after the 1997 period and from
the underlying growth in the Company's water cooler location base. At the end of
the second quarter of 1998 the Company's actual water cooler rental account base
was up over 28% over the period ending count in 1997. The acquisition adjusted
water cooler account base was up by approximately 16%.
As a percentage of revenue, selling, delivery and administrative
expenses decreased from 53.8% in the 1997 period to 53.1% in the 1998 second
quarter reflecting a slower growth in the Company's semi-fixed operating
expenses compared to the growth in the Company's revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by 11.9% or $0.2 million to $1.8 million from $1.6 million in the 1997
period. This increase was reduced by $0.3 million as a result of fewer delivery
days in the 1998 second quarter. This increase reflects the significant increase
in fixed and intangible assets acquired as a result of acquisitions consummated
during and after the 1997 period. In addition, this increase is a result of
depreciation of capital expenditures required to support the increase in the
Company's water cooler customer base and capital expenditures required to
maintain existing operations.
OPERATING PROFIT. The Company's operating profit increased by 22.7% or
$0.4 million to $2.4 million from $2.0 million as a result of the changes noted
above. As a percentage of revenue, operating profit increased to 16.6% in the
1998 second quarter from 15.4% in the 1997 period due principally to the
spreading of semi-fixed selling, delivery and administrative expenses over
increased revenues. On a delivery day basis, operating profit for the 1998
second quarter increased 50% to $38,232 per day compared to $25,502 per day in
the 1997 period as a result of growth in the Company's existing customer base
and acquisitions completed subsequent to the 1997 period. Earnings before
interest, taxes, depreciation and amortization expense increased by 17.8% or
$0.6 million to $4.2 million from $3.6 million in the 1997 period. As a
percentage of revenues, EBITDA increased to 29.2% in the 1998 quarter from 28.1%
in the 1997 period as a result of the changes noted above.
INTEREST EXPENSE. Interest expense decreased by $0.1 million from $1.0
million in the 1997 period to $0.9 million in the 1998 quarter. Interest expense
was reduced by $1.9 million as a result of a reduction in interest expense
accrued due to the fluctuating value of the Company's currency swaps (see Note 4
of the Notes to Consolidated Financial Statements included elsewhere in this
Report). In addition, interest expense for the 1998 second quarter was lower
than the second quarter 1997 by $0.2 million as a result of fewer delivery days
in the quarter. Excluding these two items, interest expense in the 1998 second
quarter increased by $2.0 million over the 1997 period. This increase is the
result of higher borrowing levels and interest rates as a result of the issuance
of $100 million of 11.5% Senior Subordinated Notes in November of 1997. The
proceeds from the Notes were used to refinance existing debt and complete a
reorganization of the Company as well as to provide funding for future
acquisitions, capital expenditures and working capital for the Company.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE TWENTY-EIGHT WEEKS
ENDED JULY 11, 1997
REVENUE. Revenue increased $6.0 million or 29.6% to $26.3 million in
the six months ended June 30, 1998 compared to $20.3 million in the twenty-eight
weeks ended July 11, 1997. This increase was reduced by approximately $1.2
million or 6% as a result of fewer delivery days in the shorter 1998 period. In
addition, revenue growth was reduced by approximately $0.4 million or 2.0% with
the decline in the Canadian Dollar more than offsetting a slight increase in the
exchange rate for the Pound. Acquisitions completed in 1997 but not owned for
8
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the entire first two quarters of 1997 accounted for approximately $4.6 million
of the increase and the acquisition of Coastal Mountain Water Corp. and Krystal
Fountain Water Co. Limited accounted for approximately $1.3 million of the
increase. The balance of the increase was from growth in sales from the
Company's increasing customer base. The Company's water cooler customer
locations ended the second quarter at 137,348 up from 115,037 at December 31,
1997. Approximately 11,800 of this increase came from the acquisitions of
Coastal and Krystal Fountain.
COST OF SALES. The cost of sales increased by $1.3 million or 34.5% to
$4.9 million in 1998 compared to $3.6 million in 1997 largely as a result of
acquisitions completed since the 1997 period. This increase was reduced by $0.2
million as a result of fewer delivery days in the 1998 first and second
quarters. The cost of sales as a percentage of revenue increased by 0.7% from
17.9% in the 1997 period to 18.6% in the 1998. Approximately 57% or 0.4% of the
percentage cost increase was a result of higher costs associated with production
problems in the Atlantic Canada and the England operations. The balance of the
percentage increase was primarily the result of an increased percentage mix of
lower margin small pack sales associated with operations acquired in the United
States after the 1997 period.
OPERATING EXPENSES. Selling, delivery, and administrative operating
expenses increased by $3.3 million or 29.2% to $14.4 million for the six months
ended June 30, 1998 compared to $11.1 million in the 1997 period. This increase
was reduced by approximately $0.7 million as a result of fewer delivery days in
the 1998 period. The balance of the increase was the result of increased
business operations from businesses acquired during and after the 1997 period
and from the underlying growth in the Company's water cooler location base. At
the end of the second quarter of 1998 the Company's actual water cooler rental
account base was up over 28% over the period ending count in 1997. The
acquisition adjusted water cooler account base was up by approximately 16%.
As a percentage of revenue, selling, delivery and administrative
expenses decreased from 55.1% for the twenty-eight weeks ended July 11, 1997 to
54.8% for the six months ended June 30, 1998. The Company's semi-fixed operating
expenses and higher corporate expenses related to its larger size and conversion
to an SEC reporting entity were more than offset by higher revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by 29.6% or $0.8 million to $3.6 million from $2.8 million in the 1997
period. This increase was due to the significant increase in fixed and
intangible assets acquired as a result of acquisitions consummated during and
after the 1997 period. In addition, this increase is a result of depreciation of
capital expenditures required to support the increase in the Company's water
cooler customer base and capital expenditures required to maintain existing
operations.
OPERATING PROFIT. The Company's operating profit increased by 24.9% or
$0.7 million to $3.4 million from $2.7 million as a result of the changes noted
above. As a percentage of revenue, operating profit decreased from 13.4% in the
1997 period to 12.9% in the six months ended June 30, 1998 as the higher cost of
sales percentage offset a decrease in the percentage of selling, delivery and
administration expense. On a delivery day basis, operating profit for the first
two quarters of 1998 increased 33% to $27,030 per day compared to $20,346 per
day in the 1997 period as a result of growth in the Company's existing customer
base and acquisitions completed subsequent to the 1997 period. Earnings before
interest, taxes, depreciation and amortization expense increased by 27.3% or
$1.5 million to $7.0 million from $5.5 million in the 1997 period as a result of
the changes noted above. As a percentage of revenues, EBITDA decreased to 26.6%
in the 1998 first and second quarters from 27.1% in the 1997 period due to
higher production expenses and the shift in the companies mix of products as
noted in changes highlighted in the Cost of Sales discussion above.
INTEREST EXPENSE. Interest expense increased by $2.6 million from $1.7
million in the 1997 period to $4.3 million in the 1998 period. Interest expense
was reduced by approximately $1.3 million as a result of interest accrued due to
the fluctuating value of the Company's currency swaps (see Note 4 of the Notes
to Consolidated Financial Statements included elsewhere in this report). In
addition interest expense for the six months ended June 30, 1998 was lower than
the 1997 period by $0.1 million as a result of fewer delivery days in the
period. Interest expense increased by approximately $4.0 million as a result of
higher borrowing levels and interest rates as a result of the issuance of $100
million of 11.5% Senior Subordinated Notes in November of 1997. The proceeds
from the Notes were used to refinance existing debt and complete a
reorganization of the Company as well as to provide funding for future
acquisitions, capital expenditures and working capital for the Company.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its capital and operating
requirements with a combination of cash flow from operations, borrowings under
bank credit facilities and equity investments from shareholders. The Company has
utilized these sources of funds to make acquisitions, to fund significant
capital expenditures at its properties, to fund operations and to service debt.
The Company presently expects to fund its future capital and operating
requirements at its existing operations through a combination of cash generated
from operations, excess cash proceeds from the issuance of the Subordinated
Notes and borrowings under the Senior Credit Facility (see below).
Net cash used in operating activities was $1.1 million for the six
months ended June 30, 1998 and net cash provided by operating activities was
$2.4 million for the twenty-eight weeks ended July 11, 1997. Net cash used in
investment activities was $16.8 million in 1998 and $23.7 million in 1997. These
amounts include $11.4 million related to two acquisitions completed in the six
months ended June 30, 1998 and six acquisitions completed in 1997 for $19.4
million. The Company made net capital expenditures of $5.4 million in the six
months ended June 30, 1998 and $4.3 million in the twenty-eight weeks ended July
11, 1997. Capital expenditures include expenditures related to the addition of
bottling lines at existing facilities, construction of new bottling facilities,
and the purchase of water bottles, water coolers and delivery trucks. Based on
the Company's existing operations, management expects that the Company's capital
expenditures will total approximately $7.5 million in 1998.
The Company believes that the net proceeds from the sale of the
Subordinated Notes together with available cash, cash generated from operations
and available borrowings under the Senior Credit Facility will be sufficient to
finance the Company's working capital and capital expenditure requirements for
1998 as well as some acquisitions. However, there can be no assurance that such
resources will be sufficient to meet the Company's anticipated requirements or
that the Company will not require additional financing within this time frame.
SENIOR CREDIT FACILITY
On May 26, 1998, the Company closed a $40 million Senior Credit
Facility (the "Credit Facility") with Toronto-Dominion. The Credit Facility will
be used for general corporate purposes including working capital, acquisitions
and capital expenditure financing.
The Credit Facility is structured as a multi-currency revolving
facility having a term of approximately six and one half years. The Company's
payment obligation under the Credit Facility is secured by a first priority
security interest over substantially all of the assets of the Company;
obligations under the Credit Facility will rank senior to the payment of the
Subordinated Notes.
Amounts outstanding under the Credit Facility will bear interest at
specified rates based on the Canadian prime rate in the case of advances made in
Canadian dollars, at specified rates based on the London inter-bank market in
the case of advances made in British pounds sterling or U.S. dollars, and at
specified rates based on the U.S. prime rate in the event of advances made in
U.S. dollars.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, Reporting Comprehensive Income, and SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information
were issued. These standards are applicable to the Company commencing with the
December 31, 1998 Financial Statements and its March 31, 1999 Interim Financial
Statements.
The impact of SFAS No. 130 will be to include the change in the
cumulative translation adjustment account in the determination of Comprehensive
Income.
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The impact of SFAS No. 131 will be to disclose certain information
about the revenues the Company derives from each of its major products in
addition to segmented information for the countries in which it earns revenues
and holds assets.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Statements included in this Report that do not relate to present or
historical conditions are "forward looking statements" within the meaning of the
Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995
(the "1995 Reform Act"). Additional oral or written forward-looking statements
may be made by the Company from time to time, and such statements may be
included in documents other than this Report that are filed with the SEC. Such
forward-looking statements involve risks and uncertainties that could cause
results or outcomes to differ materially from those expressed in such
forward-looking statements. Forward-looking statements in this Report and
elsewhere may include without limitation, statements relating to the Company's
plans, strategies, objectives, expectations, intentions and adequacy of
resources and are intended to be made pursuant to the safe harbor provisions of
the 1995 Reform Act. Words such as "believes," "forecasts," "intends,"
"possible," "expects," "estimates," "anticipates," or "plans" and similar
expressions are intended to identify forward-looking statements. Investors are
cautioned that such forward-looking statements involve risks and uncertainties
including without limitation the following: (i) the Company's plans, strategies,
objectives, expectations and intentions are subject to change at any time at the
discretion of the Company; (ii) the Company's ability to expand by acquisitions
is dependent upon, and may be limited by, the availability of suitable
acquisition candidates and the availability of financing therefor on suitable
terms; (iii) the Company's ability to obtain financing will be affected by
restrictions contained in the Indenture and the Company's other existing and
future financing arrangements; (iv) the Company's proposed expansion strategy
will be substantially dependent upon the Company's ability to hire and retain
skilled management, financial, marketing and other personnel; (v) the Company's
plans and results of operations will be affected by the Company's ability to
successfully manage growth (including monitoring operations, controlling costs
and maintaining effective quality and inventory controls; (vi) the market for
attractive acquisitions in the bottled water industry is becoming increasingly
competitive, which could make the Company's acquisition strategy more difficult
to achieve; (vii) the Company's operations are subject to the jurisdiction of
various governmental and regulatory agencies which regulate the quality of
drinking water and other products and any failure by the Company to comply with
existing and future laws and regulations could subject the Company to
significant penalties or impose additional costs on the Company or otherwise
have a material adverse affect on its financial position or results of
operations; (viii) any interruption in the availability of water to the Company
from municipal sources and local natural springs could have a material adverse
affect on the Company's operations until suitable replacement sources are
located; and (ix) other risks and uncertainties indicated from time to time in
the Company's filings with the SEC.
Part II Other Information
Item 6. Exhibits and Reports on Form 6-K
(a) Exhibits
None
(b) Report on Form 6-K dated June 3, 1998 (incorporated by reference)
which covers:
Press Release Dated May 19, 1998 Announcing the Acquisition of
Krystal Fountain Water Co. Limited
Press Release Dated May 27, 1998 Announcing the Completion of
a $US 40 Million Senior Credit Facility with the Toronto
Dominion Bank
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